MONEY SYSTEMS.

Auckland Star, Volume LXVI, Issue 187, 9 August 1935, Page 6

MONEY SYSTEMS.

The original statement of Jack Blunt was plain enough: "The balance," he said, "of ninetenths of our 'money',is issued by way of book credits in the books of the banks,", and the whole of his argument went to show, what is stated often enough, that a bank advance costs the bank nothing beyond the book entries involved. I pointed out that if that were so banks would gain, as clear profit, not merely the interest on their advances, but the whole body of the advances themselves, and so bank dividends would be fabulous and bank failures, would be impossible. I then showed how in reality when a bank borrower draws a cheque and so creates money he obtains goods and owes the price of those goods to the bank, while the depositing of the cheque will cause the bank to owe the same amount to the seller of the goods, the liability incurred by the bank being thus equal to the asset it requires. I further pointed out that when an advance is repaid to a bank the whole amount is used up in returning the corresponding deposit and that the interest charged is also used up in paying interest on deposits, in paying dividends and meeting working costs. When Jack Blunt attempts to meet this statement of the case I may have something to answer. I have never, as asserted by "Capricorn," admitted that banks are "money factories.*' On the contrary, I have shown how money is created by the clients of banks when they draw cheques, just as it is created by. private individuals when they draw bills of exchange or issue promissory notes. So far. as banks are concerned, cheques are, of course", merelv their authority for making transfers, and no bank gains one farthing from thq cheques put into circulation. Manurewa. J. JOHXSTONE.