INFLATION RAPIDS

Evening Post, Volume CX, Issue 138, 9 December 1930, Page 9

INFLATION RAPIDS

EASY TO EMBARK

VERY HARD TO STOP

On Friday was published an unofficial cabled report (not since challenged) that the Federal Labour Government would inflate the Commonwealth currency to the extent of 24 millions. Some three weeks ago a rumour of a 20 million inflation was current, in Melbourne. Gerald Bobinson. wrote to the> "ATgus": Suppose that some metallurgical genius discovered a simple variation in the usual process of smelting lead ores which at no extra cost resulted in the production of gold instead of lead. If the process could not be kept secret all the lead smelters of the world would at once begin to produce gold. The world's production of lead was about 1,700,000 tons last year. The equivalent yearly supply of the new gold would be 55,532,200,000 ounces. At £4 an ounce this would be "worth" £220,----000,000,000. The total stock of gold monoy in the world is about £2,250,----000,000. Thus one year's addition to the world's stocks of gold would be nearly 100 times the original stock of gold money. Obviously the value of gold would depreciate enormously. In other words, its purchasing power would fall. If prices continued to be reckoned in gold the increase in the prices of all other commodities would be startling. Australia has an inconvertible paper currency. An increase in the not© issue to the same extent would have a somewhat similar effect upon internal prices. It may be said that no one would dream of inflating the note issue to 100 times its present volume. Very probably, at first, Germany had no intention of doing so, but Germany inflated her note issue to an enormously greater extent. If Australia trod the same path to destruction, by the time the end was reached 1,000,000,000,000 £1 Australian notes would be required to buy one English pound sterling. Once inflation begins it is very difficult to impose a check upon it. The present note issue is about £45,000,----000. Suppose £20,000,000 more in notes is issued. These- 20,000,000 additional notes compete for the purchase of the existing stock of goods with the notes previously issued. Hence prices rise. Confidence in the stability of the note issue is impaired, and speculation is encouraged, with the result of further increases in prices. No one wants "money" which will buy less from week to week, or from day to day. Everyone rushes to exchange notes for real wealth—goods, land, houses, and so forth. With the rise in prices, wages, cost of production, and Government expenditure increase. More "credits arc released" by issuing more notes. The process is repeated again and again. The end is soon in sight. Summed 'up, "releasing credits" means ruin for all but a few speculators and starvation for many.