A “MONETARY PUZZLE.”

Wanganui Chronicle, Volume 79, Issue 13, 16 January 1936, Page 3

A “MONETARY PUZZLE.”

NEW GOVERNMENT’S POLICY. The evolution of the New Zealand Labour Government’s economic policy will be watched with great interest, says tiie Economist of December 7. For the declaration made by the Prime Minister, Mr. Savage, on the morrow of his victory can only be described as perplexing. "Wage cuts are to be restored, social expenditure expanded, and farmers’ prices guaranteed. .So far so good. But at the same time the exchange rate is to be •’reduced.” ■'Reducing” the exchange rate means, of course, raising the value of the currency—i.e., diminishing the number of New Zealand pounds that can be bought for a pound sterling. This, in turn, means deflation, which will doubtless benefit the purchasers of imports, but will at the same time be directly contradictory to the rest of Mi. Savage’s policy. There is one’fl'orm of combined inflation and deflation which is practicable and may be desirable; that is tiie policy adopted by Australia of simultaneously deflating costs and inflating prices. This naturally promotes profits and so general recovery. Hut .Mr. Savage's idea is simultaneously' to deflate prices and inflate costs. The effect of such a policy is not ditiienlt to foresee. We strongly suspect, however, that the deflationary part of Mr. Savage’s programme—the ••reduction” of the exchange rate —will fade decorously into the background.