LETTERS TO JOHN SMITH

Taranaki Daily News, 26 August 1930, Page 3

LETTERS TO JOHN SMITH

ECONOMICS FOR ALL THE NECESSITY FOR SAVING. PROVISION FOR THE FUTURE. This is the fifth of a series of letters written for the Melbourne Herald by Professor L. F. Giblin, Ritchie Professor of Economics in the University, of Melbourne. They are an attempt to tell;.plain men m plain words why Australia has .drifted into economic trouble and how.,she niay recover. Readers will have no difficulty in - making the necessary mental , adjustments . to apply the lessens to New Zealand. ' ' V. ■ Dear John,—We left off with a verj big drop in what the country will have to spend for the next year or two at any rate. I said, that the loss was so big that it must be shared all round. You object that it could be taken out of profits without touching wages. This is not ah easy question, and we ■ must begin by being clear about savings and capital. You sometimes talk as if saving was a poor, mean thing to do, and capital a ruffian who ought to be sent to gaol; I admit that saving can be out of -place: and. that. capital is. greedy - and wants . .continual , checking. - But -we would be in a mess without them. ..>•* A Thotisanda ®f hew houses-are /wanted ;, every year' in Australia because: old. one* fall down, and the population is growing. Building a s house means men working at --;, ■brickmakipg and bricklaying;, timber-get-ting, and timber-working, painting, plumbing/ and a dozen other trades. ’ / Who’ is to pay these men while the house is being built ? ’ “No good: looking -to the rent-: of. the house, after it is built. They musthave their wages now.' They . can only be paid and the house built if somebody has “saved” the whole cost of wages for getting the and building the

house. : ; “Saving” .means, not spending all you earn on things for you and your.' family to use. For the individual it means giving up present enjoyment for future en-. joyment. 'For the country it-means providing money to pay the wages of people who build'the houses, which can only pay it back gradually over a long term' of years out of the rent, which men pay for « the use of it. : All the things which have to last for a number of yeais are in the same case as houses —shops and factories and other buildings, machinery, roads and railways and ships—all have to be built out of someone’s savings—the money a man might have spent for his immediate use but didn’t. Even if-we are malting things that can be used up immediately and. paid r for out of-ordinary wages and other income, we still want someone’s savings to start us and keep us going,. The farmer must find wages for himself-; for all the time , from ploughing to marketing his crop; the flourmiller must find money to pay for ... all the cost of growing the - wheat and paying the workers in his mill up to the time the flour is bought and paid ...for,- .All this money comes out of someone’s savings.' -' 1 - ’■ ' '■ ' • - The savings become “capital,” and we need a., lot of it in Australia "because ■wo are a new country, and because population is g. 3wing fast. We . need so much that our own savings- are ' not nearly enough, and we borrow’ the savings of other people in England. That . supply has shut down, and we, are the more dependent on our own savings. . Naturally we have to pay people to save—to refrain . from spending—and we call the payments “interest.” If people .were' saying .. more than was wanted, the'supply of capital. would be. too great, like the supply of wheat is at present, and the pri’.e —the interest—would go down. - The rate? of interest is fixed-by the need we -have for someone's savings; it must be high enough to induce people to save enough to keep industry going. - ■ > This is’, the only way we can get enough capital—by paying enough■ interest ‘to make it worth while to save. This is always true in the long run, though for short periods the operations of the banks may disguise it. -" , ‘ It is true that when people have a big income, saving requires no effort, and we could probably- get a. lot of savings from rich people by’ paying only about 2 . per cent, interest. But we have to pay enough to get other people to save, too, or we should not have enough savings to keep industry going. It is much the same with most things. It would pay to raise wool on the best land at .- sixpence .- a pound. But if we get - only sixpence a pound for wool, we should not get enough wool. We have to pay enough to make it worth while to grow wool on the worst land, so the best land makes a big profit.. So we have to pay enough interest to get people to save who have to make some effort to do so. And we feel .that the very rich man, like the owner of rich land, gets too much-for his services. ■ ... ; There is no'way .of getting out of paying high interest and high rents, and yet keeping, up the full stream of production. But we can remedy the worst; inequalities by taxation —graduated-taxation, of income and land; and all inherited -property. ' We have gone a long, way .in the last: 50 years in Australia —and in England, too—in taking by taxation the wealth of the rich man and using it for general, social purposes, education, and hospitals,/and roads and cheap railway travel, and many other things. I don’t say .we can’t; go further, but'here again there is a limit.:' . Here I must leave the question for the .

present. .We have got far enough to see the necessity of savings and capital. Now /• we can go on to the question whether profits could .not stand all our present loss and leave, wages untouched. But that must be for my next letter. L. F. GIBLIN, : - Ritchie Professor of Economics, University of Melbourne. July 12, 1930. '