TIME FOR SAVING

Waikato Times, Volume 124, Issue 20785, 21 April 1939, Page 8

TIME FOR SAVING

MR NASH’S OPINION INTERNAL LOAN NEEDED ENS URING STAB IL ITY That the Government considered an Internal loan should be raised was emphasised by the Minister of Finance, the Hon. W. Nash, speaking at the Easter Conference of the Labour Party, according to the Labour paper, the Standard. Mr Nash said saving was necessary just now, just as spending was necessary previously to offset the effects of the depression. The Government had never had any other opinion regarding the internal loan, he added. Any difference of opinion there might have been was exclusively confined to the time of issue of the loan, rate of interest, and the issue price. A rate of 3£ per cent, had been suggested. In determining what the rate was to be one would have to have regard to the market rate of interest on similar securities. At the present, time the rate, varied from about 42 per cent, to 4i per cent. Rate of Interest Other circumstances were the effect of a low rate of interest on investments, particularly the investment of trustee funds. On the other hand, the effect of a high rate had to be construed in its relationship to rates on other types of lending. For example, if the rate on the best type of security, namely, Government bonds, was raised then thare always was the tendency for the rates cm local body borrowing, on mortgages and overdraft, to respond. A further consideration which they had to take into account was whether in view of this they should refrain from issuing the loan and take the money from the Reserve Bank. That was a question to be discussed. / Obtaining accommodation from the Reserve Bank raised the further question of what was the nature of a loan of this type under the existing financial procedure. In general, and in particular in the present situation, loans other than those from the Reserve Bank represented savings, and by savings he meant the actual amount of physical saving of the community. Physical saving was represented by buildings, machinery, equipment of all kinds, public works. Monetary saving was only true saving when it reflected an abstaining from consuming goods immediately so that the materials could be used for capital equipment. Savings of Community This meant that the extension and development of New Zealand was not possible except from savings. That was, New Zealand could not ex.pand and develop unless the country used some of Its resources to build factories, equipment, transport services and all types of physical capital. It might be said that the savings of the community were the goods and services consumed by those who were engaged in building capital assets. Money was spent on these capital assets, but it was the upkeep in terms of food, clothing and shelter of those engaged in building the assets which represented the savings of the community. “That is,” said Mr Nash, “If we spend money on building roads, bridges, railways, factories and wharves, then we are using up the goods and services which have been conserved in the past, and also which are being currently produced to build these capital assets. In short, savings can only come from production. "It will be clear, therefore, that money in itself, or the use of credit from the Reserve Bank, is not capital; in fact, is not saving. Capital represents plant and equipment, the means of production and also the stocks of goods on hand. Real capital is facilities for production. Reserve Bank Credit “Now, where does Reserve Bank credit come into this? Where there arc unused resources and idle men, it can be used to bring these together to further production. But even here these men are consuming goods and services produced by others. "Reserved Bank credit can stimulate production, get production going to the maximum, and it can also meet emergencies," Mr Nash said. "And it is impossible to know in advance what is the exact sum which it is safe to use from the Reserve Bank. If we use too little we are lowering production and producing unemployment. If we use too much we are inevitably extending our own difficulties by increasing the pressure of purchasing power on the amount of goods coming forward for sale, and thus tending to raise their prices. Position Has Changed “Three or four years ago, when failure of purchasing power was causing and accentuating depression, the advice to spend freely was an essential policy to maintain living standards. An increase in the purchases of consumer goods was more important than saving. Now the position is different. A saving from people’s actual income is necessary to counteract a possible danger of prices rising and as a basis for capital expansion. It is unnecessary to stint or curtail demands for food or necessities, but to the extent that the demand for other goods is restrained prices will be more stable. For saving now, that is, withholding expenditure now to enable our people to enjoy more in the future and to avoid price increases now, there is an unanswerable case. "That is, we in New Zealand have to finance our own development. Expanding industry in New Zealand depends on the people of New Zealand and they have to provide the capital for the building up of New Zealand. And in doing this we must keep production up. In the last two years factory production has increased 25 per cent, but in the last year the increase was only 7 4 per cent —whereas the total production in value decreased last year by half a point. Farm production was down in volume.

"From every angle, then, produc tion in New Zealand must be in creased, whether it is farm produc tion or factory production or produc tion of services.”