The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News The Echo and The Sun TUESDAY, AUGUST 18, 1936. THE STATE AND CREDIT.

Auckland Star, Volume LXVII, Issue 195, 18 August 1936, Page 6

The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News The Echo and The Sun

TUESDAY, AUGUST 18, 1936. THE STATE AND CREDIT.

For the cause that lacks' assif.iancc, For the wrong that needs resistance, For the future in the distance, And the good that we can do.

An attempt lias been made n\ the past few days by a number of Auckland citizens to bring pressure on the Government, and particularly on the Minister of 1' inance, foi the issuing of "debt free money." The' term has not been defined, but the proposal amounts to the almost unlimited use of credit to finance State Departments and private enterprise. An open letter containing thissuggestion, and bearing 19 signatures, was addressed to the Prime Minister, Cabinet Ministers and all members of Parliament, and on Saturday night a questionnaire emanating from the same source was presented to the Minister of Finance at a meeting which was largely attended, but from which the Press was excluded. In reply, the Prime Minister and the Minister of Finance have promptly repudiated any breach of faith with the electors, and have made it perfectly clear that they have no intention of altering the basis of their financial policy.

The Government is bound by no pledge to issue "debt free money." Its election promise was to "assume control of the public credit and establish a national credit authority whose duty it will be to provide a money service sufficient to give effect to the will of Parliament." Its first legislative act was to place the Reserve Bank completely under Government control, and to provide for the underwriting of Government long-term loans at the bank. These changes, and others made at the same time, have greatly increased the powers of the Government to control the credit position, and have given it a commanding voice in the banking affairs of the Dominion, but as yet these powers have been little used, except to create a national dairy account for the financing of the guaranteed price scheme. There is, however, a Budgetary provision to borrow. £5,940,000 for public works during the next seven months. The Government is spending at a higher level than ever before.

Of course, there is a wide difference between this spending, which is only possible by increased taxes and borrowing, and the spending desired by the signatories to the "open letter." Their proposal involves neither debt nor interest. A score of schemes submitted to the Monetary Committee two years ago were based on the same idea. They are modern variants of the earlier printing press methods of inflation, and would have exactly the same result. In a ramp of this kind the aveiage man always fares worst; he has no means of escape and is at the mercy of the soaring prices. Some credit theorists align with theii debt or interest free, money platform the belief that prices can by Act of Parliament be kept down to their present levels, no matter what the volume of money may total. That is one point where they lose touch w r ith actuality. The use and limitations of credit are much misunderstood, and the idea that there is an inexhaustible supply somewhere is sheer delusion. At present the banks have ample funds to lend, but to bring these reserves into circulation settled and stable conditions are required.