WHERE DOES THE MONEY COME FROM?

Press, Volume LXXII, Issue 21746, 31 March 1936, Page 16

WHERE DOES THE MONEY COME FROM?

TO THB BDITO» 0» »fl»i*H,*SS. Sir,—One read with interest your sub-leader on the Townsend plan and the figures given, which show that the Townsend proposal to establish a scheme of old age pensions would be financed by. a tax of 2 per cent, on every business transaction. The- average person will, I think, agree with the desirability of making such a pension available to elderly people provided the money, can be made available without imposing hardship on any other section of the community. It is obvious, however, that if the scheme were financed by a tax on every business transaction then prices must be increased by at least an equivalent amount. This would merely result in transferring purchasing power from one part of the community to another and most obviously would not increase total purchasing power. Those who advocate any such scheme must logically proceed from the premises that present economic difficulties arise, not from a total shortage of purchasing power of the community as a whole, but because purchasing power is concentrated in too few hands. In other words, they assume that there is ample purchasing power In total, but that the poor are poor merely because the rich are rich. This is demonstrably an unsound premise. While admittedly some are repugnantly rich and others deplorably poor, it can be proven that if total purchasing power of rich and poor alike were to-day pooled and distributed evenly, the community as a whole would still be unable to buy all the goods and services available in that community, or which the community is capable of producing. A special committee of the Southampton Chamber of Commerce, after long investigation into the causes of the economic "depression," was emphatic in its finding, that a shortage of total purchasing power was the root cause and that there could be no other permanent cure except by increasing total purchasing power.. Confirmation of this view came later from the London Chamber of Commerce and other almost equally important bodies and organisations. . Jt this analysis of economic difficulties be true, then it will surely be readily apparent that total purchasing power cannot be expanded by any form of taxation. That is merely transferring money from one quarter to another without increasing the sum total. Obviously new money must be added. Those who assume that this necessarily implies coining and printing vast quantities of new money merely reveal a primitive ignorance of the subject. Modern money consists of approximately 90 per cent, ledger-recorded credits transferable by various "credit instruments," chiefly cheques, with the additional 10 per cent, in the form of notes and coins. It is found that most business payments are affected by cheque, so that the 10 per cent, of notes and coins are sufficient to meet all normal demands for cash. If the ledger-credit money is expanded to any considerable extent it might conceivably be desirable to increase the cash supplies in like ratio—that is a mere detail. All of which merely shows that there can be no difficulty in increasing money if desirable. Now if there is in New Zealand a total of goods and services, existing or potential, considerably in excess of purchasing power, is it not apparent that prosperity can be restored only by increasing the community's buying power? This could be done either by a general lowering of prices, or by increasing the total income of the community. Industry generally cannot further considerably lower prices and remain solvent, then the community must be armed with more money. Until comparatively recent times the right to create money was the prerogative of the Crown. If that right is resumed—as the present Government proposes—and additional money created and got into the hands of the community as purchasing power, would not industry and every form of business benefit, as would also the community as consumers? This would mean that the Government would monetise the credit (or surplus production for which there is now no equivalent money) of the community, for the benefit of the community as a whole. Part of this new money might be used to pay pensions, part to finance new public works—completion of half-finished railways, and so forth. It would all result in increasing total purchasing power, without additional taxation. Further if the public or social credit account were sufficiently great to leave a surplus after financing pensions and new works, the balance could be applied to paying the cost of existing public services. Thus taxation (which represents the present method of financing public services) could be reduced. If the social credit account still grew, taxation could eventually disappear. The whole argument depends upon whether or not production is in fact in excess of existing purchasing power. I am prepared to prove that it is.—Yours, etc., F.N.R. March 30, 1936.