THE HARD WAY.

Southland Times, Issue 19311, 1 August 1924, Page 4

THE HARD WAY.

Mr F. J. Rolleston evidently interested if he did not instruct the House on Wednesday with his criticism of the Budget and of the critics of the Budget, but it is unfortunate that he did not elaborate some of the more striking of the statements he made. For instance, there remained much to be said after he had declared;

All surpluses should be spent in reduction of the National Debt. Had this been done in the past there would have been no land boom, no farmers’ troubles, no soldier settlement embarrassment with its losses of millions.

These accumulated surpluses owed their existence in the first place to Sir Joseph Ward, who was then Minister of Finance in the National Ministry, and he wisely stored them in the periods when, as part of the war, the return from our exports was lavish. Mr Massey used this sum for soldier settlement, in preference to going on the London market for loans or issuing bills which would have increased our currency problems enormously; but evidently Mr Rolleston now thinks that there should have been no such thing as soldier settlement or gratuity. How he would have checked a land boom or soldier settlement by the application of these surpluses to the reduction of the National Debt remains to be explained, and we doubt if Mr Rolleston ever will explain it, because he will find himself hard up against some awkward economic and political facts before he gets any distance. Mr Rolleston is preaching the evangel of the hard way, but we can promise him few converts to the theory that public works should be constructed out of revenue. The report of Mr Rolleston’s speech says on this point:

Expressing alarm at the growth of the public anl private debt_ he asked consideration for the elimination of borrowing. If the present rate were continued the next generation would be saddled with the burdens of the past, their own burdens and the burdens of the future. He quoted America’s foremost authority on “Public Finance and Public Debt” to support the view he put forward that old theories in regard to undertaking public works from loans had been exploited and that it were much better to meet the requirements of the moment from the revenue for the year in which they were supplied.

So many authorities on finance and economics are the “foremost” in a country that the identity of Mr Rolleston’s aid cannot be definitely fixed, but we will be very much surprised if the arguments against Mr Rolleston on this point are not enough to overwhelm him and his “foremast” authority. In one or two branches of public activity we have had examples of the working of the plan Mr Rolleston advocates, and the effects have not even been to check expenditure, which is the thing Mr Rolleston evidently seeks. When business concerns are involved in major construction works they work on loan, and they endeavour to spread the payments over what may be called the life period of the new construction; but how does Mr Rolleston or his authority overcome the plea of this year’s ratepayer that if he builds a hospital its usefulness, belongs to many years, each of which should bear its share of the burden in interest and debt extinction in the form of annual charges. If Mr Rolleston will go a little further with his examination of this question he will find, we think, that “old theories in regard to undertaking public works from loans” have not been exploded. This assumption of the “hard way” as being

the best is a fallacy because it is based on the error that the man who does not get into debt is necessarily economical and sound, while the man who borrows is a spendthrift and a waster. And yet the world teems with men who have made fortunes on borrowed capitall Another point on which it is difficult to follow Mr Rolleston is that as deflation proceeds and the return of the gold standard approaches, Everyone who lent the State £lOO for the war loans in 1915 and 1916 would receive back in purchasing power just double that amount. It was sound economics and offered another argument in favour of getting rid of the War Debt, which, from the same influences, became a greater burden with the passage of time.

If this means anything it means that the price level, when the “gold standard” is restored, will be one-half of what it was in 1915 and 1916, but Mr Rolleston has not given us any argument or precedent to show us that the downward trend of prices will go so deep as a result of the gold standard’s restoration. As a matter of fact the financial experts to-day remind us that the 1914 level cannot be reached as the normal pitch even if the gold standard is operating fully. Mr Rolleston is sound in urging the application of money to War Debt extinction by annual payments as opposed to the old notion of hoarding sums until they could liquidate the whole debt; but it is useless to blind our eyes to the fact that where we must borrow the principal factor in determining the Finance Minister’s action must be the relative costs of loans. Obviously it is not sound to pay off a loan costing four per cent if simultaneously money has to be raised at five per cent. Mr Rolleston and the whole country should be thankful that the accumulated surpluses have been used to support the country over the lean years. But for those surpluses the annual charges on the people of this country during the depression period would have been so much heavier that they would have brought the Dominion to breaking point—the good years were made to balance the lean ones, as they were in ancient Egypt. Mr Rolleston’s errors, it seems to us, spring from his anxiety to cut down expenditure and to secure what he considers to be economical working; but his proposals for the attainment of these goals of excellence strike one as being unsound and, therefore, unduly expensive—there is much false economy in false economics.