The Evening Star MONDAY, SEPTEMBER 18, 1933. ABOUT BORROWING.

Evening Star, Issue 21519, 18 September 1933, Page 8

The Evening Star MONDAY, SEPTEMBER 18, 1933. ABOUT BORROWING.

The return of Messrs Forbes and Masters to New Zealand has not been the occasion for the imparting of any fresh information on the very grave matters which they left to help to discuss. Under the circumstances there is no discourtesy, in assuming that there is no fresh information to give. Mr Forbes maintains that the conference has been adjourned, not abandoned; but it ever convened again it will be on a smaller scale, and then not until the leading countries have a better conception of united action than they have now. There are some lessons which will have to be unlearned before that takes place. The immense scale of expenditure during the war, chiefly the proceeds of loans, taught nations the abase of credit. The straits to which they were subsequently reduced because of this great burden of debt taught the abuse of currency. Sir Arthur M. Samuel has just been declaring that the principal cause of the world’s pre sent partial collapse has been the abuse of credit. He instances Germany as one ot the chief offenders. Since the war Germany has made two major defaults, besides a number of minor ones. Foreign money has been poured into that country profusely, and it has little to show for it, while the lenders security, in view of the internal state of the country, seems practically valueless. The latest advices are that Germany's policy is to cultivate trade with her neighbour Russia. It seems a case of like to like. Russia was an early defaulter on the grand scale, her ehiel victims being Britain and France, The position of Russian credit abroad now is instanced by her having to export foodstuffs, though very ill-spared, in order to pay for any purchases abroad, and German trade seems to be fast approaching a similar predicament. It will be interesting to see how this pair of uncertificated bankrupts fare in their dealings with each other. Sir Arthur Samuel made the interesting statement that some overseas borrowers would ultimately receive British goods as gifts. Ho appeared to be referring particularly to some recent London flotations by doubtful borrowers in South America. This, however, lias already happened in the past. It may bo asked bow it can bo claimed that goods have been given away to default-

ing countries if it can b© shown that manufacturers and exporters have been paid for them. Tho explanation is that the British exporters were paid at the expense of the British investor, and from tho national standpoint the goods were given away, though tho loss fell on the investing class. The British public has been slow to learn the risks of investing in non-credit-worthy countries. ' According to Sir Arthur Samuel untold millions have already been lost in that % direction. The moral is being pointed by financial writers at Home, who agree that it would haVo been very much better for everybody if in the past British investment abroad had been more prudently directed, and the advantage of preferring investments within the Empire had been more widely recognised. As against this, however, one has not to go back very far to recall the repeated warnings from London that first Australia and then New Zealand had been practising over-borrowing to a dangerous degree. As the advice was not sufficiently heeded there followed a period of being warned off the London money market. Australia, somewhat more deeply involved than New Zealand in tho very reprehensible .practice of borrowing afresh to pay interest on earlier loans, had recourse to America, probably a step she has already repented of. But now both countries are so hard put to it to find, out of reduced incomes, the means to discharge their overseas loan interest that the hard lesson concerning over-borrowing seems to uave been learned. When the taxpayer demands a cutting down of Government expenditure tl>o Ministerial reply usually contains mention of the Government’s powerlessness to reduce the mam item of overseas debt services. Where, then, is the British surplus for investment to find a field? it is understood that great sums have accumulated in London awaiting investment. If its destination in foreign countries is too often a total disappearance, and if the investing world realises that countries like Australia and New Zealand'have too. much debt already, the field is indeed narrowed down. There is, however, a distinction between lending to Governments and other forms of investment in another country. When Governments put their loan prospectuses on tho London market the most is made of the reproductive nature of the works to which the proceeds are to be applied. As Governments nowadays run their Public Woi’ks Departments, can it be said that many of their enterprises turn out to be reproductive works? A fresh danger looms in tho future. Supposing that Governments were again able to borrow for major enterprises, and these were put in hand, the legacy of tradition of those who have put in their time as members of gangs on relief works would be a factor in the costing which no economist could ignore. Apart from that, there l is the other matter mentioned above—the practice of Governments to use part of tho proceeds of new loan money to defray interest on previous loans. How long ago it began in these parts of tho world is difficult to trace, but the habit seems to have been chronic since the war. An influx of some of the British capital available for investment would unquestionably be welcome here, as it would galvanise trade activity and dispel unemployment ; but in their present mood taxpayers would probably be strongly averse to the Government being the medium for its introduction.