PROBLEMS OF FINANCE

Hokitika Guardian, 2 April 1921, Page 2

PROBLEMS OF FINANCE

HOW TO RESTORE STABILITY. . HON A. MYERS ON WORLD’S | POSITION TO-DAY. | WELLINGTON, March 2(5 j The Hon Arthur Mvcrs, who returned to Wellington from the Old Country by the Tahiti on Thursday, accorded a New Zealand “Times” representative an interesting and informative interview with regard to the present industrial and financial position. “Consideringj&.said Mr Myers, “that we have teen passing through one of the most interesting periods in the economic history of the world, 1 was naturally a keen observer of the various efforts made for the solution of the difficulties which present themselves. Circumstances in every country compel us to direct our serious attention to the res-

toration of our' finances as soon as possible to a sound basis; for artificial measures, designed to defeat the working of economic laws, cannot be supported for long, since they must lead to adverse results. ABNORMAL WAR FINANCE

To review the situation briefly: As is well known, a totally abnormal monetary position disclosed itself as a result of that inflation of the currency which the exigencies of the war rendered inevitable ; and it was, obviously, necessary that efforts should be made (o restore sound monetary and financial conditions, as the welfare of every nation is dependent upon a stable currency system and sound finance. The banks’ ability to go on creating credit against an inconvertible currency issue, and secured principally against a Government debt, is, of course, limited. Great Britain and America, under the stimulus of war conditions have greatly increased their power of production, but they cannot find buyers for their manufactures owing to the impoverishment of the devastated countries of Central Europe. The gold standard as it existed before the war has practically gone; and in its place there exists a controlled currency, which is an expedient requiring the most caieful watching. 1 believe, however, that the gold standard will be re-established before many years. One of the first important attempts madesto deal with the situation was the setting up.of a hodv of financial experts, known as the ('unliffe Commission. These experts pointed out, in their report, that, as inflation of credit does not, and cannot, add to the total real purchasing-power in existence, its effect must be to reduce the purchasing-power of each unit of the currency; whereas the stoppogc of inflation necessitates not only abstinence from increasing the currency, but also the increase of the real wealth upon which the currency is based. As

far as I could ascertain, the suggestions made by Professor ( asels in his memorandum with regard to inflation were not received too favourably in financial IMROVER ISHED XATIOXS. The impoverished nations of the Continent, being unable to purchase goods, when their currencies in terms of sterling show a heavy depreciation, it is obvious that no country can afford to be a large importer unless it is at the same time a large exporter. Various schemes have been launched to impiove the position. The Te Meulen scheme, of obtaining money in tile stronger countries for specified purposes, with the co-operation o( the Governments, the.banks, and the insurance companies, was under consideration when T left. The bursting of the six-vear-old boom, owing to the severe decline in the purchasing power of Europe and the depreciation of Continental currencies, which found their natural economic value, will doubtless eventually prove a blessing ; since it must in the long run stop further inflation of the currency, and necessitate the fixing of the existing paper-money in a definite relationship to gold or to sterling. TWIN CAUSES OF HIGH PRICES. As the twin causes of high prices are

monetary inflation and under-produc

tion, and as the increase in the supply of money, unaccompanied hv an incretwe in the supply of necessary goods, would achieve nothing, except a further disturbance and readjustment of price levels, every effort must lie made to increase production, and thus create real capital. As is known, the basis of

money and credit in Euro i>e is now no

longer gold, Itufc Government- securities. Thus the real function of currency, to facilitate an exchange of purchasable goods, has been violated under the exigencies of war finance. Currency has been used, not as a medium of exchange but as a substitute for exchangeable wealth ; and this currency, being based on jlebt, has no fixed or definite value in any community. Unsound currency is one of the outstanding difficulties in the grant of credit to Europe; therefore, the various schemes for the rehabilitation of Europe’s purchasing

power are all in the direction of lestoiing her productive capacity in order to convert into a banking security the assets that the various countries may offer as a pledge.