LONDON FUNDS

Evening Post, Volume CXXVIII, Issue 29, 3 August 1939, Page 10

LONDON FUNDS

EFFECT OF DEPLETION

ALL WILL SUFFER

CRITICISM BY MR. W. DOWNIE STEWART

(By Telegraph—Press Association.)

DUNEDIN, August 2. A warning that exhaustion of the Dominion's sterling balances in London must eventually affect all classes of the community and that the Government's "stop-gap" remedies Avould only serve tb accentuate the position in the long run, was given by Mr. W. Downie SteAvart in an address at the annual meeting tonight of the Dunedin Chamber of Commerce.

Mr. SteAvart, ivho emphasised the fundamental importance of London balances in relation to the Avhole economic life of Neiv Zealand, criticised the Government's financial policy, describing it as one of "eat, drink, and be merry," and expressed the opinion that the greatest danger of the hasty deA^elopment of secondary industries Avas increased costs and further burdens on all-important export industries. He also accused the Government of extravagance, which, he said, .had raised the necessity for further\taxation, and prophesied that a \continuation of Labour's financial* policy would mean another pilgrimage to London by the Minister of Finance in an effort to obtain help from "those whose advice Aye ignore.^"

"Is the Prime Minister's belief based on the idea that a nation may be wealthy in one place and\poor in another, just as a man may be\a millionaire in his OAvn country, but;short of cash in, say, India?" Mr. Stewart asked. "Is not this what the wage-eanier believes to be the explanation of the present difficulties and chaos in the import trade? Have we by accident or by the malevolent designs of 'gangster' financiers fallen short of cash in London while remaining wealthy in New Zealand? Unfortunately the case is more serious. "If something has gone wrong Avith London balances then the effects must be felt in NeAv Zealand. At present it is mainly traders and importers who feel the blow, but trade is our life blood, and before long wage-earners and all classes will be affected and the Government stop-gap remedies Avill accentuate the mischief. SIGNIFICANT REPORT; "They are set forth clearly," said Mr. Stewart, "in a report just published by the Reserve Bank, and, here again, London funds are the test. It is there stated that, because of surplus sterling funds being practica-lly exhausted, any further credit expansion in New Zealand would cause, sooner or-later, a general rise in prices, with a consequent fall in the value of all savings, Avages, salaries, and pensions. In other Avords our standard of living would fall. The Reserve Bank, therefore," stresses the desirability of avoiding further recourse to it for accommodation, and urges the Government to limit its expenditure to what can be raised by taxatoin or borrowing from the public in NeAv Zealand or overseas."This statement is highly significant and important, for one of the Government's chief policy measures was 'to take control of public credit and establish a national credit authority, whose duty it will be to provide money service to give effect to the will of Pai*liament.' This measure was carried in 1936 as an essential'feature of its expansionist policy. Mr. Nash said, 'We have idle labour, idle machinery and raw material, and all we want is credit or money to make them fructify. It does not matter in the least,' he said, 'how much money I issue so long as goods are produced,' but in the Budget the Prime Minister now says Aye have too much money and not enough goods. "If that was the result of his expansionist policy, he now decides to expand more, to tax more, borrow more, and spend, more, in a vain attempt to sustain the standard of living. He cannot blame the Reserve Bank, for, though his election promise was that it Avould supply all the money he needed, he has now worked it to a standstill and has fallen back on more taxation and an appeal to the thrifty to lend their savings. But, as the Government has complete political control of the Reserve Bank, it can no longer raise the cry that it is thwarted by private financiers. "Various explanations have been offered of the exhaustion of funds," Mr. SteAvart continued, "but the two. main factors seem to have been overimportation and the outflow of capital from New Zealand. Heavy imports were the natural result of increased spending poAver caused by higher wages and expansionist policy. It was what is called a 'short sprint' policy and the nation has to take a longer view than that, unless it accepts the 'eat, drink, and be merry policy' of eating up seed corn. "But it is strange to find Mr. Savage accusing his predecessors of 'hoarding up money in London, which,' he thinks, 'should have been used to relieve distress and unemployment.' "The greatest danger of all," said Mr. Stewart, "is that this hothouse development of secondary industries must mean increased costs and further burdens on our all-important export industries Our exports must compete m world markets. If they get a bad setback, it is quite certain that our secondary industries will not flourish. IMPOSSIBLE TASK. "The Minister says he will control! prices, but this is almost an impossible task. Probably here, as in Germany, if the manufacturer is not allowed to raise his prices, he will reduce the quality of his output. "On all hands the Government was v/arned that it ought to shorten sail. Instead of that it has crammed on more canvas. The need for extra taxation arises directly from the Government's own extravagance. The Prime Minister says it is necessary to make up the loss of Customs revenue due to restricted imports, which, in turn, is due to exchange control. In fact, the whole story reads like a genealogical table in the Bible. Expansion policy begat purchasing poAver, purchasing power begat over-importations, over-1 importations begat depletion of over- , seas funds, this begat exchange control and all the mischiefs that followed, including the present imposition of higher taxation, but it also begat many sidelines, such as rising costs for farmers, rising interest rates, and fall in the prices of our Government stock. "Had New Zealand kept her good name and credit in London," Mr. Stewart concluded, "her loan renewal

and other transactions could have been arranged without difficulty, but on the" present policy it will not be long before the Minister of Finance has to make another hasty pilgrimage to London, imploring help from those whose advice we ignore. On the day Mr. Nash reached London, he was reported as having made the astonishing statement 'that it would be more difficult for the United Kingdom to live without New Zealand than it Avould be for New Zealand to live without the United Kingdom/ but so far the only result of the insulation policy seems to have been to make us more supinely dependent on Britain than ever in our history."