THE PUBLIC CREDIT

Press, Volume LXXII, Issue 21938, 12 November 1936, Page 9

THE PUBLIC CREDIT

TO THE EDITOR OF THE PRESS. Sir,—“J.M.W.” persists, against all reliable authorities, in asserting that banks do not create credit. He asks for proof that he is wrong, never mind the authorities. Would you allow anyone to raid your columns to prove to a solitary dissenter that the sun does not go round the earth, or that the earth is not flat? Everybody’s mind is so made up on such matters! that any remaining unbelievers may well be left to hug their own belief. Apart from general assent, a banker ought to know better than a non-banker whether banks create credit, and bankers concede that they do. “J.M.W.’s” “making” money and “creating” money is a mere distinction without, a difference in the argument in question. The last argument in “J.M.W.’s” last letter disposes of him as an authority on banking. Ms says that the banks’ funds are “diminished” by payments for the purchase of buildings, plant, salaries, and by losses in investments; and that this is the way in which money is cancelled. Truly, a nonbanker’s statement! Can any banker be quoted by way of confirmation? Take an instance. If the Reserve Bank or any bank with a capital of a million pounds puts up a handsome Mock to conduct its business in. at a cost of £IOO.OOO, would “J.M.W.” expect to find the million pounds of capi’al diminished to £9OO 000 as a result? I should advise “J.M.W.” to discuss this query with a banker before he further commits himself. Mr J. Beaumont Pease, a chairman of directors of Lloyds Bank, said: “Capital is’ not really necessary for the business of banking: it is necessary principally to retain the confidence of depositors,” which may be further illustrated by an illuminating quotation from the “Scottish Bankers’ Magazine,” from which the inference is obvious. “The whole premises of the bank throughout Scotland have been overhauled; new offices have been built in not a few districts; and an important branch has been opened in the West End of London. . . . Notwithstanding all these developments the valuation of properties for balance-sheet purposes remains at the' quite nominal figure of £400,000.” It the bank’s funds had been “diminished" by this extensive building programme would hot the bank have hastened to write up the improvements to credit as a corresponding increase of assets, to square with the supposed hugely “diminished” funds? It was not necessary. Again, ask any banker. If “J.M.W.’* means that, in such a case as this, funds were created for the building programme, and cancelled as progress payments were made from same for work and material, the bank’s funds being there-

by “diminished,” I am with him. But what an. anti-climax that would be to his laboured case. It really seems a pity that when “J.M.W.” sets out so gallantly to defend banks and banking, the bankers themselves should so persistently let him down.—Yours, etc., • CUI BONO. November 9, 1936.

TO THE BDITOB OF the PKESS. Sir—“J.M.W.” says, “When trade declines. the earnings of the banks decline as well.” If “J.M.W.” has a fair practical knowledge of what happened during the depression he should know there is room for a big leakage for bank customers in his statement, As prices fell did interest fall progressively? No, sir! The banks said you have agreed to pay 7 or 8 per cent, and you must keep your word. Interest rates had to be “forced” down. Thousands and thousands of people lost all they had before any attempt was made to reduce interest rates. Moreover, there was no voluntary or conscientious reduction of interest made by the banks. When profits ceased, the banks collected full interest out of their customers’ canital, to say nothing of the ruin caused in other sections of the community; their policy contributed largely towards making 50,000 farmers insolvent. The banks worked deliberately and ruthlessly for their own gain. They scorned any move for the national welfare that entailed any sacrifice of their profits. Banks and big financiers, refused to submit to ordinary mathematical rules, but compelled that submission from their customers. . . , All monev originates in the banks and “J.M.W.” can call it "making money instead of “creating” money if he prefers. The total money used by the banks has certainly not been earned. Before the Reserve Bank was set up the Government permitted the Associated Banks to print money for themselves and to charge interest on it. Of course the term “printing” money would be more correct than “creating money in this instance. If the banks had full “confidence in business generally and happened to have all their funds in use, and a customer came in and offered good security, “J.M.W.” would find that the banks would “make,” “print,” or “create” the money all right. Much of the £8,000.000 that was in circulation before the depression came into being in this "way. The law and the “confidence” made it “the right” thing to do. —Yours, etc., KAYE HOE. November 10, 1936.