MONEY INQUIRY

Press, Volume XCII, Issue 27733, 10 August 1955, Page 5

MONEY INQUIRY

WELFARE STATE’S ACTIVITIES effect on inflation ARGUED fA'ew Zealand Press Association) WELLINGTON. August 9 It had not been possible to assess with any degree of accuracy the extent to which the welfare State had contributed toward inflation, said Mr W. S. Otto today to the Monetary Commission. He did not atrree with Sir Wilfrid Sim. Q.C.. that the welfare State meant a higher level of monev and spending. It had merely meant a transfer of money from one section of the community t 0 another. sa*d Mr Otto. He was giving evidence on behalf of Mr H J. Kelliher, of Auckland. and being cross-examined bv Sir Wilfrid Sim on behalf of the Associated Bonks. When the hearing resume-i today, the witness replied to an .earlier question about the causes of the slump of 1390 He cuoted Dr. H. D. Bedford’s thesis on the history and practice of banking in New Zealand, which described circumstances leading to the sta’e in 1894 when “only the assistance of the State saved the Bank of New Zealand from failure.’’ Submission on behalf of Mr Kelliher had challenged the "legal or moral right" of the trading banks to issue credit—thereby creating money as they had done, said Sir Wilfrid Sim He asked Mr Otto whether he thought injunction proceedings against the trading banks to restrain them from earning on ns they had been doing would succeed. "I don’t know whether they would succeed." said the witness. “But I don’t know of any reason why an AttorneyGeneral should not be prepared to test the matter in the Courts if approached to do so.” He agreed that the practice of which he complained had gone on in New Zealand for perhaps 100 years, but it was only recently that bankers had realised and admitted that they were thereby creating money. Mr Otto disagreed that it would be “socialising credit” to have Parliament the final arbiter of the issue and destruction of money in the event of conflict on policy between an advisory council and the Cabinet. He contended that the ultimate responsibilitv must rest with the Government of the dav in a democracy. He denied that it would make currency and credit a political football. That had not occurred, though it had been forecast. when the State took over the Bank of New Zealand. Sir Wilfrid Sim said that the trend had been downward in bank advances, with a “temporary” upward move in the last year. The witness asked how temporary the upward move would be. It seemed to him the downward trend under the present system could be achieved only “at a cost.” To the chairman (Mr Justice Tyndall), Mr Otto said he did not know of an instance in the last 20 years in which a State had taken control of currency and “made a mess of it,” though he could not speak for Iron Curtain countries. It had occurred in "early history." however.