PAPER MONEY.

Taranaki Daily News, 14 August 1919, Page 4

PAPER MONEY.

Mr. J. B. Hine, M.P., during the course of his pre-sessional address to his constituents tlie other day, outlined a scheme for raising the money necessary ior carrying out public works that will assuredly make the financial authorities sit up and think. Briefly, the Stratford member's scheme is to issue terminable bonds, to be made legal tender, carrying no interest, the bonds to be redeemed in part each year. Thus, were bonds to the value of ten millions Sterling issued, in twenty years the whole would be redeemed, the country would have paid no interest,' and foe in possession of ten millions sterling worth of worksall for nothing! Whereas, "if we 1 continue iu the old way of borrowing we

shall have paid ten million pounds in interest and still owe the money-lenders ten millions sterling." Mr. Iline says he has given much thought to this vital question, anil, after careful study, has brought, down this epoch-marking scheme. There is only one thing wrong with it — it will not work, at least not in a country that respects its credit. It suit, Villa of Mexico or Lenin of Russia, but those gentlemen have little time for inconsequential matters like stability of currency or national credit, and it is not that the countries they are misgoverning are in a state of financial chaos. In the first place, who is going to accept non-interest bearing bonds in payment for public works when other bonds issued by local bodies and the Treasury bear the current rate of interest? Being made- legal tender will not avail, and people cannot be compelled—in peace times, at least—to accept them. Bank notes, it is true, have been made legal tender, but only for a stated period, because of war emergency, after which the banks may have to redeem part or whole. They, of course, will have arranged their all'airs accordingly, and against the note liability they have reserves available. Inconvertible paper is absolutely useless; its issue only depreciates the currency. It is an axiom accepted by economists that in every case, after a certain period is reached, the excess of issue of paper money raises prices roughly in proportion to the quantities issued, and so we find that tho issue of so much paper money at Home is largely responsible for the present economic ann financial disturbance. The financial authorities realise this, and are endeavoring to return to the gold standard as speedily as possible. The country was sorely pressed in carrying on the financial part of the war, hence the principle of convertibility of notes in circulation' had de facto to bo abandoned, though not in law or in theory. A nation cannot get something for nothing any more than an individual without sustaining harm in other directions. Commodities pay for commodities, and money is only the medium lof exchange. "If," as one great authority has laid down, "we include under commodities labor and all the other things, tangible and intangible, that bear a price, and if we include under money not only the actual standard metal but all the forms of representative money, we see the proper working of the money medium is one of the essential conditions of civilised life." Mr- Hine's proposal is to create capital by the issue of paper bonds. It cannot bo done without injuring or depreciating the currency. If carried out and persisted in, it would simply land us in the parlous position Russia linds herself in to-day. The capital must first be created before it can be used. Let us work along those, the only safe lines, i.e., by opening up and developing the country's resources, facilitating trade, and increasing production. Tho money required for such purpose* must come from taxation, revenue, or loans; never from tho issue of inconvertible paper. Mr. Hine loses sight of the fact that all Government loans now carry a sinking fund. Just one more point, Mr. Hino refers in tones of regret to the huge amount paid away in interest during the currency of a loan, but it surely pays the country to pay thu interest; otherwise the money would not be borrowed. A business man borrows because he can make profitable use of the money. So does a country. Now Zealand can borrow many millions yet for development and earn handsome dividends after interest charges are met, for it has enormous resources, at present only partially exploited.