RATES OF INTEREST

Dominion, Volume 13, Issue 279, 19 August 1920, Page 5

RATES OF INTEREST

Sir,—Mr. Tennent touches upon an important matter in querying the alleged benefits of an artificially low rate of interest. Tho reason land would be cheaper with a higher rate of interest is that the capital value is derived entirely from the rental value and tho rrftio of discount. With a. high rate of discount a given Tentnl will capitalise at a lower figure than id would with a low rate of discount. If we were to revert to the normal rate of interest (or discount, according to the way we view i\!) by floatling a local loan at a sufficiently high rate of interest, buy up all notes not covered pound for pound in gold, tie cost of living would fall by increasing l tho purchasing power of money. . Tho consequent' high rato of discount! would cause land values to decline, and produce sellers anxious not to lose the high potential income from investing money now locked up in unproductive land. The loss of industrial capital conse* quent upon the requirements of the loan would be soon made up by like higher purchasing power l of money on. the one hand anil the increased production possible from cheap land in the hands of willing sellers upon the- other hand. Once baclc to the gold basis tho production of_ne\v capital would soon bring *own (no rato of'interest again,, but without causing the cost of living to rise aa inflation is now causing it to do.—l am, etc,

v. VINCENT .PANTIN, Wellington, August 14, 1920.