August 2023 The Newstart OnLine Journal
In Sickness and in Health
By Charles Pinwill, June, 2023
In the traditional marriage vows each gave a lifelong commitment to the other, whether the other be “in sickness or in health” ‘til death do us part. We now do something the same in politics.
Each election we commit to our politicians, whatever their colour, party or promises, to have and to hold them until the next election “in sickness or inflation”. They all certainly are either in the one or the other, though most commonly they inflict both economic states simultaneously. No, this is not silly. Let me explain.
When the economy is “in-flation” and it is decided to “control it” they do so by sickening the economy. The most popular way of doing this is by increasing interest rates. This increases the costs of production, punishes everyone with a mortgage, causes “belt-tightening” and increases the fear of spending. As the economy sickens it faulters, slackens, wearies and dies a little. Sick economies are less confident and as torpor sets in, the economy slows.
Since adding to costs by increasing costs never reduces them, then it can never end inflation, but it gives evidence of a determination to “control” inflation. They can but try, and when the sickening cure becomes worse than the disease, then it can’t be helped, and inflation is given a looser rein. The Banks are all deeply saddened when they have to increase interest rates to control inflation. It is completely inaccurate to say that they laugh all the way to the bank, because they are already at the bank.
There was a time of course when it was not policy to “control inflation”, but rather it was policy to end it. Interest rates played no part in ending it of course. My short account of ending inflation is reproduced again below.
The Answer to Inflation.
Both Used and Proven 70 years Ago.
In the years 1944 and 1945 there was no inflation in Australia. During these war years inflation was measured with a “C Index Series”. In 1943, as reported by the Commonwealth Year Book No 37 (1947-47) published by the Australian Bureau of Statistics, the measure of prices was 1237. It fell to 1233 in 1944 and fell again to 1229 in 1945.
Spending on the war effort was at its height and could not be curtailed, and a large part of the population was not producing consumer products at all, so this put extreme pressure upon price levels.
Price controls were used during the first years of the war, but prices could not be controlled in this way. At the war’s beginning in September 1939 the measure of prices was 1,000 and by September 1943 it had risen to 1,237. In the next two years it fell to 1,229 in September 1945.
Australian’s Prime Minister in these years was John Curtin. He was familiar with C H Douglas’s suggestion to end inflation and applied it. This involved using some of the increase in the necessary money supply, to discount down prices to consumers. These discounts were applied to basic items such as potatoes and household electricity, and to reducing sales tax on clothing and textiles from 12½ % to 7½%. It worked, as the above figures demonstrate.
Although history has given us a proven method of stopping inflation it has never been used again. The current “control” on inflation is to increase interest rates which increase all costs and raise mortgage payments substantially.
John Curtin died in 1945 and this method of stopping inflation was discontinued. Two years later the measure of prices had risen from 1,229 to 1,301 and it has never stopped since.
All money increases are again done as debt and increase prices though interest and redemption charges upon these debts. Inflation is now “controlled” by increasing costs. This doesn’t end it of course, as we have noticed. What can this mean?
Inflation it seems, is now indisputably a deliberate policy. Is there any other answer?