ISSUE OF CREDIT

Evening Post, Volume CXXXV, Issue 131, 4 June 1943, Page 4

ISSUE OF CREDIT

MR. NASH'S VIEWS

"WOULD LEAD TO CHAOS"

"It has been suggested by many good citizens, who have not fully examined the effect of their proposals, that the full cost of the war j should be met by the issue of currency from the Reserve Bank. This is such an easy road that if it had good foundations we should follow it, but the facts of life prove that it would lead to chaos and disaster," stated the Minister of Finance (Mr. Nash) ,in the Budget he presented in the House of Representatives last night.

"Money is necessary as a medium of exchange, and if there is sufficient money in circulation already," said Mr. Nash, "the creation of more would not remedy a decline in production because in such a case the decline would not have been caused by a shortage of money. On the other hand an insufficient money supply may cause production to fall by reducing the effective demand for available goods. In such a case the supply .of money could with advantage be increased. At the present time there is ample money in circulation to enable the people to purchase necessary goods and services as they become Available day by day. Consequently harm and not good would result in the further increase in the supply ot money, as would arise from the use of Reserve Bank credit except in extreme emergency—and for which even then the price would have to be paid. In fact, what is wanted is the siphoning off of any excess purchasing-power for investment in war loans in order that diversion of productive effort to war may be matched by a similar diversion of purchasing-power. Only by these means can we remove the pressure that threatens to upset our economic, stability. . "Other Governments are now realising that currency and monetary poncy must be under their control as they are in New Zealand—that the power to create credit must be used exclusively for the benefit of the people, and in particular to assist the expansion of production and services to maximum requirements. Shortage ol goods and services in a period when expansion of production is not possible calls for a totally different monetary policy than does a condition when expansion of production is both desirable and possible. THE WISEST COURSE. "If we are to make our maximum war effort, whilst ensuring good founiations for our post-war policy, it is essential that the currency and mone:ary system be wisely managed and controlled. At the present time the wisest course is to rely on subscriptions to the war loan to meet the sum lot provided by taxation at existing *ates during the current year. There is thus an unprecedented opportunity to assist the war effort and place New Zealand in this field also, in the van 3f the United Nations. If during the month of June every one determines to place all his or her surplus into the war loan, the sum required will not only be obtained but further taxation will be unnecessary. The effect of subscription to the loan, if made by all classes and groups of people, will have the same beneficial effect on stabilisation as if the same sum were raised by taxation. "Taxation takes from all largely in proportion to their ability to pay the moneys required to carry on the war and national activities," added Mr. Nash. "Creation of credit under certain circumstances takes away by unseen methods the, value of work done and savings made, and ultimately in the forms of price increases hits those most who have to spend their incomes on necessaries of life. Loans borrowed from those who have worked and saved the result of their labour divert these savings to the war and national efforts and the amounts will be repaid when war needs are satisfied and production is once again based on civilian needs."