RECONSTRUCTION

Waikato Times, Volume 132, Issue 22063, 14 June 1943, Page 4

RECONSTRUCTION

SUMMARY OF PROBLEM DOMICILING OF THE DEBT (No. IV.—By P. H. Watts) Having noticed the defects in the , official proposals for reconstruction, ; and the difficulties to be surmounted, we may now set out our problem, as ‘ follows:—• Freedom of contract and individual initiative must be preserved without official regulation, and, at the same time, we must insulate our industries and commerce from disaster arising from, firstly, alteration of prices in other countries and, secondly, financial operations within our 1 country with foreign capital and, thirdly, irresistible competition resulting from underpayment of labour abroad. There are many other necessary objects, but these will serve for present purposes. Keeping a proper level of internal prices is essential, but is a purely domestic currency problem. If unsatisfactory commercial or financial transactions between countries or their nationals can be made to react against the creditor country which is to receive payment in money instead of reacting against the debtor country which has to make payment, the problem is solved. Unsatisfactory transactions, such as unilateral import trade or the withdrawal of funds owned abroad, tilt the exchange adversely. If we throw the burden of the exchange upon the creditor party, we shall put an automatic brake on the unsatisfactory transactions, because we make them unprofitable. . The Remedy Domiciling international debts in the debtor country appears to be a \ ery simple and complete cure for the stresses that arise between counI tries which trade with one another, ilt removes the principal necessity | for tariffs and ensures that the trade i will in the long run be balanced. It | remedies the difficulty consequent ! upon different standards of living, ! and of remuneration of labour pre- | vailing in different countries. The 'reason why it is not adopted (and may never be adopted) is that it means the deposition of finance from its dominance over trade and economics., This means that all the powers of finance will be concentrated against the change. An example may make the idea clear. Consider the position obtaining between Japan and New Zealand , (pre-war). Here, in. New Zealand, the reward | !of labour, and the living standard, 1 are high. In Japan both are lower. ] ! Therefore our importers could con- j duct a highly profitable business by i buying the cheaply produced Jap- ; ar.ese goods and selling them in New Zealand. Under the present system, this would create two kinds of difficulty. Firstly, it would tend to reduce the demand for New Zealand made goods and, secondly, difficulty would arise in obtaining Japanese currency in exchange for New Zealand currency, to pay for the Japanese goods. The cry of exploitation and dumping would be raised in New Zealand and the Government of New Zealand would institute a tariff to check the trade, and, if necessary, an embargo. We have had the tariff. Tariffs create international stresses, and these stresses cause wars. The present war is largely the consequence of a prolonged war of tariffs. Not that tariffs are the immediate causa belli, but they do create the atmos- ; phere in which warmongers find ; their audience. Same Effect as Tariff 1 Now suppose that by international law all debts are made payable in the debtor country and in its currency. This .means that the debt for the Japanese goods is payable here and in our money. This money has become available by the retailing of the goods. Hence payment presents no complications. It remains for the Japanese vendors to get their money to Japan and convert it into Japanese currency. They are going to find difficulty in this, because Japan cannot afford to buy goods produced at high cost in New Zealand and so has little use for our currency. Therefore the exchange between New Zealand and Japan will tilt more and more against New Zealand, so that the ! Japanese get less and less Japanese i money for their New Zealand money I until, finally, the trade becomes unprofitable for them and ceases. So the effect which a tariff arrives at is produced by natural causes and , without friction and rancour. There might be a still better outcome, if the exchange movement made it possible for Japan to buy ' New Zealand goods. If this happened the international trade would continue on the wholesome basis of the (indirect) exchange of goods for i goods. It will be observed that the ! second difficulty, namely unemploy - ; ment, also disappears. If the exchange stops the trade, there is no interference with employment. If, ;on the other hand, a new export : trade from New Zealand is created, | fresh employment is provided therei by in New Zealand. Temporary Dislocation 1 There would naturally be some temporary dislocation, but • the cost of it would be the veriest fraction of the cost of the war that results from tariffs. There remains the ! possibility of the Japanese vendors lof goods leaving their money permanently in New Zealand. If they do so the cost of the goods imported into New Zealand never goes out of the country and we have had, in effect, a present of the goods, which ore a clear addition to the wealth of our country. As to the practicability of the proposal, it may be observed that there will be no difficulty at the close of the war in making the law. Whether trade ensued or not would remain to be seen. Any trade which did ensue would obviously be sound and healthy trade. And when one considers how frantically nations press for buyers of their goods, it is hard jto believe that sound trade would not survive. People will say that (for instance) English money-lenders would not advance moneys to New Zealand on terms that repayment should be in New Zealand currency. But if the law were general, they must accept the condition or keep their money in England. It means deposing finance ! from its dominance and making it I subordinate to trade. Which is de- ! sirable. The Economist (London) J said las* December that the domin- 1 ance of finance over economics must cease, and the Economist is a paper of great weight and responsibility. The arrangement I am proposing 1 should be associated with a free»trade policy (a gradual one) and our

Government definitely must abstain from tampering with the exchange. Also it presupposes that we have our own currency and regulate it properly. Reconstructing our internal finance is a separate problem.