SOCIAL CREDIT

Hokitika Guardian, 27 July 1933, Page 2

SOCIAL CREDIT

By X

ARTICLE VII,

There is a strong and wide-spread

feeling in 'New Zealand that deflation mils: be stopped by bringing our currency more in line with commodity prices. was responsible for the pegging, up of the rate of exchange—■ a remedy o-f very questionable value.

Tt i-s beginning to be recognised now that if the exchange had been left to the banks, and the Government had concentrated on forcing the' circulation of /moye currency the position would

have been relieved, and the result might, Or might not, have been the increase in exchange rate—though probably sot to the extent to which it was deliberately forced. Js’ow, the Government can put more currency into circulation 'by first evolving sound 'economic schemes for expenditure, and then by utilising social credit, or in other word, 3 the national guarantee, providing through the banks the necessary credit to carry out such schemes.

I have referred to two oboa-sions on

which this “social credit’* lias been utilised, l’he first was when the Government cam© to Ihe assistance of the Bank of New Zealand some thirty or forty years ago, At that time by pledging the public credit the banks were saved from disaster, and a serious

erbnomic crisis' averted—and at ultimately no cost to the country. At the present time “social credit” js again being utilised, though in a way that is perhaps not generally known. When the exchange was pegged up the banks were given a. guarantee against any losses incurred in the purchase of exchange. This apparently will involve the Government to the extent of some three- or four millions per year. To raise thi s sum by increasing taxation just now would be almost impossible—certainly politically inexpedient as it would bring homo to the people the real cost to the country of the tinkering with exchange. 'So Treasury bills are being handed to the banks to repay

them for the losses (sustained. This 'is of course the pledging of “social credit.” Now obviously if “social credit” can be used for such purpose it could also be used to finance any legitimate requirements for any sound economic outlay required to develop the, retsources of the country or place settlers 1 on the land. This is, however, where the real difficulty arises. What schemes pro pounded by the Government ca, n be elasfffied as “soundly economic,” and wi»t u aire not? That' ,is where the experience and advice Of the bankers i s essential. A, Hew railway station .is

to, be built for instance now in Wellington, and a new post office in Dunein, Roth are no doubt very necessary public works, but will they produce revenue which will pay interest on cost, and eventually through a sinking fund defray that cost ? Obvjously they

I will not. That is <no -reason why they should not be undertaken, but is a very good reason why they should not be financed on "social credit.” The position (should <be faced that they will -have to 'be paid for bv taxation—''either directly or indirectly through the P. and T. and Railways Departments. Then take unemployment. If the, unemployed can he utilised o, tt reproductive work the cost can be legitimately borne by "social credit,” but if from humanitarian reasons susten--1 aince is provided, or the men are employed On work which gives no economic return, the cost must be borne by taxation. The same applies to public works. Works of general utility—perhaps iwen of necessity—may give no direct .return; may produce no revenue. These must be paid for out of taxation—either direct or indirect. For example, suppose a bridge 'is to be constructed. If a toll is to be charged on those using the bridge, and from J the revenue so derived the cost is to i be' refunded, it is an economic under- j taking, which may foe sound o r otherwise according to the correctness of the (estimate of (revenue from the traffic returns. Now the function of the banks—or preferably a central or representative bank—will be to differenfiiaite 'between economic -and noneconomic expenditure. It can exercise no control over the Government as to what ig shall spend, or what it shall ,ck>. But ,it earn and should exercise control over "social credit” when that means the "issuing of currency ns against Government guarantees lodged with the banks, and that -is as we have seen the only practicable way in which fresh currency can bo issued. The president of the B?.nk Officers’ Guild in London at the annual general meeting stated "that the pressure of public opinion and internationalisation of finance was causing the question of credit facilities to be increasingly considered, from the standpoint of national prosperity ; that rates of interest might, in the future he varied by factors other than that of competition ; iaud /that banking policy was being affected by national interests—the probable precursor of legal control in a greater or lesser degree.” This shows the bankers themselves realise that enormous monetary and financial change, s are pending, a.nd that they may be called on to play a more important ,part in public affairs than has been the case in the past. They will be called o, n to provide .efficient control from the financial end when, as seems now almost inevitable “social credit” , will be , utilised in some form to provide, fundr. for legitimate pur

pose,? £*f national development. Sir Josiiah "Stamp, director of the 13ailk of England gays ; “The success of Mr lloosevelt'K experiment in this direction will depend upon the mental and moral calibre of the people, .and the greatest obstacle to its sucesg will be the American tendency to too high speculative activity with its inevitable reactions.” An efficient brake gear must be .provided when the political machine starts to run on “social credit.”