THE FINANCIAL ISSUE

Hokitika Guardian, 13 September 1930, Page 6

THE FINANCIAL ISSUE

.WHY NOT PRINT SOME NOTES?

(From Sydney Bulletin.)

If Smith, Brown and Jones were put on an otherwise uninhabited ipland with their families, they would be driven to introduce a system of, barter. Smith having caught more fish than his family could consume, ■would exchange some of it for a few .pounds of potatoes -of which Brown had a surplus; and Jones, who was a bootmaker, would sell Smith a pair of foot coverings in return for some of the fish which he had caught and some of- the potatoes which he had got from . Brown in exchange for fish. Soon, however, they would discover that this was a roundabout system and involved . unnecessary handling and then they would probably invent a system*.of notes. Instead of taking from Brown more potatoes than he needed, Smith .would accept a note representing the surplus value of Ids fish, and when he brought the boots from Jones he would hand over the note along with some fish in payment. The next step would be a common issue of notes. But this would' ire.qu. l re some thought. How many and of what total value should the issue he ? They - might sit down and write out. -a great number of 4 notes having a fade value of 5s each. ' But .they would , not be worth more .than they; could buy. The abundance of 5s i notes might result in mullet being 10s each, a pound of potatoes ss, and, a pair of hoots £5. If they met and decided to tear up half the. notes, the prices, other conditions being the same, would at once fall by one-naif; that is to say, the little community in its tradng would have to pay only one note where formerly it paid two. Originally the currency would have been inflated; the subsequent proceeding would lie 1 what the economists call deflation.

The Smith, Brown and Jones community would have learned one important lesson’; that'; the issue" of paper money does not increase wealth. This little island community, .would 'thus find that it was just well -off when it had 50 of its currency notes as when it had a hundred. . ,

The sympathetic Labour man, loosing around and seeing a great rnimber af unemployed, and knowing that 'you can buy things with pound notes, and knowing, moreover, that bank notes are very easily and cheaply printed, is sometimes disposed to say, “Well, print a million or two and give them to these unfortunate people in return fort w.pffc;;;ilf,:,they work for ’them they will earn them, won t they?” It sounds quite logical. But in the first place a great «ieal depends upon the work they ..do. If., they shifted no end of, sand in return for the money; if, indeed, they built; another railway, they would not necessarily. add one penny to the wealth of .the country. But, the sand shifted or , the line built, the .notes would remain in circulation. The Common,wealth Bank could not take •'■them back. and destroy... them without pricking./the bubble /which the. issue had made. , So exactly the same thing would happen as happened in the Smith, Brown and Jones community.. -Pound-notes would be cheap. That' is to say, the community would have to pay more of them to purchase an article than it did before the new issue. ; This cheapness would not apply to the entire issue. This would mean that people who had money in, say, a savings bank,. would, in plain English, be robbed of portion of its value; its purchasing power would be reduced. The local price of all commodities would rise, and A wages would almost inevitably rise to cor-' respond. If. , they . didn’t, the work-; ers would be merely worse off than they were before, the note issue.

In'the Smith, Brow a and Jones community it did not matter a straw whether a mullet was worth nominally. 5s or 10s, because all other commodities had the same standard of values. But ours i,s not a community of that sort. It is. not, self-contained, lit has to buy some goods from abroad and it has to pay 30 millions a year interest on its overseas debts, and it can only get the money by producing goods and .selling them in overseas markets in competition with all other producers.., We .might do without , most of the overseas goods, at a pinch, but we are. committed to the payment of the interest; so our export goods simply have to he produced at a price which will command buyers against all competitors. And that ip why any inflation of ; the note issue would be fatal to us. It would increase costs at a time wlien reduction of . costs is urgently necessary. It would increase the cost of living; and, .while it would give a certain amount of temporary employment, it would, by raising the cost of production, throw more people out of work than it put into employment. Instead of helping us out of our difficulties it .would push ns deeper into the bog and make our escape from, a first-class crisis practically impossible. Of all .schemes for the amelioration of eur conditions it is the maddest.

Fortunately it is not at all likely to be tried, unless the Federal Government falls completely into the hands ;of the wild men. And even then it would not be a simple process. The note issue is in the hands of a. department of the .Commonwealth Bank, controlled by the directors, and