The Daily News. THURSDAY, NOVEMBER 20, 1919. OUR INFLATED CURRENCY.

Taranaki Daily News, 20 November 1919, Page 4

The Daily News. THURSDAY, NOVEMBER 20, 1919. OUR INFLATED CURRENCY.

It is pleasing to note that our political leaders are giving a little more attention to the country's economics. At Waiuku last week, Mr. Massey said the real cause of most of the increased cost of living was the depreciation of unconvertible paper currency. It was, he proceeded to say, the duty of the Government to withdraw | from currency all the excess paper notes in circulation in order to reestablish the currency on a gold basis. This is the first occasion on which we have heard a member of the Government, or of the late National Government, refer to this important question. We are afraid that few Ministers have given the subject the consideration its importance deserves, or realised the effects of their own ill-considered actions in connection with the matter.- At the beginning of the war, it will be remembered, the Government issued a proclamation making pound notes legal tender, and later authorised the banks to increase their note issue without finding any additional security. The banks paid a royalty of only 2| per cent, for this use of the State's guarantee, and pocketed the difference between the 2} and the amount at which the money was loaned out to the public, from 6 to 8 per cent. It was quite a good arrangement for the banks, but an unprofitable one for the public. Besides, the over-issue of notes brought about an inflation of currency and credits, expressed in the decreasing purchasing value of the sovereign—we mean bank note—and the increase in the cost of living. At the beginning of the war, following Britain's bad example, we set at nought the laws of economics, and we are paying the penalty. You cannot interfere with economic laws any more than with natural laws' without suffering the consequences. The Government may declare notes legal tender, but if notes are issued beyond a certain point the notes simply depreciate. As a lead-

ing authority puts it, "In the real economic relations between different classes in the same nations, and also in the real economic relations between the different nations, we must recognise that money is only the measure and the medium. If you shorten any measure below the standard you do not lengthen the cloth, or the drink or anything else that may be measured. All you do is to cheat the customer. But you cannot go on for ever cheating customers—the short measure will be allowed for." That is what has happened to us: We have cheated ourselves. We have attempted to create more wealth—out of paper. That it cannot be done, Mr. Massey is now finding out. For that reason he says that the Government must withdraw from currency all the excess paper and get back as soon as possible to the gold standard. This is sound advice that anyone must regret was not tendered and acted upon years ago, for then probably we would not have had the economic problems to solve that are now confronting us, and the dislocation and discontent occasioned thereby. We cannot, however, at once return to 'the effectiveness of the pre-war gold stanvvard, and restore immediately the absolute convertibility into gold of our inflated paper money. The process of deflation will take time and hurt some people. Prices must fall, and holders of goods will suffer, but the great mass of the people will feel no real discomfort. On the contrary, they stand to benefit by falling prices more than by rising money wages. Professor Nicholson gave this advice to the people of Britain, and it is equally applicable to those in New Zealand: "Until we are prepared to face trouble and difficulty in retracing our steps, we shall go on Wandering so much further from the right way." The deflation process will be facilitated by the Government exercising the greatest economy in its own expenditure, and every unit producing all he can and saving all lie can. The tendency at present is to produce less at a far higher cost than before the war. In other words, good value is not being given for the increased wages, and it is this factor which materially accentuates the effect of depreciated currency.