AUCKLAND LOAN PROPOSAL

Otago Daily Times, Issue 21984, 20 June 1933, Page 8

AUCKLAND LOAN PROPOSAL

REPLY TO CRITICISM STATEMENT BY MAYOR. Amplification of the proposals contained in the financial plan for reconstruction purposes submitted to the Acting Prime Minister (Mr J. G. Coates) by the Auckland Unofficial Citizens' Committee at a deputation on June 6 is contained in a statement issued by the Mayor (Mr G. W Hutchison) as head of the deputation, and on behalf of the committee. The Mayor said the statement was necessary in view of the wide public interest aroused by the £10,000,000 plan of reconstruction which the deputation had put f orward, “Ini some quarters the deputation has been accused of being unduly pessimistic in its statement of the position,” Mr Hutchison said. “It did nothing but present the plain, unvarnished truth. We are entering on a winter with unemployment at an unprecedented level, and with trade and industry at a very low ebb. The Acting Prime Minister confirmed this when he said ‘ I should say it is impossible for conditions to be worse than to-day.’ INCREASED MONEY CIRCULATION. “ A number of the press critics appear to have been by no means clear as to the true nature of the proposals advanced by the deputation. The fundamental principle underlying the plan is to bring about an increase in the quantity of money in active circulation. 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. “ It was considered that to attempt to raise the money in whole or even in part by additional taxation would be 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. LOW INTEREST RATES. \

“ 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 Acting Prime 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 3J 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 falling 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.

DISTRIBUTION OF EXPENDITURE. “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. "v “ 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. Whatever the amount required to pay the rates proposed, the committee believes it can be found, and should be found.

PLAN DEFENDED. “ Although Mr Coates stated in hie reply that ‘if costs can be adjusted to prices our problems will be solved,’ _it must be plainly evident that the policy of reducing costs to the level of export prices is not practicable without wholesale ruin, and the only alternative is action on some such lines as advocated by the After going carefully over the criticisms passed on the proposals, the committee has found nothing in them that vitiates the soundness of the plan pub 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 the people reabsorbed in profitable employment.” “ It must not be thought,” the Mayor concluded, “that the response to the deputation’s proposals has been wholly critical. Many letters strongly supporting the steps taken have been received, some couched in terms of extreme thankfulness that an important step has been taken to promote action. The hope is expressed that, as a result of the proposals submitted, the Acting Prime Minister will evolve a policy that will promise brighter prospects than opponents of the proposals have been able to discover in the present deflationary methods which they sponsor.”