Currency and Prices.

Hokitika Guardian, 14 January 1922, Page 4

Currency and Prices.

RETURN TO A GOLD STANDARD. A WONDERFUL RECOVERY. LONDON, Nov. 18. Sir Charles Addis, in his presidential address to the Institute of Bankers on the subject of Finance and Exchange, managed to include a great deal of j human interest, lie made a strong plea for a return to the pre-war gold standard as the ultimate remedy for the present financial situation, and he showed what a really fine recovery England was making as compared with that after the Napoleonic wars. It was the traditional privilege of the Englishman to grumble at the Government, said Sir Charles. Criticism, to he of use now must he constructive, and of that there had been little enough. He had certainly no panacea to propose. There was no royal road to reform. “If we are ever to get back to an effective gold said Sir Charles, “it will he by the exercise of the old virtues of hard work and thrift," public arid private, and by no other means. Meanwhile, do not let us discourage ourselves —and others—by belittling what has already been accomplished. For the last two years we have as a nation been more than paying our way. We have been able to put by a little’ arid on 'balance to 'reducr 1 our internal debt. It is true that the figures' for ‘ the current financial a car arc less reassuring. Since April Ist last there Las been an excess of expenditure over revenue of some £58,000,000. It must he remembered, however, that this is the result of the lean half of the financial year. Despite the unprecedented difficulties with which the Treasury is faced—coal stoppage, trade depression, ! 1 isli trouble —I do not despair of seeing a balance’ oil the right side at the end of the year.” THE BANK RATE.

Banking opinion in the country would agree that the experience of the past three years had demonstrated once more , the effectiveness of the bank rate as an | instrument' *1 of contracting specula lion and reducing the inflation ol prices. A rise in the bank rate was the danger signal’, the recfliglil warning the'business 'community''of 1 rocks ahead on the course in which they are engaged. A, fall in the hank rate was the 'green light indicating that the coast was clear and'that the ship of commerce might proceed on her way with caution. What diad already been accomplished would appear to confirm the faith that in the hank rate, whether for a rise or a fall, they had an instrument of which the action had indeed been obstructed by the adverse circumstances of the peace, hut whose efficiency for ultimately producing the financial icjsult desired remained unimpaired by anything that had happened during or since the war. They were not without grounds for their belief who hein’more strongly than ever that lit the suppleness of tiie bank rate lay its'chief virtue, and that ils egcacy,'especially n» -the way of prevention, would be increased to the great' advantage of Die community if it were, more frequently, and above all more pr(*ntftl.y;'’bWHed. The disadvantages attacked 1 to frequent changes in tlie''tfanlt'’rate" were'as ! ' dust in the balance'when weighed 'against the supreme advantage to trade of comparative stability of prices. PROGRESS OF DEFLATION. Proceeding, Sir Charles Addis dealt with the questjon whether deflation .Xn t*.e ' S'- -.sw'ft .'- vr - c trs ev

had gone far enough-. If it were a j matter of redressing the injustice aB ; between 1 the* different classes of the community caused by the inflation of the war,' the answer to the question was “No.” But though that, answer, was complete, it was' not conclusive. Discussing the progress deflation had already made, lie said that prices were now only 92 per cent above pre-war level. He did not think the magnitude of the fall had been generally realised. After the Napoleonic wars the greatest fall in prices was in 181416, when the index number (Jevons) fell from 153 to 109, or 28.8 per cent in two years. Within three years of the cessation of the Great War of 1914-18 they had had a fall nearly as "great in three months. He knew of no parallel to a reduction in values of such magnitude and velocity. That it ! should have been accomplished, not in- ' deed without suffering, but in comparative safety,' was a tribute, to the soiwuli ness of our financial system, and, if ! lie might say so, to the efficiency of j k. itish banking.

“It is striking,” Sir Charles continued, ‘‘how at every turn of a survey ‘ of tlie actual economic situation we are confronted' with the problem of prices. It is not too much to say that upon the successful solution of that problem it' depends whether this country is to continue to expand its activities, or to contract them to the measure of a few expert occupations on which a diminished and probably shrinking population might continue to subsist. To produce more goods for home consumption will not save us. It is not even enough to produce surplus goods. They must be the right kind of goods, the kind of goods our customers uant, offered at the prico they are able'and willing to pay. This does not necessarily imply a return to the pre-war price level; International trade depends upon comparative cost, it is a question of relative prices.”

HEROIC PROFESSIONAL ( CLASSES “The situation of the working classes in this country,” Sir Chralcs continued, “might well give us pause when we are risked to arrest the fall in prices. Money wages rose with the boom,, hut upon the whole they lagged behind prices, and Air Clynes had reason on his side when lie said, in his address to his Trade Union Conference, that the advance in real wages could only come with the fall in prices, ff this is true of the working classes, it is true in a far greater degree ol the 'middle classes, people living op» small fixed incomes. Rankers know better than most people the bitter suffering, for the most part silently, indeed heroically, borne, which inflation has inflicted, an d still inflicts, upon the professional classes. 1 do not intend to use the language of exaggeration when 1 say that unless something is done for their relief, there is a danger of a large section of this valuable portion of the community being wiped out, as it law already been wiped out in Germany. Socially and economically the country is in a terrible mess, and it will take a long pull, a strong pull, and a pull all together to exiiicate it from its difficulties, hi my judgment there is a tendency to lay far too in net emphasis upon the war as the sole cause of our troubles, and to make that an excuse for abandoning as no.longei applicable the ascertained laws of political economy. The war has, of course, greatly aggravated the present distress, but it is doubtful, even had there been no war, if we should have escaped the commercial crisis which was surely impending in PR' l -” A " the great historical crises had been marked, said Sir Charles, by a departure from sound, established currency principles. For his part, he took his place by the side of that veteran banker, Sir Felix Schuster, in Ins resolute determination to “return as soon as possible to the pre-war gold standard. . . . whether it he this year, next year, or in live, six, or ten yeais. That was the policy which he hoped the Institute of Rankers would endorse. The crisis through which they were passing was not likely to follow a materially different course from those experienced in the past, fheic keen the same speculative boom. ‘ “ (> are now passing through the usual sequence of a period of stagnation,” Sn' Charles concluded. “We shall shortly enter upon a period of trade reeuveiy. Already in the Far East, where the trouble began, arc to he discerned the first faint streaks of dawn. In India and China trade is reviving. A ll!tk> mnrtt patience, a little more steadfastlie :s, and sue: ess is uk:ii:i< d. I ku ' longer, and the old supremacy ol t" s country as the acknowledged Icntkv i» the finance of the world v.u.l iuu,n.