Are Deposits Savings?

Dominion, Volume 28, Issue 99, 21 January 1935, Page 11

Are Deposits Savings?

'.Sir,—Mr. J. A. Nash says that nt bottom bank deposits are sayings. A bank deposit can mean two things. It either represents a “windfall” of some fortunate individual, who lodges his acquisition with the bank and opens an account, or it means that at some time a bank client has been sufficiently creditworthy to receive a loan. A loan creates a deposit. Therefore, all credit accounts are balanced by overdrafts. Supposing the banks were to call up all their overdrafts, would there then be any accounts in credit? Obviously not, because all debts finally are debts to the bank. Docs Mr, Nash seriously suggest that the major portion of deposits are the savings of the people? They cannot be, for in the widest sense there is no difference between a loan and a deposit. Would Mr. Nash agree, I wonder, that the difference between an advance and a deposit is that one is a loan of promises to pay and the other a promise to pay legal tender (for be it remembered that a depositor may within reason withdraw his deposit in the shape of notes and coin) ?

It is here that we arrive at the crux of the controversy that is being waged between the orthodox aud unorthodox economists of the world. If deposits actually were savings and not balanced by loans, there would be no controversy. To be credit-worthy a bank client has to put up tangible security. The bank then lends him promises to pay. In short he is a borrower. Now reverse the process. Our client’s account is now in credit. This in the bank’s ledger is shown as a deposit. The bank is now the borrower. Does the bank give security also? If not, why not? The average person would say because money, is its own security. And so it is, but with a mighty big “if.” The community has first to believe that the banks can and will pay on’ demand. Fay what? Let every bank client in New Zealand burn his cheque book and the answer will be supplied immediately. It would be a most interesting experiment. The banks do not lend money but promises to. pay money. Banking resolves itself in a little game of exchanging promises. The Lank promises to pay me. and I promise to repay the bank. It is an admirable system and one that no intelligent person can find fault with. Then why. all the present fuss? In the first place it is only confidence or public ignorance that keeps the system going. In the second place, the true security of the nation does not lie in the vaults and ledgers oE the banking houses, but in the culture and ability of the community to. produce and consume goods. In the third place this view is detrimental to the interests oE the profit-making practice of banking, because the banks have acquired unto 1 hemselves the right of issuing the nation’s currency, whereas that should be the privilege of the State, because it is the organisation of the community for their collective protection and welfare that gives money its value and usefulness. And in the fourth place the banks cannot thrive and at the same time take into consideration the needs of industry. The welfare of the community.depends on Ihe supply of goods and facilities to distribute them; the welfare of the banks depends on their ability to issue, credit in excess of their holdings of bullion, or, as I take it, it depends where a country possesses a central bank on movements cf gold. Never the twain shall meet. Consideration of whether deposits are. savings is immaterial to the argument. What matters is the fact that the present banking methods are inadequate. We know that employment depends on the price-level, that the price-level . depends un the quantity of money in circulation. and that the quantity of money depends on banker loans. What more do we need to know? Is it to be wondered that the minority report on the Monetary Committee was disappointing to anyone who hoped to see emerging from the Labour Party ideas for reconstruction on genuinely Socialist lines? Critics of any movement savouring of Socialism unfortunately are not always, competent to judge what is reconstruction and what is not. The order of the day is allegedly protection of the rights of the individual, but the interpretation of tne functions of government ns expressed by the National Government in its present policy of taxation to pay unnecessarily high ’ internal costs certainly does not disprove the veracity of the misunderstood and misrepresented contrast to Conservative dogmatism.—l am, etc., C. 11. MILLER. Pahiatua, January IG.