BANKING ORTHODOXY

Press, Volume LXXV, Issue 22662, 17 March 1939, Page 4

BANKING ORTHODOXY

TO THE EDITOR OT THE PRESS Sir, —The critical letter from “Reader” in Tuesday’s issue is timely in pointing out the inconsistencies of leading bankers. But what is banking orthodoxy? I have often come against people who say that this or that cannot be done, and especially when it is suggested that the banking

system could issue money as a free gift to enable the people to buy the unsaleable surplus that is so embarrassing to industry. Germany has the world worried because of the results she has achieved. The bankers know how it has been done, but if they are worried it is not because orthodoxy has been outraged, but because they fear to lose control of the policy. In a recent number of the “Investors’ Review” weekly the editor, under the heading “New Monetary Theories,” has some interesting comment which is worthy of the attention of your readers. “The post-war currency disorganisation in Europe provided a suitable laboratory in which economists and financial experts could prove the relative validity of many theories, and could analyse the results of financial and monetary experiments in practice. . . . Of prime importance was the discovery that a currency did not in fact require a metallic basis for all ordinary purposes, provided certain other factors did not impinge too heavily on the exchange rate.” (Here he goes on to refer to the control of imports exercised by Germany and the like action by New Zealand). He continues: “Specialists and investigators found that while a managed currency, through its isolation from any gold backing, might be subject to manipulation, they found also that the isolation of the currency from the general metallic medium of world currencies greatly assisted in minimising the economic effects of fluctuations m the trade cycle, or of depressions. Examples are not wanting where a paper or managed currency has proved the salvation of a country. ■ “The evidence is not lacking, however, to show that a steady drift is in existence towards greater refinements of currency management, and the first step in that direction is the change in policy announced by the Bank of England. . . It now appears perfectly obvious that Britain will never again return to the gold standard since she and other lending countries have already discovered better and more efficient ways of making their currency serve the desired ends. To-day the leading countries of the world are using goods as a backing for their currency rather than precious metals. “In Germany where currency management has been taken to limits almost undreamed of by the theorists of a few years ago, much more difficult problems had to be faced. In spite of the high degree of inflation existing internally, the managers, of her currency had so to conduct their affairs as to keep down costs and prices within reasonable limits. Although costs and prices have risen in Germany, whiJe wages have changed very little, the relative decline in the standard of living has served the ends of general policy: that is, in the diversion of an increasing amount of national wealth for State purposes. Thus, the moderate rise in prices due to the highly inflationary policies of the German Government have not proved a defect in her currency record, but have exactly served the ends of the Government.” What the man in the street should pooler on is; (1) Who makes these policies? And (2) do the ends gained serve him by increasing his standard of living relatively to his powers of production?— Yours, etc.. W. B. BRAY. March 15, 1939.