Socialist Finance

Dominion, Volume 28, Issue 122, 16 February 1935, Page 9

Socialist Finance

Sir.—The reply of the New Zealand Welfare League to “Looking Forward’s” pomplaint is not satisfactory. Practically all money in the community begins its life as a debt to the banks, a factor which puts in virtual ownership and control of everything, and every institution dependent on money—including Governments themselves. I do not want to be told that this statement is contrary to fact, for I would not discuss the matter with anybody who doubted its veracity. There are no two ways about it. The money monopoly rules us more surely than do our constitutions.

Many people think that the only money in the. community’s possession is notes, silver and copper, but this is a very, very small part of the community’s money. In fact, legal tender, I believe, is used for less than one per cent, of the total purchases made, over 99 per cent, of all business being done by cheques. This cheque money is really bank-created moneybank credit —but it functions exactly the same as does money. A banker’s profit consists exclusively in the profits he. can make by creating and issuing credit in excess of the legal tender he holds in reserve. It is my view that banks do not lend money deposited with them, that every bank loan is a creation of entirely new money (credit) aud is a clear addition to the amount of money in the community and that no depositor's money is touched. If I am a borrower on overdraft up to £lOOO all the banker does is to write “Limit: £1000” across the top of a page in his ledger. I can then operate on this credit by cheque. The fact that I can draw the £lOOO in cash gives the banker’s statement plausibility, but this facility is only possible because it is the exception rather than the rule. If the above is incorrect the following authorities are all at fault:—H. D. McLeod in his “Theory and Practice of Banking,” Davenport’s “Economies of Enterprise.” Mr. J. M. Keynes, the late Sir Edwfird Holden, R. G. Hawtrey, assistant secretary to the British Treasury, Hon. R. McKenna, the Encyclopaedia Britannica, and Hartley Withers in his book “International Finance.” The foregoing authorities have left not an atom of doubt with me that banks create the deposits they lend. In short, banks create purchasing power and lend it on real security to their customers who then become depositors. It is not to be wondered that bankers assert that their only care is their depositors, since their depositors in the mass are their debtors. I have before me some rather interesting figur.es. The total amount of legal tender in Australia is about £6O-millions, yet the deposits in the banks total £5OO- - In New Zealand in 1932 notes in circulation totalled £5,058,268 and bank advances £50,255,674. my authority not disclosing the total value of coin, coin and bullion being listed under the one heading. To say the least of it, it strikes me as rather odd that the banks who hold only a comparatively small amount of legal tender can be creating credit lend a sum, roughly speaking, ten times as large as their cash. Why should not the State do the same? The New Zealand Welfare League is the last body with which I would enter a lengthly discussion on anything pertaining to monetary reform, but one who has studied these matters a little cannot help being amused at the weak answers that are given to queries such as have been raised by “Looking Forward.” The whole position is so manifestly foolish that it is inevitable that great changes are likely to take place in the money systems ot the world in the next year or two If “Looking Forward” has anything to look forward to I suggest that he take a glance at the New Zealand 5 ear book, which devotes considerable attention to State indebtedness. In 1914 gross State indebtedness amounted to 99 millions in 1924 it touched £221-millions and m 193-> £283-millions. What will be the position 50 . years hence? This is something not to look forward to. State control of banking.does not mean confiscation, but as I see it simply a reversal of the present banking policy so tha. the volume of money issued in any given period will equal the volume of goods and services produced during that period. Otherwise why produce? When inis is accomplished, to use the. words of Dr. Norwood, instead of divorcing money from its natural function and making a god of it. we will have instituted a new principle wherebv money shall be made the servant of industry, industry the servant of man. and man the servant of God. in a nutshell I regard this as the problem that confronts the world.—l Pahiatun. February 13. 1935.