PURCHASING POWER.

Rotorua Morning Post, Volume 3, Issue 636, 14 September 1933, Page 2

PURCHASING POWER.

FRANK

COLBECK.

To the Editor. Sir, — Purchasing power is for convenience expressed ^ in money value, but, of course, it is aetually only created by the exchange of gocds and services. In the first analysis, all commodiiies 'and services must be paid. for by other commodities and services. A person buys with what he sells, and the limit of what he can buy is the amount he can sell. Prosperity can only be possible when the exchange of commodities is in equilibrium. If a person demands more for his products than their fair exchange value, he at once restricts the number of possible buyers and ,by reducing the volume of exchange, injures not only himself but also all those who would otherwise ha.ve exchanged with him. The test of equilibrium of exchange is that each party to the exchange makes a proflt. A profit is essential to all trade ,the price level is a minor factor. When all the commodities and services provided by the world's activities can be exchanged on an equitable basis, then we have available the world's highest purchasing power. The law of supply and demand, if allowed to funetion to its full extent, ' would keep exchange values in general ' equilibrium'. The wider its application the better. it works. The chief obstacles to a world's equilibrium of exchange are greed, sectional and vested interests, foolish legislation and tariffs. Of these, sectional interests and tariffs are the most important. Sectional interests are made evident in arbitrarily fixing prices for commodities and services. The biggest factor 0$ all is, of course, wages. Wages constitute all values. I mean, of course, in the wide definition of recompense for services. All wages must enter into prices, and ias wages rise, so must prices. If any section "of the community combine to raise ' their wages above the fair normal level, then exchange equilibrium is disturbed, with the result that the whole of the output of that section cannot be disposed of. The final result is the building up of a surplus that cannot be exchanged and consequently unemployment. The same result iaccrues if any section unduly reduces its hours of labour. They cannot produce as much in 30 hours as they can in 40, consequently they must either raise the price of their product or be content with a less volume >of goods in exchange for theirs. The option is between more leisure and less goods or more goods and less leisure. Tariffs have the same results between nations that uneconomic wages have between individuals. Exports pay for imports. If you raise the value of the imports by imposing a Customs bar, you reduce the purchasing power of your exports. Embargoes, quotas and depreciation of currency are all a form of "protection to local production and are the modern form of advanced economic nationalism. Goods create credit and an increase in production does not necessarily mean a corresponding increase of currency. Goods are exchanged for goods and the mere fact that their exchange value is expressed in currency does not -entail the use of currency in effecting the exchange. In the exchange - of goods, currency is merely used as a "measure of value" and not as a medium of exchange. If two farmers agree to exchange their respective farms and each farm is valued at £20,000, the only currency required to effect the exchange is the amount required for legal expenses and stamp duty. jEach nation or country has full control of its local currency and can fix its intemal values at any rate that it sees fit. When goods are bought from a foreign country such goods have to be paid for in) the currency of the country from which they are bought. For instanee, if we buy goods from U.S.A. we have to pay for those goods in dollars. To make the purchase we have to buy "dollars ' with our New Zealand pounds. The present method of doing this is to1 reduce the value of both currencies to gold and then work out their respective values for exchange purposes. "The exchange of goodsi simplifies this process. For instanee, if we sent wool to the U.S.A. we should sell it for dollars and use those dollars to buy U.S.A. products, or if the U.S.A. sent us benzine, it would sell the ben- ' zine for New Zealand pounds and use those New Zealand pounds to buy wool. For international trade it is essential that we should have a common exchange medium and so far nothing 'better than gold has been found. A fluctuation in exchange rate is most damaging to international trade, as neither the importer nor the exporter knows what price he will have to pay or receive until the transaction is finalised. Under such conditions trade is too risky and international trade has fallen away 60 per cent. during the last five years. Sir Basil Blackett, in his reeent book "Managed Money," page 76, writes: "Moreover, if the internal purchasing power of a number of- local currencies were in fact being kept stable, it would follow -almost automatieally that their external exchange value in terms of each other would normally be subjeet to minor long-time variations only, and would in practice re--main approximately stable for purposes of short or medium term transactions," and again, .on'page 77, "If, therefore, the objective of stable internal prices is to be obtained at all, the time has come-to enquire whether 'it cannot be reached along the lines

of a series of local currency systems, not directly linked to an international gold standard." To sum up, it would seem essential . that we have equilibrium in internal price levels to obtain the fullest possible purchasing power in the local markets. That wages must be fixed on equit- ' able bases and that increases and de'creases must jbe spread equitably throughout the whole of a country's activities. That the surest way of obtaining these results is for each country to adopt a local currency quite divoreed .'from world's changes in values. That if each country adopts this plan and puts its own affairs in order, automatieally it will have the effect of putting international exchange in nrrlpr- T fl.m. #>tc...

Morrinsville, 11/9/33.