OPPOSITION TO INFLATION

Nelson Evening Mail, Volume LXIV, 17 January 1931, Page 5

OPPOSITION TO INFLATION

AUSTRALIAN FINANCES

DISASTROUS EFFECT DESCRIBED

Bank authorities in Australia and New Zealand ae opposed to the suggestian that the currency of Australia should be inflated in the hope of relieving the present difficult situation in which the Commonwealth finds itself. Christchurch bank authorities state that inflation is as attractive as it would be disastrous, and the one had only to read the history of Germany since the war to see how that country had suffered by it.

One banking authority said to the “Times” that New Zealand and Australia were so closely linked financially that any adverse conditions in the Commonwealth were bound to affect the Dominion to some extect. There was not the slightest doubt that inflation was bad for any country. That was the general opinion of bankers on both sides of the Tasman and, in fact, all over the world. EXAMPLE OF GERMANY Another authority declared that inflation was an insidious thing which once started on its way, gathered momentum as it went. Starting like a snowball, it finished up as an avalanche. Since the war Germany had provided an example of that, and France was providing another at the present time. Inflation, which could be caused by tho indiscriminate use of bank notes _so that they bore no reasonable relation to the amount of gold in the country, was inclined to make matters easier for the time being, but deflation, from which both New Zealand and Australia were suffering at present, would inevitably have to follow. Inflation left more paper money to be handled, but that same money depreciated in value in inverse ratio to the amount of inflation. Goods which would cost £IOO in Australia to-day, would, under inflation of currency, be priced at perhaps £2OO within a few months.

“I do not see how anyone, reading the history of Germany since the war, could advocate inflation in any other country,” continued the banker. “Australian notes would be of no use outside that country. “LESS GOVERNMENT WASTE” “In Germany inflation increased the nominal wages enormously, but there was a steady depreciation in their purchasing power. The industrialists suffered the least damage, because they used depreciation greatly to extend factories and plant, they converted liquid assets into fixed assets, watered their capita], paid dividends in worthless ;>erip, paid off all mortgages and debts with worthless paper, and when reconstruction came and balance-sheets had to be re-written in gold marks, they were able to create large reserves. Shopkeepers were ruined because though they made enormous paper profits, they could not find the money to replace goods. Agriculturalists suffered least of all, as they had so much more money with which to pay off their mortgages, which were on the old basis. The middle classes, with their income abolished, were wiped out. A country, continued the banker, could get too much of deflation as well as of inflation. There must be stability. New Zealand and Australia were suffering from the effects of depression because money was difficult to secure. The Australian £1 note was worth only about 18s nowadays, as was shown by the exchange rates. Inflation was, on the surface, very attractive, for it gave the producers more paper money, but that money was in proportion useless as a purchasing agent. Under the law of Australia all notes were issued by the Commonwealth Bank, which was controlled by the Act. Banks issuing notes must hold at least 25 per cent, backing in gold, but the banks usually held a percentage greater than that. Less extravagance in Government expenditure was one of the cures for Australia’s ills. Canberra was instanced as a beautiful place to look at. but one which had cost Australia dearly.