Wairarapa Times-Age FRIDAY, SEPTEMBER 29, 1939. A DUBIOUS PROPOSAL.

Wairarapa Times-Age, 29 September 1939, Page 4

Wairarapa Times-Age FRIDAY, SEPTEMBER 29, 1939. A DUBIOUS PROPOSAL.

•» EXACTLY how far the Government proposes to go in modifying the restrictions now imposed on its borrowing from the Reserve Bank has not been made clear at time of writing. The Minister of Finance has stated, however, that where it is necessary, money for the prosecution of the war will be taken from the Reserve Bank. If this means what it appears to mean, the prospect raised is that of the embarking on a questionable and dangerous financial policy. Mr Nash, as he is reported, said on this subject:—

If we required more than what we have normally, we would be foolish to say we cannot go on with the war because we have not saved the money. We have to use all the resources we have to provide the credit to pay for the things needed.for the war and for payment of men away at the war.

This is largely beside the point, because inflation, which inevitably would result from an unduly enlarged use of the Reserve Bank credit, would add nothing whatever to the leal resources at the disposal of the Dominion. Inflation is not a legitimate alternative to taxation, or to borrowing which dia.ws on savings. It is a viciously inequitable and wasteful device by which the purchasing power of all money held and earned in the Dominion would be watered down, imposing serious losses on a large section of the population, directly and by way of economic disorganisation.

That this danger is in sight and was in sight before the war began was emphasised by the Board of Directors of the Reserve Bank in their annual report lately presented to Parliament. ' In existing circumstances, t]ie directors pointed out, with surplus sterling reserves practically exhausted and the Reserve Bank.having been relieved of the obligation to pay its notes in sterling, “any additional credit expansion would inevitably tend to cause, sooner or later, a general rise in prices, with a consequent diminution in the value of all savings, wages, salaries and pensions.” It was added that:

. The board would therefore stress the desirability of the avoidance of further recourse to the Reserve Bank for accommodation and of limiting governmental expenditure to such a sum as can be raised by taxation in addition to what can be borrowed from the public, either in the Dominion or overseas. . . .

The facts and considerations here adduced apply as completely to the conditions of war emergency by which the Dominion is now confronted as to those of national economy in time of peace. The safe and honest course for the Government to pursue is to meet the largest practicable share of its War expenditure from taxation and’to carry out what borrowing is necesary —it is, of course, admitted that fairly heavy borrowing will be unavoidable —in conditions that will not entail inflation. It goes without saying that an essential part of the Government’s policy should be to foster and encourage the greatest possible increase in production, both for export and for internal consumption.