NOT NEW IDEAS

Rotorua Morning Post, Volume 2, Issue 408, 17 December 1932, Page 4

NOT NEW IDEAS

Many new or apparently new ideas for creating money, credit, j and prosperity are being brought j forward to-day. Aetually many | of them are old and have been tried before. Inflation or the deI basing' of the currency is not a novel suggestion. It was diseovered when there was not the present use of paper in cheque and banknote forms and, when monarchs who monopolised or j sold the monopoly of minting ! coin could carry out the idea J only by putting more base metal I into the coinage. Because so 1 many of these old remedies are i appearing in new guise, how- ' ever, it is advisable occasionally ! to have a statement of orthodox I practice. Such a statement was ' made recentiy by the City Editor j of "The Times" in an article under the lieading "Custodians of Capital," in which he explained in simple terms the functions of the banks and what was pos- ' sible and what dangerous or impossible in banking practice. Several of the points which he emphasised require emphasis here where many people are inclined l to put their faith in proposals i which. olfer some miraipulous ! cure by manipulation of money. | One of the facts on which the I writer laid stress was that cheap j money (though advocated in the Monetary Report of the Ottawa ! Conference) was not alone suffit cient for revival of trade — ! though it woukl be helpful. j Needless to say (ho wrote) trade | recovery depends upon a great many factors other than abundant and eheap money. . . . The idea that cheap money means good trade and the reverse bad i trade, though entertained by some politieians, is contrary to all experience and logic. When trade is depress- ' ed the demand for money, like that i for commodities and labouiv falls, : and its price declines. When the demand increases prices rise, and that ; applies to money a.^ well as all other 1 things. There would he no more j wisdom in increasing the supply of i money when it is already in 'excess j of demand than in increasing the supply of labour in the midst :of great unemployment, or the supply of I a particular commodity in a market already overstocked. To a limited extent cheap I money, it was explained, facilijtated a revival of trade by enj abling debtors, particularly Gov- ! enmentso to replace dear capital I with cheap capital and thus re- ! duce expenditure and taxation. But banking policy could not re~ move many of the causes that killed trade — such as tariffs or the changes in public favour and fashion. The banks also were powerless to check the unemployment which arose from the displacement of labour by absorbing this labour by machinery. Two methods of absorbing this labour were availi able ; extending the market for the machine-made article by reducing the price, and developing new wants, the sati^f action of which would absorb the displaced labour. But new industries required pioneers — who are always rare. The banks could do no more than finance the industries when they were started. Perhaps oue of the most popular ideas at the present time is that the banks could, by manufacturing money, force up prices. This idea is widely held by those who have the firm conviction that the banks will not do this because they are guarding vested interests, and that the power of the banks must be broken by giving the State the control of money. This theory, "The Times" City Editor explained, owed its origin largely to experience of the war-time inflation of money. Governments at war are great spenders, and in the last war they were compelled to print tremendous .sumg of money to buy the things they needed, with the result that prices, wages and profits rose enormously. In other words, the inflation reduced the value of money . . . The present troubles of the world are rnainly the outeome of the inflation which was necessary to finance the war, and fresh inflation, though it would temporarily mitigate them, would, according to all past experience, ultimately intensify them. By depreciation of its currency a eountry might raise its price

level in terms of that currency, but it could not with such a deyice raise the world level of prices, It is the low world level of prices that is proving so oppressive to New Zealand, and we cannot change that by practising little inflation schemes of our own. * i . • • ■ ry. *&. {