"VELOCITY OF MONEY."

Auckland Star, Volume LXV, Issue 9, 11 January 1934, Page 6

"VELOCITY OF MONEY."

The usual "velocity of money" argument is being trotted out by anti-Douglas writers, and it is time this theory was laid low. Apparently your correspondent "E.C.F." imagines tljat it is not the amount of money in existence, but the velocity with which it is spent that counts. It is a common error, and here is the fallacy: If I pay the baker £1 for bread tho baker uses the £1 to pay th© butcher for meat supplies, who perhaps takes the family flor an outing. "E.C.F." would bo quite satisfied that the £1 had done its duty by "floating ad lib. around the community, and performing its duty of purchasing numerous consumable goods. Here is the true position: Of the £1 I paid the baker, possibly 2/ was profit, leaving 18/ to pay the miller, who in turn has a small margin of profit and uses the balance to liquidate his debt to someone else, be it the banker or the next in the chain of industry. All money is issued only through the banking system as a debt, and as long as it is travelling backwards in payment of costs and satisfaction of an earlier debt, it matters not how many hands it may pass through, nor how much it may be split up; it cannot achieve the purchase of a second lot of consumable goods. Over 90 per cent of money is bank credit—cheque currency. A cheque is made out to a specific firm or person. It is presented, cleared and cancelled.. It lias no velocity whatsoever. If the total pure/basing power released in New Zealand in one year is fifty millions, no amount of prayer and supplication, no amount of "velocity of money," will add to its purchasing power by so much as a brass flarthing. The "velocity of money" nonsense is a specious delusion propagated by certain people to delude us into believing that there is ample money in circulation, when the crhastly facts reveal definitely that there is not. W,S.M.