THE CRISIS

Hokitika Guardian, 17 December 1932, Page 6

THE CRISIS

REVIVING PROSPERITY (By X.) When a politician after perhaps promising tliat, if he were c nly given, the opportunity he would guarantee tlije faimer a good price for his products; the wage earner an increase in wages; the civil servant more salary and increased superannuation; and pensioners an increc.se in pensions, he might he asked, assuming his audi-nce was.taking him sufficiently seriously, wher,9 the money w.as. to come from. His reply would probably he “by utilisation of material credits.” This sounds quite good, and as our political friend, even if he knew himself what ho meant —which may be doubted—would be quite unlikely to be askea for an explanation ho will probably ‘‘get ‘away with it,” and, be able to congratulate .himself on having successf.ull evaded a very awkward question.

While collectively the' people of any country possess wealth, on which is based financial credit, and the government pf that country possesses power to appropriate in greater or lesser degree this wealth “utilisation of internal credits” may mean simply taxing the wealth of the country until its credit disapears- If direct refundation and confiscation is resorted to, as in Russia this disaster immediately follows. It was very nearly brought about in New South Wale by Lang, and in New Zealand the danger signals have been up for some time, warning, that the limits, of taxation have been reached and that confidence has been shaken.

But generally; when reference is made to “utilising internal credits” the meaning is that either the Government is to issue papen (without eitner hacking of gold or tangible securities) which it is to declare legal currency ; or that a State bank is to be established under political control which can be forced to issue such currency. Either cf these courses, is simply economic madness, a,nd leads insidiously but inevitably to disaster. Paper currency issued under' such conditions loses its exchange value immediately. I have before me a facsimile of a note, for ten million marks, issued by the German Rcichs hank during the war, which would not pay fjor a breakfast anywhere on the Continent. The paper rouble which has to be accepted in Russia as worth just over 2® if. worth about 2-)-d outside the country. And coming nearer home the Australian £1 is worth something loss than eight-shillings in America or on the Continent. This latter point should be particularly noted as it shows j we would not he able to ‘ 'monkey j about” much with our currency with- I out rendering it practically valueless, j and doubling or perhaps trebling the | amount we woujd have to pay in cur-

reney. But it is argued that, as long as our paper currency meets our internal requirements we need not worry" about its value elsewhere. This is a dangerous fallacy as it is based on the assumption the .country is abolutely self contained and splf supporting, could exist without any outside trade, and could, ignore or repudiate its outside obligations. But without stressing that point for the present it is sufficient to show that a free and unregulated issue of paper currency would have as disastrous consequences to the people of New Zealand themselves as would legalised repudiation of all debts and obligations. The flagrant dishonesty lies in the fact that all internal, debts, mortgages, advances, couicl be legally paid off with this spurious and depreciated currency. A mortgagee who had lent £IOOO of pefectly good money on a property could be paid off with a thousand pieces -of paper worth only a few shillings outside New Zealand. Those who had loaned money to the Government or local bodies would receive their interest or repayments in the same comparatively valueless currency. Even those with Savings Bank deposits would be in the same position They put in good money but can only draw out comparative worthless paper. Tin's is repudiation in its most insidious form, and must inevitably follow any attempt to issue currency without the accepted banking safeguard that such issue can only be made under conditions which will ensure an adequate interest) return for its use, and security for its eventual repayment. Hence glib references tb “utilisation of internal credits” when proceeding from irresponsible politicians require to bo regarded with grave suspicion not only fry those who have a stake in the country, be it small or great, but also by all who recognise that the honourable and equitable meeting 0? all obligations to creditors is the keystone of credit and prosperity. Nevertheless under proper safeguards currency could be issued in New Zealand to meet present and future legitimate requirements. The Premier has stated that its banknotes may fce issued by the hanks up to the amount of the gold and public securities Ipfld by them they are at present in a position to mote Ilian double the note is s ue if necessary. Ample credit was available and what wag lacking was the business confidence to make. more use of it. Without going ijiito the question as to how far this lack of confluence on the part of investors has been due to the action of the present and past Governments,~'Tt is clear that the Gov.im-ruc-nf must take the initiative now in restoring confidence iby instituting a comprehensive scheme of land settlement on sound lines. If they do tills with adequate safeguards as t, 0 security of capital invested and interest and sink

ing fund return they should have- no dfficulty in getting the money without going outside New Zealand. The formation of a Central or Reserve Bank is the first, r.tep in that direction. It is stipulated thi s bank is t-o exercise control over monetary circulation and credit in New Zealand to the end “that the value of the bank j notes issued by it shall remain .stable, and generally that the economic welfare of the Dominion may be nromoted and mainta : ned.” I have endeavoured to show that if any government were to iisSue currency direct, or throiu'h a Stat e Bank directly under its control that currency would, .sooner -n- later, become practically valueless outside the country. But with a bank soniev-Crl on the lines now ,suggested as laid down by Sir Otto Niemever. one of the directors of the Bank of Internationa] 'Settlement, trie .stabilisation of exchange to a limit eventually of some thirty shilling* per cent, will be one of the main objects to be attained —.in other words its currency is to be real money, and not paper more or less worthless. A bank so constituted, strengthened by -association with other similar banks throughout the worid wi'l b? an effective brake on reckless political extravagance. Its duty will be to decide whether "monies required are sound reproductive investments which can 'be safely provided for by currency issued bgainst -.Government bonds and securities, o>- whether they are politically expedient, hut financially ui’eound, proposition,s _which the people generally must pay for themselves through taxation. This classification of our monetary requirements should result in the strengthening of our credit, revival of confidence, and the cheapening of money to practically the minimum ruling in any part of the world. In proportion as these results are attained will the success or otherwise of the scheme be measured.

The constitution of such Bank presents however, exceptional difficulty as it has to be vested with autocratic

power to control the finances of a democracy. The Board of Governors

must be as far removed from political influence as the Indiciary, Wo are proposing to establish in effect a Supreme

Court of Finance before which the

Minister for Finance will have to make out his case for assistance (required in exactly the same way as the client of a barfk hits itC'make out his case to

his bank manager. On the other hand the people of New Zealand will right'ly expect that the financial requirements of the country, as submitted through their constitutional representatives will not he set aside without good reason b&rng shown. It itmain to be .seen whether the measure, in its present form provides adequately for the differences which are bound to arise. However, before Parliament again meets a month will- elapse during which no doubt every aspect will receive careful consideration by those in a position to grasp intelligently a very complex and technical problem. In tin* 'meantime the Government must be congratulated on having now concentrated on the two problems—land settlement and currency—on which renewal of confidence, and the prosperity of the country depends.