Inflation

Gisborne Herald, Volume LXVI, Issue 20003, 31 July 1939, Page 16

Inflation

Sir, —In your editorial on the Reserve Bank report, and also your footnote to “Serious” in Tuesday night's issue, you would appear to claim that it is inflation for the Governmerit of New Zealand to ‘build thousands of houses, hundreds of miles of railways and roads, and great development 'works generally, 'because it has ‘all been done out of issued money instead of “savings” or borrowed money. You have apparently overlooked the fact that money has to be “created” before it can be- saved; on the other hand, that tremendous worse than waste of good materials and 'human effort, the production of armaments, is not inflation because it is done out of “savings"—the “Savings" of coal miners at 50s per week, of

railway servants at £2, or farm workers -at 345, one supposes. If it is true that these tremendous sums -have been “saved,” what a crying shame that Britain is only able :o pay her useful citizens the -beggarly wages mentioned. Where were these “savings” in, the slump years, when social services were curtailed and business stagnated for want of money? Have they all been '“saved” since? If so, what a -wonderfully profitable business' the ' manufacture of armaments must -be. I think the word “savings” as used by the Chancellor is probably the most elastic word in our language to-day. For instance, would there be anything to stop one who 'held, say, £IOO, or any sum you like, of war loan, taking -it to the bank and getting an advance on the security of it and investing in further loans? There are dozens of other methods of “saving'’ in a similar Way if you like to think of them. C.P.H. [lt is somewhat difficult to underI stand the points raised by the corres- • ponden’l. Inflation is a condition of , rising prices and falling purchasing i power, and any policy which has the [ effect of increasing currency or credit . in excess, or in -advance, of the -produc- ■ tion of goods tends to have an infl-a----i tion'ary effect. Because the issue of ; credit by the Reserve Bank comes ; within this category it is unquestion- ; ably inflationary. On the other han'd, E when, a Government borrows money L in the ordinary course it is using ’ i savings from prior production and [ | does not increase the amount of cur-