THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, NOVEMBER 8, 1935 LABOUR AND CREDIT

New Zealand Herald, Volume LXXII, Issue 22261, 8 November 1935, Page 10

THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, NOVEMBER 8, 1935 LABOUR AND CREDIT

Very large sums of money will be required to give effect to the official policy of the Labour Party. Mr. Savage ancl his colleagues do not deny the fact, asserting that they will solve the problem of ways and means by exploiting the public credit. Their whole programme therefore depends on the successful maintenance of this credit factor. The great question is whether the public credit can be milked in this way without going dry—without financial collapse. The theory of the scheme can be argued forever and admit of no conclusive answer. Fortunately, however, theory has been put into practice in various countries, so that the argument can be brought to the bar of experience. The most conspicuous instance is provided in the record of the last Labour Government in Britain. It possessed in Mr. Philip Snowden a strict and orthodox Chancellor who, standing alone, would have inspired confidence and might have kept public credit in high standing. Unfortunately he was teamed in the Cabinet with a number of spendthrift colleagues. They wanted to and did spend more than the Treasury could afford or meet out of taxation or income. Miss Margaret Bondfield at the Ministry of Labour was especially prodigal, approaching Parliament at shorter and shorter intervals for loan authorities in relief of unemployment. Her continual drafts and the heavy expenditure incurred by the Labour Goverment in other directions began to disturb confidence and restrict the public credit. The end was in Bight when in April, 1931, Mr. Snowden had to disclose a deficit of £23,000,000, not including £35,000,000 borrowed by Miss Bondfield for the unemployment fund. His deficit for 1931-32 was estimated at £37,500,000 without increasing taxation, a figure subsequently raised to £75,000,000. Finally it was disclosed that if the rake's progress of the Labour Government were not stopped, the deficit in 1932-33 would be £170,000,000. The effect at Home and abroad will be remembered. Here was a great and rich nation, renowned for her financial probity and her balanced Budgets, no longer able to live within her income* She was borrowing, mortgaging the future, in order to meet current expenses Buch as unemployment relief. Not only that, but the situation was under no sort of control, even with Mr. Snowden at the Exchequer; the gap between incomings and outgoings was rapidly widening. The Labour Government could not even show on the credit side any improvement in employment; the roll of unemployed was mounting faster than the debt incurred for relief and almost reached the record total of 3,000,000. Everyone knows the result. Public credit was destroyed; there would have been none left for Mr. Savage to exploit. Interest rates rose sharply. Britain was forced off the gold standard, and compelled to accept many economies and sacrifices in the slow struggle back to a sound basis. The attempt tc draw on public credit as if it were the widow's cruse had failed. Labour had not found a financial Elijah in Mr. Snowden. Mr. Savage may object that Britain is not New Zealand, that the British are very oldfashioned and orthodox about money, and that the Dominion, if he is given the chance, will teach her British grandmother how to suck financial eggs. Actually, however,, his theory has already been tested in a young community like New Zealand, a community full of progressive ideas. The idea that he could do whafhe liked with the public credit was applied by Mr. Lang in New South Wales about the same time as the Labour Government was rushing to financial disaster in Britain. Mr. Lang did not have an entirely free hand, but he made the most of his opportunities. His experiments with publici credit ended in destroying that of his own State, emptying the Treasury until public servants could not be paid, and ruining the State Savings Bank, whose credit, based on <he people's savings, was used up with the rest. Let it be supposed, however, that New Zealand will show more confidence in Mr. Savage at the Treasury than New South Wales did in Mr. Lang, or Britain in Mr. Snowden. and that public credit for a time withstands the heavy drafts Mr. Savapje intends to make on it. In this unlikely case also, experience offerci a Ruide as to the result —the recent experience of the United States under the New Deal. There President Roosevelt has been able to make almost unlimited drafts

on the public credit. His Budget deficits have been colossal, their dimensions being exceede'd only by his enormous borrowing. Until recently the public credit was equal to the strain. Loan was added to loan at absurdly low rates of interest. Nevertheless this great outpouring of money, this record exploitation of public credit, did not succeed in lifting the depression or in materially reducing the tragic armies of the unemployed. The reason lay in Mr. Roosevelt's profligate handling of the public credit, including the debasement of the currency. Confidence was profoundly disturbed and has not yet recovered. Private industry and commerce could not flourish in the prevailing atmosphere of distrust, everyone fearing what White House would do next. The recent measure of recovery is due more to the checks imposed on tho Executive by the Supreme Court and the President's announcement of a breathing space from new experiments. It was high time, because public credit had not only failed to prime the pump of private enterprise, but was itself—as shown by the partial failure of a recent Federal loan—showing signs of exhaustion. Mr. Savage may not be convinced by these lessons drawn from recent experience in Britain, in New South Wales and in the United States. Electors, however, will draw their own conclusion. In resting its whole programme on the exploitation of public credit, the Labour Party is courting certain failure, and possible financial disaster for New Zealand. Its promises cannot be redeemed because they are paper promises, written in vanishing ink.