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Salient. Victoria University of Wellington Students' Newspaper. Volume 31 Number 16 July 16, 1968

Social Credit Policy John Marshall: a critical reply

page 5

Social Credit Policy John Marshall: a critical reply

Social Credit now emerges as an alternative Socialist Political Party. This much is apparent from Mr. Dickson's article which in essence states Social Credit's present policy as being increased credit creation, interest free, by Government, at the expense of private lending institutions. Thus Social Credit like Labour, seeks greater Government control of money.

Mr Dickson points to the action of the I.M.F. in creating special drawing rights as being analogous to Social Credit Policy. But the I.M.F. will only be creating additional international reserves, because world liquidity is considered to be too low in relation to the volume of world trade. This is not inflationary because the new money will be backed by goods. But one of New Zealand's problems since the Second World War has been internal inflation. Any increase in the volume of credit in New Zealand if not backed by an equal increase in production, would only increase inflation and this Mr Dickson acknowledges.

Mr Dickson infers that some economists have actually said that Social Credit monetary theories are valid. Unfortunately he doesn't name any of these economists and I would prefer to rely on the 1955 Royal Commission which investigated monetary, banking and credit systems in New Zealand. Of the submissions of the New Zealand Social Credit Association which were approved by the New Zealand Social Credit Political League. the Commission had this to say. They presented "a distorted picture of the present state of the New Zealand economy and their analysis of New Zealand's existing monetary system was falsely based and seriously erroneous"


It might be added that nowhere in the world have Social Credit policies been ap-plied in practice. Two states in Canada have had Social Credit governments but only in name. And if Social Credit policies are practical the United Kingdom government would have adopted these policies to extricate Britain from her economic crisis.

A Social Credit government, would according to Mr Dickson, create more of the nation's credit supply at no cost to the people, and private institutions would create less. This would be achieved apparently, by increased use of Reserve Bank Credit, interest free and possibly debt free, for government and local Body capital works. This is the essence of Mr Dickson's article but it contains a number of difficulties.

Firstly, what is to happen to the private lending institutions which at present advance the great proportion of credit in New Zealand? Obviously if the government through the Reserve Bank, is to create more credit, and interest free credit at that, some of these private instiutions will be forced out of business. Will the Trading Banks be nationalised? The Insurance Companies? The Stock and Station Agents? How much credit would the government control through the Reserve Bank?


Secondly Social Credit's proposed issue of interest free or even debt free money could only be done by the government or some State Controlled institution. The private lender will only lend money if he is to get a return in the form of interest on his loan. He won't lend money to the government if no interest is payable. And interest free or debt free money must be inflationary. With no necessity to repay, more money is effectively put into people's hands. If, as seems likely, total credit available increased, without being accompanied by a corresponding increase in production, the pressure on our overseas funds would approach breaking point and heavy import controls, which the recent survey by the World Bank indicated were not in New Zealand's best interest. would have to be imposed.

Thirdly Social Credit's policy of making increasing use of Reserve Bank credit at cost of issue for government and local body capital works raises the question of whether all government and local body works would be given interest free loans or only some. If only some, how would priorities be worked out? Presumably the government would decide. but imagine the arguments and accusations of discrimination which would break out with each local body and government work wanting free money. No one would want to do anything privately where it could use state facilities at a far lower cost. The private sector would find it was unable to compete and government could end up by having to accept responsibility for the whole of this sector, amounting to about three hundred million dollars a year.

public debt

The Social Credit bogey—the supposedly huge burden of the public debt—is raised again.

What Social Credit would do about it is open to question. In British Columbia the "Social Credit" government there transferred the public debt to corporations whose debts are guaranteed by the government And British Columbia has the highest per capita provincial debt of any province in Canada. But over the last 10 years in New Zealand the interest cost on the public debt as a percentage of total taxation has been remarkably stable at about 4% And this 4% is not a very heavy burden to bear when one considers the assets and advantages which we enjoy and which resulted from prudent borrowing in the past—our roads, schools. hydro-power stations, buildings—have all added to the public debt

Mr Dickson criticises "a lack of Government enterprise in seeking bilateral trade agreements". One wonders if Mr Dickson is not confusing bilateral trade with barter trade. The National Government has always been in favour of bilateral trade agreements where these would have a real advantage to New Zealand. The Australia-New Zealand Free Trade Agreement in 1965 is one example and bilateral trade agreements have been made with Switzerland, Bulgaria, Poland, USSR, South Korea, The Phillipines and reciprocal trade deals with India and Yugoslavia.

But the National Government is opposed to barter trade (i.e. the exchange of goods for goods) because it believes that multilateral trading policy is the best policy for New Zealand to follow. We buy and sell in the best markets for the best price.

Social Credit's policy booklet states that Social Credit will establish in the Reserve Bank of New Zealand, credits for those countries willing to reciprocate so that trading may proceed unchanged by balance of payments problems. These credits would apparently be in New Zealand currency but one might ask who would be interested in New Zealand currency in an overseas country? New Zealand's is not yet a reserve currency.

Thus Social Social Credit's trade policy insofar as it involves barter, (which I under stand it does) and insofar as it relies government creation of credits, is a government controlled trading policy as opposed to National's policy which is to create a climate in which efficient private enterprise producers and manufacturers and others can export their goods and services.

Getting down to practical politics, what Social Credit would have done to deal with the 1967 economic problems which facco New Zealand, is, like Labour's policy, extremely uncertain and vague. Certainly Social Credit would not have removed subsidies their policy is to increase subsidies. They would not have borrowed overseas as this would have added to the public debt Probably they would have increased [unclear: impor] controls. Had they issued more money [unclear: of] course New Zealand would probably be the seventh slate of Australia today, because. even Social Credit can't create foreign [unclear: ex] change under the Reserve Bank Act. but only New Zealand dollars.

Traditionally Social Credit's validity has depended upon the existence of a gap between the money available (the purchasing power) and the volume of goods and services avail-able for consumption. Social Credit would issue credit to fill this gap. But it seems that Social Credit has realised the fallacies involved in this theory and in its associated A plus B theorem, and has decided to quietly bury them. What appears to remain of the old Social Credit theories is the concept of issuing interest free and debt free money for government and Local Body works. The result of this increased government control of credit has already been explained. [unclear: s] seems therefore thai Social Credit's future position in New Zealand politics could be as an alternative to the Labour Party.