Labours Founding Ideals Were Public Credit

LABOUR PARTY(BRITISH) AND ECONOMIC PROBLEMS 1931

EXCERPTS FROM INTERNATIONAL UNIVERSITY SOCIETY

Reading Course and Biographical Studies

- Section Two

Transcript of an address broadcast on BBC radio October 23, 1931, by Arthur Henderson long time Chairman of the Labour Party;

Pg 146

Labours considered policy for dealing with the urgent problems facing the nation has been set out in the program titled “Labour and the Nation.” It was on that policy that we fought the 1929 election. It is on that policy we are fighting the present election. It means the planned reconstruction of our national life. It means putting considerations of national wellbeing before those of private advantage. It means organising and using the resources of the nation for the whole not the part. there is no other way in which Britain can continue to stand at the head of civilised peoples………

Pg 147

………. Why should it be suggested that the return of a Labour Government should cause panic? The Labour Party stands for a balanced budget. The late Labour Government stood unanimously for a balanced budget. Of that there can be no contradiction. Where there were differences of opinion was in regard to ways and means. We held that it could have been balanced without reducing the benefits of the unemployed. We believe that our decision to restore these cuts at the very first opportunity commands the approval of the bulk of the nation. We declined then and we decline now the right of any outside interest to dictate the particular ways and means to be adopted for balancing the nations budget. Labour sets its face sternly against both inflation and deflation…….

Pg 148-9

……….. Moreover, we believe that one of the quickest roads to inflation lies through the raising of home prices through tariffs. Labour aims at a monetary policy that will stabilize prices. The fall in prices has had a calamitous effect upon the world. It is a world problem, and it calls for co-operative action. Labour therefore stands for the holding of an international conference to work out a considered monetary policy. It is now generally recognised that national action alone will not suffice. The sooner the problem is dealt with in the light of imperative realities, the sooner will this country and the world in general be able to escape from the economic dangers which continue to beset them.

A further step in this co-operative effort must be a conference to consider and establish the conditions under which inter-allied War debts and reparations may be cancelled. For more than ten years this has been our declared policy, and we will continue to press for the only final settlement that would be of any avail.

We propose that that the banking and credit system of this country should be made a national service. We propose this because, as Mr MacDonald and Mr Snowden have insisted so often in the past, it would be folly, particularly in the light of recent experiences, to leave private banks to be masters of the nations destinies. As recently as Tuesday last the Prime Minister, as reported by the daily herald, admitted that there is no doubt at all that the financial arrangements of the city are bad and must be changed so that the wealth of the country should be used for the benefit of the country and not for speculating and gambling. How does the Prime Minister propose to achieve this change if not through the policy of the Labour Party, which both he and Mr Snowden supported before they joined their present allies? Yet it is Labours proposal with regard to banking and credit that he has sought fit to hold up to particular ridicule. In 1928 Mr Snowden submitted our banking and currency policy to the annual conference of the Party. The Party statement declared that as regards the Bank of England, its constitution ought to be such that it would be directly under public control and its governing body should be responsible to the community and not to individuals. That is precisely what the Labour Party says today.

In recommending this proposal Mr Snowden said;

” I believe in the suggestion made in this report that the Bank of England should be under the control of what we may call a public corporation set up by Parliament, with Parliament laying down the general principles upon which this corporation would work.”

That is not all. Though he gave reasons why he did not believe the time was yet ripe for the nationalisation of commercial banks, Mr Snowden declared that, in regard to the nationalisation of all other banks, ” In principle I am in favour of that.”……..

PG 149-50

………. The Labour Party urges the definite planning of industry and trade so as to produce the highest standard of life for the people. We seek to reorganise the most important basic industries as public services, and to ensure such regulation of prices as will enable British industry to compete effectively in the markets of the world. Mr Snowden has paraphrased that proposal in an attempt to make you believe that all the derelict industries are to be taken over by the state and the tax payer is to shoulder the loss. If these industries are derelict now, that is the failure of capitalism. Are we to leave them derelict or inefficient, with all that means in terms of human suffering, human insecurity, and human misfortune, or are we to apply the principle of industrial reorganisation of which the Chancellor of the Exchequer has in the past been such an ardent exponent, in order that these basic industries may give the efficient service to the nation that is essential to our economic strength and to the prosperity of the workers?

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The cheapest houses ever built in New Zealand country were because of the cheapest credit ever issued in the history of this country. The book – State Housing in New Zealand – published by the New Zealand Ministry of Works in 1949 which can now be read here;
http://www.hnzc.co.nz/hnzc/web/research-&-policy/our-archives/books.htm
toggle down and go to pdf section one, page seven. You will learn that 33,766 houses were built using money issued by the recently reclaimed Governments Reserve Bank(1934) at interest rates of 1%-1.5%.
From Page 7;
Reserve Bank Credit: To finance its comprehensive proposals, the Government adopted the somewhat unusual course of using Reserve Bank credit, thus recognising that the most important factor in housing costs is the price of money – interest is the heaviest portion in the composition of ordinary rent. The newly created department was therefore able, therefore, to obtain and use funds at lowest possible rate of interest, the rate being 1% for the first 5,000,000 pounds advanced and 1.5% on further advances. The sums advanced by the reserve banke were not subscribed or underwritten by other financaial institutions. This action showed the governments intention to demonstrate that it was possible for the State to use the countries credit in creating new assets for the country.”

From a book called – Man to Man – Michael Savage explained the State housing scheme to Tom Skinner of the Federation of Labour as such;
” I was with Joe on one occasion when he began chatting about the ramifications of the Governments State Housing Scheme. He told me … how the construction of those houses created assets in a productive way. The Government created the money through the reserve bank at a moderate rate of interest to cover the contract price, which paid for materials, tradesmen’s wages, the purchase and development of the land and all the other essentials required to finish the house. On completion the house was transfered from the Housing Division of the public works department to the State Advances Corporation – in effect from one department to another. The corporation was the renting agency responsible for selecting the tenants, collecting rents and maintaining the house and the property. The philosophy……was that as the money was created for productive purposes no loss could occur if it were not repaid from one department to another. Meanwhile, during construction, tradesmen had been paid wages which had been spent and absorbed into the economy. But it was solid money backed by the creation of assets. People had been kept fully employed while the government built homes for the people.
Tom Skinner;
” While Joe spoke I began suddenly to grasp the Labour philosophy related to the creation of credit. It set me off thinking about money and what it meant to the economy. The Government, figuratively speaking, could rub a state house debt out of the books because a building stood in its place. But money created by the banks in order to gain profits in the form of interest was the other side of the coin. It was unproductive, inflationary creation of money if unmatched by equivalent goods and services…..”
“I have read and believe that monetary mismanagement is the greatest evil of our time. It breeds injustice, increased costs and, as the root cause of inflation, it diminishes the value of our money. Governments should carry out their pre-election promises and take the necessary steps to reform the monetary system. It can be done only by making the State the sole authority for the issue of currency and credit….. unfortunately, in this area politicians seem to be abyssamally ignorant of elementary financial and economic truths.”

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 Perhaps the greatest three pages, from the greatest political book ever written in New Zealand history, by one of New Zealands greatest forgotten hero’s:

Simple On A Soapbox

Published 1963

Written By John A Lee

 

Pg 52

Maybe it was inevitable that a Savage-Lee conflict should arise. The Prime mister represented an old unadventurous, uimaginative Labour period, whereas I came to political maturity during World War One and later the great depression. I am sure Savage always believed that by administration alone, with few changes in the law Labour could alter the nature of government. .

In the days when the depression was approaching I had advocated a socialist bank and government credit issues. While men an mills were idle in tens of thousands during gluts of unconsumed materials I deplored the borrow our way out of the depression talk of some of the old Labour M.P.s and refuted their arguments. It would be time enough to borrow when goods were in short supply, when mills and factories were working overtime, I maintained.

Ten years before any other politician in New Zealand I was a advocating exchange control and import selection which have now become permanent features of our economic life.

State use of the people’s credit seemed to me to be the socialist answer to poverty amidst plenty, the control of social investment by direction and the granting of government credits. All this is now accepted but when I first advocated it, it was heretical even in Labour circles. Nash and Savage were followers of Snowden.

Frank Langstone, M.P. for Waimarino, and I became the two protagonists of this policy. Our speeches in Parliament aimed at converting the parliamentary Labour Party and carrying it with us. Savage continued to believe we could borrow our way out of depression. He resented what Langstone and I were doing and could scarcely be civil in his fury at our advocacy of unorthodox methods.

Pg 53

During a budget debate in the depth of the depression Savage, Nash, Parry and McCombs had tabled a resolution in caucus. They wanted the Labour Opposition in Parliament to move that a certain sum of money be borrowed on the security of the unemployment fund and used to alleviate distress.

The time had arrived for a challenge. I became very active and lobbied every Labour M.P. I ensured a big caucus attendance. We would move, as an alternative, that credits be advanced by the Government-owned Reserve Bank so that we could invest our materials and idle man-power surplus in socially owned construction. We could see no reason at that moment for borrowing at a rate of interest. Surely the time had arrived for an issue of credit. Australian Labour was talking`issue’; in Britain tracts on money reform were flowing from Labour pens. In a world of plenty the dispossessed had no money. Even Roosevelt, later, talked our language. We thought the moment had come for the people to claim rights of issue for their own bank. The goods existed, why not create credits?

Caucus when it met, divided in a bitter debate in which Savage organised the advocates of borrowlng and I the faction in favour of the State issue of credit. Caucus was adjourned four times. I think every member insisted on speaking. At the third meeting, Harry Holland ,then Leader of the Party, espoused our cause. I saw M.P.s taking their coats off to one another in that caucus, so bitter did the conflict become. The Savage-Parry-Nash-Fraser-McCombs resolution went down to a humiliating defeat, only Fred Jones of Dunedin South supporting the resolution. Nearly thirty Labour M.P.s voted for a credit issue including Harry Holland himself. We moved accordingly in Parliament.

Out of that debate had come a new finance policy in which, I am convinced, Nash never believed. In 1935 the Labour Party affirmed that the Government should have sole right over the issue and control of new credit. But in the meantime Holland had died. Savage, the oldest surviving private and deputy, had become Labour Leader and was on the road to the prime ministership. He never forgave me the humiliating defeat I had organised.

Prior to that caucus Savage used to tell everyone, both publicly

Pg 54

and privately, that I would be one of the first chosen in a Labour cabinet. After that defeat I knew that only a caucus vote would compel Savage to accept me. He became unfriendly from that day on. Many apparently woolly and benevolent folk are capable of sustained malevolence when crossed. Fraser knew his man when he told me that when he had prevented Savage from becoming a candidate for the mayoralty of Auckland Savage had sulked and hated him for years. I was not concerned about Savage’s feeling, nor was Langstone. We were both concerned with the Party’s adopting a progressive policy. We were to discover that recalcitrant men do not carry out bold and imaginative programmes.

In July 1962 the leader of the Labour Party, the Rt. Hon. W. Nash, made a lengthy statement in which he said : “Consistent with the needs of a sound economy, the State should create and use credit at the cost of issue for purposes of approved capital development. We are satisfied that the use of Reserve Bank Credit, within the limits set out is not only justified, but has already contributed much towards the Nation’s economic well-being.”

Thus, 27 years too late, Nash accepted the policy on which Labour was elected in 1935………….