The Daily News. SATURDAY, JANUARY 17, 1920.

Taranaki Daily News, 17 January 1920, Page 4

The Daily News. SATURDAY, JANUARY 17, 1920.

"WHY THINGS ARE DEAR. The question of the great rise in the cost of all commodities is one that has been discussed from many points of view. Not that any beneficial effect lias resulted therefrom, but because everyone is directly interested in the matter in varying degrees. Medical men have to diagnose a patient's ailment before they can apply a remedy, yet there are numberless cases where they are baffled in their investigations. If we are to accept the various pronouncements of experts and others as to why things have become so greatly enhanced in price since the war, we are faced with a multitude of divergent views, though there is a connecting thread among the whole. Among the more recent specialists who have probed this burning question is Professor Edwin Cannan, who occupies the chair of Political Economy at the London University, who has endeavored to arrive at the root cause of the rise of prices. He, in common with all others, recognises that the war started the rise, but how the rise arose, and why it continues after the war, are problems that need unravelling. The war was not the starting point of the desire to make unreasonable profits, or the movement of the workers to obtain higher wages, both operations being in evidence before the war, so that the explanation of

increased prices is not to be found in this direction. The professor admits that some say more plausibly that the war caused a general shortage of commodities, and the scarcity raised prices, but he adds: "Supposing people's power to spend money had remained the same, there would be much to be said for the explanation; if a man had £IOO a year, and the things he usually bought became scarcer, he, and others like him, would be obliged, by their own competition for the goods, to give more for such. But, if this were all, prices would have gone down rapidly as demobilisation proceeded, and would now be a great deal lower tlian a year ago. The real explanation is to be found, not in the decrease of commodities, but in the increase of money." The important point to note is that prices are raised by spending money. When the war began, the belligerents rushed into the market and ordered monstrous quantities of goods regardless of expense, with the result that there was an all-round advance of prices. Being unable to pay for these goods out of revenue, or to borrow enough to meet their liabilities, they had recourse to the expedient of issuing, either directly or through State banks, quantities of additional paper money, which enabled them to pay what they had promised in the letter, though not in the spirit, as the money possessed less purchasing power than that which existed in smaller quantity at the beginning of the war. Then, by issuing more paper money, they were able to draw in most of the gold in circulation in their countries and send it abroad in purchase of goods which neutrals were willing to sell. By this means a great deal of gold, was sold to the neutral world in exchange for goods, while all the new gold produced went in the same direction, the belligerents not being able to afford the luxury—gold being one of the very few metals not used in munitions. It is not surprising, therefore, that the purchasing power of gold f immensely, or, in other words, prices in gold rose immensely. Professor Cannan points out that the European belligerents were not content with reducing the purchasing power of gold in this way. Impelled by their urgent need, and not sufficiently alive to the danger of the policy, they went on issuing more and more paper until the purchasing power of their money went far below the reduced purchasing power of the gold corresponding to it. Moreover, they did not stop when the war ended, and few, if any, have stopped yet. The amount of money in circulation in the United Kingdom represents £l3 or £l4 to each man, woman, and child, as against £4 or £5 before the war, while the French have over £25 12s 6d per head at the present rate of exchange. The result is, states the professor, that, while a grain of gold will buy about half what it used to do, marks, francs and polunds will buy fewer of these depreciated gains. To use a common simile, the candle is burning at both ends. The loss of purchasing power which gold has undergone is, states Professor Cannan, a matter for the world at large, which cannot be affected by the action of any one country. The remedy for this double depreciation is as obvious as it is simple. The further issue of currency notes must, be stopped, and as many as possible of those in circulation must be withdrawn. To enable this to be done there must be greater production, and instead of an orgy of spending efforts should be made to confine purchases to absolute necessaries, leaving luxurbe indulged in after the readjustment of the value and purchasing power of gold. The main fact that should be kept prominently and constantly in view is: It is spending money that raises and maintains prices.