Central bank and welfare sate, with special reference to the Reserve Bank of New Zealand and the March year period 1950-1960

Abstract

The Reserve Bank of New Zealand was created in the image of the Bank of England. This planning concept has been criticized in that the latter presided over a far-reaching monetary network with a potency and subtlety which its New Zealand miniature could not hope to emulate. A more fundamental criticism is that the image was already anachronistic in the country of its origin. In setting out to establish a central bank on the lines of the Bank of England the New Zealand Government was accepting a recommendation of Sir Otto Niemayer's 'Report on Banking and Currency in New Zealand' of February 19, 1931. In his Report Sir Otto had specified: "The bank must be entirely free from both the actual fact and the fear of political interference. If that cannot be secured its existence will do more harm than good." This was a strange requirement to come from an official of a central bank which had lost its autonomy as far back as the First World War. The precipitating incident is not so important as the inevitability of the development following the abandonment of the gold standard and laissez faire. Up to 1914, the international gold standard and the liberal doctrine of laissez faire enabled the British Government to adopt a near neutral or passive role In a free market economy. The abandonment of these two props of government aloofness for the period of the war, was enforced by the need for the State to undertake central planning and the expenditure of a rapidly increasing fraction of the gross national product. After the War the State was not able entirely to relinquish these functions in the face of public clamour for increasing social security. In the words of Alfred Marshall: