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greatly influenced by the principles of economics. It is not that theories are wanting : our devotion to what may be called “social economics” and our attempts to raise the standard of living provide evidence to the contrary. But we have frequently started at the wrong end, and entered upon a course of action only to find some fundamental economic obstacle across our path. This attitude with respect to recent economic depression was very pronounced in the discussions at the Industrial Conference called by the Prime Minister in February 1922. The conference was abortive, but it affords a convenient means of gauging the attitude of employer and employed to the problems of the crisis.

Mr. Hughes recognised at the outset that the purpose of the conference was to consider “ those incidental phenomena that arise out of the eternal economic question which affects all countries.” 1 But the subsequent deliberations showed little real knowledge of “the eternal economic question,” and a great many popular explanations of the trouble were put forward. Thus the employers declared that costs of production must be reduced if industry was to proceed-in particular a reduction of wages was necessary. It was further stated by their representatives that the community had been living beyond its income for many years and that production had decreased. This was due to shorter hours of labour and general inefficiency. The existing unemployment and depression were the result of high and rising costs accompanying a falling market. In these circumstances profits were impossible and losses inevitable. This would lead to closing down of plants and might indeed seriously retard industrial development in Australia. Other factors mentioned were the large public debts of Australia, the condition of public finance generally, the growth of extravagant expenditure, the burden of taxation, and generally the wreckage of the war. Now these are doubtless all elements in the problem, but one important fact stands out in this analysis. It is the employer's point of view based upon the factors in the situation which are within his own experience and most immediately affect him. To stress these facts is doubtless useful, but to suppose that the experience of the employer is sufficient equipment for analysing so complex a problem is surely unwarranted. That industry cannot continue for long with rising costs and falling prices is obvious, but it is only a symptom of the crisis and a problem for the public accountant. The employers' section, while purporting to offer

1 Report of Conference, p. 2. No. 133.–VOL. xxxiv.

causes, offered only effects. These effects were causes in their turn, but there was a failure to get at the foundations. Why did not these conditions obtain in 1917 or immediately after the war?

On their part the representatives of the employed declared that balance sheets still showed that companies were making high profits, output was being deliberately restricted, high interest rates were crippling industry, an attempt was being made to reduce wages and lengthen the hours of labour and thus to lower the standard of living. They pointed to the very favourable times that employers had during rising prices, that no preparation had been made for the bad times and that it was unfair that the workers should suffer. Further, and here they rather vitiated their case by begging the particular question, they claimed that the evil was inherent in “capitalist economy” based upon private gain, and that as long as this lasted there would be frequent depressions. In good times there was over-production, but the purchasing power of the workers did not increase, so that goods could not be sold owing to the failure of an equivalent demand. Here again the analysis is mainly individualist. The prime factor is the careful watch over the standard of living and the attempt to place the whole of the blame upon management or the general economic system.

The situation was well summed up by a delegate of the employees who declared : “Each side seems to have its armour on.” i This was even more in evidence in the remedies put forward. With the exception of measures for unemployment, which were quite inadequate, the proposals had very little reference to the situation at the moment. But this is characteristic of the discussion upon the problems connected with the economic depression through which Australia has been passing during the last eighteen months. No problem requires closer economic investigation, and yet a sound economic analysis has not been presented, still less taken to heart, either by the political or industrial leaders, or by the masses of the people.

It will be for the economists to make such an analysis to provide data for the reliable estimate of business conditions. Efforts being made elsewhere will stimulate some attempt in Australia, but the immediate requirement is a thorough quantitative analysis of the main features of our business and financial organisation. Among other factors that require immediate attention in this respect are :

1 Report, p. 59. ? Report, pp. 66-7.

(i) The compilation of an index of production showing

relations particularly of consumption and instrumental : goods; . (ü) An analysis of the relations of wholesale and retail prices

and the cost of living; (iii) An exposition of the banking system of the Common

wealth and the principles upon which credit is

controlled; (iv) An exposition of the financing of imports and exports

and the principles upon which foreign exchange rates

are based; (v) A description of the investment market and the move

ments in stock and share quotations; and (vi) An analysis of the relative importance of domestic and

· foreign trade and the influence of the outside market.

Until these problems have been thoroughly canvassed by the economist it is futile to speak of controlling business cycles in Australia or greatly influencing the legislation generally. The immediate requirement is the formulation of a definite scheme of economic research.

D. B. COPLAND University of Tasmania,

September 1923.

LIMITATION OF CURRENCY OR LIMITATION OF

CREDIT? SEVEN or eight years ago, though military events then seemed incomparably more important than economic policy, I began to be apprehensive about the future of the pound sterling. Professor Shield Nicholson was, I think, the only economist who had at that time expressed any alarm; the provisions of D.O.R.A. were not favourable to criticism of the currency–her threat of fine and imprisonment might be treated lightly, but her suggestion that such conduct would assist the enemy was decidedly deterrent. From the dark days of the spring of 1918 I have devoted the best of my energies to inculcating the doctrine that due limitation of the amount of a currency is necessary for the maintenance of its purchasing power. If I could have foreseen only a tenth of the ruin that neglect of that doctrine was about to bring upon the civilised world in the next six years, I would have given up other avocations in order to give more time to the endeavour to convince unbelieving mankind of its truth.

It is consequently somewhat disconcerting to be told by the best-known English monetary theorist 1 that the doctrine of limitation of currency is obsolete, and has been replaced by the doctrine that due limitation of credit is what is necessary, and if that is present, currency will somehow manage to be of the right magnitude. For this is what Mr. Keynes says on p. 184 :

“ Thus the tendency of to-day-rightly, I think-is to watch and to control the creation of credit and to let the creation of currency follow suit, rather than, as formerly, to watch and to control the creation of currency and to let the creation of credit follow suit.”

The passage follows a paragraph in which the Cunliffe limit on Currency Notes is treated with somewhat supercilious contempt, as springing " from a doctrine now out of date and out of accordance with most responsible opinion.”

The champion is doughty, but comparison of the state of currencies before the war, when they were limited by the necessity of being kept equal to gold, with their state afterwards when that limit has been removed, encourages me to take up the gauntlet which he has thrown down. I hold that while the control of prices by controlling currency and letting credit follow suit is perfectly real and effectual, the control of prices by controlling credit and letting currency follow suit is altogether chimerical.

1 A Tract on Monetary Reform, by John Maynard Keynes (Macmillan & Co., London, 1923. Pp. vi + 209).

Some time before the war, in the old and lamented evening Westminster Gazette, Professor Pigou threw what seemed, at any rate to me in my ignorance, new light on the determination of the value or purchasing power of money, by pointing out that it is not the mere existence of an increased quantity of currency which diminishes the value or purchasing power of a unit of that currency, but the spending, or, more exactly, the expectation of the spending, of the additional money.

The importance of the proposition in the widest realm of theory is that it brings currency into line with all other commodities : the “quantity theory," instead of being something special to currency, is seen to be merely what is generally true, that if more of a thing is to be sold, ceteris paribus, its value will fall. Knowledge of the fact that the harvest is plentiful, that many houses are being built, and that much coal is being raised to the surface tends to cheapen wheat, houses, and coal : knowledge that the Government or the State bank is going to offer large quantities of additional legal-tender inconvertible notes in exchange for goods and services tends to cheapen that currency, and knowledge that gold is being brought to the surface in large quantities tends to cheapen a currency composed of gold and paper convertible into gold, provided, of course, that the Mint is open to the new gold.

In practical life recognition of the truth of the proposition is of enormous importance, because it explains the fact that private persons and the banks in which private persons pool their immediate resources can and do raise or lower the value of a currency of a given magnitude by trying to increase or diminish their holdings, and can and do by actual alteration in their holdings nullify or partially counterbalance or aggravate the effect which increase or decrease of the total of currency would otherwise have. If, the total being fixed, each holder or most holders try to reduce their holdings by buying things, prices will rise, and if they try to increase their holdings, prices will fall. The attempt will not last very long. But when the total currency is being altered, their action becomes more important, because it constantly tends

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