MONETARY REFORM?

Evening Post, Volume CXVI, Issue 106, 1 November 1933, Page 10

MONETARY REFORM?

(To the Editor.) Sir,—May I venture to strike a note of warning to those of your readers who have become convinced, on the theory of_ one school of economic thought that it is at present securing many advocates, that the way out of our difficulties is simply to take the right of credit issue from the present trading banks and give it to a State bank.- May I suggest that a credit issue should correspond with, the amount of "consumption," ami that is exactly what the banks, in contracting their credit today, are attempting. I maintain that the bank contraction of credit is only a safety-valve to prevent more production, until accumulated stocks are consumed. Certainly, a rise in wages at the expense of a fall in profits and without increasing the price of the goods manufactured, would permit of a greater, consumption, but it would not solve the whole difficulty. "Accumulated stocks" are the root of the evil; contraction of credit ia, under our present uncontrolled productive system, the only remedy—temporary, it is true, for when the accumulated stocks are absorbed (as is happening in Britain today) credit is reissued, and in a few years (improvements in machine productive capacity only hasten the period) will bring about the same train of disequilibrium. Kill the root, and all the. branches will disappear— quotas, unemployment, and its attendant taxation, distress and hardship, Government interference in private contract, and all the rest of them, Roosevelt leads the way. . . I ask your readers to consider the question—how docs a. bank amass, for itself so much wealth? Is it not mainly from granting loans? ("Granting" is hardly the term, but 1 am not discussing- the morality of the present banking system). And is i£ conceivable that a bank would ■contract'ita credit* and tlierelora its prcK

fits, -with no other objott in- view than to precipitate a "slump"? If it makes no loans, it can make no profits, the more loans it makes, the more profits it will also make! Is it reasonable to suggest that a bank does not want to make profits? If, as is suggested by the money reformers, the banks in New Zealand make credit short in New Zealand when it is short in Britain, why do the English banks contract their credit? If credit is short in Britain, which means that there is a fall in the price of our primary products obtained there, was not the shortage of icredit in England due to some primary cause still? I contend that the bank's contraction of credit is due to the fact that it observes that the security on whidli it lent is becoming endangered— that industry is piling up goods for which there is no demajid. The bank therefore must put a chock on further production. And a State' bank, although desirable on the other grounds, would be forced to do exactly the same as the present private banks. Monetary reformers therefore, in my opinion, fail to reach the source — the misdirection of production—the overinvestment of savings into further reproductive channels, instead of into the consumption of existine consumable commodities.-^ am, etc., . ' .R. GOLDSTEIN. Hamilton, October 30.