INSULATION THEORY

Wairarapa Times-Age, 2 July 1938, Page 7

INSULATION THEORY

. HOUSE OF REPRESENTATIVES DISCUSSION MR POLSON ON INFLATION. SAYS WORST EFFECTS WOULD FALL ON WORKERS. (By Telegraph—Press Association.) ; WELLINGTON, This Day. ; Maintaining, when he spoke in the ' no-confidence debate in the House of ' Representatives yesterday, that the whole of the Government’s social security scheme was based on the belief that this country could be insulated against the effect of what might happen abroad, Mr W. J. Polson (Opposition, Stratford), added: “This, as an exporting country, depends for its income on overseas prices, which are subject to fluctuation, but the Government thinks it can do something that will nullify the effect of any fall in prices. There has been a great deal of silence about the insulation theory, but I am glad that at least one member of the Government is frank. Speaking at Horsham Downs recently, the Minister of Agriculture, the Hon. W. Lee Martin, said, when asked how the Government would maintain the guaranteed price if London prices dropped 16s a cwt., that the difference would be found out of the national credit, and certainly not out of taxation.” In other words, Mr Polson added, the plan was pure, straightforward inflation. The Minister of Agriculture had admitted that if export prices fell the Government would inflate and create money out of the national credit. It would pay in inflated currency, and the effect of inflation was always worst on the workers whom the Government claimed to be helping. LABOUR MEMBER’S VIEW Two ways in which he thought New Zealand could be insulated from the effects of a fall in overseas prices—inflation, and restriction of imports — were mentioned by Mr C. Morgan Williams (Government, Kaiapoi), who followed Mr Polson. Mr Williams said that he was not speaking on behalf of the Government, because he did not know what the Government plan was. He was merely showing that there were, two ways by which isolation might be achieved. “Labour has a plan of insulating the country,” said Mr Williams. “Our first charge upon overseas funds is for interest on debt, and we do not intend to repudiate. If a fall comes we will have to reduce imports, but this does not mean'that we will have to reduce ; the standard of living of the people within New Zealand where it can be ; supplied from within New Zealand. Under the previous Government, when j overseas prices fell, less of the goods ] produced in New Zealand were con- ; sumed in New Zealand, but there is j no reason why this should be so. , “It is a fallacy to'suppose that we cannot in this country produce most of ( the goods we consume, and only by ( reducing the quantity of goods im- L ported, and increasing the consump- . tion of New Zealand goods can we insulate the country against a fall in ! overseas prices.” 1

TWO WAYS SUGGESTED There were actually two ways to accomplish insulation, said Mr Williams. One was by an inflationary policy of depreciating the currency and increasing the exchange rate, and the other was by rationing imports. Import control was the more logical and efficient way. It had been successfully applied by Germany. The Onekaka steel works, for instance, would permit a reduction of steel imports without hindering in any way the rate of construction in the country. “If we use the credit of the Reserve Bank, that is our own internal credit, and replace exports by locally produced goods, we can insulate this country. Because there was no longer prosperity overseas would be no reason why the people of New Zealand should be deprived of their ability to consume the goods they produced themselves,” he said. Mr J. A. McL. Roy (Opposition, Clutha), said that as a. working farmer he was particularly interested to know how the Government proposed to insulate the country in the event of another depression. Mr Williams’s argument had failed to convince him that Labour had a plan which would in any way relieve or prevent a slump in prices. Increased consumption within the country would not save the farmer. Even if local consumption were doubled the farmer would still be in difficulties. When wool prices dropped 12 months or so ago, the Government had an excellent opportunity to show the people in no small way how its insulation policy could be brought into operation. Nothing, however, was done.