OUR BIG NOTE ISSUE.

Taranaki Daily News, 19 June 1920, Page 10

OUR BIG NOTE ISSUE.

BLAMED FOR MANY EVILS. LECTURE BY PROFESSOR MURPHY. "The Currency Question," was the subject of a lecture delivered by Professor B. E. Murphy, M.A., LL.B., to the Wellington Accountant Students' Society on Wednesday evening. Mr. E. W. presided over a large attendance of members and visitors. In his prefactory remarks, the lecturer reminded his hearers that the cost-of-living question was something diflerent from the currency question. He expressed the hope that ho would not be understood to claim that the former question was wholly bound up with the latter . . . There were two kinds of currency and a managed, or artificial, currency, —a natural of self-regulating currency The gold standard was a product of evolution, and was self-regulating for tivo reasons: (1) that man could not immediately increase its quantity, and (2) that when its quantity in a country became excessive, there were automatic forces—natural laws—that tended to draw it away. Thus a natural currency based on the gold standard could not he increased at the whim of a Government; on the other hand, it took little time or risk to furnish an artificial currency which would not, however, regulate itself. Our troubles came of trying to make an artificial currency do the job that the natural currency ,vas able ti perform. Gold in the form of money had to do a four-fold job: it served (1) as a medium of exchange; (2) as a scale to measure prices or as a "common denominator"; (3) as a "standard of deferred payment" or a standard of value for the reckoning of future contracts; (4) as a "store of value." Because it was used is a standard for the measurement of value, it must be stable over a long period. Gold was not perfectly stable, but it was the most stable commodity we had been able to evolve. Money that would fluctuate in value within a short time was as undesirable as a "yard" measure that ras 30 inches long to-day and 35 to-morrow. Since

1914 we had not had a stable standard in New Zealand. The collapse in tha "standard of deferred payment" had broken down all the stability that attached to our previous arrangements, and each section of the community was desperately trying to get back into the same relative position it was before. In 1014, when the paper money w.is made inconvertible, the people accepted it just as before, because there was confidence in social stability. There was always a tendency in such cases, however, for an excessive issue of paper to be made- Price was an exchange of goods for money. Therefore, the price lev/ and particular price would depend not merely upon conditions affecting goods, on conditions affecting goods, plus conditions affecting money. The price level would depend on the relation between the volume of goods on the one hand, and the volume of money on the -other. When the quantity of money in a country lagged behind the quantity of goods, prices Ml. When the quantity of gold outstripped the quanttity of goods, the price level rose. When the price level rose, the country in question became .1 good place to sell in, and a bad one to buy iii. Therefore, imports would tend to exceed exports, and gold would automatically flow out of the country, thus adjusting the balance so that prices ' were steadied. But would paper flow off in that fashion? No, because nobody wanted it. The Government could make tho people of the country accept its paper, but it could not make foreign countries do this. With an "automatic" currency like gold, when there is too much in the country a series of reactions immediately set in which took it away and kept the price level steady. But when too much of a "managed" or artificial currency was issued, it remained in the channels of circulation, and kept pushing the price level up. Finally paper arrived at the supreme degree of worthlessness. It had done s</ already in Russia; in Germany it was tottering; French, Italian and English money, and our own money, too, 'Were "well down." Once a country got on to a ppoer money basis, it cut itselt off from reality. The supply of paper money was within the power of any Government to increase, and once a country dropped on to a paper standard nobody knew what that standard would be worth in commodities six days, six months, or six years lience. Once an excessive issue of paper money, and goods, to raise the price level, the process could go on indefinitely. ' "When you get a standard which by over-issue is cither frequently chan^-

ing in value or constantly depreciating, it upsets all our long-time contracts and all our fixed arrangements," said Mr Murphy. "It causes unmerited gams to some and unmerited losses to others. It promotes strikes or half-strikes which are the desperate efforts of. the masses who live on fixed incomes to fight against the steady depreciation of the measure in which their earning power is assessed. . . . Since 1914 the nofe issue has run up from under £2,000,000_t0 about £8,000,000. When you allow for the exclusion of the gold that was w circulation, it is quite clear that our currency has teen deluged with sou, shoddy paper money. We have overproduction of money and under-produc-tion of goods. There will be no remedy till we stop relatively over-producing money. If there were needed only two million notes and the circulation of gold in 1914, nothing has happened since to require our currency to he doubled except the supposed fiscal necessities of the Government, That method of raising loans is expensive and disastrous. "It is time an opinion in this country adverse to further increase of the note issue was fostered and insisted on by business men of all classes. In the long run no section can benefit by the destruction of confidence and the instability which is bred by the breaking down of our standard. . . . What wc want is a bit of hard thinking, a bit of hard work, and a bit of hard money. (Applause.)