MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 255, 25 September 1940, Page 12

MONEY AND BUSINESS AFFAIRS.

MONEY RATES

(By “H.J.K.”)

The trading banks in the Dominion have made a slight alteration in the interest rates on fixed deposits. The change has been in the short-time deposits of three and six months, 12 months and 24 months being unchanged. The new rates came into force on September 18. The rates were previously fixed on November 2. 1934, not -long after the Reserve Bank opened for business. They were then for 3 months and under six months I 4 per cent, (now J per cent.) and for six months and under 12 months I 4 per cent, (now li per cent.). The rale for 12 months is unchanged at 2$ per cent., and for 24 months 2j per cent. This is the inevitable result of the continued accumulation of funds in the banks. Ihe restrictions of imports has prevented traders from using their capital and they are allowing it to lie idle in the hanks against the time when normal conditions will again rule. And practically for the same reason there is no demand for bank accommodation. As a matter of fact there is a tendency for advances to contract. • Usually at about this time of the year the demands on the banks increase, but owing to the prevailing conditions that is not the caso just now.

The position seems to bo different in Australia. In June and July there was a drop in the deposits of the trading banks of which there are nine. Another feature is that there has been an increase in advances —two features entirely different from those noted in New Zealand. The fact is that Australia is prospering partly owing to the war. Australian industries are expanding in size and in variety, and what is more they all appear to be doing remarkably well. The industries are capable of absorbing a considerable amount of capital and the war loans have absorbed a good deal more. The deposits have been transferred from the trading banks, to tlio Commonwealth Bank. The Federal Government has not attempted to give the country a controlled economy, nor is it interfering with business. It is the course best calculated to maintain business at a high level, and that is by refraining from interfering with private enterprise. Australia is rapidly developing into the chief industrial country of this part of the Pacific.

PAYING FOR THE WAR. How war costs are to be met is a subject of increasing debate in Great liiitain. 111 England, as with the other belligerents, the central and dominating economic problem of the war is how to etlect ouc-li expansion of production, and such a curtailment of private spending and consumption, as will make available the needed goods' and supplies for carrying' on the struggle. To that extent the question of finance is secondary, since the necessary funds will always somehow be found. Yet the way this is done, and the manner in which production is increased and consumption reduced, will make a great deal of difference to the nation and its future.

The costs may be met from taxation, by loans out of savings, or by inflation — itself a form of highly inequitable taxation. At the same time the requisite reduction of private consumption, and the accompanying release of productive resources for war purposes, may be brought about by the rationing of goods or by such levies —taxes or loans —on individual incomes as will cut down private spending on such goods. In the absence of such measures the competition of the Government and civil population for . a limited total supply of goods is certain to result in serious price inflation such as marked recent movements in Japan.

Probably the most thoroughgoing British programme for meeting these various problems—at bottom different aspocts of a single problem—is that of the eeonondst J. M. Keynes. Put forward originally in the earlier months of the war, it found public opinion unprepared for such radical proposals. Since then, public understanding has generally progressed both as to the extent of the economic effort the nation must make to win .the war, and as to the possible alternative methods by which this may be done. At the same time as dissatisfaction has been growing with the lack of evidence of a definite Government economic policy, Mr Keynes has published a revised edition of his original proposal, which seems likely to receive more serious consideration. The original basic means for reducing private consumption and at the Bame time raising funds for war costs is retained, although its name is changed from “compulsory saving” to “deferred pay.’ This is a combined tax and loan levy on all incomes above 45s a week for single and 55s for married men. The tax portion is virtually an addition to the income tax, while the loan part is a compulsory loan drawing a low rate of interest and not repayable until after tho war. To protect large families, this would be coupled with a weekly family allowance of five shillings per child. At the same time an “iron ration” is proposed—a limited list of necessaries on which the Government will attempt to keep prices artifically low. as indeed it is already doing to some extent. A capital levy after the war is also included. Tho essence of the problem is simple enough—the curtailment of private consumption and the diversion of private income to the Government’s needs in the manner least objectionable to those who must eai'ry the burden, and with the least disurbancc to accepted economic practices. Whether the Keynes plan will bo adopted, in part or in whole, cannot of course be foretold. BANK OF ENCLAND.

For tho first time in history, tho Governor and G’ourt of Directors of tho Bank of England have had to meet in a vault, and at this meeting a half-year’s dividend was declared of six per cent. About nine , or ten years ago, with commendable forethought, the bank authorities spent about £6,000,0000 in preparing for such' a contingency as has arisen. The piles of gold coin and gold bricks together with piles of valuable papers arc now carefully protecled in vdults that go right under the River Thames, quite immune from bombing attacks. The vault in which the directors met, would of course, bo in the yard of the bank. As stated, the dividend declared wa9 6 per cent, for tho half year ended August 31. A similar dividend was paid for the half-year ended February 29, so that this great central bank has paid 12 per cent, this vear When our own Reserve Bank was constituted, with private shareholders, the authorities in their wisdom limited tho dividend to 5 per cent,, and gavo it a political flavour. It is now purely a State department.

An increase of 25 per cent, in the quantity of butter manufacß ured during the current season is reported by the Bay of Plenty Co-operative Dairy Association, Limited. Te Puke, .