MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 95, 20 March 1940, Page 14

MONEY AND BUSINESS AFFAIRS.

MONETARY EXPERIMENTS. (By An informative paper -was read by Professor Tooker, Professor of Economics at Canterbury College, Christchurch, at the Accountants’ Convention held in Wellington. The object was to investigate the New Zealand monetary experiment; the experiment in Covernment control and use of credit during the past two years. The professor traced the great reduction in overseas funds, and the resultant effects of import restrictions and exchange control. This, of course, is well known to most people who take an interest in the finances of the country. The chief feature of Professor Tockcr's paper is that he presents official figures in an interesting and understandable way. It is shown that tho overseas funds in May, 1936, totalled £45,200,000, which was reduced through repatriation of money belonging to overseas holders, the investment of capital in overseas securities, and the repayment of some public debt overseas. But it was tween May and November, 1938, that there was a rapid decline in overseas funds, the total being £20,000,000. The professor holds that ‘‘this decline was the direct effect of the monetary policy pursued by the Government of New Zealand,” and he points out that New Zealand had suffered shortages of overseas funds several times in the past, when the management of these funds was in the hands of the trading banks and when the Government was not using bank credit as it was in 1938 and 1939, but such shortages were speedily corrected, lor example in 1920 21. It is the conclusions reached by the professor that a.rc most interesting, and no less is the remedy he proposes. He states: “The effects of this experiment are seen in a substantial reduction of overseas funds which constitute working reserves and are essential for the Dominion’s overseas trade, and in an expansion of internal currency and credit, which, if continued, must result in inflation and depreciation of our money. Over tho past two years we have consumed more than we have produced, and spent more than we have earned, and in the process have used up reserves without which normal production and trade cannot bo carried on.” Anyone who lias given careful study to the monetary position would unhesitatingly endorse Professor Tucker’s conclusion. And they would endorse the remedy he suggests. According to the professor, to remedy the position “the Reserve Bank must substantially reduce the excess of its demand liabilities over its liquid assets, amongst which sterling exchange is the really significant item.” This is the sound orthodox remedy which, however, cannot l>c adopted by the Reserve Bank as at present constituted, for it must not be overlooked that the Reserve Bank is not a. bank, much loss a central hank in the true sense of the term. The Government I received a distinct mandate at the election of 1935 to put its experimental monetary policy into operation, and in accordance legislation was passed converting the Reserve Bank into a State department under the direct control of the Government. The officials of the bank, who are now nothing more than civil servants, must carry out orders whether they conform to sound banking principles or not. No doubt manv difficulties have been experienced, but the authorities can say that transition from one system of banking hoary with age to a brand new system must cause hardships; moreover it I could be contended that the policy has not yet been fully implemented, for a prominent member ol the Labour Party has repeatedly stated that the Government would not be carrying out its election pledges if it did not quire a trading bank. Obviously we must try out the monetary experiment as it is termed by Professor Tocker. It can be said with a great deal of truth that New Zealand is not the only country that has embarked on monetary experiments. The United States has done so, with the New Dea.l put out by President Roosevelt, and which has Wen popularly known in America as “priming the pump.” One of fhe first acts of the Roosevelt Administration was to reduce tho gokl content of the “Eagle” by about i>o per cent., and to adopt a new gold standard of 35 dollars, or 140 s per fine ounce. France has depreciated the franc, and in Britain the currency lias been tampered with. But now there are not wanting signs of recognition of the old monetary system with its gold standard and freedom tor trade. A reversion to sound and sane monetary policy throughout the world is one of the strong probabilities ot, the early post-war period.

COMPULSORY SAVING

It was to ho expected that Mr J. M Keynes’s scheme of compulsory saving in Britain would come in for some severe criticism, and that criticism has been voiced by Sir Robert Kindersley, president of the National Savings Committee, and a director of the Bank of England. His contention that ‘to impose upon people something in the nature of compulsory savings you sour them, instead ot developing the spirit of devoted sacrifice” is simply unanswerable. The British public and the working men in particular arc contributing freely to the war chest, for their savings already exceed 11100,000,000, which

was the amount estimated' to be obtained under the scheme proposed by Mr J. hi. Keynes. The position in New Zealand is very different for the “small” people, that is, those who make use of the Post Office Savings Bank, are either unable or unwilling to save. This extraordinary state of affairs is disclosed in the latest Monthly Abstract, which gives the figures for the ten months of the financial year to the end of January. Compared with tho corresponding ten months of the previous year, the position is as under: 1

It will be noted that in the ten months of the current financial year the people have been able to save £5,000,000 less than in the corresponding period of last year, and the withdrawals exceed the deposits by over £4,022,000. The people have withdrawn from the Post Office Savings Bank ,in the two periods over £7.800 000. This is distinctly adverse and' should be investigated, for it seems incredible that with so much money being spent the people are unable to save, but must actually draw upon past savings to keep going.

lOmths. Deposits. Withdrawals. Excess of withdrawals. £ £ £ 1939-40 .... 20,768,787 25,381,735 4,622,948 1938-39 .... 25,661,379 28,851,792 3,190,413