BANKS AND MONEY.

Auckland Star, Volume LXV, Issue 12, 15 January 1934, Page 6

BANKS AND MONEY.

The banks' returns, as published in the "Star" of January 9, are a direct negative of the velocity theory, on which Mr. Docker's book and "EJC.F.V notes are based. The banking position gives a clear indication that velocity is more or less at a standstill, and that frozen assets, with the consequent financial and business stagnation, arc slowly but surely taking its place. It does not require an expert to realise what is likely to happen in- the near future unless there is a radical reform in the existing monetary system. I venture to predict that the financial operations of the new Reserve Bank will bo exactly opposite in-result to what is expected in the issue of credit. Apart from borrowers who may require money to pay interest on former loans, there is little likelihood of borrowers requiring credit for production, for goods and for services, even if the loans are offered interest free. Although a great deal of this disinclination on the part of business people and others to take up further financial responsibilities may be due to a lack of confidence in the financial and business instability of to-day, there is also a general feeling that borrowing more money for production is futile, as producers cannot sell, or have to sell at a loss. One of the defects in the present monetary system appears to be (from a national point of view) that the banking system confines itself to the old-fashioned mebliod of single-entry bookkeeping, i.e. only money loaned fbr production. As banking is, or rather should be, a form of national accountancy, it must be obvious there should be another entry, for the result, or objective of production, i.e., consumption, so that a correct balance-sheet can be prepared showing a reflection of the real wealth of the country to that of the financial wealth actually in circulation. Frozen assets are of little use, cither to the banks or the public, as they are not purchasing power. Finance, in its present application to industrial requirements, tan only result in a national calamity, and if continued long enough will further result in the collapse of our present order of civilisation. It is true that the New Zealand Government may make use of the Reserve Bank for cheap credits to finance public and other Government undertakings. Why the Government, which is, or should be, the supreme authority of this country, is satisfied to apply to a private, or semi-privately controlled, institution for permission to use its own credit is an anomaly that is puzzling the minds of tens of' thousands of people in this country. QUID PRO QUID.