The Economy

Press, Volume C, Issue 29515, 17 May 1961, Page 7

The Economy

Sir, —Professor Danks tries to pinpoint some of the main causes of inflation. Why does he ignore the main cause at the present time: the payment to butter producers of 2s 8d a pound for their produce, that is otily returning New Zealand about 2s 2d per pound? This is costing us about £8 million a year in inflation. The Reserve Bank at present has advanced the dairy industry about £3B million overdraft at 1 per cent, interest. Some of this £3B million is on trading account, but it is all bank credit and Professor Danks must know this is big inflation. Over and above this, the Government advanced £3 million to the dairy industry, but this was out of taxation, which, of course, is not inflation. I. for one, would like the professor's opinion on this as I value his opinions on the points he made.—Yours, etc., J. G. BARCLAY. May 14, 1961. TProfessor A. J. Danks. associate professor of economics at the University of Canterbury, replies: “(a) Mr Barclay is quite right. The current New Zealand payment to dairy farmers is I running at about £160.000 a [week above overseas realisations. This would add up to ’ about £8 million in a full year [if prices were to remain , unchanged. Clearly the net effect is inflationary. (b) The £3B million is presumlably to cover trading leads

and lags, and is running about one-third higher than last year’s figures. This may imply some temporary inflationary pressure but a simple accounting is not possible. For example, imports are currently running at levels which are deflationary if one looks at the balance of payments as a whole. (c> The payment of £3 million from the public surplus, as Mr Barclay points out, was not inflationary. As an internal transfer it may initially be assumed to be neutral. But this whole argument is oversimplified.”}

Sir,—Professor Danks is seeking ways of reducing inflation and as remedies suggests curtailment of housing and social services, particularly the benefit for the first child. But these services are not gifts by the capitalist State, and such reductions are only a Repetition of the means taken by bankrupt orthodoxy in an endeavour to sheer up an economy in dissolution. Why not have a look at monoply profits, the salaries of executives, the importation of luxury goods and ornate cars, overseas profits for New Zealand industry, trade with socialist countries, the burden of huge military expenditure. unnecessary overseas travel, the cost of sabbatical leave, high-salaried teachers who ransom their loyal services to the State under threat of leaving for pastures new. 1 will list other possibilities, if necessary.—Yours, etc.. W. J COLLINS. May 12. 1961.