Fall In Value Of Money Since 1939

Press, Volume CIII, Issue 30576, 20 October 1964, Page 14

Fall In Value Of Money Since 1939

The value of money has fallen so far in the last 25 years that £lOO in 1939 equals about £239 today, says the chairman of the New Zealand Savings Committee (Mr C. A. McFarlane) in a statement replying to a correspondent of “The Press.”

A correspondent using the pen-name “Why Save?” wrote:— “I am neither a mathematician nor an economist but I know that as a working man, more often than not, on the bare award wage I have saved a little every year of my working life, yet I have lost out. Could you tell me what £lOO deposited in P. 0.5.8. on say, April 1, 1939, would, plus accumulated interest, amount to at March 31, 1964? (I think the rate of interest was changed during this period). Also, what is the purchasing power of our pound today as compared with 1939? Who has robbed me of the purchasing power of my savings? Would price control of land and goods have prevented this? This is “Savings Week.” Have I any guarantee that £l9 19s which today will purchase a certain electric heater will buy one of a similar quality in, say, five years? Arid the Government exhorts me to save!”

Mr McFarlane’s reply says that the value of £lOO deposited with the Post Office on April 1, 1939 at the most favourable rates would have increased to £212 10s 9d by March 31 this year. The same sum invested in Government stock—which would have been more usual for a longterm investment—would have increased to £3OO 10s assuming an average interest rate of 4J per cent. “Over the same period the value of money has fallen to the extent that £lOO in 1939 approximately equals £239 to-

day. During this period the severe economic strains of the war and immediate postwar difficulties brought about abnormal conditions which affected prices and living costs. Nevertheless the above figures show that through this difficult period of changing values the return from savings has kept in step with rising living costs.

“The Post Office figures do indicate a small loss but it should be emphasised that a savings bank account is intended more as a ready and convenient savings source for smaller sums put aside for a special purpose rather than a form of long-term investment.

“Investments accounts and Government and local authority stock as well as building societies and insurance policies would be more suitable forms of investment intended for 25 years and more and any of these means of savings would have yielded an over-all return in excess of the loss in money values. “The causes of inflation are not easy to identify. The report of the Royal Commission on Monetary Banking and Credit Systems, 1956, identified the following as the main causes of Inflation operating in New Zealand over the previous 20 years (para. 965):

(a) Rising overseas prices for New Zealand exports and imports, (b) High private and Government capital expenditure. (c) Government expenditure on war and other military requirements, (d) Inadequacy of voluntary savings to match increased capital investment, (e) Expansion of the money supply through increases in Reserve Bank and trading-bank advances. (f) Wage and salary increases, (g) The comparatively rapid population increase in the post-war years.