FIDUCIARY NOTES.

Auckland Star, Volume LXVII, Issue 256, 28 October 1936, Page 13

FIDUCIARY NOTES.

THE NEW MONETARY ORDER.

STATE CONTROL AND CREDIT.

Recent developments in the Dominion should give New Zealanders a special interest in an article, "The New Monetary Order," by Dr. W. 11. Hardvvicke in "The Accountant" (London).

"Many changes," he states, "have taken place in cun'eney affairs since the withdrawal of the gold coins and the abandonment of the gold standard. The pound of account still remains, but as a mere symbolic and visionary abstraction; and what was financially known as 'sterling' can now be understood only as British money—paper and specie—'at par.' This disappearance of gold as tlie sole standard of value since 1917, and the genesis of the new monetary order, has established two facts, viz., that sterling has ceased to be dependent on gold for cover, but id now backed solely by public confidence and national credit; and is redeemable not in gold, but in the general wealth of the nation, and is actually redeemed each time it is accepted in exchange for goods or services; the wealth of a nation being dependent on and proportionate with the industrial and productive activities of its inhabitants. Its disappearance, however, need cause no regret, -for it has served, and can serve, no better purpose in the currency than have or can the Treasury notes. As cover, however, for the settlement of trade balances abroad, where the barter system still prevails, gold at exchange value will continue as at present to be indispensable.

"History is obtainable for proof of the benefit to be derived from the issue of fiduciary notes under Government control backed by national credit, and leads to th" conclusion that such paper money is a facile, safe and economic means of raising money for public and national needs. They possess the advantage of being capable of increase or diminution as required by the expansion or contraction of industry and prices, without any special cost to the nation. A plentiful supply of money is a necessity for the development of industrial and productive activity; and, on the contrary, a scarcity of money invariably results in industrial stagnation and misery.

"The fiduciary notes of £1 and £2 issued under Wm. Pitt's administration in 1707, during the financial distress following the long continued Napoleonic wars and the Irish rebellion, withdrawn later by Peel, saved the country from financial ruin. When the national debt in 1815 had risen during the previous live years from £247,000,000 to £801,000,000, and a mania for reckless speculation swept the country, with daily failures, ruining thousands of people, prices rose exorbitantly, affecting- the food supply of the industrial classes and producing frequent riots. The issue of fiduciary notes again saved the country. Incidentally, at a later period of trade depression, a foolish and unjustifiable cry was raised of note inflation as the cause of the distress, but this was fully and convincingly refuted in ihe 'Quarterly Review' for January, 1919.

"During the Great War the country had occasion to have recourse to the issue of 'currency notes' by the Treasury to finance it, without which we could not have carried on. Yet, notwitlistanding the success and popularity of the issue by the Treasury, by the surrender of its right to the Bank of England, a private trading company (by the Gold Standard Act, 1928), a monopoly was granted for the issue of 'promissory, notes' without any obligation on the part of the directors to honour them in specie—one of the worst acts of post-war administration. A burdensome liability was thus placed unnecessarily upon the shoulders of the taxpayer for bank interest, charges and credits against covering bonds."