The Press SATURDAY, NOVEMBER 6, 1954. THE PARTIES AND CREDIT

Press, Volume XC, Issue 27500, 6 November 1954, Page 6

The Press SATURDAY, NOVEMBER 6, 1954. THE PARTIES AND CREDIT

The Labour Party has good cause for its obvious anxiety about the possible loss of votes to the Social Credit Political League; but it can blame no-one but itself for its present embarrassment. Labour politicians have made a mysterious mumbo-jumbo of the simple basic facts of monetary policy; and the social creditors have profited from the resulting confusion, misapprehension, and prejudice. The Labour Party in the last few years has sedulously fostered the idea that credit in this country is not within the control of the government. The Labour manifesto for this election, with its promise of “ immediate and “ effective steps to ensure that the “ State will become the sole “ authority for the issue of credit “ and currency ” and its highsounding phrases about making money the servant and not allowing it to become the master, reinforces the idea. And it is an utterly false idea. It is, indeed, poetic justice that in his speech at Rotorua Mr Nash has been constrained to expose at least part of its falsity.

Those who advocate social credit [said Mr Nash] focus the attention on one important thing—that the issue of credit, like the issue of notes, belongs to society, and to allow the prerogative of the people to remain in private hands is to betray the people. Social and central control of credit musk therefore, be the crux of any national economic policy.

Exactly. It is the crux of the present Government’s economic policy, as it is the crux of the economic policy of virtually every government in the world. And the instrument of that policy everywhere is the central bank—the Reserve Bank, as it is called in this country. “In New Zealand”, said Mr Nash, “ the Reserve Bank, by “ act of Parliament, has the power to “ control credit in accordance with " government policy ”, It was not the Labour Government that created

this instrument of credit control but the Coalition Government of Mr Forbes and Mr Coates. Mr Nash used it for 14 years; and if he found it inadequate in any way he had ample opportunity to make good its deficiencies. Neither Mr Nash nor any other member of his party has any right to talk as though there were some great goal to be attained now which was unattainable between 1935 and 1949. Limits and Dangers Talk of this kind, like the meaningless promises in the Labour manifesto of sweeping reforms of the monetary system, is obviously meant to mollify those members of the Labour Party who lean towards

financial quackery. It will obviously not satisfy the adherents of the Social Credit Political League. It is fairly obvious that both parties would draw upon Reserve Bank credit for government purposes; but while the Labour Party recognises both the dangers and the limitations inherent in such a course, the Social Credit Political League sees no danger and acknowledges virtually no limits.; “ The Labour Party tried “the issuing of credit through the “ Reserve Bank,” said Mr R. M. Macfarlane, M.P., in a campaign speech, “and we got into serious- “ difficulties ”.

This frank acknowledgement of error illustrates less the difference between the Labour Party and the Social Credit Political League than the difference between the Labojir Party and the present Government over the working of the Reserve Bank. It is a difference of emphasis rather than of principle, but no less Important because of that. Not all central banks are State-owned institutions; but everywhere the principle is recognised that they should carry out the monetary policy, of the government. Normally, they do this by a process of consultation and co-operation with the government. The Labour Government was not satisfied with this; and (although it was never suggested that the process of consultation and cooperation had broken down, it introduced in 1939 legislation which

introduced in 1939 legislation which required the Governor and board of directors of the Reserve Bank to “ give effect to any decision of the “ Government . . . conveyed to the “ G6vernor jn writing by the “ Minister of Finance ”. There is no evidence that relations between the Labour Government and the Reserve Bank ever became such that recourse to this power was necessary; but the very existence of the "Nash clause” postulated an undesirably close political control of the bank. Independence of Judgment The present Government repealed the .clause in one of its first legislative acts; but it did not relieve the bank of the obligation to give effect to the Government's policy. What is more, it provided for the unlikely event of a dispute by requiring that the bank should give effect to any resolution of the House of Representatives. This was an assurance that the Reserve Bank would be able to maintain “ its independence “ of judgment and its objective “ outlook on monetary and banking “matters”, as a world authority on central banking has defined this primary requirement of a reserve banking system. It was an assurance that the Reserve Bank would not be compelled to follow politically-dictated policies, which, in its expert judgment, it considered unsound or imprudent It was an assurance that if there should be a dispute between the Government and the bank which could hot be resolved by the ordinary process of consultation it would be settled not by a secret direction from the Minister of Finance, but by a resolution of Parliament, which would have to Stand the test of Parliamentary debate and public discussion. No government needs more power

than this to ensure that its monetary policy will be put into effect. Under the present Government the Reserve Bank has proved a useful and effective instrument to eontrol the volume of credit and to limit infiation. It has used its very wide' powers sparingly and sensitively. In few countries can the necessary discipline of disinflation, agreed upon by the Commonwealth Finance Ministers in 1952, have been applied with less inconvenience sgnd hardship to the people. >