CREDIT AND INFLATION

Otago Daily Times, Issue 24421, 5 October 1940, Page 10

CREDIT AND INFLATION

The Government at the beginning of this week owed the Reserve Bank a little over £28,000,000. Of this sum less than £3,000,000 had been borrowed on the produce marketing account. The balance represented loans for other purposes which are not specified but include advances for use in the prosecution of the housing scheme. Some people may feel somewhat exercised in mind about the prospect of the country being able to repay a loan of this magnitude. Their feeling is, however, not shared by the Government party in Parliament if its view is correctly expressed by Mr Nordmeyer. It is true that Mr Nordmeyer is believed to have been one pf the warmest supporters of Mr Lee up to the time of the expulsion of that member from the Socialist Party, and for that reason has been identified with those parliamentarians who consider that the creation of credit and currency by the State constitutes the ideal in banking policy. Mr Nordmeyer apparently does not now go "the whole hog." He is not at all concerned about the debt of £28,000,000 which the State has incurred to the Reserve Bank. Nor is he concerned about the repayment of this loan. It amounts, he says airily, to the question whether we will ever pay ourselves back. But, if this indebtedness to the Reserve Bank is to be regarded thus lightly, it may be argued that there is no reason why there should be any limit to the amount which the State may demand from the bank in the form of advances. It is probable that there are some members of the Government party—it is said, in fact, that there are many of them—who would not hesitate to employ this argument. Even advocates of monetary reform may, however, be apprehensive of the effects of inflation of the currency, and Mr Nordmeyer seems inclined to think that it might be dangerous to extend further the use of Reserve Bank credit at present. Only at present, however, if we understand him, for, according to this sapient authority, a time would come after the war when, because of a slump in the prices of the country's exportable products, it would, in order to maintain the stability of the Dominion, be necessary to call on the Reserve Bank to an extent that has not been necessary in the past. Apparently, therefore, the stability of the country is to be based on a policy of inflation. It is not an attractive prospect which these money reformers are offering the Dominion. It was to their policy that the Minister of Finance seems to have referred yesterday when he said that the adoption of it would be "the greatest treason ever done in any country against the working people."