The Dominion. SATURDAY, NOVEMBER 6, 1943. FINANCIAL POLICY AND PROBLEMS

Dominion, Volume 37, Issue 36, 6 November 1943, Page 4

The Dominion. SATURDAY, NOVEMBER 6, 1943. FINANCIAL POLICY AND PROBLEMS

The address given on Thursday by Mr. L. Lefeaux, formerly governor of the Reserve Bank, on the pre-war financial policy and problems of the Dominion, was one of the most valuable and thoughtprovoking statements made for a very long time past. It dealt with basic issues, with the things that have a permanency unaffected by the shifts and expedients of political policy, and certainly not to be ignored #in the framing of any sound financial policy, except at grave risk to the community. No doubt some of the weaknesses to which the speaker referred must be attributed to that strange, but at the same time strongly held, opinion of the present Government, , that New Zealand could insulate itself, economically, from the rest of the world. Today probably most New Zealanders would endorse Professor Hancock’s statement, in his masterly survey of economic policy of British countries from 1918 to 1939 when, referring to the position of the Dominion, he said: “An exporting country cannot ‘insulate’ itself from the direct repercussion of a rise or fall in the prices which its exports can command. . .. . Probably the New Zealanders already knew this in their hearts; if they did not they weie bound to learn it by future experience.” Statements could be quoted which indicate that this lesson has been brought home, but the views expressed by Mr. Lefeaux must serve a .most useful purpose by stressing the effects of the mistaken policy pursued. Sound finance and extravagance are poles apart, and there can be no possible denial of the criticism levelled at our prewar financial policy. The unprecedentedly heavy State expenditure made at a time when trade was recovering rapidly, created such a body of domestic purchasing power that it exhausted our overseas, resources by piling up imports. It perhaps will be remembered that* the board of directors of the Reserve Bank, in the annual reports of the bank at the time, directed attention to this danger. The board urged that the extent of public works should be regulated as far as possible “according to the state of employment in other directions.”. It stressed the necessity' for avoiding any undue expansion of credit when the trade position was favourable in order that overseas funds might be built up to meet a need when conditions were not so good, j And no doubt these sound views, issued over the names of the governor and deputy-gov.ernor of the bank on behalf of the board, were largely those held by Mr. Lefeaux. The Minister of Finance seemed to endorse them when, in his Budget of 1938, he said that the use of credit would be “inside sound financial proceduie, ( but events belied these good professions. The Government, it will, be recalled, asserting that the economic position of the country was “sound and satisfactory,” hastened the holding of the general election of 1938, refrained from informing the people of the gravity of the' situation and of its intentions in vital matters of finance and commerce,, and yet within a few weeks of being returned to office imposed the, most drastic control of exchange and all overseas trade. . Those developments, although since defended by Labour Ministers and members as steps that enabled the Dominion to enter the war without having to make the adjustments found necessary in other Empire units, were correctly summed up by Professor Hancock. They were, he said, “the undesired and unforeseen consequences of New Zealand policy, not the triumphant fulfilment of a plan.” That was the crisis to which Mr Lefeaux referred and which he attributed to the policy pursued at that time. The address, certain to impress by its impersonal note and the clarity of the views expressed, should have the careful study of all sections of the community. The problems and the dangers can now be seen in the light of experience, and they should act as a warning' in respect of both present and future policy. Should the immediate post-war period prove difficult, as it is certain to be in greater or lesser degree, there .will no doubt again, be advocacy in the ranks ot the Government of the adoption of what many regard as the easy way ou t —the further expansion of the so-called use, or abuse, of the public credit. In spite of the dangers already disclosed m the inflationary movement depreciating the purchasing poiver of our currency, this idea persists, and it has to be fought and defeated if the finances of the country are to be placed on a sound foundation.