EXCESS MONEY

Manawatu Standard, Volume LXI, Issue 191, 15 July 1941, Page 6

EXCESS MONEY

A DOMINION PROBLEM

DANGERS OF INFLATION: WELLINGTON, July 15

One of the problems of the moment is the excess of money in l\c\v Zealand, stated the Dominion president of the Farmers' Union, when dealing with financial matters in his address to the annual conference of the union to-day. A certain amount of inflation was inevitable under war conditions, for much of current production was only made to be destroyed, and so there wero no goods for the money spent in their production to buy; but in New Zealand we had added to that tho result of five years of tremendous Government spending which had resulted in increasing our note issue, for instance from £9,200,000 average in 1935, to just short of £22,000.000 at present; while tho trading banks' deposits had increased during the same period by £22,000,000. "Every New Zealand pound gives the holder tho right to demand a pound's worth of goods," Mr Mulholland proceeded. "There arc not the goods availablo in New Zealand to supply that demand and, what is perhaps more important, no attempt should be made to divert production from war necessities in an attempt to supply those goods. In fact, the policy should l>e to divert as much as possible of our effort into war production. This is vital, if we are to defeat the Nazi regime. But the existence of such a large amount of spending power produces an unsatisfied demand which makes this diversion difficult. Unfortunately, this money is mainly in the hands of people who are not accustomed to investing their surplus, i but to spending their money as they receive it. The habit of saving and in-! vesting must be developed, and the people must be taught to invest their surplus moneys in order to assist in winning the war. This is a matter very largely for the people. The Government has provided methods by which it can be done, but it depends upon the people realising tho necessity for developing saving habits to make these methods a success. If it cannot be done voluntarily then it may be necessary to introduce a compulsory system such as has recently been adopted in Britain. WAR FINANCE POLICY.

"Our war finance policy should be definitely to 'pay as you go'—mainly out of taxation, and for the remain-! der, by borrowing the real savings of I the people," Mr Mulholland said. ''lnflation is a last resort which is! so injurious that it should be regarded only as a last resort. This policy requires a vigorous reduction of our civil governmental expenditure in consonance with the private economy that the people are required to practise. "For a country engaged in a desperate struggle, we are still devoting far too much of our public expenditure to peace-time activities. "The Budget presented to Parliament by Hon. W. Nash last year actually budgeted for an increased civil expenditure; in fact, it was an inflationary peace-time Budget on to which a "War Budget was grafted. I There have been some, indications! since of a shortening of Government expenditure upon purely civil objectives, but not, in my opinion, of anything like the magnitude that is necessary to place our finances on a real-i istic war basis. One of the replies made by Government spokesman when it is suggested it hat a tapering off of Government expenditure is desir-i able is that it is necessary in order' to prevent unemployment amongst our people. This seems a strange reason to advance when we are told frequently of vital industries working short-handed. "Some farmers are inclined to look upon inflation, by which usually theyj mean a devaluation of our currency, as rather desirable than otherwise. Of course, they mean a devaluation of our pound in terms of external currencies. If that were brought about, they argue, the price of exports would rise, and the producers for export* would be better off. In thinking this! they are overlooking some important aspects of the situation. In Now Zea-| land we have not only State control of the external value of the New Zealand pound, but also we have State fixed prices for our exportable products. If the externa! value of our pound were lowered under these circumstances, it does not follow that the prices of farm products in New Zealand would rise. That surely has been clearly indicated by our experience with the guaranteed price for, dairy produce for the past three sea-' sons* The only effect of the external devaluation of the pound in our present circumstances would be to increase costs of imported goods which, under, war conditions, are mainly goods for the supply of vital necessities, including farm necessities."