BANKS AND MONEY.

Auckland Star, Volume LXVI, Issue 49, 27 February 1935, Page 16

BANKS AND MONEY.

Permit me to reply as briefly as possible to the four points raised by "Croesus," but before doing so 1 should like to say that it is a matter of mild surprise to have to define a statement the truth of which is confirmed by most ot the world's recognised authorities on banking and finance, including the MacMillnn report on finance and industry. Now the exact meaning of the statement, "banke have the power to create money," may be obtained if we substitute the word "make" for the word "create," and use the word in tiie same sense that we use it when we say that a brick-making machine makes bricks. Again, the word "money" has been correctly defined as "anything no matter of what it is made, nor why people want it, no one will refuse in exchange for his goods and services." There is, however, a substantial deference between making bricks and making modern money, in that the former requires materials, but the later requires nothing more than pen and ink. An example of how banks "create money" in accordance with these two definitions is provided in the latest bank return, where free and fixed deposits arc shown as totalling £00,930,568. Now when we compare these figures with the legal tender, which, in this country consists of Reserve Bank notes, silver and copper coins, amounting to approximately £1],000,000, we find that there is a lot more money in the country than there is legal tender, and it is obvious that something curious has happened for £11,000,000 to become £00,939,508. For however much £11,000,000 changes hands in the course of frade it still remains £11,000,000. The difference of approximately • £.10,000,000 must have been created by the trading banks by the stroke of a pen; this amount being new money or bank credit which ranks equally with legal tender as purchasing power, for there is no essential difference between £10 in one's notebook and £10 in the deposits accounts of the banks.

I have no desire (o impute unfair motives to "Croesus," but I fail to see how the words used in lny previous letter, "Trading at a profit presents no great difficulty for institutions, such as banks, which have the power to create money and charge it up as a debt to the community," can be made to read, "Bank balancesheets have never disclosed any money charged as .a debt to the community except such as another section of the community had previously placed in the hands of the said banks, either as shareholders' capital or as customers' deposits." Unfortunately, space does not permit me to deal with this point as I would like to. Again, "Croesus" overstates tho case when he says that banke always accept and pay interest on fixed deposits, for among the things banks do not want to-day arc fixed deposits at any rate of interest. Consider for a moment what would have happened if, in the past, banks had refused to accept fixed deposits; would not industrial and commercial enterprises generally have welcomed the opportunity to borrow money for fixed periods at current rates of interest? The banks have been compelled to accept fixed deposits, not that they re-lend such deposits, but to, retain control of tho monetary system. In conclusion, may 11 suggest to "Croesus" that the people have a right to demand that all the cards be put on the table, for the monopoly of credit —the power that creates money out of nothing—is on trial, and must show cause. M. A. Rothschild said: "Permit me to issue and control the money of a nation, and I care not who makes its laws." , c. McDonald. I