PRICES AND TURNOVER

Waikato Times, Volume 113, Issue 18946, 16 May 1933, Page 8

PRICES AND TURNOVER

PERIL OF INFLATION

OEARNEBS CHECKS EMPLOYMENT

(By Harold Cox in London Sunday Times.)

One of the difficulties of dealing with the grave economic problems throughout the world is the almost universal assumption that the cause of unemployment is the fall in prices, and that everything would be set right if prices were raised. How exactly they are to be raised the price-theorists are not agreed. One obvious way of raising the price of goods as measured m money is to lower the value of the money by inflating the currency. That device always tempts Governments m financial difficulties, and after the war examples of the policy were to be seen on a gigantic scale in Central Europe. The Austrian, the German, and other currencies were, inflated to such an extent by the printing of paper money that standard coins felt to about a millionth part of their prewar value, or even less. This crude device has now been generally abandoned, and the presentday advocates for raising prices b> depreciating currency are always careful to sav that they do not want “inflation.” indeed a new doctrine is now being developed—that prices must be raised by stimulating the public authorities to spend money onservices that, can be regarded as matters of public gain, either by bringing in revenue or by increasing local amenities. But in order to provide the means for this expenditure it is also proposed that additional currency should be issued based on loans. Whether the unpleasant word ‘‘inflation” be used or not, this in effect means that the authors of this policy are out for an increase in the volume of currency.

Plenty of Money.

But what evidence is there that at the present time we have insufficient currency for our needs ? All the facts point the other way. The Bank of England has now 7 almost a record amount of gold in its vaults. Before the war the bank’s stock of gold rarely exceeded £50,000,000; last week the figure was round about £170,000,000. At the same time the ordinary deposits in the banks throughout the' country seem to have reached unprecedented figures. Indeed so plentiful is the money in the banks that the interest paid on deposits is now only i per cent. Such a figure plainly indicates that there is no shortage of money, but that more is available than is needed. _ Therefore it is impossible to maintain that the way to solve our problems is artificially to create more money. The present cheapness of goods as compared with a few years ago is not due to the lack of currency, but to the laok of confidence. People with good balances at their banks are not spending freely and think it is safer to keep their money in reserve. They would not be likely to change that attitude if the Government were to adopt the policy of flooding the country with more paper currency in the hope of stimulating a rise in prices for the benefit of producers who now bitterly complain that present prices yield no profits.

Costs of Production

That brings us to the root question which has to be faced. The producer naturally wants to get higher prices; the consumer wants to buy cheap. On which side ought the Government to act? In practice Governments always side with the producer, not because he represents the majority, but because he and his colleagues can organise themselves to bring pressure to bear on politicians. This is why we find Parliament passing Bills to establish higher prices for favoured goods. Such devices may bring temporary benefit to particular interests, but there is no evidence of any permanent gain to the general community. In time of trade depression people who wish to expand their sales must lower prices. Often this can only bo done by cutting down costs of production, and that raises the extremes difficult question of wages. Employers argue that wage rates can fairly be brought down because the cost of living has fallen; trade unions contend that in no circumslances should wages be lowered. Admittedly it is desirable that wages should not only he maintained at a good figure but should be even further raised. A general Improvement in the standard of living of the working classes is a national gain. But the fact remains that if wages rise costs of production rise, and if the price of goods also rises sales are diminished, the business, declines, and unemployment increases.

Obstacles to Trade.

No Socialist rhetoric or political sloppiness will get rid of these hard facts. Government interference, as a rule, makes matters worse, in particuiar, excess in tariff and quota policy by restricting international trade,’diminishes the total volume of world industrial activities and so reduces the opportunities of employment. Happily this fact is now being widely recognised, and hopes are coastantlv expressed that the nations of the world at the coming Economic Conference will be able to agree to get rid of trade barriers which are now injuring all countries. But more than this can be done. One of the most desirable objects is the establishment of an International currency. At present an immense amount of time is wasted in trade by the necessity for calculating the exchange values of different currencies There is no reason why the whole of £]urope, and indeed the whole world, should not agreo upon a common currency, with gold as its basis. At the same time, it is most desirable that England, in her own interest, should adopt, without delay, the metric system of weights and measures. This would not only facilitate her trade with foreign countries, hut it would save a good deal of time now wasted at home by the survival of the complicated and irrational system of weights and measures that has come flown to us from a remote past.