TASK OF REHABILITATION

Taranaki Daily News, 20 December 1932, Page 7

TASK OF REHABILITATION

FORMULATION of a policy

MINISTER OF FINANCE BUSK.

BANKERS and economists call.

SUGGESTIONS OF INFLATION.

(Parliamentary Reporter.) Wellington, Ijast Night. It is apparent that the Governpient has not yet made any decisions as to the policy it will pursue when Parliament meets again on January 26.. Since the adjournment the majority of the Ministers have been occupied on departmental matters which have accumulated during the session, and it is not likely that Cabinet as a whole will commence deliberations on the economic situation until after the holidays. The Minister who has been devoting the most time to the central problems of the day is the Minister of Finance’ (the Hon. W. Downie Stewart), and he will no doubt have a big say in the -policy that will be finally adopted. During the week Mr. Stewart called in three members gf the Economic Committee, Professors J. Hight, H, Belshaw and A. H. Tooker, and for two days these experts weyg jp close consultation with the jstep and members pf the Treasury Department. . ■ ' It will he remembered that in Febru-. ary last the Economic Committee, which also included Professor D, B, Copland, Melbourne, apdMr. A> P- Park, Secretary of the Treasury, recommended an artificially high exchange rate a? a means of arresting the downward trend of internal prices,. but. this suggestion was rejected by the Government on the ground that- the exchange rate was a matter for the banks. However, the Government has not adopted this policy consistently, .as about twelve months ago it greeted' an exchange pool, with the right to restrict imports, in order to en« §ure that there would be sufficient fund? available in Condon to meet Government gnd local body overseas commitments. The exchange was freed a few mentiis ago end the' Government again affirmed the principle of allowing the banks to control it. . 1 \ IN TOUCH WITH BANKS. . Apart from the economists the ernment has also been in close touch with the banks, and in some quarters this is . regarded as significant. It will be remembered that the directors pf the Bank of New Zealand in deciding against a pegged exchange offered as an alternative a loan of £3,000,000 to finance remissions tg farmers of tod tax and rates. No decision on this proposal has been announced by the Government, which has also under review a system of bonuses on expert?, Among seme pf the rural members of the House it is considered that £2,000,000 will net be. suf» fioient to meet the plight bf the primary producer, but it is also evident that if any large, measure , of assistance is given to the farmer there will be. a protest from the city members, who consider that bonuses and remissions of rates , and taxes are helping to keep the price pf land at an uneconomic value. '

A farther alternative that is being discussed has gn inflationary trnge. Many fiew. O.r apparently ngw ideas for ereat’ing money, credit and prosperity are being brought forward to-d a y, and-some of the sriiem©? have not faU©P PD de af ears. . ' ' ' ‘

One of th® most popular ideas at the ■ present, time" is that the banks .go.uld, by. manufacturing money, force ‘up ‘ prices'. This , idea to widely held ,by those whs. have the .firm conviction. that the banks will not do this because they are guard-1 irig vested interests, and that the' power; of the banks must be broken by giving the State the control of money. This theory ewes its origin to.experience of the war-time inflation of money. .. Governments at wap are great spenders, and in the„last-wto they were com?, pelled to print tremendous. sums of money to buy the things .they heeded,, with-the result that prices, wages , and, profits rose enormously. In other words,* inflation reduced the value of money. The present troubles of the world are mainly the outcome of the inflation which was necessary to finance the war, and fresh inflation, though it might temporarily mitigate them, would, according to,.part experience, ultimately intensify, them, By the depreciation of ito currency a country might raise ito price level in terms of that currency, but it could not with such a device raise the world level of prices that are proving so oppressive to New Zealand. We cannot bring about a change in world parity with little inflation schemes of our own. TRADE AND MONEY. The idea that cheap money means good trade and the reverse bad trade, though entertained by some politicians, is contrary to ah experience and logic. When trade is depressed the ‘demand for money, like that for commodities and labour, falls, and its price declines. When the demand increases prices rise, and that applies to money as well a? other things,' There would be no more wisdom in increasing the supply of money when it is already in excess ‘of demand than increasing the supply Of labour in the midst of great unemployment, or the supply of a particular commodity in a market already overstocked. It to unlikely that the Minister of . Finance would countenance any inflationary scheme, although it must be said that one or two of his colleagues, who were' advocates of the high exchange, are toying with the idea. It is coni tended that the psychological effect of an inflationary policy would be beneficial, as it would have a tendency to create confidence and- thus loosen some of the purse strings which at present have knots in them, but those who see two or three moves ahead are fearful of the consequences. Inflationary schemes, like tariffs', are artificial in their essence, and like tariffs also are open to abuse, There are few students of politics who would place the power in. the hands of any Government to set the note-print-ing press in motion. There are indications that there are two schools of thought in Cabinet on the question of a compulsory reduction of interest. The Prime Minister has stated on several occasions that he considers that the burden of interest to more than the country can bear and that steps will have to be taken to reduce the price of money, but some of his colleagues are of the opinion that , such a policy/if pursued further, will shake the confidence of investors to such an extent that loan money will disappear from the country.. It can thus be seen that Cabinet has a long way to travel before it can arrive at any unanimous decision.