The Daily News. MONDAY, SEPTEMBER 6, 1920.

Taranaki Daily News, 6 September 1920, Page 4

The Daily News. MONDAY, SEPTEMBER 6, 1920.

PRICES AND PRODUCTION. Of suggestions for solving the acute economic problems which face all the nations there appears to be no encL Although financial experts and economists are not by any means in complete agreement as to the remedy or remedies to be applied for adjusting the ratio of money to goods, there is practically a consensus of opinion that the key to the problem is production. Nevertheless, there are two aspects of the question demanding the closest consideration and examination—the advantages that will accrue from any particular policy restoring prices to normal, and the dangers to be avoided in order to prevent disaster. A particularly welcome contribution to this complex subject is to be found in the July number of Barclay's Bank Monthly Review, in which the main factors affecting the world's financial position are ably set forth, and the effect of credit and dear and cheap money fully discussed. There is a far closer relationship existing between currency and prices than is generally known. This is convincingly proved by some tables presented to the British Parliament in November last, which show how closely a rise in prices of commodities has followed currency expansion. In the United States, for instance, currency increased since 1913 by 77 per cent-, and prices since 1914 by 96 per cent.; in Britain the increases were 150 and 135 per cent., in Prance 300 and 197 per cent.; in Denmark 155 and 151 per cent. Another table shows that those countries which have expanded their currencies most have also suffered the heaviest depreciation in exchange, while yet another reveals the fact that in the United States and Japan prices rose year j by year coincident with the currency, in 1919 the figures of increase being 71 and 86 per cent, respectively. In touching upon the question of prices, the Review significantly states: "It is dangerous to dogmatise on the immediate future course of prices, but it is difficult to see anything in prevailing economic conditions, either at home or abroad, which justifies the assumption that a drastic and permanent fall in general prices is at hand." Underproduction and the enormous expansion of credit resulting from war finance are assigned as the primary causes for the consistent increase in prices during the last six years. Money was plentiful and goodfe were scarce, while individuals and governments were competing against one another, with the result that prices were j forced higher and higher. The j remedy is to reverse the process, I and this can only be done by inl greased jߣ«_dugtioa aud contoae-,

[ tion of credit, or-by an increase in the volume of production sufficient to more than offset any expansion of credit. This must necessarily be a slow process, so the fall in prices jnust also be gradual. The danger of adopting an extreme i policy of deflation is that it may! prejudice production and limit the earning of profits, whereby the po- j aition might become a very difficult one. The reduction of output/ would lower the standard of living, and bring about unemployment and labor unrest, which are the principal evils it is hoped to prevent by reduction of prices. It an address delivered to the Parliamentary Committee of the House of Commons, the chairman of Barclay's Bank (Mr F- C. Goodenough) said: "Our policy should be to supply adequate credit to enable legitimate industry to ex-, pand, and this requires also a system of currency working in unison with such a volume of credit as may be required to carry on the business of the country. . . . In face of, our predominating adverse exchange, it is not possible to retain sufficient gold to enable the currency to expand sufficiently, and at the same time to adhere to the restrictions imposed. . . Currency reform is needed as much as'before, but for the reason that the stringency is becoming unhealthy by tending to restrict legitimate enterprise , and trade. ... It would be better

to adopt a system capable of elasticity, a power to issue currency against a gradually increasing ratio of gold, and at the same time take steps to fund the Floating Debt by means of a loan." It is recognised that dear money is a hindrance to legitimate trade, it increases the cost of governmental borrowing, depreciates securities, and prejudices the proper handling of the floating debt. It is claimed that the policy of acquiring gold by purchases would establish an effective control on credit and prices, and might render a reduction in the bank rate both feasible and advantageous in the near future, besides being a great value to industry. The present position is one that calls for care, skill, and a broad outlook. Above all things it is necessary to foster industry, to increase production and to exercise a restraint upon unessential expenditure- A decreasing ratio of money to goods will certainly result in decreasing prices.