ANOTHER PROPOSAL

Southland Times, Issue 22013, 12 May 1933, Page 6

ANOTHER PROPOSAL

A correspondent offers the “self-extinguishing” note as a means of financing large public works in New Zealand and providing work. In limited areas this plan is actually at work in the United States and it has been effective, though, of course, its sphere of operation has been restricted. Briefly the idea is that the note is issued in small denominations and becomes legal tender, but every person using it must affix a stamp, until the note becomes redeemable when the stamps affixed equal the value of the note. Our correspondent cites the case of a contractor receiving from the Government £50,000 in these notes. He would affix stamps to the value of £2500 to those notes and pass them on to his employees and firms supplying goods and services. Each time this note is transferred its nominal value is ten shillings, but its actual value is sixpence less, and every person receiving such a note will see that the transferer affixs the stamp; but as these notes do not return their full value to the holders of them they will be less valuable than the regular notes, the value of which will be enhanced as the supply of the self-redeeming notes increase. A shopkeeper offered in the discharge of an account a note worth ten shillings and one worth that amount only after he has paid sixpence on it, will naturally choose the first one. The broad effect of this form of issue is that of a tax. The community supplies the money to redeem these notes, and so they pay through this taxation for the public works started in connection with the scheme. Issue notes to the value of £1,000,000 in a year for works of this kind, and the effect will be to draw that sum from the section of the community which cannot avoid using these notes. The actual operation of the scheme in America has not led to its general adoption, and we think that used on a large scale it would be complicated and prove to be a hindrance to trade without giving advantages valuable enough to compensate for the trouble. Certainly the hope that it would end unemployment in New Zealand appears extravagant. To provide 70,000 men with £2 a week for twelve months would require £7,500,000, and these notes would have to produce that sum through the stamps affixed (taxation). Every worker receiving these notes would pay one shilling in the £ (a wages tax?) and he would find the market prices raised slightly against these notes. It does not appear to be a desirable scheme.