The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES” GISBORNE, THURSDAY, MAY 13, 1943. FINANCE AND THE WAR

Gisborne Herald, Volume LXX, Issue 21093, 13 May 1943, Page 2

The Gisborne Herald. WITH WHICH IS INCORPORATED “THE TIMES” GISBORNE, THURSDAY, MAY 13, 1943. FINANCE AND THE WAR

Addressing a meeting o£ the National War Loan Committee, the actinggovernor of the Reserve Bank made nut an unanswerable case in defence of the need for borrowing from the oublic in order to meet the cost of the war. Subscription to the forthcoming loan was essential, said Mr. Fussell, not only to ensure the success of the loan, but also to help to build “a rampart of stability against inflation.” The inference from his address is that the bank is probably much more concerned with the evils of inflation than with the financing of the war. for it was on this aspect that most of the emphasis was placed. Stressing the need for raising money from the public and not from credit expansion. Mr. Fussell declared: “There is now much more than enough spendable money in circulation to enable the people to purchase the goods and services available.” According to the bank’s calculations, this “spendable money,” not counting savings bank deposits, had increased from £54,000,000 at the outbreak of war to £112,000,000 to-day, or more than 100 per cent, while the quantity of goods and services in the country had been “very heavily reduced.” This is merely putting into concrete shape a position which is becoming increasingly apparent to everyone, but what is still lacking is any suggestion of how the problem is to be overcome. In another passage, Mr. Fussell declared that “the taking of. deliberate steps to make large artificial additions to the already teeming money supply would only harm the people of New Zealand.” It would be interesting to know whether Mr. Fussell speaks for himself, for the bank, or for the Government by which the bank is controlled. His bank, under instructions from the Government, has for years been making -“large artificial additions to the already teeming money supply.” The idea of using the printing press as n substitute for honest money started in 1936 and has continued ever since. Up to the outbreak of war the. Government was responsible for “created credit” amounting to £13,850,000. Since the war started it has injected another “artificial addition” of £17,285,000 into the-money stream of die country, of which nearly £9,000,000 has been created, or printed, in the last year alone. It is difficult to reconcile the outspoken denunciation of credit expansion for war purposes with the fact- that the Government does not hesitate to continue'the same device for providing' the' finance' for its ordinary civil requirements. To quote Mr. Fussell in another connection, “the public is entitled to a plain and frank explanation of the reason” for the inconsistency as between finance for war and for civil purposes. To issue new credit, according to Mr. Fussell, “would simply lead to the reduced purchasing power of wages and of all family incomes and cut down the real value of hard-won savings.” Since the Government has issued new credit it must accept responsibility for the deleterious results which Mr. Fussel enumerates—resuts which are all too apparent to the public which is increasingly conscious of the diminishing purchasing power of its money. The Government has already shown concern at the position which has been created and a bold attempt has been made to stem the drift by the introduction of a stabilisation scheme, of which the war loan is an important factor. Again, however, there is inconsistency. This .week the coal miners, allegedly under Government control, have been granted an increase in wages—given more “spendable money” for a very heavily reduced supply of goods. The irony of ‘ this development is that the extra wages will come out of the war loan, so that the public as a whole is asked to aid stabilisation by contributing to a loan part of which will be used to pay higher wages to one section to whom stabilisation will not apply. The amount involved may be small, but the principle is important, since unfair discrimination of this sort is capable of wrecking the whole stabilisation plan.

The aim of the Government and one of the objects of the war loan is to curb inflation, to make the purchasing power of the community conform more closely to the quantity of goods and services available, to act before “the pressure of prices becomes too great, the dam bursts, and an uncontrollable deluge follows.” The root cause of the present problem is that the Government has acted too late. The recommendations of the Stabilisation Committee were not acted upon for nearly 2J years. During that time wages and costs were . steadily increased and the supply of money was supplemented by the indiscriminate use of the printing press. There was thus created a condition where purchasing power was rapidly rising simultaneously with a decline in the things which money could buy. The: result is inflation pure and simple. It cannot be remedied simply by stabilising inflation or, by means of war loans, transferring spending power from the individual to the Government. It is not. enough to shut’the stable door now that the horse has bolted; somehow or other, the refractory horse lias got to be returned to the stable. In other words, the “uncontrollable deluge” has got to be controlled at its source; before, and not after, it has laid the country waste. That is the task which the Government must be courageous enough to tackle.