Bay of Plenty Times. THURSDAY, AUGUST 4th., 1938. BOOM-TIME SPENDING

Bay of Plenty Times, Volume LXVI, Issue 12419, 4 August 1938, Page 2

Bay of Plenty Times. THURSDAY, AUGUST 4th., 1938. BOOM-TIME SPENDING

In the report issued by the Board of the Eeserve Band, it is pointed out that if “recourse is to be had to additional expenditure on public works during' periods of relative trade depression, the Board would stress the importance of avoiding any undue expansion of credit when the trade position of the Dominion is favourable, for in the ordinary course, unless overseas funds are allowed to accumulate when the proceeds of exports—and, consequently, the national income—are at a high level, it would be difficult to maintain purchasing-power—involving a strain on the overseas position—if and when the Dominion’s overseas trade position materially deteriorates.”

Boiled down, what is suggested by the Board of the Reserve Bank is that public works should be on a small scale, when the overseas trade of the Dominion is favourable. The reason given for this procedure is that when the overseas trade position is good there is a chance on the part of the Bank to accumulate London funds which would be available when the overseas trade position was unfavourable. It must not be. overlooked that the gold reserve, which is less than £8,000,000, and the London funds make the backing for the note circulation. If the London funds are whittled away when the trade position is favourable, then there naturally would be less available when there is a trade depression, and when it is necessary for the State to engage in public works to provide for unemployment. The Reserve Bank is not making a novel suggestion, but a suggestion based on commonsense and experience. The State is bound by the same economic laws as the citizens of the State, and the latter cannot act differently to the citizens without causing serious trouble. The private citizen in his capacity as industrialist in a boom period does not squander his surplus

profits, but ploughs them baek into business, Then is the time to strengthen reserves, overhaul machinery and equipment and to take steps to further reduce costs. Most of the joint stock companies in Britain, although they are doing extremely well, are not paying higher dividends but strengthening (heir reserves against the rainy day which they know to be inevitable. This it must be admitted is common-sense and prudence. It is orthodox finance, and what New Zealand has to consider is what will happen when the trade position becomes adverse. Our overseas export trade in I!U7 was valued at £(30,000.000. and we have to visualise a decline to £54,000.000. What would be the position then ! The London funds would be very low. and notes issued against those funds must be low. If we unduly accelerate expenditure now there must be the danger of currency inflation with all its attendant horrors and it is obviously this prospect that has caused the Board of the Keserve Bank to speak out on the subject. Orthodox financing is the only safe way of dealing with the position, and it is comforting to know that the present Minister of Finance is not unmindful of this fact.