MR LEE, M.P., AND MONEY

Otago Daily Times, Issue 23370, 9 December 1937, Page 14

MR LEE, M.P., AND MONEY

TO THE EDITOR Sir,— My Douglas social c-edit friends —“ 5..” Mr C. H. Chapman, and “ Truth ” —all agree that they cannot stick to the point at issue, which is: “Are Mr Lee’s proposals sound, and where would they lead us? ” “ S.” has not even read the pamphlet, and, as his guess as to what it contains is all wrong, it is not worth while to drH with his letter. Mr Chapman fim.s it impossible to discuss Mr Lee’s proposals without int"oducing Douglas social credit, bank manipulation, etc. I am sorry for this, but do not intend to follow him into these monetary morasses. “ Truth ” would stick to the point if we could only agree as to what the point is. I think 1 have stated it quite clearly, but I will try to be even more lucid. We live under a certain monetary and banking system, and Mr Lee does not propose to alter it. He favours complete Government control of it, but

nowhere suggests that the system should be altered. His opinion of Douglas social credit is that “ it reached extraordinary proportions within a few months, and withered away almost as rapidly as it blossomed.” Mr Lee proposes to use the present system, and to get advances from the Reserve Bank sufficient to pay for all future public works, housing, etc., and also sufficient to redeem the internal debt as it matures. Are these proposals sound? It seems to me that they merely make perennial and perpetual, in an exaggerated form, the worst abuses to which the present system has been subjected. It is no use Mr Chapman writing of recalling credit in this instance. Most bank loans are liquidated voluntarily, but sometimes loans are recalled, and sometimes banks are unable to collect and proceed to take possession of the securities on which loans are based. But how could the Reserve Bank recall loans issued to pay oil debts? Would it gain anything by seizing, say, the Buller Gorge railway, except the doubtful privilege of paying the annual deficit? Taxation on a new and inspiring scale would be the only possible method of liquidating these debts. Now, Sir, will your correspondents be good enough to stick to the point, which is, “Are Mr Lee’s proposals sound, and where would they lead us? ” There may be better systems than the one under which we live, but Mr Lee does not propose to adopt them. “Miner” is in a different category from your other correspondents. He believes in inflation of currency, and thinks that the hardship caused to certain people, such as widows with small fixed incomes, is more than compensated for by the prosperity of other sections of the people and by general progress. I think that stability is much better than either inflation or deflation, so that if anyone saves a pound, that pound should have substantially the same value when it is required for spending. Stability does not mean stagnation. The process of inflation causes, as “ Miner ” claims, activity in business, higher wages (nominal), higher prices and increases in the value of equities, also the illusion of prosperity. But the dream fades as inflation comes to an end, as come it must. When a certain degree of inflation takes place the attempt is usually made to secure stability at the level reached. This is very difficult and has usually failed, but even if it succeeded it would merely restore the stability or stagnation that existed before inflation began, but with higher wages, higher prices and larger debts. If no check be imposed and inflation continues, money ultimately becomes worthless. It is like a toy balloon; when blown up. it looks large and imposing, but it has no more substance than before, and if the process continues it bursts and is destroyed. It is true that the wealth of New Zealand was nominally depreciated by 20 per cent, (not 25 per cent.) by the alteration in the exchange rate, but it had been appreciated to a far greater extent between the years 1915 and 1929. There has already been inflation up to the point where the exchange rate is a natural one, and probably beyond that point. For years there has been no check on the buying and selling of exchange. If the exchange rate at which our currency can be bought were too high, speculators would buy it in order to make a profit when it fell. There is no rush to buy it. On the contrary, there is a distinct tendency to sell New Zealand exchange in order to buy Australian and British. Two hundred million pounds which “ Miner ” suggests for housing and public works, which would be costless, would send the exchange sky high and probably reduce the value of our money to that of waste paper. It is unlikely that more houses would be built, as the number of men and quantities of material are the limiting factor, but the houses built would be very costly. Finally, the poor widow, with small fixed income, is surely entitled to a fair deal, and I suggest that it is unfair to overfeed her one year and starve her the next. —I am. etc., December 7. James Beg£*