“INFLATION”

Nelson Evening Mail, Volume LXIV, 21 January 1931, Page 8

“INFLATION”

MEANING OF THE TERM

DISASTROUS CONSEQUENCES

Necessity, it seems, imposes upon every calling, trade, or profession a language (or jargon) of its own. \ ciy impressive at times is the eflect of that language upon those unfamiliar with it. Examples are technical expressions used by nautical and medical men. How easily do they confound the ignorant. Finance also lias a language of its own. and it can he very confusing to those who do not understand it. But existing economic conditions of Australia and New Zealand call for a far better acquaintance than formerly with the terminology much in like in discussion of those conditions. The word repudiation, for instance, should he sufficiently explicit in itself, hut it is not always certain that many who use it in regard to national affairs arc sufficiently aware of its full significance —nor of its serious effects upon the financial mind when loosely used by those in high political places. There is much talk, just now, of inflation in Australia, and many in New Zealand may l>u wondering exactly what it means.. A dictionary might suggest distension of something by air or gas, as a motor tire or balloon, but. that is not the idea conveyed by tbo word to tlic mind of the financier or economist. Nevertheless the processes of inflating a tire and inflating a currency at some points arc identical. What is meant by inflation in Australia is the manufacture of money by the simple method. of printing it—an expedient for meeting temporary national impecuniosities. But inflation lias always been followed by intense national impoverishment. It was tried in France in tho 18th century with terrific results; it was in operation in Germany as late as 1922 to the ruination of millions of people, who found themselves penniless as it were overnight (as “The Post” reminds us). VALUE BEHIND NOTES On the face of every £1 bank note issued in New Zealand Will be read the words, “We promise to pay the bearer hero on demand one pound sterling.” The words mean exactly what they say. The banks could actually pay over their counter gold for every note presented and then have some left over. There are other valuables held against these notes, and for the time being bank notes are by law to be regarded as good as gold. But the important fact is that these notes represent a tangible something for which they can be exchanged, and that something is prized the world over, and accepted everywhere in exchange for goods or services. Besides gold there are other tangibles which also secure bank notes, but there must be a sufficiency of something behind any issue of notes. With no such backing or insufficient backing as represented by these notes a continuance of issuing them amounts to inflation. A bank note is taken in payment on the understanding tbat there is always something valuable, tangible, and exchangeable, of equal valuo behind it, and so it is passed from hand to hand without question; but without any backing the bank note is worth no more than ,’itß intrinsic value as paper. As the bulk of that something behind it dwindles,' so the purchasing power of the note dwindles. Perhaps it will shrink a shilling to-day or half-a-crown to-morrow, but its buying value .will inevitably shrink, until it is possible, as happened in Germany, that a harrowload of hank notes would he necessary to pay for a loaf. Remove that gold, that something solid, behind the bank note or increase the printing of bank notes beyond the bulk of that something, and prices of everything go up. THE WORKERS SUFFER It Is useless to pay a working man £IOOO a Week in notes if £IOOO in notes will pay no more than half a week’s board. Money wages at £IOOO a week might allure the unthinking worker, hut the real wages are those that have power to meet all necessary outgoings—and leave something over—£s, or £lO per week. All depends upon their purchasing power. Once again, printed paper in itself is A’aluelcss without something of substance and of value, such as gold behind it. This the German people very soon discovered when thousands of millions of bank notes were issued daily, and even then could not keep pace with the demand for currency. The mark was depreciated from its former twenty to the English pound to 2J millions and more as the equivalent of £1 sterling.. The, working people had no means of getting their capital (if any) out of Germany. Indeed, very few other people had that opportunity; they,had nothing coming them from outside their own country; and/so they 1 were compelled to take the paper money. Quigley and Clark, in their illuminating work, “Republican Germany,” described inflation in practice as a period that meant prosperity for industry, hut it war, “wholly artificial, dependent on exhaustion of the capital and financial resources of the country, and when the position became critical and the bottom of the sack appeared, the profit-earn-ing capacity of industry swiftly decl nod.” Unit was inflation in practice, fra only method of prevention or cure is the keeping of expenditure within income or, as Bir Otto Nicmcyer put it, “Balance your budgets.” There is no other way.