Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, THURSDAY, JAN. 3, 1935. CHEAPER MONEY

Poverty Bay Herald, Volume LXII, Issue 18594, 3 January 1935, Page 6

Poverty Bay Herald PUBLISHED EVERY EVENING GISBORNE, THURSDAY, JAN. 3, 1935. CHEAPER MONEY

The recent review l\v the Chancellor of the Exchequer of the monetary outlook in Great Britain has prompted several references in the Dominion to the advantages which should In derived from t lie era of cltenpci nionev. That sonic of the benefits which already are apparent at Home will ultimately extend to oilier countries, including New Zealand, cannot bo denied, but it would lie a grave mistake to believe that cheaper money alone can provide a panacea for economic ills, or that conditions elsewhere are necessarily analogous with those overseas. In the first place, it ts important to remember that the ab normally low interest rates in Britain are primarily due to the remarkable recovery of confidence, with the result that there has boon a greatei influx of capital from countries where the outlook is more obscure. The main cause of lower rates in New Zen •and is not the confidence of investors but rather the reverse, coupled with the. lack of demand for finance. At Home, an abundance of money has synchronised with considerable industrial expansion; here, unfortunately, it occurs at n time when there is a tendency to contract rather than expand. .Another important factor was that the British Government was able to bring about the conversion of a very large proportion of the national debt oa favorable terms, whereas in New Zealand comparatively few loans have matured and, consequently, cannot yet be dealt with. Opportunity will, however, occur in the future, and uc of the results should be a sub stnn!in 1 reduction in the national ineresl bill. In the meantime there is a further example of the popular uiradox of poverty in the midst; of plenty —a plenitude of money and a paucity of practical use for it. The result is that Government and local body stocks arc selling at a price which makes the return to the investor the lowest In history, while tin banks have almost reached ilie stage of refusing to accept, fixed deposits at all, since funds which they cannot reinvest, are of no value to them. Hitherto, the Government’s chief aim ■as been to bring down rates of interest to a more reasonable level, and it can fairly be claimed that the objective lias been attained. It is a question, however, whether or not the somewhat drastic policy that was adopted has not also had the effect of frightening investors, with the result that the chief advantages of cheaper money arc not being obtained. Certainly the lower rates have brought \

immediate relief to debtors in all spheres, costs have been reduced, and a more or less permanent leveL has been fixed.- But (he important point is that prosperity cannot be obtained solely by settling down on a lower basis; it is far more important that; the changed conditions should be a means of stimulating activity, instead of curbing it. It is largely a matter of circulating the money that is so patently in existence. The reduction of costs does not accomplish this to any extent, as tho saving, in most cases, serves only to reduce losses rather than increase profits—in the case of farmers, for instance, their spending power is little altered, while the income of those to whom they pay interest has been very materially reduced. Mr. Coates attaches great importance to the pending legislation for a Mortgage Corporation, but although this scheme has much to commend it. it does not, offer nnv solution of the main problem of finding now outlets for idle capital, without which progress is impossible. No doubt the additional security that will lie offered will act as some inducement to lenders, but, on the other hand, tho probability is that the total amount paid as interest—which represents income available for general expenditure —will be lessened rather than increased. In other words, the problem of increasing the amount of money in general circulation still persists, and must persist unless scope can be found for profitable development. It is not. too early to suggest to the Government, therefore, that, having brought about the existence.of cheap money it, should take every opportunity of providing and encouraging uses for it. That task is likely to prove anything but an easy one. In the past, there has always been good reason for fostering land settlement and increasing production, but with the present leniency on the part of all markets to restrict imports this question takes on an entirely different complexion. The logical alternative would seem to be to devote greater attention to secondary industries, but the difficulty hero is that the Dominion cannot afford to further so-ri-ouslv reduce her imports without running the risk of having her exports Mill more restricted than they are at, present. Such a position, however, does not imply that there is no alternative to stagnation, but it does call for a very careful and thorough investigation of all forms of industry with a view lo ascertaining exactly where opportunities lie. The duty is not one. solely, or-even primarily, for the Government. There is ample scope for private enterprise and initiative, but this, in recent years, has been handicapped by uncertainty as to probable Government action. This indicates the pressing need for some further definite assurance that no further interference is contemplated and for some measure of relief from the burden of taxation that handicaps existing industry and,- makes extensions and new developments almost impossible. Tho present conditions arc such that' the Government should set a lead by initiating whatever works come legitimately within its province, and by .doing all within its power to re-establish that measure of confidence upon which the future of the Do minion must largely depend.