POINTS FROM LETTERS.

Auckland Star, Volume LXVII, Issue 104, 4 May 1936, Page 12

POINTS FROM LETTERS.

CREDIT INFLATION.

"Degrees" states that I am evidently not familiar with modern thought on currency. I am very familiar with some "modern thought," and would point out that far from being modern, action based on such thought proved disastrous centuries ago. It should be remembered that all trade and industry consists of or is based upon the exchange of wealth, as it was before money, the convenient medium, ever came into -The one-sided action involved in the initial issue of notes, therefore, by which additions to currency are created, without corresponding deductions, is inflationary, disturbs the exchange process, and must raise the level of prices. I would here agree with Mr. McDonald and expiess what I have already implied, that notes have no further inflationary effect after their initial issue. Cheques, on the i other hand, whether drawn on overdraft or otherwise, cause bank debits and corresponding credits, therefore tliey cannot possibly cause inflation, though, of course, their volume is increased by note issue; when an overdraft is paid off or reduced, both the payer's credit and tin? borrower's debit are cancelled or reduced, therefore there is a perfect exchange. I maintain that there is no essential difference as regards debit and credit movements of currency when cheques are drawn on overdraft, and when, on the other hand, there is non-bank or no borrowing involved in the transactions; if "Degrees" can show the difference logically, and not by using meaningless phrases, he will have succeeded where other currency reformers have failed. | Deflation is effected when and to the extent that the notes are finally destroyed, and there is consequently a deduction without a corresponding addition; it is only ill the issue or destruction of notes that bank action has any influence on inflation or deflation, and any part played by banks in the downward movement of prices referred to by Professor Cassel was in the reduction in the volume of notes. Professor Fisher refers to "credit currency," whatever that may mean, and says that inflation causes or accompanies booms; if this is correct, we should be in the midst of a great boom, for our currency is inflated to the extent of £1 being worth only 9/ on the gold standard basis. ANOTHER BARRISTER.