MONETARY POLICY.

Auckland Star, Volume LXVII, Issue 179, 30 July 1936, Page 27

MONETARY POLICY.

SYSTEM UNDER CRITICISM

MR. H. W. HADDOW'S ADDRESS

Changes made in the constitution of the Reserve Bank and the general monetary policy now in operation in New Zealand were discussed by Mr. H. W. Haddow, before the Auckland branch of the Economic Society of Australia and New Zealand at the Auckland University last evening.

r ihe Reserve Bank, said Mr. Haddow, had now become the monetary arm of tlie Government, obliged to carry out a policy communicated to it by the Minister of finance. Previously the bank used its own judgment in determining what policy to follow. Authorities were agreed that a Reserve Bank should have sufficient power to ensure that the activities of the trading banks were in consonance with the policy of the Reserve Bank. The Reserve Bank was now equipped technically with the means of imposing its will on the trading banks, and could regulate . and control the volume of credit made available by the trading banks to the community. The most powerful weapon of the Reserve Bank was to deposit with it an increased percentage of their deposits.

Mr. Haddow then examined other activities of the Government and their bearing on monetary matters. He referred to the proposed housing policy and State lending to private home builders as being likely to bo of great assistance in relieving unemployment. He cited Mr. Keynes' opinion that the volume of employment depended largely upon the amount of capital expenditure in the community and concluded that, in the absence of sufficient investment of private capital the State should itself embark on public works and other capital expenditure.

In dealing with the rise in prices which lie foresaw would result from the Government's industrial policy, the speaker said that in itself it could more properly be regarded as reflation than inflation. .Jle stressed that so long as there was a large body of unemployed a state of true inflation was not reached. The danger of inflation was, however, real owing to the interaction of the Government's policy of guaranteed prices. The statute provided that the guaranteed price must be fixed in relation chiefly to internal costs of production. If the Government's industrial legislation caused increased costs then the guaranteed price must be increased whether the overseas market price increased or not. In such circumstances the dairy produce account at the Reserve Bank would become chronically overdrawn by an increasing amount every year and a state of true inflation reached! A drastic reduction of tariffs, abolition of Sales Tax to reduce internal costs, coupled with taxation to finance the pua ran teed price and restrictions onpioduction would avoid this evil, but so far there was no indication that the danger existed. Possibly it was hoped that the price in London would rise enough to save the situation. Dealing with Budget prospects Mr. Haddow said he expected to see much of the capital expenditure of the State financed by the Reserve Bank, and that at this stage no exception could be taken to such a course. As to the future, the problem seemed as much psychological as economic, for it depended on how people reacted to the changed conditions.