AUSTRALIAN FINANCE.

Press, Volume LXVI, Issue 20096, 27 November 1930, Page 12

AUSTRALIAN FINANCE.

WHAT INFLATION WOULD MEAN. The monthly Keview of H. Byron .Moore, Day, and Journeaux, stock and sfcarebrokers, Melbourne, makes some very trenchant comments on the proposals of a section of Labour, regarding the inflation character of the Party's programme. The article states, inter alia:— The full test of the financial pro-r-osals adopted at a meeting of the ■Federal Labour Caucus at the end of October involved a very definite sugges l ; on of inflation, almost verging ou repudiation. According to the "Labour i)aily" issued in Sydney, the resolutions carried were as follows:

1. That the Commonwealth Bank bo required to create sufficient credit as and when required, for the following purposes:— (a) .Finance the requirements of the Commonwealth Ministry in connexion with all services covered by Parliamentary appropriations. . (b) Meet that portion of the internal loans maturing during the financial vear, which has not been otherwise provided for. (e) Provide for financing a State ana commonwealth loan work programme up I- a limit of £20,000,000. (d) Provide financial accommodation through the Commonwealth Bank, trading banks, State financial institutions, and if necessary, through insurance companies, to be used for productive purposes in primary and secondary industries. The ultimate amount of credit la be issued under this head to be determined by the effect upon the comlnoditv price levels. 2. Tho credit under the various headings to be made available at interest rates not exceeding 5 per cent. per

annum. 3. An effective exchange pool to be continued to provide Australian Governments with first claim on Australian iund» in London, the external exchange rates to be iixed at such rates as will give primary producers the full benefits of exchange premium on their exports to compensate for diminished market prices.

These resolutions very definitely disclose the intentions of the extreme element of the Federal Labour Party, and should be accepted as a warning to the Australian people that the whole credit structure of the Commonwealth would be broken down if the resolutions were carried into effect by the Federal Cabinet. Its operations would result in inflation, inasmuch as the so-called releasing of credits would be nothing more or less than a watering of the present credit, which is out among the business and industrial community. With the only source of real credits diminishing, largely brought about the drift in "Government finance, obviously the one remaining method of satisfying Caucus demands would be by the use of the printing press. The normal paper currency oil a. country is the amount of notes that is necessary to carry on the business of a country neither more nor less. Any increa»e above the amount required means a reduction in its actual worth. For example, if £50,000,000 is sufficient, and j>. further & 50,000,000 is issued, the value is reduced to 10s in the £, and if the process is continued, the ultimate value of the note becomes negligible. Jn effect an over-issue of notes causes inflation, which is reflected by the depreciated value in currency corresponding almost in exact measure to the over-issue. Prices of {commodities will move with the rise or fall of the quantity of money, and the burdens of inflation will fall principally upon holderg of fixed interest-bearing securities. The inflation process commences by degrees, and with further issue of notes the financial situation is weakened until overcome by final disaster. A country, which in the face of all the warnings of history, sets out to cure its economic ills by inflating its currency, rather than by making an attempt to live within its means, is likely to forfeit all confidence by creditor countries. The wild talk of nationalising banking, note expansion, and creating "ample credits" is the most disturbing element in the present situation. Interference wit', money standards by inflation of the note issue would merely be courting disaster. Those who have had the misfortune to watch the pvil and despair which inflation, in other countries has brought into the homes of wage and salary earners, and who have seen the economic ruin and moral distress caused by the printing press when it was working at full speed, can only feel dismay at the idea that such a devilish measure should come from Labour quarters. It is incredible and casts a reflection upon the intelligence of the propounders of the scheme. The experiences of inflation during the poßt-war period with some of the Continental countries are still fresh in the memories of many people. The rapid course of the German mark from its normal quotation of 20 to the £ sterling-was impossible to check until it reached the fabulous quotation of 22,000,000,000,000 in November, 1923. After that date it was repudiated entirely, being nominally redeemable at one shilling in cash for £50,000,000,000 of paper. A forced loan finally stabilised the currency, but not until the German saw the world about him in ruins. The rapidly increasing inflation developed into a rush to acquire goods which would not depreciate with the currency. The people mistrusted paper money, and hastened to rid themselves of it as quickly as they could. It fell in value hourly. Wages rose, but they lagged long behind prices, which were artificially increased by food hoarding. Insurance policies, the lifetime of thrift, proved to be worth less than the paper they were printed upon, whilst Savings Bank accounts simply evaporated. The object of this article is to impress upon all true Australians the disasters which have fallen upon other nations, who, in their attempt to balance budgets have resorted to the printing press rather than to reduce expenditure to meet a fallen revenue. It is unlikely that the revolutionary programme of the Federal Labour Caucus for £he control of the Commonwealth Bank and the compulsory extension of credits will be unfolded during the current session, as the courageous stand of the moderate section of Labour - should be strong enough to resist their proposals. Nevertheless, the people of Australia, on whom possibly the responsibility will eventually rest, should be fully acquainted with the disaster which would befall the country should the Caucus become powerful enough to carry the resolutions into effect. COMMERCIAL BANK OF AUSTRALIA, LTD. Until furth'er notice no further transfers of toaret of tbe Commercial Sank of Aus- ■ tralia, Ltd., from the Melbourne to the Londoa B-egiftt&r will be permitted*