Wairarapa Times-Age SATURDAY, NOVEMBER 25, 1939. MONEY AND PROSPERITY.

Wairarapa Times-Age, 25 November 1939, Page 4

Wairarapa Times-Age SATURDAY, NOVEMBER 25, 1939. MONEY AND PROSPERITY.

1 A S he is reported, Mr J. A. Lee, M.P., told an audience at Pahiatua the other evening that, unless the Government took over at least one trading bank before next election it would not, have carried out its pledges to the electors. Mr Lee is stated to have said also, on the same occasion that Hue democracy would be impossible until the people had control o the banking system, that New Zealand was deep in extenw and internal debt because private enterprise controlled in °W, and that “there is no greater lunacy than financial orthodoxy.

Statements of this kind no doubt serve their purpose very well on the public platform. Their merit may be less obvious if thev are subjected to thoughtful examination. In any case, without attempting to follow Air Lee in all his flights, it may be suggested that the people of this country, and not east those°of them who feel the pinch of straitened means, will be wise to demand of every advocate of monetary reform, so-called, an explicit and reasonably detailed statement if what he would wish to do and what he thinks the effects would be.

On one leading point, Mr Lee is as explicit as could be desired. He thinks the Government should take over at least one trading bank. To what end is it suggested that this should be done? Not, surely, in order that money may be distributed more plentifully in the Dominion? We are being taught at present in somewhat painful experience that too much money, as distinct from the things that money will buy, is a gift from the Greeks' There is no shortage of money in New Zealand in these (lavs. On the contrary, there is too much monVy m circulation in relation to the things that money will buy.

Our principal economic trouble —one that, is aggravated but not caused by maturing debt and the prospect of having to meet heavy war charges—is that on account, of lavish borrowing and unproductive expenditure by the Government, supplemented no doubt by private extravagance, the amount of money in circulation has expanded far more rapidly than the production of goods and services—the things that money will buy. The natural and inevitable consequence is that though money still buys these things, it buys less of them than it did. It follows that the purchasing power of wages and income of every kind is reduced, and the self-same state of affairs raises impediments to the expansion and extension of productive enterprise.

Our money, as matters stand, is inflated and further inflation evidently would make a bad state of affairs still worse. That being so, it’can hardly be in order to expand (he volume of money, or to add to its velocity of circulation, that Mr Lee and those who think with him desire that at least one trading bank should be taken over by the State.

Neither, surely, can the taking over of one or more trading banks be regarded as necessary to give the people control of the banking°system. If control of the banking system by the Government of the day is control by the people, then the banking system of New Zealand is controlled by the people as completely as it can be in a partner State of the British Empire. As the Reserve Bank Act now stands, the Government is in a position to expand credit virtually without limit. At the same time the Government has full power, through the agency of the Reserve Bank and that of the State Advances Corporation and other lending departments, to exercise either direct control or a decisive influence over the determination of all money rates. To a very considerable extent the Government is in direct touch, through the lending departments, with individual borrowers.

On the facts, the suggestion that there is some miracle of reform and benefit to be achieved by taking over as a Sialo concern a trading bank or banks, is entirely unconvincing. What is needed in this country is not the creation of some horn of plenty mil of which money will pour bounteously, but rather the institution of a measure of control under which money will retain its value and purchasing power. Some members of the present Government have fairly staled and emphasised, of late, that money which is not backed and balanced by production is worthless. Unfortunately, however, the practice of the Government is far from having been brought into-conformity with this true statement of monetary principles.

Monetary policy, if it is to serve the interests of the total community, must be directed Io stabilising and maintaining the purchasing power of money, avoiding errors of either inflation or deflation. Il is in these conditions that maximum results might bo secured by a wise use of credit in fostering and stimulating production. The average man and woman will best realise how far these safe lines of policy have been and are being departed from in this country by considering what the New Zealand pound, or shilling, purchased even three or four years ago and what it will purchase today.