SPENDING AND SAVING

Evening Post, Volume CXI, Issue 151, 29 June 1931, Page 8

SPENDING AND SAVING

"How can New Zealand expect to get out of its economic difficulties if the money is locked up in the savings bank," asked Mr. Samuel in the House of Representatives on Friday. The hoarding of money, he said, would react against the workers of the Dominion. It was a lime when those who had money to spare should open their purses in order to provide employment for those out of work. There is a measure of common-sense in Mr. Samuel's statement, but/his. reference to money "locked up in the savings hank" is misleading. Many well-informed people appear to be similarly mistaken in their conception of the use in which bank credits are put. They refer ,to '•'frozen assets," and say that if the, money1 were only put into circulation everything would he better and brighter. Even Mr. W, Perry, in his presidential address to the Royal Agricultural Society last week, sajd that "bank.and Post Office deposits had increased, and if some of . the mp^ey could be lent to the farmers at reasonable rates a great national benefit would result." Bank deposits in the aggregate have not increased. A.substantial increase in fixed deposits has failed by more than two and a half millions sterling to balance a shrinkage in free deposits. The latest quarterly returns (for March, ,1931) show aggregate deposits as £51,251,939 compared with £54,032,241 for March, 3930. Notwithstanding this fall in deposits the banks increased their advances by some £<SQO,OCH>, so that an excess of deposits of £355,463 for March, 193Q, was converted into an excess of advances of £3,080,295 in March, 1931. So far as the Post Office Sayings Bank is concerned, withdrawals last year exceeded deposits by three and a half millions sterling (not allowing for interest credited to deposit accounts.).

It will be seen that, the banks have not more money for advances, but less. They are not hoarding the money, but, as the rising ratio of advances to deposits indicates, are using it freely—as freely as it is wise to do, bearing in mind how essential it is that they should maintain a strong position. It is a popular but quite erroneous idea that money saved is money hoarded. The money is indeed far from idle. The commercial bank funds are used in assisting to finance trade and production. Post Office Savings Bank funds are invested with the Government up to the limit that is safe to provide a margin for withdrawals, and the Government applies this money, as it applies other loan funds, for public purposes. If steps were taken to divert the money from the banks (commercial and savings) by means of a compulsory loan for advances to farmers, the, consequence, would be that the Government would lose some of the deposit money it now holds (and it would, therefore, have less for- advances and works), and private enterprise (including farming) would lose die benefit of .'advances now available from the banks. New money would not be made available, but old money would reach the users by a new channel, and possihly it would not be used so beneficially as it is now by the bankers who have made a special study of the business. On,the subject of spending, where people have money to spend, Mr. Samuel's advice is, however, quite sound, Saving is necessary to replenish capital funds, but in a time of depression saving may be overdone when it leads to evident changes in the use of funds and excessive withdrawals of money from current use. A sound general policy is outlined in a few words by a contributor

to the May "Economic Record" who writes on "The Depression in New Zealand." ■

Tho key to business stabilisation, especially in a country largely dependent on its exports of raw materials, is tho adoption by exporters and ■by public governing bodies of a policy of accumulation of rosorvea during good years, and expenditure of these during poor years. Unfortunately, in Now Zealand, as in almost all countries, the opposite policy prevails. The good years are usually marked by public and private extravaganco and increase of debts, thus accentuating "boom" conditions, and tho slump is intensified by tho necessity to liquidate loans and to enforce dfastio economies in public and private expenditure during bad years. Saving in prosperity and spending when business is slack is a sound rule for the avoidance of those hills and hollows which are bad for business and costly: to the consumer. With prosperity behind us we cannot now follow the first part of this rule, but we can endeavour to apply the second part .sensibly. Expenditure which will add to liabilities is not desirable, and conservation of capital resources is needed, but this does not necessitate such drastic and sudden curtailment of spending by those yet possessed of ample means that the business structure of the country is weakened.