SOCIALISM AND MONEY

Grey River Argus, 13 August 1937, Page 4

SOCIALISM AND MONEY

' (Wm. L. Robertson, Hokitika). In a Socialist state, where the banking system is owned by the community, the control of finance will be directed towards advancing the wellbeing, not of an exclusive circle of bankers and shareholders, but of the people as a whole. But no new technique of control will be necessary. The only primary innovation, albeit a radical one, will be the replacement of the profit motive by the motive of use. Financial policy will form part of a policy of nation-wide industrial planning. The direction of flow of money will be regulated by"the requirements of the plan. The amount of money, on the other hand, will be adjusted to keep prices steady On the subject of the creation and control of money, and the socialist proposals for the direction of this creation and control, Mr. H. E. Holland, leader of the Labour Opposition, shed great illumination in his-address on Labour’s financial policy in the House of Representatives in 1932. “The State could create money in exactly the same way as. the banks did,’-’ declared Mr. Holland. "They did not propose to adopt some new method.” He then proceeded to indicate the precise 'manner in which banks create money. Before it would be possible to understand his explanations, it is necessary to receive a clear conception of what money really is. The naive idea that money is simply metal coins and banknotes is very wide of the mark. These things, it is true, are included in the totality of money, but they form but a very small part of it. By far the greater part consists in the deposits, held publicly or privately, lodged with the various banks. Hence the problem oi creating money is essentially the problem of creating bank deposits. It is frequently, indeed, denied that banks create money. The orthodox banker is fond of asserting that banks can lend onlj' what they borrow, and consequently have no power themselves to expand > credit. Even such a distinguished financial expert as Waiter Leaf, late chairman of the Westminster Bank, has declared that “the banks can lend no more than they can borrow —in fact not nearly so much”. The fallacy and misleading character of such statements however, have since been amply exposed. Any lingering reluctance on tne part of professional bankers to admit the truth is, doubtless, connected with the fact emphasised by Bertrand Russell, that superstition and mystery are useful to the holders of financial power. How the banks, in fact, do create money was revealed by Mr. Holland in a series of authortative quotations. Mr. Reginald McKenna, one of the world’s foremost economists, has said:

—“A bank is not an oilice for boriowing and lending money, but a manufactory of credit. It is commonly supposed that a banker’s profit consists in the difference between the interest he pays for tne money he borrows and the interest he charges for the money he lends. The fact is that a banker’s profit consists exclusively in the profits he can make by creating and issuing credit in excess of the specie he holds.” The report of the Macmillan committee, an official investigating body set up by the British Government makes a similar declaration:- —“It is not unnatural to think of the deposits of.a bank as being created by the public through the deposit of cash representing either savings or amounts which are not for the time being required to meet expenditure. But the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft, or purchasing - securities, a bank creates a credit in its books, which is the equivalent of a deposit.” In short, the banks can, and in fact, do, create money to suit their purposes. The Socialist contends that under capitalism these purposes are not the community’s purposes. Hence the banks must be socialised, and their powers of manufaturing and directing the use of credit assumed by the State and employed for the public good. Having secured control of the monetary system, what factors will dictate Labour policy in monetary expansion? “With regard to price levels,” said Mr. Holland, “since the object of currency expansion was to increase purchasing power and stabilize prices, the Labour Party could regulate the issue of sufficient currency in accordance with a fixed price and currency as production increased.” It is true that, partly as the result of the introduction of the forty-hour week and of higher wage rates, the Labour Government has found it impossible to retain absolute stability'of prices. The beneficent, although radical social .changes effected by the Government have been of such a character as to render inevitable a certain small rise. Since, however, the aggregate wage payments have increased almost three times as much as the cost of living, it is obvious that in spite of higher prices, the net gain is very substantial. Now that the country has settled down to the new conditions, It should be entirely feasible to implement to the letter the Labour policy of stabilising the purchasing power of the pound. Some weeks ago much interest, was aroused by announcement that the Federation of the chambers of commerce of the British Empire, a body which is not likely to be reckless in its views, had endorsed Mr. Savage’s thesis that the root problem of Empire development is increasing the purchasing power of the masses. In 1932 Mr. Holland emphasised precisely the same argument, and backed it up by reference to world authorities. He quoted Mr. J. i»x. Keynes, who has said:—“lf we carry economy of every kind to its logical conclusion, we shall find that we have balanced the budget at nought on both sides, with all of us flat on our backs starv : ing to Heath from a refusal, for reasons of economy, to buy one another’s services.” The same authority has said:—“Output and employment cannot increase, -unless the first stimulant comes from the side of increased spending,” • Theoretically and practically, the Labour policy of raising the purchas-ing-power of the masses has proved its value.