N.Z. MONETARY REPORT

Press, Volume LXXI, Issue 21420, 12 March 1935, Page 10

N.Z. MONETARY REPORT

I Economist's Analysis MR J. M. KEYNES'S REVIEW *The value of the report of the New Zealand Parliamentary Monetary Committee in presenting for the first time an up-to-date summary of the monetary and banking system of the country is mentioned by Mr J. M. Keynes, the British economist, in a review _in the "Economic Journal," of which he is one of the joint editors. "New Zealand has followed the | example of this country and of Canada in appointing what has come to be known as a 'Macmillan Committee'; though in this case, unlike the other two, there was no Lord Macmillan to preside," writes Mr Keynes. "The New Zealand Monetary Committee was appointed after the decision had been taken to establish the Reserve Bank of New Zealand, but before the new Reserve Bank had been actually set up. I gather that the committee came into existence, not so much to consider the duties and potentialities of the new Reserve Bank, as in response to the activities of Douglas Credit enthusiasts in New Zealand. "As in the case of the other Macmillan Committees, the report serves the very useful purpose of providing for the first time an excellent up-to-date description of the actual monetary and banking system of the country. Probably the expert secretariat, Mr Ashwin.' Dr. Sutch. and Mr Barker, of the New Zealand Treasury, are mainly responsible for the good quality of the descriptive work which fills a gan in our information. It should prove useful in bringing economic education in New Zealand into closer touch with the economic facts of the country, whatever may be the controversial value of the report in its influence on policy. Conclusions of Committee "Again, as with our own Macmillan Committee, the members seem to have broken up into two partly irreconcilable groups—-the division in New Zealand being between those who were prepared to endorse, broadly speaking, the existing monetary policy of the Government of New Zealand, and those with definite sympathies for the Douglas Credit proposals or some similar system. And corresponding to Lord 'Bradbury there was _Mr Downie Stewart, formerly Minister for Finance, to write a minute of his own from the strictly old-fashioned laissez-faire point of view. * "The majority of the committee came to the conclusion that there was not a great deal for the Government to do, beyond what it was doing already to rcrriedv the economic crisis in New Zealand 'bv monetary methods. At the same time they had a number of suggestions to mako, several of which have been carried into cficct since they reported. In particular they recommended that New Zealand should definitely come on to a sterling exchange standard and that the exchange should be stabilised at £125 New Zealand to £IOO sterling. As a corollary to this they favoured the sale of the existing stock of gold. They recommended an amendment of the Reserve Bank Act to facilitate open-market operations by the purchase of long-term stocks as well as by short-term securities. They recommended the amalgamation of the Government Lending Departments, the establishment of a National Mortga 2 Corporation, a reduction of the rates of interest on deposits and overdrafts, and the setting up of a Development Commission to handle the Public Works programmes as a whole, with a view to a co-ordination of policy; all these measures being with a view to the encouragement of home investment. These proposals have, I thmk, been adopted by the Government or are under favourable consideration. Nature of Troubles "The committee make out, in my ■judgment, a strong case for the view that there is little or nothing to hope for from more drastic inflationary proposals. Figures compiled by the Government Statistician and the Treasury, demonstrate overwhelmingly that the troubles of New Zealand have been primarily due to a disastrous worsening in the terms of trade. The increase in the volume of exports : elatively to the volume of imports is doubtless partly due to the substitution of the repayment of foreign _ obligations for the incurring of additional loans; and it would have been useful if the extent of this could have been indicated. Nevertheless, it seems clear that, even after allowing for this, the decline in consumable income has been mainly due, not, as in some other countries, to a serious decline in the volume of production, but to a decline in the purchasing power of exports over imports. "The volume of production in New Zealand is as high as it has ever been, and the volume of exports is much greater than any previously recorded figures. The indications are, therefore, that any attempt further to expand the volume of exports could result only in a still further worsening of the terms of trade; whilst for a country in which foreign trade occupies so large a proportion of the national economy as in New Zealand, an attempt to change over on a large scale from working fcr export to working for home investment or home consumption would probably involve too severe a reduction in the standard of life. There is, in truih, no remedy for New Zealand except a recovery in her terms of trade with the rest of" the world to a more normal level. "In common with Australia, New Zealand has already gone a considerable distance in the direction of accepting modern policies and has taken full advantage of the assistance of hier team of economists. Professor Tocker, Professor Belshaw, Mr D. O. Williams, and others. Thus, there was less room than there would have been in many other countries for such a committee as this to recommend further drastic changes. Doug-las Credit System "A considerable part of the report naturally deals with the proposals of the Douglas credit organisations, since there was a widespread public demand in New Zealand for an authoritative examination of such proposals. \s it happened. Major Douglas was himself in New Zealand when committee was set up, so that he was invited to give evidence in person, as well as the local head of the Douglas credit movement, Colonel Closey, the evidence o: the Major and the Colonel between them occupying some 85 folio pages. With the Major himself the committee had great fun, the proceedings becoming at times almost hilarious. "It was left to Colonel Closey to put forward the. orthodox Douglas solution, and Major Douglas devoted most of his evidence to a new scheme specially designed for New Zealand, by which a proportion •of the reserves of the banks was to be credited to customers with overdrafts on a pro rata 1 basis of the average overdraft of these

customers during the last three years, the shareholders in the banks being compensated by the State for any injury they might thereby suffer, together with something obscure but analogous in the case of the insurance companies. The majority of the committee summed up severely: 'The Douglas Social Credit proposals are perhaps idealistic in intention, but certainly detrimental and retrogressive, if ever'the application of them were admitted. The express and implied assumptions cannot bear logical analysis nor even, allowing for the falsity of the assumptions, is there any attempt made to derive logical conclusions.' Those who are interested in observing the Douglas school under examination by an official committee | will find a locus classicus in the New Zealand Minutes of Evidence."