SAVING IN WARTIME

Evening Post, Volume CXXIX, Issue 21, 25 January 1940, Page 13

SAVING IN WARTIME

MR. KEYNES'S PLAN

POSTPONING CONSUMPTION

Mr. J. M. Keynes, the English economist, has further developed his series of original suggestions on war time finance by proposing a plan of compulsory saving, says a writer in the "Sydney Morning Herald." This plan is designed to solve what he considers to be the central problem of war finance—the reduction of civil consumption in order to free labour and materials for war purposes.

It has become necessary for Britain to divert a large proportion of the productive resources of the country to making guns, ammunition, and various war supplies, and, as more and more factories are turned over to work on these things, there must be a corresponding drop in the output of goods used in civil life. .

Government spending on a vast scale means that an increasing number of workers are drawing wages from the armament and other industries, but at the same time the flow of civil goodsfoods, clothing, household goods, and so on—is being slowed up by the prior claims of war supplies upon the productive resources of the. nation. The result is that the public finds itself with a rising money income, at a time when the quantity of goods available in the' shops is dwindling. > The tendency is for prices to rise, until a point is reached where people find that they cannot afford to pay more,, and resign themselves to consuming less, and in this way the nation's reduced output of civil goods is enabled to go round. RAISING INCOMES. Mr. Keynes, however, is anxious to achieve this result by a more direct method. Earlier in the year he advocated a system of public borrowing for war. purposes which attracted wide attention. He suggested that, if capital were prevented from leaving the country, and with new capital issues under Government control, all new savings must, automatically, be available for taking up Government bonds or capital issues sanctioned by the Government. . Having imposed the necessary restrictions, the next step under his plan was to increase the money incomes of the people by inflationary action. He recommended that the increased arms spending should be financed by Treasury billSi and he argued that, as employment was increased and incomes expanded, so also '-, would the total savings of the nation increase. ; •Not until there was.full employment and a plentiful supply of savings, Mr. Keynes maintained, should the Government resort to long-term loans, which it should then be able to issue easily and.at low rates. ' / Mr. Keynes now has carried his plans a stage further in an article in "The ■,Times." { The weakness in the scheme outlined above is the assumption that the people will continue to save the-same: proportion of their income at a time when civil goods are becoming scarce and dear. It is by no means certain that they will do so; in fact, it seems likely that they will spend more, and possibly save little or nothing, in trying to maintain the] standards of living to which they have been accustomed. ...: - , BLOCKED SAVINGS ACCOUNTS. Such attempts by consumers are adorned to failure;'since the crux of the matter is production of less and less peace-time goods; owing to the increasing war needs. But if the public does try to get what it. wants by spending its money instead of saving a I portion, it will raise prices of civil goods all the more rapidly, which involves the danger that quite considerable productive resources might be diverted, in the absence of a rigid and minute Government control, from essential war purposes to supplying civil wants, "■ '■•■•, Mr. Keynes rejects rationing as unlikely to,be sufficiently effective, and taxation as effective only if applied to smaller incomes. Instead of leaving consumption to be checked by rising prices, 'he proposes to achieve the same end by the most direct means. His new plan is to make saving compulsory, by impounding a percentage of every individual's income in a savings bank account, which would not be available for Spending until after the war. Every person would thus receive enough current income to carry on during the war in economical fashion, the balance being accumulated in the blocked bank account, earning interest at 2£ per cent. The proportion of income thus withheld would rise very steeply on the higher ranges of income, so as to. discourage as much as possible the demand for luxuries and semi-luxuries. POST-WAR EFFECTS. The savings bank would be able to invest these accumulations in Government bonds, and so solve the practical difficulties of loan finance, A part of the money withheld from the public would be paid directly to the

Government for income-tax, and so the money cost of the war would be met from money taken directly from the public, some of which would go an taxes, and some of which would be represented by Government arid other securities held by the savings bank. *

Presumably the savings bank would be allowed to invest these funds also in new private capital issues for purposes approved by the Government, otherwise it is, difficult to see how private financing could be carried out except on a small scale.

An aspect of the suggestion which has evoked approving comment is the stimulus to post-war reconstruction which would be provided *by the gradual release of these savings after the war. It is evident that the release could not be made too suddenly, as that would result in an immense demand for civil goods which the country would not be equipped to supply, but as fast as > industry could be switched back to a peace-time footing, a demand for its output could be assured.