THE REVIVAL PLAN

New Zealand Herald, Volume LXX, Issue 21520, 17 June 1933, Page 10

THE REVIVAL PLAN

The Mayor has returned to the charge with a reply to criticisms of the £10,000,000 loan plan submitted by a deputation he headed to the acting-Prime Minister, and an elaboration of its details. Nothing he says removes the fundamental objections to it as likely in the long run to aggravate the conditions it seeks to cure. Mr. Hutchison begins by remarking that none of his critics has offered an alternative plan to the one he advocates. This may argue a lack of constructive thought in them, but it does not help to make his scheme right if it is wrong in principle. There are many points suggesting themselves for comment in the statement. For example, the amount of money on fixed deposit at low rates of interest is quoted, the Mayor proceeding: ''lf the banks can obtain £.'57,000,000 at these rates, what is to stop the State from obtaining £10,000,000 at 3 per cent?" The chief thing that would stop it would be a disinclination in those who deposit with the banks on short terms to lend to the Government on lon« terms. The fact that the deputation suggested a compulsory loan shows it was not blind to this possibility ; but it did not seem to take into account the possible effect of coercing unwilling lenders on that delicant plant, public confidence, about which it also expressed solicitude. However, to select points one by one leads to interminable argument. Mr. Hutchison says (he fundamental principle underlying (he plat} ia to bring about an increase in the quantity of money in active circulation. The plnn to do so, he says at the end, is in line with what, has been adopted in the United States. It is true this effort to increase the circulation has been made in the United States, the, devices ranging from open market operations by the Federal Reserve Bank, begun a year ago, to a new note currency recently I issued. Here is a sober statement of

the result, made last month by the National City Bank of New York: "Trade is not using the money that is already at its disposal, as indicated by the return of money to the banks for deposit. Should further issues of currency be made, it is evident that they would not stay in circulation, but would promptlv pile up further excess funds in the banks where the volume of funds already is far greater than the banks are able to lend upon proper security." Instead of more trade, the increased currency produced higher bank deposits, a natural consequence, but one which heavily discounts the claims made for the Mayor's plan, and virtually demolishes any prospect of more than transitory benefit.