War Loan and the Rate of Interest.

Press, Volume LIII, Issue 16037, 20 October 1917, Page 8

War Loan and the Rate of Interest.

When a locally-floated War Loan was first spoken of wo pointed out that it would have the effect of raising the rate of interest in New Zealand, and possibly of checking development work. That is, of course, merely a commonsense deduction. The banking returns show that at present there is plenty of money in the Dominion, but obviously

£24,000,000 or even £20,000,000 is withdrawn in one year, locked up in Government stock, and the bulk of it spent outside New Zealand, the result must be a largo deduction from the amount available to bo lent on mortgago or advanced by the banks for trade purposes. Money is like every commodity of commerce, in that a lessened supply, unless accompanied by a corresponding decrease in the demand, automatically brings about a rise in the priqe'to be paid by those who want it. Of course, wo aro not objecting to the local loan. it was intimated that the Homo Government would be glad for New Zealand to help in this way, we realised that it was tho duty of the Dominion to raiso as much money as possible locally, and we did our utmost to assist in making tho loan a success. Sir Joseph Ward, in his recent speech on the War Loan Bill, said there was no doubt money was already tight in some quarters, and he intimated that a rise in tho rato of interest was to bo expected. It is a matter for regret, we think, that ho went on to threaten legislative and executive measures to regulate interest on advances and mortgages. AH his tory shows that such regulation cannot bo made effective, and that Government attempts to fix the rate of interest havo always made tho position worso for the borrowers. It is quHe easy to pass an Act of Parliament or issue a war regulation making it illegal to charge more than a certain rato of interest, but it is impossible to compel the owner of capital to lend his money, if he thinks the rate fixed is unremunerative. What

such Government interference may do I is to lead the investor at the earliest I possible opportunity to send his money out of the country. When money is very tight in London the means adopted by the Bank of England to avert a panic and consequent disaster, is to lend money more freely than usual, but to put up the rate of interest. Were the Government here to take any steps calculated to check the freo lending of money when stringency is threatened, it would be heading straight for disaster.