REVIVAL PLAN

New Zealand Herald, Volume LXX, Issue 21520, 17 June 1933, Page 13

REVIVAL PLAN

LOAN OF £10,000,000 REPLY TO CRITICISM DEFENCE BY COMMITTEE THE FINANCIAL ASPECTS A reply to criticism of the £10,000,000 loan plan, which was submitted to the acting-Prime Minister, the Rt. Hon. J. G. Coates, by an unofficial citizens' committee on June 6, was made by the Mayor, Mr. G. W. Hutchison, yesterday, on behalf of the committee. He said that, almost without exception, those who adversely criticised the plan had no alternative remedy to advance; they apparently regarded any attempt at amelioration of the present abnormal state of trade as futile. "The fundamental principle underlying the plan is to bring about an increase in the quantity of money in active circulation," said Mr. Hutchison. "This is our greatest need. The next points are: —(1) How to obtain the money, and (2) how to bring it into circulation and keep it there. The suggestions made by the committee for obtaining the money were of a constructively suggestive nature. The point was that the additional money should be found, and quickly, and the various ways of obtaining it were then examined. These were taxation, an internal loan, an external loan, and currency expansion. Advantages of a Loan "It was considered that to attempt to raise the money in whole or even part by additional taxation would ba inadvisable; an external loan was not considered expedient or practicable; and there thus remained the alternatives of an internal loan or some form of currency expansion, as, for instance, by an emergency issue by the Treasury of legal tender notes similar to the emergency issue made by the British Treasury in 1914. "Apart from suggesting that the lowest possible rate of interest be paid on an internal loan so as not to add unduly to an already crushing interest burden, the committee was little concerned as to which of the alternative methods the Government might adopt in providing the additional money for the scheme. A loan has the disadvantage of adding to interest charges; and the prevalent objection to currency expansion is based on a fear that it tends to get out of hand, an event which did ! not occur in either Britain, France or Italy during or after the war. and against which it appears possible to provide adequate safeguards. Money on Fixed Deposit "Considering that the public debt increased during the period from 1925 to 1930 at an average rate of about £9,000,000 per annum, the committee cannot regard its proposal for a £10.000.000 expenditure as excessive, particularly in view of the low rate of interest proposed. It is unable to understand on what grounds the actingPrime Minister based his opinion that the effect of a compulsory loan at 3 per cent would be to 'ruin a great many deserving and struggling people.' The public at present has nearly £37,000,000 loaned to the banks on fixed deposit, and the amount so loaned is steadily increasing, although the rates payable on it range from 2J to 3£ per cent. If the banks can obtain £37,000,000 at these rates, what is to stop the State from obtaining £10.000,000 at 3 per cent ? ' "Furthermore, it has to be borne in mind that this money has been placed on fixed deposit because its owners fear | to invest it elsewhere. "Values are fall—j ing and money is locked away for fear of loss on investments. At the same time, the locking up of money promotes a still further decline in values. The vicious circle is complete. On the other hand, if the State borrows the money and brings it into active circulation, the vicious circle is broken. The increase of the money in circulation tends to restore values, and the restoration of values, promotes investment. The result of an expenditure of £10,000,000 by the State should thus lead to a revival of private investment. Inaction by the State must tend to the further deflation and further decline in investments. New Rates lor Eelie! Workers "The distribution of expenditure proposed by the committee was the result of careful thought. It considered this matter as important as the provision of the money itself. It stressed the fact that the object should be to bring about an immediate improvement in the purchasing power of .consumers, thus leading to a general revival of trade and industry benefiting the whole community. The obvious method was to introduce the money at the points where purchasing power is most lacking. "The committee is unable to regard the rates proposed for relief workers as excessive, either from a humanitarian or economic standpoint. The bonuses proposed for exported produce are not excessive in view of the crushing decline in produce prices, and the committee, after inspection of the latest figures as to butter-fat production and wool exports, finds its estimate of the cost of the proposed bonuses of a penny per lb. at £3.500,000 to be a fair figure. Mr. Coates was obviously in error in holding that £6.500,000 would be required for this purpose. Authority for Proposal "The amount of £2,500,000 put down as the estimated extra cost of the proposed rates for relief workers was purely tentative. It has to be remembered' that the £7,500.000 of expenditure proposed under the other heads, including £3,500,000 for public works by the Government and local bodies, must in itself lead to a considerable reduction of relief expenditure. "The proposals are not a local adaptation of Mr. J. M. Keynes' 'Means to Prosperity,' as stated by some critics, but were reached after a lengthy study of every aspect of our economic position and the reaction that has tasen place, to earlier attempts to stay the drift. There are, however, numerous expert authorities that can be quoted to support the policy advanced by the deputation. To describe the relief to bo obtained as 'artificial prosperity' is a misuse of language. "Artificial Depression" "The prosperity would be no more artificial than the depression, for the policy of currency contraction and deflation was deliberately initiated, and the distress which has ensued through the world in consequence is essentially artificial, in that it is distress in the midst of a capacity to produce abundantly all the necessities and luxuries of life. , ... "After going carefully over the criticisms passed on the proposals, the committee has found nothing in them that vitiates the soundness of the plan put forward. The methods it advocates of bringing money into circulation are in line with what has been adopted in the United States and other countries, and the sooner such action is taken here the sooner will the value of property and securities be restored and tha people reabsorbed in profitable employcient,"