Reserve Bank Finance

Gisborne Herald, Volume LXVI, Issue 20087, 6 November 1939, Page 10

Reserve Bank Finance

Sir.—Your leader on “Reserve Bank Finance,” if taken literally, would tend to show a somewhat disturbing state of affairs. However, when the matter is carefully considered it is quite evident that it would require a

“financial wizard” to make any improvement on what is the true situation. The suggestion that there is less real wealth in New Zealand today after the expenditure of millions of "paper money” is not borne out by tile facts. Real wealth as represented in houses, public buildings, improved transport facilities, both road and rail, more furniture and conveniences in people’s homes, healthier and happier people, is evident to anybody using their eyes. The action of the Parliamentary caucus of the Labour Government in removing all restrictions from the Reserve Bank of issuing

credit is only carrying out the will of a majority of the electors of this country, thereby freeing for all time the financiers’ grip on our economic life.

The watered milk comparison might be understood by a milk vendor, but to my mind is hardly applicable to finance, as milk is a commodity and credit is not if used as it should be. A comparison that bears directly on tianancing capital works, as much of our present Government’s activities have been directed to, might be made with the expense incurred in rearing and feeding the cow through its unproductive stages before it commences to yield milk, also to the lad who has to be fed and clothed, educated and trained, before, at from 16 to 20 years of age, he goes into industry, which again lie may not do, being content, as many are, to live on the sweat of others. So perhaps credit expansion to create real wealth, to develop our country and our young folk, even, though it creates a situation not approved of in orthodox minds and financial circles, may be for life good of our country and people. As to the further increased credits, I take your own figures of £1,000,090 a month, that £12.000,000 or more a year is largely needed for defence purposes, which will not produce anything saleable yet is unavoidable in the present disturbed state of the world. Are we to borrow in the old way of created credits from firms, individuals, and banks, and pay them interest, still an inflationary procedure, or, alternately, nationalise all production, pooling all proceeds of industry, and paying each individual only sufficient to enable him •o provide for himself and family in comfort, the remainder to be devoted o prosecuting the war and providing for the injured and dependants of those who give their lives? The latter way would obviate all need for further credits, as there would be ample funds left over to meet all needs and, if rather drastic, would at least be orthodox. SERIOUS.

[The correspondent fails to distinguish between the production of consumer and capital goods. Unless the latter are paid for out of the former, how can they be maintained? Houses, roads, railways, etc., may be, and should be, assets, but can they they be regarded as real wealth unless there is sufficient new production to enable the people to make full use of them? In the ordinary course individuals and organisations which increase their capital outlay first make sure that their income will expand at least in proportion to the new commitment: an individual, for instance, does not buy a new house unless his wages are sufficient to maintain it, and a business concern does.- not- install new-plant unless there-is work for.it. to do. In New Zealand, however, there has been an enormous increase in capital expenditure, and, consequently, in annual interest costs, but the production of new- wealth, out of which these costs must be met, is steadily declining. The position is that, having gone to the expense of rearing the cow —or training the youth, if that simile is preferred —production is going down instead of up; the cow, or the youth, as the correspondent states, is prepared to leave production to others. The increased credits of £1.000,000 a month had no relation to war expenditure, but were issued long before the war started.—Ed., Herald.]