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PHE question may be asked : Cannot such a colony as New Zealand, with private and public wealth amounting to £277,000,000^ borrow a few millions inter&&uu nally without disturbing /C (I s fi nan °i a^ equilibrium ? No doubt if the colony S^*" were to borrow a very

large sum of money locally, it would result in a financial disorder that might land it in some form of chaos ; but that the borrowing of a few millions would, in any appreciable manner, affect the financial or commercial position is problematical, especially if the money were spent locally and not sent to London to pay off foreign loans.

Many people are prone to regard the matter of borrowing money in a serious light, but the very simplicity of it can be cited by the way in which business men every day borrow on their good name, without any security whatever. In the early days of Scotch commercial prosperity a system prevailed in that " canny " land which was as simple as it proved satisfactory. A local body or district wanted a bridge or a road constructed. Wnat did the body do ? Went to the London market for the money ? No ; it issued notes of promise to pay, similar exactly to bank notes. :With these the workmen were paid, jand the tradesmen, glad enougji tO do increased trade, accepted them, although they had to wait a considerable time before they were redeemed. It is doubtful if the notes even bore interest.

Let us see in. what manner a locally floated loan would affect the colony financially. It will be known that the banking houses act as the purse of the colony, that is, when money is received by anybody it is handed to the banks, and when a payment is made by anybody it is taken from the banks. The banks, so to speak, hold the colony's change. The bank deposits, free and fixed, at the present time amount to £17,700,000. Now, should the Government float a million loan locally, it would have to come out of this sum nominally only, for the money would simply be transferred from various depositors' names to that of the Government, and would still remain in the self-same position in the banks. Following the fate of the million further— for the Government would be spending the money, and would not keep it remaining on deposit — and assuming that the Government were to undertake public works, the money would be paid out from the Government's credit at the banks to contractors who would at once bank it again ; or, if paid to co-operative workmen, it would be spent with tradesmen who would in turn bank it again. Or, if the money were spent by way of advances to settlers, or in any other reproductive way, it would ultimately find the same goal back at the banks, only with the difference in the latter cases, that it would immediately begin to pay interest on itself. In the event of unproductive works being undertaken, the interest would have to be found by the Government, but as the works would be done for the general weal

this, palpably, would be no difficult matter.

The case of borrowing locally to pay off loans that fall due in London is a different matter altogether, and would undoubtedly mean, if carried to any great extent, a disturbance of the; colony's financial position, for it would start with, depleting the actual cash resources of the banks— the. pur,se of the colony. But even local 'borrowing for this purpose on a modified scale could be done in periods of trade activity, when our exports are swelling in value. It is a dictum in economics that when the export trade of a •country increases, so also does the import trade, evidencing increased spending power, ilf most of the increased imports take the form of luxuries,; it would be an advantageous opportunity for the colony to borrow locally to pay loans falling due in Jjondon, thereby keeping 1 in check such luxurious imports. That this colony is at the present timen •enjoying the results of increased exports by increasing its imports can be shown by the following figures. The year 1896 is taken for comparison with 1902, because it can fairly he regarded as a year of normal prosperity : 1896 1902 Exports £0,299,907 £13,685,469 Imports 7,035,379 10,958,038 While the exports increased in six years by £4,335,552, the imports increased by £3,922,659. Now, •naturally a large part of the increase in the imports would he ■caused by trade activity, and would consist of machinery, iron, etc., to be used for still further increasing •our exports and internal trade ; but again, many of the articles, which show an increase in 1902 as compared with 1896, must be deemed as luxuries, pure and simple. On apparel, drapery, boots, haberdashery, hosiery, linen, millinery, silks and woollens, the increase was

£714,000 ; on hardware, £152,000 ; on spirits, £75,000 ; on fancy goods, £59,000 ; and on pianos, £45,000. As an index to the increased luxurious spending power of the people, it may be worth mentioning that silks increased from £70,000 to £140,000, and pianos from £40,000 to £85,000. The total increase in the foregoing articles comes to £1,045,000, which, after 13 per cent, allowance for increase in population is deducted, makes the amount £965,000, and this must truly be regarded as luxuries which could go towards paying off foreign loans if it were so desired.

The question now arises : If the Government wanted to pay off yearly £1,000,000 of loan money owing to the London holder of new Zealand stock, how could the beforementioned £965,000 'be staved off as imports so as to go towards the payment of the £1,000,000, thereby saving any drain on the cash resources of the banks. Perhaps the best way of illustrating the manner in which it could be effected, would be by placing the colony in the position of a private trader. Suppose the trader exports to Britain £20, 000 worth of goods, for which, in return, he imports also £20,000 worth of goods. His cash on hand to carry on business in the colony and to adjust balance of foreign trade which may be against him is, say £3,000. The trader owes £5,000 to a London money-lender, and he is anxious to pay off £2,000 of this sum. We will suppose that he at once remits the £2,000 by cash to London, but after doing so, he recognises that the £1,,000 left will not suffice for his trading purposes, so he at once curtails his imports by £2,000, which sum he will get by remittance from London, thereby regaining his! financial equilibrium. So would it be with the colony. If, say £1,000,000 were remitted in cash to London to pay a loan off. the money market here would get light, the banks, anxious to keep their reserves equable, would curtail credit, merchants and tra-

ders would therefore reduce their import orders from London. Would this be a serious matter at the present juncture, may be asked. If the colony is at the apex of a prosperous period, the pursuing of such a policy would indeed be an unmixed blessing. A foreign loan of £1,000,000 at 4

per cent, costs in twenty-five yearn another million, but a local loan at 4 per cent costs virtually nothing,, for the interest is still retained in the colony. What I have tried to demonstrate is that the idea that Colonial 'borrowing for Colonial works is pernicious, is a shibboleth, having no» sound argument to support it.

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COLONIAL BORROWIMG. New Zealand Illustrated Magazine, 1 February 1904

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