STATE CONTROL

Timaru Herald, Volume CXLII, Issue 20587, 28 November 1936, Page 8

STATE CONTROL

MARKETING AND FINANCE

TWO DANGERS SEEN By Telegraph—Press Association WELLINGTON, November 27. “The present Government has been in office a year, and in that time some economic institutions have been drastically reconstructed.” In these words Sir Thomas Buckland, president of the Bank of New South Wales, addressed shareholders at the Bank’s annual meeting in Sydney to-day. Reviewing the measures of State control of industry and finance that have been introduced by the present New Zealand Government, he quoted a recent description of these measures as “the most ambitious attempt yet made at State export trading outside Russia.” The Government, by recent legislation, had acquired supreme control over monetary policy and administration, and there was practically no limit to its power to increase the money in circulation for any purpose it desired. The Government had also invested itself with a virtual dictatorship of industry. Perhaps the most significant innovation had been the institution of State control over the marketing of dairy produce through the device of the “guaranteed price." Dangerous Elements The experiment of guaranteed prices. Sir Thomas said, was’still in its early stages, and it was impossible to estimate what success it had achieved. World prices for the Dominion’s produce were satisfactory now. It remained to be seen whether a guaranteed price suffifient to cover reasonable costs would be paid when world prices were falling. In such an event the New Zealand Government might fall into difficulties similar to those which beset the Canadian Government in its attempt to regulate the price of wheat.

The policy of the Labour Government, though radical, had allayed the anxiety of many who had feared that the election would be followed by dangerous financial experiments. On the other hand, almost all the policies pursued were seriously raising costs of production, and it seemed certain that this would have unfortunate repercussions when the present rapid increase in export prices ceased. In the sphere of taxation, it was ncessary for the Government to show considerable caution if frustration of its policy was to ne avoided. There was a definite limit to the amount which could prudently be raised by taxation. If that limit had not yet been reached, it might soon be exceeded.

The Banking Position

The banking position in New Zealand was very liquid. Deposits had increased over the last year by between £5,000,000 and £6,000,000, but advances had increased by no more than £1,000,000. This meant that banks and their customers were unwilling to undertake commercial operations, the risks of which had been increased by recent and promised actions of the Government. If the Government’s marketing powers were extended to include other exported produce the Reserve Bank would be so closely tied to industry that its assets might become frozen under adverse conditions. This was the first danger in the situation. Any tendency in this direction would make it more difficult to avoid the second danger, namely strict control of foreign exchange resulting from a shortage of London funds in the hands of the Reserve Bank. “With so many examples of exchange control in other countries,” Sir ‘Thomas concluded, “there is no need for me to elaborate the dangers of the situation in New Zealand.”