QUEER NOTIONS ABOUT "INFLATION."

Hawke's Bay Herald-Tribune, Issue 206, 16 September 1937, Page 4

QUEER NOTIONS ABOUT "INFLATION."

With the opening of the debate on the Address-in-Keply to the Governor-General's speech — as put into his mouth by his Ministers — the contentious work of the session has been begun. The Government has chosen as its first spokesman the Member for Thames, who, it will be recalled, was also entrusted with the compilation of the pamphlet setting out the GovernmentJs record for its first year in office on which some comment was made here at the time of its broadcast issue. It is, in fact, upon this publication that Mr. Thorn has now mainly drawn for the material of his speech as reported to-day, so that there is not a very great deal that is new in his present delivery. Perhaps of the greatest public interest is what he has to. say with regard to the use of what he calls the '"public credit." As to this he tells us that "through the agency of the Reserve Bank the Government has made over ^"11-million bf public credit available for national purposes — ;£6-million to finance the payment of the guaranteed price for exported dairy produce and ^5-million for the building of houses." He -then goes on to say that "in each case this credit has been issued against a means by which it could be redeemed, so that it could not be said that Labour's administration of the Bank had been inflationary." So far as" concerns the Government's overdraft account for financing its dairy-produce venture, this contention may be said to be fairly sound, the accommodation pjovided taking shape as a legitimate banking arrangement. It is an actively operative account, which, in the ordinary course of banking business," WOilld be expected to clear itself within a reasonable and well understood period — on realisation of the whole of the season' s dairy exports. Even here, however, we have the Finance Minister's owq word for it that a deficit of some ^"650,000 is in prospect for last seasons output, a fairly substantial debit which he intimates is to be carried forward indefinitely until Micawber-like "something turns up" with which to liquidate it. To this extent then last season's operations on the dairy account are decidedly inflationary, with no . asset.whatever to set off against the debit. Then, again, Mr Nash has also indicated that for the current season there is every chance that there will be a deficit of no less than £2million, which wili presumably be treated in the same way, and. so on ad infinitpm, until Heaven alone knows to what amount the ultimate aggregate of these annual debits, held in suspense over the devoted heads of the unhappy and helpless taxpayers, will soar. The position with regard to the Reserve Bank credit for house-building is very much worse, so far as its inflationary aspect goes. The expenditure on housebuilding is essentialiy a capital expenditure, every bit as much so, indeed, as that ow railway-building, for which the Government has had recourse to the very old-fashioned plan of raising funds in the • - shape of loan-money at current rates of interest. Mr Thorn claims that the house-building advance will be "redeemed," presiimably out of the rents received for the houses. But he doe,s not give even a«hint as to how long this process of redemption will take. So oyster-like has been the reticence of our new Government on matters of public finance that no one, outside its own charmed and charming circle, has been allowed to know definitely on what basis of providing a redemption sinking-fund the proposed rents for these houses have been assessed. Varying rumour; however, has it that a period from 40 to 60 years has been allowed— in either case rather a lengthy remunerative life to assign to a timber-built dwelling. However near this may be to the actual mark or far from it, it is very evident that this capital advance wili not for very many years, if ever, be redeemed out of the assets created by its expenditure. One cannot but Wonder what Mr Thorn's idea of inflation is if this is not it in its most naked and easily recognisable form, short perhaps of broadcasting notes from the Reserve Bank printing press. That is a process against which, however, thp Prime Minister holds up his hands in holy horror, though the poorest intelligence must see that there is in reality very little, if any, practical difference between the issue of machine-made bank notes and the making in the Reserve Bank ledgers of debit entries that have very little prospect of ever being wiped out.