POLICY OF HONESTY

Rotorua Morning Post, Volume 3, Issue 725, 28 December 1933, Page 4

POLICY OF HONESTY

"The Jews ended all debts on j the year of Jubilee. It was a j cruel arrangement. But it em- I bodied an axiom of wisdom. For j all capital there should be a i sinking fund or its equivalent. "It is not wrong for nations 1 and cities to borrow money for } immediate purposes, the cost of ! which cannot be met by re- | venue," writes Mr. P. W. Wilson ! in the North American Review. ! "It is wrong for such liabilities | to be incurred without provision, ' not only for interest, but amortization. j "It is not wrong for wealthy I nations to lend money to poorer nations. It is wrong to lend that ! money — and to borrow it — without a clear guarantee that each loan, so eontracted, will be spent honestly on the enterprises to be developed, and, year by year, duly liquidated. "The trouble over railway cap- j ital, both in the United States and in Great Britain — with drastic reconstruetions of many com- ; panies in the latter country — would have been avoided if, i years ago, there had been a clearer conception of sinking funds. After all, we cannot es- j cape from them. If we refuse t to write down our assets, they j look us impudently in the eye | and write down themselves. "Every man has to realise that, in the long run, neither he hor anybody else can get anything for nothing. He may gamble • on the Stock Exchange to his heart's content, but the mathematics of probability are inexorabie. "In purely suppositious figures, it works out thus: Let us suppose that Government securities and the prior bonds of private enterprises yield a return of four per cent. Let us also suppose that common stocks on which surpluses of profit are distributed and other speculative securities yield six per cent. or more. The additional two per cent. or more is not to be regarded truly as 'income.' On the average, it is insurance against depreciation of capital.. If this arithmetic were more clearly undefstood, there would be few-

\ er tears shed over financial Mosses/ • "We need be under no illusion as to the lesson — the ancient lesson that has to be. learned afresh from our present experience. It is not enough to say j to ourselves that honesty is the best policy. In a financial strueture which is built of credit and founded on confidence, honesty is the only policy. A dishonest man is more dangerous than any anarchist."