OUR BIG NOTE ISSUE

Dominion, Volume 13, Issue 219, 10 June 1920, Page 6

OUR BIG NOTE ISSUE

BLAMED FOR MANY EVILS

LECTURE BY PROFESSOR

MURPHY

"Tho Currency Question" was tho subject of a lecture delivered by Professor B. E. Murphy, M.A., LL.B., to the Welr lington Accountant Students' Society last evening. Mr. E. AV. Hunt presided over . a large attendance of members and visitors. J In 'his prefatory remarks, the lecturer ; reminded his hearers that the cost-of- . living question was something differe.it > from the currency question. He oxi pressed the hope that to would not bo i understood to claim that the former que*. . tion was wholly- bound up with the latter. ; . . . Tliero were two kinds of currency i —a natural or self-regulating currency - and a managed, or artificial, currency. ; The sold standard was a product of [ evolution, and was eelf-regnilf.tinp for two reasons: (1) that man could not ims mediately increase its quantity, and (2) i that when its quantity in a country he. , came excessive, there were automatic , forces—natural laws—tlint tended to . draw it away. Thus a natural currency i based on the gold standard could not i bo increased at tho whim of a Governi ment; on the other hand, it took 1-ttle . time or risk to furnwh an artificial currency which would not, however, regu- : late itself. Our troubles came of tTying to make an artificial currency do the job , that the natural currency was a.V.e tn . perform. Gold in the form of,money had to do a four-fold job: it served (1) as a 1 medium of exchange; (2) as a- scale tn measure prices or as a "common denominator"; (H) as a "standard of deferred payment" or a standard of va.luc for the reckoning of future contracts; ft) as a "store of value." Because it was used as'a standard for the measurement of values, it iwust be stable over a lonir period. Gold was not nnrfect'.y stable,, but it was the most stable ennmodity we had been able to evolve. Money that would fluctuate .in value within a short time was as undesirable as a "yard" measure that was 3G inc!i°s long to-day and 35 to-morrow. Since 1014 wo 'had not had a stable standard in New Zealand. The collapse in the "standard of . deferred wivroent" had broken down all the stability that attached to our previous arrangements, and each section of the community was desperaMy tiryin.tr to get back into the nfiit relative position it was in nefore. In I9H, w'lien the paper money tv.t made inconvertible, the people accepted it just as before, because there was confidence in social stnbilitv. There was ollvays a tendency in such cases, however, for an excessive issue of paner to be made. Price "'as an exchange of poods for money. Therefore, the nrice level and narticnlar nrices "-ould denend not merely on conditions affecting goods, but on conditions affecting gon/ls ning conditions affecting money. The price level would defend on the relation between the volume of goods on the one Tmnd. and tho volume of njoney on the other. V'hen the ouantity r»f money in a country lagged behind the quantity of goods, prices fell. Wihon the quantity of gold outstripped tho qiinntity of goods, tho. nrice level ro»e. When the price level roso. the country in question became a good place to sell in,_ arid a bad one to buy in. Thfirefore. imports would tend to exceed exnorts. and Told would nutomntioally flow out. of the country, thus adjusting the bn.lanco so that prices were steadied. But would paper flow off in that fashion? No, because nobody wanted it. The Government could make tho people of the country accent its paper, but it could not make foreign countries do 60. With an "automatic" currency like gold, when there was too much in tho country a series of reactions immediately stffc in which took it away and kept the price level steady. But when too much of a "managed" or artificial currency was issued, it remained in the channels of circulation, and kept pushing the price level up. Finally paper arrived) at the supreme degree of worthlessness. It had done so already in Russia; in Germany it was tottering; French, Italian, and English money, and our own money, too. wore "well down." Once a country got on to a paper money basis, it cut it-self off from reality. Tho supply of paper money was wiithin tho power of any Government to increase, and once a country dropped on to a paper standard nobody knew what that standanl would be worth in commodities six days, six months, or six years hence. Once an excessive issue of paper money, by remaining in the channels of circulation, began, on account of the relaltion between money and goods, to raise the nrice level, the process could go on indefinitely. "When you get a standard which by over-issue is either frequently changing in value or constantly depreciating, it upsets all our long-tune contracts and all our fixed arrangements," said Mr. Murphy. "It causes unmerited gains to some and unmorited losses to others. It promotes strikes or half-strikes which are the desperate efforts of the massa* who live on fixed incomes to fight against tho steady dc-prociatiqn of the measure in which thoir earning power is assessed. . . . Since 1914 the note issue has run up from under .£2,000,000 to about ,£3,000,000. When you allow for the exclusion of tho gold that was in circula- 1 tion, it is quite clear that our currency ; has been deluged witli eoft, shoddy paper ; money. We have over-production of money and under-production of goods. There will be no remedy till we stop relatively over-producing money. If there were needed only two million notes and .'the circulation of gold in 1914, nothing has happened since to require our currency to be doubled except the 6up- ! posed fiscal necessities of tho Govern- J ment, That method of raising loans i is expensive and disastrous. ] "It is time an opinion in this country i adverse to further increase of :the noto issue was fostered and insisted on by busi- 1 nesa men of all classes. In the long j run no section can benefit by the destruction of confidence and the instability r which is bred by the breaking down of j our standard. . . . What we wanlt is a i bit of hard thinking, a bit of hard work, J and a bit of hard money."—(Applauso.) {