BANKS AND THE COMMUNITY

Press, Volume LXXI, Issue 21461, 1 May 1935, Page 17

BANKS AND THE COMMUNITY

TO TID» SWTO* 0» TUB PBK3S. Sin—Mr Atmore's admission that batik loans' are not the only source of bank deposits is a much different tale from that told in his previous letters and in the letters of other Douglas (supporters. It has been continually insinuated that bank deposits are made up mainly by book entries, and there is a strong suspicion that the correspondents" attitudes are not due entirely to ignorance. In such methods Of twisting and stretching the truth the political confidence men must have some purpose to serve. You will notice that Mr Atmore was careful not to mention the people's savings in connexion with bank deposits. The misinterpretation of Mr McKenna's statements is another nasty 'political trick. The truth is that the currency created by loans, overdrafts, .investments, and discounts is created for the community, and when no longer needed it automatically cancels itself. But certain Douglas advocates are continually thrusting down credulous, innocent, open mouths the idea that the banks made all that money for themselves and many perhaps still believe the shameful untruth. Every expert knows that the flexibility of the banking system is one of its most valuable features. Our scientists have pointed out that but for the expansion of credit built upon the savings of the pecple the growth of science, invention, and trade could only, have been painfully slow. The enormous expansion of population, science, and invention is primarily due to the invention, of the savings bank and the discovery of the credit systems. Were they discontinued, millions of human beings who are now finding sustenance would die like flies.

Mr Atmore knows well that the reason he failed to foretell the action of the Reserve Bank in regard to the surplus exchange funds was because he was ignorant of banking. Every expert anticipated the procedure, but it came as a bombshell to Douglas leaders. Mr Atmore predicts the failure of ;Mr Roosevelt's policy, but did he not predict the failure of our currency expansion? Those of us who are not wilfully blind can see that our policyis succeeding. Mr Roosevelt's is more dangerous, but the American banking position was desperate and desperatepositions usually require desperate remedies. I disagree with Mr Atmore's contention that no country can borrow its way back to prosperity. The history of the last 100 years indicates the vast wealth producing power of mutual indebtedness—what we call credit—and I believe that mutual indebtedness can be employed i'.irther to improve our btandard of Ji'dng. We are already preparing to use the system on housing. What can I say in answer to Mr Atmore's assertion that the banks made monstrous profits on the sale of their gold to the Central Bank? I could use the adjective monstrous to a different norm, but It would not look well in your columns. Perhaps the best refutation is the market test. The price of bank shares before and after their sale of gold should show whether Mr Atmore's contention is true or false. The top price of National Bank of New Zealand shares was approximately £7 5s «:ach, and they dropped during the depression to £3—a fall of £4 a share. There was no recovery when they sole! their gold, but to-day the price is buyers £3 6s fid, sellers £3 lis, the recovery of 7s a share being entirely due to the lowering of interest rates. Bank of New Zealand shares reached the high point of £3 2s in 1929, the low point of £2 5s in the depth of the depression, and today are selling at £2 lis. A simple calculation shows that if Mr Atmore were right National Bank shares would be worth more than £6O each, and Bank of New Zealand more than £IOO each. Any sharebroker will show Mr Atmore that instead of making huge profits the banks are quite unable to earn more than 3 per cent, for the shareholders.—Yours, etc., NEW ECONOMICS. April 30, 1938. [Subject to the right of reply of G. W. Atmore, this correspondence is now closed,—Ed., "The Press."]