HOW BOOMS ORIGINATE

Wanganui Chronicle, Volume 76, Issue 109, 11 May 1933, Page 2

HOW BOOMS ORIGINATE

STABLE PRICES A DELUSION. Mr. H. D. Black, Sydney, lecturer in economics, in an address to tho University League of Nations Union, strongly attacked currency “reformists,” who aimed at preventing falls in prices by artificial manipulation of the currency. The theory that “stable prices meant stable business,” he said, was a delusion that had its origin in America. “To think that the banks can pull us out of our present depression,” he added, “is like thinking wo can lift ourselves by our own bootstraps.” With the normal growth of efficiency in production, Mr. Black said, there was a normal tendency for prices to fall. If this tendency was offset by inflating the currency, abnormal profits were made and a boom started that must inevitably produce a depression, for the additioual money in circulation caused tho rate of interest to fall, and thus encouraged more borrowing for constructional industries. This extra money eventually reached tho wageearners, and this extra purchasing power made available raised prices yet higher. Consequently a vicious spiral was started, which was stopped only when costs of production rose as high as prices. When this happened, producers lost their profits. Production was curtailed, borrowing slackened, ami there was a rush to sell which sent prices falling. These effects were cumulative and profits and prices fell lower and lower as the boom inevitably gave way to a depression. The traditional policy in these circumstances, added the speaker, was for the banks to lower tho rate of interest. This had been done; ami consequently the depression could now be said to bo lifting. More than that the banks could not do.