NEED OF SAVING

Wairarapa Times-Age, 20 April 1939, Page 3

NEED OF SAVING

URGED BY THE MINISTER OF FINANCE AS BASIS FOR CAPITAL EXPANSION. LIMITS ON RESERVE BANK CREDITS. Urging that saving was necessary now, just as spending was necessary previously to offset the effects of the depression, the Minister of Finance, Mr Nash, speaking at the Easter conference of the Labour Party on the question of the internal credit situation, stated quite definitely that the Government was of the opinion that an internal loan should be raised. It had never had any other opinion. This is disclosed in an official report of the conference published in the official Labour journal yesterday. Any difference of opinion there may have been was exclusively confined to the time of issue of the loan, rate of interest, and the issue price, Mr Nash said. A rate of interest of 3| per cent had been suggested. In determining what the rate was to be one would have to have regard to the market rate of interest on similar securities. At the present time the rate varied from about 41 per cent to 41 per cent. EFFECTS OF INTEREST RATES. Other circumstances were the effect of a low rate of interest on investments, particularly the investment of trustee funds. These were securities which trustees were legally authorised to invest in and to which they were confined for their investments. On the other hand, the effect of a high rate had to be construed in its relationship to rates on other types of lending. For example, if the rate on the best type of security, namely, Government bonds, was raised, then there always was the tendency for the rates on local body borrowing, on mortgages

and overdraft to respond. A further! consideration which they had to take into account was whether in view of this they should refrain from issuing the loan and lake the money from the Reserve Bank. That was a question to be discussed. Obtaining accommodation from the Reserve Bank raised the further question__of what was the nature of a loan of tnis type under the existing financial procedure. In general, and in particular in the present situation, loans other than those from the Reserve Bank represented savings, and by savings Mr Nash meant the actual amount of physical saving of the community. Physical saving was represented by buildings, machinery, equipment of all kinds, public works. Monetary saving was only true saving when it reflected the saving of physical assets: or, put another way, when it reflected an abstaining from consuming goods immediately so that the materials could be used for capital equipment. This meant that, the extension and development of New Zealand was not possible except from savings. That is, New Zealand could not expand and develop unless the country used some of its resources to build factories, equipment,, transport sen ices and all types of physical capital. EXPANDING PRODUCTION. “The Government believes that it is right to use the Reserve Bank to the point at which it will expand production to the full and at the same time maintain and improve living standards. But to use it beyond that point nullifies the work the Government has been endeavouring to do in the past; that is, to repeat the words used, to maintain and improve living standards. “Three or four years ago when failure of purchasing power was causing and accentuating depression the ad-| vice to spend freely was an essential policy to maintain living standards,” Mr Nash declared. “An increase in the purchases of consumer, goods was more important than saving. ‘Now the position is different. A saving from people’s actual income is necessary to counteract a possible dan-

ger of prices rising and as a basis for capital expansion. ..It is unnecessary to stint or curtail demands for food or necessities, but to the extent that the demand for other goods is restrained prices wil be more stable. For saving now, that is, withholding expenditure now to enablp our people to enjoy more in the future and to avoid price increases now, there is an unanswerable case. “That is, we in New Zealand have to finance our own development. Expanding industry in New Zealand depends on the people of New Zealand and the people of New Zealand have to provide the capital for the building up of New Zealand. And in doing this;we must keep production up. In the last two years factory production has increased 25 per cent, but in the last year the increase was only 7i per cent —whereas the total production in value decreased last year by half a point. Farm production was down in volume. “From every angle, then, production in Npw Zealand must be increased, whether it is farm production or factory production or production of services."