CHEAP MONEY.

Auckland Star, Volume LXV, Issue 144, 20 June 1934, Page 4

CHEAP MONEY.

BRITAIN LEADS WAY. POLICY TO RAISE PRICES. TREXD OF INTEREST RATES. In commenting recently upon the probable trend of interest rates in the "world. Professor G'ustav Cassei, the eminent Swedish economist, said that capital exporting countries like Great Britain were normally bound to have low rates of interest in their internal capital markets. If the efflux of capital was regulated, as it had been for nearly three years past, and if foreign investment had practically ceased, then the internal market would ! certainly have to reckon on low rates. Hut this was not a universal tendency, being set off, for instance, by higher rates in debtor countries. In England, too, Professor Cassei added, the rate of interest is largely dependent on British monetary policy, which is shaped at present to bring about a recovery in the world level of wholesale prices, and the essential condition of such a recovery was that credit should be made available by a policy of cheap money. Science Demands Capital. inking leave of specifically British conditions, Professor Cassei continues, 'we must first consider how the demand for capital will presumably shape itself, the technical science of the most advanced countries is continuously spreading over the globe, thus entailing a perpetual increase in the demand for capital, which will be still greater if encouraged by a free export of capital from the wealthier countries. If technical science is afforded the opportunity of reckoning with a lower rate of interest than has hitherto been usual, immeasureable opportunities will be opened up for the remunerative employment of capital in new fields. "The possibility of meeting all these requirements of capital naturally depends on savings," says Professor Cassei. "Whether we shall ever get back to saving on the scale which we were wont, before the war, to regard as normal, seems doubtful. The great change in the distribution of incomes which is proceeding under the sway of the levelling forces of present-day democracy argues against this. The increasing burden of taxation •if large incomes and of capital is bound to impede saving and to discourage the building up of capital. According as this taxation assumes, in more marked degree. the character of a confiscation of capital, it must be expected considerably to diminish the supply of fresh capital. The increase in small incomes which may possibly ensue can scarcely lead to an accumulation of capital sufficient to compensate for this loss. The increase in small incomes will be absorbed to an extent by a rise in the standard of living. A great economic advance would, therefore, in all probability. result in curtailing the supply of capital. As the demand for capital would at the same time increase it is not easy to see liow a reduction of the equilibrium rate of interest can be expected. Low Prices and Investment. "The present low rates of interest art, in fact, in a great measure merely the result of the paralysis of enterprise by the crisis. The perpetual fall in prices in particular has deterred private persons and corporations from embarking on new undertakings in the nature of long investments. Once we have become fully assured that the fall of prices has come to an end, private enterprise may make considerably greater demands on capital. But not even a continuance of the crisis wouM ensure the maintenance of the , present low rates of interest. If profits on industrial undertakings continuously decline, and if the lopping of large in- f comes is continued, we must reckon with 1 the possibility that the supply of capital ' will one day be too scanty to meet even ; very modest demands." '