Currency and stable agriculture

Media

Part of Farming and Cooperatives

Title: Currency and stable agriculture
Creator: Castillo, Andres V.
Language: English
Source: Farming and Cooperatives 1 (1) November 1945
Year: 1945
Subject: Money--Philippines--Periodicals; Money--Philippines-History
Rights
Abstract: During the Japanese occupation in the Philippines, the currency used in the country was called Mickey Mouse money. The farmers used this currency as means of payment for various kinds of goods and services.
Fulltext: CURRENCY and STABLE AGRICULTURE Q UR currency problem is perhaps the most baffling of the economic problems confronting the country today. The working of the currency system is still a mystery to the layman in all countries, although everybody is vitally affected by changes in the system. The military notes of the Japanese occupation have radically affected our way of life that even the very young capable of remembering the events that happened during this hectic period will always recall the economic disorganization brought about by the use of this most subtle instrument for requisitioning the fruits of our productive labor. The misery, the hunger, the radical redistn'bution of wealth and income, the debauchery and demoralization of the race could be traced directly or indirectly to the chaotic currency situation of the past three years. The reestablishment of the pre-war currency system did not liquidate immediately our currency troublEIS. The effects of .three years of currency irresponsibility and utter disregard of fundamental monetary principles will take at le.ast a generation to shake off and to restore order in the national economy. ANDRES V. CASTIILO Our Prewar Currency System Perhaps a summary background of the working and service of the currnncy system might be useful in understanding the magnitude of the probl"m before us and the importance of a sound currency system to the countr}' as a whole. The Philippines was on what is known as the gold exchange standard from 1903 to 1933 and on the dollar exchange standard from 1934 to the outbreak of the war in 1941. Our currency system was, as it still is, inseparably linked to that of the United States. The gold exchange standard which was in operation for three decades was a device to place the country on a gold basis without the necessity and great expense of maintaining gold reserves in the Treasury. Reserves redeemable in gold were deposited in the United States to maintain the parity of the peso with gold. The peso was considered a gold currency but no gold peso was ever coined; the gold peso was only theoretical, it had no physical existence. The purchase and sale of exchange by the Treasury at rates presenting the costs of shipping gold provided the mechanism of adjustment between the demand and supply of government money. This mechanism secured stability in the external value of the peso and encouraged the expansion of foreign trade. The big demand for Philippine products abroad stimulated production and since the bulk of our exports consistro of agricultural products, an unprecedented expansion of farm production followed. When the United States abandoned the gold standard and devaluated the dollar in 1934, the Philippines had to follow suit, and it was proYided in an amendment to the currency law (Act No. 4199) that the peso will always be equal to one-half of the dollar no matter what happens to the dollar. The. currency reserves continued to be maintained in the United States with the exception that they were no longer directly redeemable in gold but simply in dollars. So long as the currency system was linked to the dollar, it was impregnably strong and withstood any crisis that caused havoc in the currency systems of most countries during th" prewar period. Greetings to Farmers. We are organized. We are glad you are organizing. We shall be glad to Cooperate with you. You produce. We buy and distribute. ASSOCIATED STORES, INC. Importers, Wholesalers, Retailers s. L. SISON AND COMPANY Managing Agents Office--1055-Arlegui, Manila 8 The Curt"ency S:vstem Durin.g the Japane•e Occupation . The dollar exchange standard automatically passed out of existence upon the occupation of the Philippines by the Japanese armed forces. Military notes supp~anted and drove quickly from circulation a~l. kinds of Philippine currency. T~e m1htary not<'s were issued bv the Military Administration and later ~n by t~e Southern Development Bank, the fiscal agent of the Japanese Government in the Philippines. These militarv notes are euphemistically called Micky 0 l\Iouse money. They were issued on the uncertain c~it of the Japanese Government. Th~ Mickey Mouse money is fiat money, entirely repudiated by the government. ~here was no mtthanism to effect the adjustment of the currency supply to the d~mand. Since the issuing authoritv did not bother to maintain any reserve"s for ~e notes, the only limitation to the quantity that was put into circulation was the need of the Japanese Imperial Forces and their agencies, the Japanese development companies, for the means of payment. Since the needs of the war machine were insatiable, to say nothing of the reckless and irresponsible business ~eth~ds employl'd by the Japanese agencies, it was necessary to issue an enormous amount of the military notes to meet the demand for various kinds of goods and sl'rvices. The military notes circulated onh· in the occupied areas. For the unoccu.pied areas, emergency notes were issued to finance the activities of what was left of the Commonwealth Government in the Islands. Like the military notes, the emergency notes were issued without any reserve behind them. The currency reserves in the United States could not be considered as reserves for the emergency issues because they were outsid~ .of the control of the issuing authorit1es. And like the military notes, the issue of emergency notes was unregulated. Like the military notes, therefore, the emergency notes are fiat money. The Philippines was on an inconvertible paper standard. The paper standard as such is not necessarily an inefficient monetary standard, incapable of promoting sound economic conditions. All the countries during the war we.re and are still on the paper standard for they do not redeem their currency in specie. But in some countries, especially in the United States and Great Britain, their paper currencies were expertly managed. The.y are on what is known as a managed currency. Inflation and hyperinflation occur under the paper standard, as did occur in the Philippines, China and other countries, when the issue of currency and credit is unregulated and di'vorced from the needs of industry and trade. Present Monetary System The reestablishment of the Commonwealth Government in February, 1945 also meant the restoration of the dollar FARMING AND COOPERATIVES exchange standard, the monetary system ~t the ?utbreak of the wnr. The peso 1s as inseparably linked to the dollar as before the war. For every peso of Tri:asury ce.rtifica.te in circulation there is nn equivalent reserve in the United States. There has been some apprehension on the part of some people that the present enormous circulation as a result of the vast expenditures of the A.mer1can armed forces in the Philipp.mes has placed the currency in a position not very much different from that during the Japanese occupation. With the p_resel'.t inflation and the consequent deterioration of the standard of living of th~ groot majority, the Philippine peso is often compared to the Mickey .Mouse money. This is a mistaken view. The Treasury certificate. wlrnther it 1s a victory no!e or not is fully backed up by reserves m the United States. As a matter of fact, the Philippi1rn peso is one of the rare currencies in the world if there is any at present, that has mor~ than 100 per cPnt backing. If there is any defect in the present currency system, it is that the amount of currcncv reserves is excessive, unnecessary and too expensive for a poor country like the Philippines. Ai1d this defect is made more glaring by the fnct that this country is short of capital funds especially during this period when reconstruction and rehabilitation are of paramount consideyation. and we allow much needed funds to lie idle. Clearlv a reform of the currency system is nmch in order. But more of this later. The Philippine currency system is linkod at present not only to the American dollar but also to an international currency system by virtue of the membership of the Philippines in the International Monetary Fund proposed in the Bretton Woods Con!PJ"ence of July, 1944. Part of the currency reserves is kept with the International Monetary Fund. This fund with resom·ces amounting to $8,800,000,000 would be used to provide financial assistance. to the member countries in stabilizing their exchange rates so as to foster international trade. FIRST CLASS MEZZANINE TEA ROOM AND SODA FOUNTAIN Sandwiches, Juices Jee-Cream Sundae Jee-Cream Soda Pwrfait Specialties Phosphate Frappe Hot & Cold Changes in the Value of Money The importance of n sound nnd stable currency system was brought home witli. telling effect upon us during the Japanese occupation. We do not realize the benefits and the blessings of a most useful. institution until we lose it. The relative economic stability fostered by the gold exchange standard and later on by the dollar e.xchange standard was replaced by economic chaos under the military ~1ote standard of the J apnnese occupation. The currency system is so important a part of the. economic life of the nation that when it goes out of order the body economy lies frustrate. The excessive issue of' curreJJcy du.ring the emergency poisoned the economic syst?m. Ec?nomic stability is so intimately hnked with the. volume of currency that the latter has been compared to the blood stream of the human body. The blood stream vitally determines the health of the individual. Too little blood makes a person ancrnic and weak. Too much of it causes hii.;h blood pressure that may result in collap:-.e any lime. So also is the money stream to the hody eeonomv. Too. little mont'y causes busin<'.ss stagnatJOn and t>conomic dC'prcssion. while loo much rnonl'y brings about an artificial prosperity which cannot but lead to the collapse of thf' (·ronomic sv;;;tc:m. Unless the issue of currenl'y is pr~Jpcrly regulated to meet the Jt>12;itimale needs of business, inflation is bound to set in to plague everybody as was cvid('nt during thG Japanese occupation. No country is entirely free frorn inflation. Now inflation is one of the most troublesornc of economic terms, and there is no gPncral agreement on an accurate definition of the term. Inflation is often referred lo as the creation of purchasing powcJ" in excess of what is needed in the production and consumption of goods at prevailing prices. Many writers use the term in connection with the increase in the supply and velocity of currency and credit at a much more rapid rate than the increase in the supply of goods. There. is no gain in going extensively into definitions; suffice it to observe that high prices of FOR DEPT. STORE Spo,.ting Goods Hnberdashery Native Souvcni'rs Gift Articles X'mas Gifts & Ca,.ds Toys, and Children's Drinks AND SHORT ORDER MEN, WOMEN AND CHILDREN Birthday & Party DRESSES AT A REDUCED PRICE! !JI :·~'Wea11~1W.!."a£ t TORIBIO TEODORO (Prop.) A VE. Near Grand Opera House 9 10 PHILIPPINE · HAWAII AMERICA LABOR UNION, INC. 760 QUEZON BLVD., l\!ANILA FELLOW WORKERS: We invite you to join our organization, having for its objectives the following: (a) To bring into the organization all persons of all trades and occupations working in the Philippines, Hawaii and in the United States; (b) To improve the economic and social standard of the workers and employees who are citizens of the Philippines wherever they are; (c) To secure adequate living wages that w:ill decently maintain and support the laborer and his family; (d) To remedy unemployment problems in the Philippines; (e) To work for the limitation of the number of immigrants to be admitted into the Philippines, not to exceed a quota of fifty ( 50) persons per annum for each nationality, excluding Japanese Nationals or any other nationals that may, by law, be excluded entry into the Philippines; (f) To advocate the repeal of the quota of fifty (50) persons of Filipino Nationality to enter or to be admitted into the United Stales and her territories as provided for in the Immigration Laws of the United States; (g) To secure employment for unemployed laborers in the Philippines, in Hawaii or in the United States and hen territories; (h) To advocate enforcement of the Immigration Laws to their fullest extent and to increase the bond of P5,000.00 in cash for each im.migrant to be admitted into the Philippines; (i) To advocate legislation providing for the use of public schoolhouse& for assemblies as meeting halls to insure the educational work for the masses; (j) To advocate political and economic security and to safeguard freedom of speech, freedom of the press, and the pursuit of happiness; (k) To advocate full protection of laborers who may be recruited from the Philippines to work outside the Philippine waters; to advocate the amendment of the laws concerning the recruitment of laborers in the Philippines to the effect that besides the payment of license in the amount of P6,000.00 a year, a bond in the amount of Pl,000.00 be required for every laborer recruited as a guaranty of the compliance ~f the contract. Respectfully yours, BOARD OF DIRECTORS Philippine-Hawaii-America Labor Union, Inc. commodities and almost everything· else arc the hall mark of inflation. High or low prices presupposes a concept of normal conditions. Prices nre high or low because they are above or below th is normal level, <md the existenc<'o of inflation or its opposite, deflation, is to be determined by this criterion. A general rise in prices due to an incrP.ase in the quantity of money is the distinguishing characteristic of inflation. A general fall in prices due to the scarcity of the means of payment is regarded as deflation. All major wars have always been the occasion for inflation of varying degrees of severity. There are other causes of inflation, but it is generally admitted .that the most severe forms of inflation occurred during wartime or shortly thereafter. Such was the case in Ger1nany and otlwr European countries during and followinr: World War I. There was inflation in the Philippines from 1917 to rn20 which developed into a relativelv acute one b\· the beginning of the latter year, foll~wed hy an equally disastrou' deflation by the end of rn~o to 1022. The inflation durine: this p«riod was chiefly of pricc5 and tn snme extent cu1Tcnc\· inflation. '\Vith 19~'i I939 as 100 the: indl'X of wholc-~alC' pric.:_·s '°'e to o\·er ;;oo b,· the middle of rnzo. Cu1Tc·ncv and dcrn;nd deposits incrN1scd rapidly ~luring- Lhis period. World ""ir II brought anotlwr inflcttion to the Philippine~. a mon~ vin1lpnt type than that of World \\'ar I. Speculation, hoarding:, monopolization, pn1fiter.ring- and other evils were rife to the miserv of the g-reat ma~::. of the population. ·The facts of that most chaotic period of our economic life so far are of common lrnowlcdp:e and experience and need not be mentioned here. The sJ..-yrocketin.g 1of prices brougt.t about radical changes in our modes of living which are just beginning to be rectified. Prices of necessities soared to dizzy heights beyond the reach of the majority. Only the "buy-and-sell" crowd could afford a decent meal which was always available. In spite of the fact that we were supposed to have a controlled economy with ceiling prices for most vital goods, the black market thrived openly. The producers of necessities, especially foodstuffs, reaped fabulous profits as inflation reached the runaway stage. The farmers' pockets bulged with Mickey Mouse money, and the external evidences of affluence and the trappings of the leisure class before the war in the form of jewelry, furniture, radio sets and even fine clothing gravitated to the rural districts. Effects of Price Fluctuations The effects of the fluctuations of the value of money or prices on agriculture in general and the farmers in particular have never been squarely presented. In so far as the farmer is a debtor and has mortgaged his farm, he is greatly benefited by inflation because he could pay off his mortgage indebtedness with the proceeds of the sale of a smaller quantity of his products than would be required if prices were lower. The farmer is a good risk and he could have easy access to the banks and take advantage of his favorable position. The farmers' (Continued on pagq 80) mott of the pal&y-tobacco types? Should we extend this type of farm. to other money crops as abaca, coconut, and sugar? 5. Area of cultivated land by types of farms. The relative importance of each type of farming may also be indicated by the following area involved: 1 TABLE NO. IV Type of Farms Total ......•......•... 1. Palay Fanns ....•.•...••......... :?. Coconut Fanns .........•.......... 3. CArn Farms ..••.•............... 4. Abaca Fanns ................••.. 5. Sugar cane Farms ..•............. 6. \'ogetabl• Farms ............•.... 7. Fruit Farms ...............•..... 8. Tobacco Fanns .............•..... 9. Palay-Tobacco Farms ........ , .... . 10. Lh.-estOC."k Famts ...............•.. 11. Poultry Farms .................. . 12. Other Farms ..................•.. From the above figures we notice the increase importance of sugar, coconut, and abaca farms as to area cultivated as shown by their respective percentages to the total area cultivatfod as compared with those of the preceding table on the number of farms. There is a corresponding decreasf\ in the relative importance of the other types of farms as the vegetable, corn, palay farms. The problems in the preceding section TABLE Type of Farm Total ................ . 1. PaJay Farms ..............•...... %. Com Farms .................... . 3. Abaca Farms ................... . 4. Sugar cane Farms ............... . 5. Coconut Fanns ...............•... 6. Fruit Farms .................... . 7. Tobacco Farms ..•................ 8. Palay-Tobacco Farms .....•....... 9. Vegetable Farms .....•..........• 10. Lh·estock Farms ................ . 11. Poultry Farms .................. . 12. Other Farms ••.........•••....•. Hectares 3,953,810. 64 1,7:?3,311.06 97ft,Ol:!. 95 316,113. 93 :?78,240. 95 :!06,767 .25 31,136. 84 24,332. 05 19,iSS.52 19,213. 89 i,596. 52 46 .60 352,:?50 .OS Per Cent 100 43 .6 24. 7 s.o 5.:? 0.8 0.6 o a 0. 5 0. ~ 8. 9 are also involved under this one. 6. The distribution of idle land by types of farms. As giV<•n, there were in 1938 1,108,159.35 hectares of idle land within the cultivable farm area. This area constituted 28% of the cultivated land. How this area of idle land has been distributed to the various types of farm, is shown in the following table: NO. V He(tares l,108,159' 35 403,365 .10 101,840' 69 69,i43. !J 38,667. 80 257,l:S3.2i 14,043 .41 4,924 .89 6,828. 91 11,443.81 24,319. 37 31. 74 175,767 .23 % Distribution 100 36 .4 9 .2 6 3 3 .5 23 .2 1. 3 0 ,4 0.6 1.0 2 2 15. ~ TherP are no marked indications that proportion to area cultivated than that the problem of idle land has much to do of the "Other Farms", livestock farms, with types of farm. All types of farms vegetable farms, palay-tobacco farms, seem to be affected by it. Taking, how- and fruit farms. ever, the relative importance of land The relation of types of farms to the under cultivation by types of farms as a idle land may be well indicated by its basis, we notice tbat the share of palay, abaca, sugar cane, coconut, and to- propo1-tion to . the cultivat:d land, as bacco farms of the idle land is less in may be shown m the following table: TABLE NO VI - Percentage o[ Idle Cultivated Land Idle Land Type of Farm in Hectares .. ~dare5 Land over Cultivated Land Total ················· 3,953,810.64 1,108,159 .35 1. Palay Fann• .-....... l,'/23,311. 06 403,365.10 23 2. Coconut Farms ..... 975,012.95 257,183.27 26 3. Corn Farms ... , ... 316,113.93 101,840 .69 32 4. Ahaca Farms ...... 278,240.95 69,743.13 25 5. Sugar cane Farms 206,767 .25 38,66i. 80 18 6. Vegetable Farms .... 31.136 .84 11,443.81 36 7. Fruit Farms ······· 24,332.05 14,043.41 57 8. Tobacco Farms ····· 19.788.52 4,924.89 24 9. Palay-Tobacco Farms 19,213 89 6,828. 91 35 10. Livestock Farms ... 7,596 52 24,319.37 320 11. Poultry Farms ····· 46.00 31. 74 ,B 12. Olher Farmt ······ 352,260.~S 176,767 .23 44 .. !Census of lhe Pbil1ppme Islands: 1939; Vol. II, p. 1025 • 30 Currency and . • • (Continued f7·om 1m11c JO) costs of production do not rise as fast as the price of their products and they are able to realize a larger margin of profit. Most farmers were able to get out of debt during the Japanese occupation. Many of them assumed a new role, that of creditor to the other classes in the community. Debtors as a class are benefited by inflation. While farmers in debt are undoubtedly favored by inflation, it is to be observed tJ1at the advantages gained by the farming class as a whole are not as Jl:reat and real as they might appear. I•'or increasing prices affect all kinds of goods, agricultural products which the farmers sell and the various commodities and services that the farmers have to buy. While it is true that their money income is increasing rapidly even if their total output is dec1·easilw, they have to spend that income on goods which are also rapidly increasing in prices. In some instances it is to be doubted whether the farmers are really favored by inflation. There is reason to believe that in the long run the farn1crs as a class are not much benefited because of the disorganization uf trade and industry and of economic life as a whole which cannot but affect everybody. The higher costs that. are bound to be incurred as inflation progresses will mean that all producers including the farmers have to sell at higher prices, and the foreign markets for agricultural products would be adversely affected. The benefit that any class or groups in the community derive from inflation is in the final analysis temporary. Increasing prices bring increasing profits, but like all the good things in life sooner Tab!<: No. VI shows that among the well established crops, as sugar, tobacco, rice, abaca, and coconut, the proportion of idle land to cultivated land is less than in tbe other crops, which are considered minor crops. Take the case of the livestock farms. the idle land is more than three times the area of the cultivated land; the case of fruit farms, the area of idle land is 57% of that of the cultivated land; and the case of "Other Farms," the area of idle land is 44% of that of the cultivated land. The laudable reason may be that the later types of farms have not as yell been well established and that they are still in the process of development. The case of livestock farms is an object lesson in land utilization. The idle land is as good a grazing land as .any pasture land. So it is a question as to which use is more profitable. The problems involved in this section are the same as those under Section 3. (To be continued)
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