AS OTHERS SEE IT.

Manawatu Standard, Volume LVI, Issue 45, 22 January 1936, Page 6

AS OTHERS SEE IT.

The general election was held here on November 27, and three days later, in its issue of November 30, the Statist (London), a well-known weekly financial paper had some comments to make on the results, which are interesting as showing the impressions created in London financial circles. It seems that London took very little interest, at the outset, in the New Zealand elections, despite the highly important monetary issues involved. With respect to exchange the paper says :—“New Zealand is reconciled". to a ‘high exchange,’ i.e., to a low value of the local pound. There could in no case be any question of falling out of step with Australia .in this matter. Since, moreover, the main

issue in the elections was the supposed plight of the farming community—this was in fact the influence which carried the day for the Labour Party—there can be no reasonable prospect of reducing the present discount on the New Zealand pound. If there is any chance of a change in the rate it is in the direction of a further widening of the discount. This is made all the more likely in New Zealand by the extravagant and inflationary programme on jsvliicb tbe Labour Party made its appeal to the country. The main plank in its platform was the guarantee of fixed prices for agricultural produce. The least expensive way of fulfilling this promise would, of course, be to let the domestic prices rise to the desired guaranteed level by allowing the currency to depreciate in the exchange market.” Put it may be pointed out that to allow wholesale and retail prices to advance locally would be to reduce the purchasing power of the New Zealand pound, which would scarcely be fair to those who have accumulated savings, as for example, the depositors in the Post Office Savings Bank, which would be opposed to the Government’s policy of safeguarding such depositors. The Statist then goes on to remark: “It (the Government) has undertaken to find adequate employment for all unemployed workers in the Dominion by financing public works of various kinds through the issue of flat money. The object is admirable; the means chosen to achieve it are dangerous—none the less so for being by now so thoroughly familiar. When it comes to putting the plan into operation more moderate counsels will probably prevail.” The question is: Can the Labour Government modify this part of its programme without disappointing its followers ?

“The confusion in the situation in New Zealand,” continues the Statist, “has been increased by an unduly precipitate pronouncement on the exchange position on. the part of the Premier-elect, Mr Savage. According to this the New Zealand Government will as soon as possible begin a gradual reduction of the exchange difference between the value of the British and New Zealand pounds. In qther words there is to be a policy of exchange deflation and internal inflation. ... If to carry the new exchange and credit policies into practice it is necessary to convert the Reserve Bank into a State institution, the new Government will have no hesitation in doing' so. Mr Savage has quite evidently a great deal to learn about the practice of banking and exchanges. . . . Equally evident is Mr Savage’s ignorance of the fundamentals _ of foreign exchange theory. His would-be exchange policy is wholly incompatible with his domestic policy of high guaranteed prices, removal of all cuts in wages and pensions, public works, etc. These two opposites must crash.” It will he interesting to observe what form the Government’s proposals take in the necessary Bills when they are brought down.