CREATION OF CREDIT

Nelson Evening Mail, Volume LXIX, 30 January 1936, Page 12

CREATION OF CREDIT

NOT DONE BY STROKE OF A PEN NATIONALISING THEORY , One of the most widely-discussed theories of the present day, that the banks create credit, was referred to by Mr Jackson Dodds, president of the Canadian Bankers’ Association, in a recent address. “The irrefutable answer to the theory that banks create credit by a mere stroke of the pen is that they pay annually to savings depositors millions of dollars in interest in order to attract the wherewithal to make loans,” said Mr Dodds. “If they could create credit out of nothing, what enormous dividends they could pay in comparison with their present modest dividends. What endless work they could save by telling their depositors to take their savings elsewhere. Then there would be nothing to do but lend, to all and sundry, credits represented by strokes of the pen, and to divide fat profits among their shareholders —a Utopian absurdity. In spite of the misapplication of quotations from various authorities, including the Macmillan report, so frequently quoted by credit creationists. I remain opposed to the idea that a commercial bank can create credit out of thin air.” . On the question of nationalising the banks, which he claimed was linked with the credit theory. Mr Dodds said: “Perhaps the most insidious of the monetary nostrums recently proposed is the suggestion to nationalise the banks. This scheme is largely based upon the specious theory that the money deposited in the banks is public credit, created by the community at large, on which the shiftless as well as the thrifty should be entitled to draw at will. That is the veriest nonsense. Every sane-minded person realises that the credit dispensed by the banks is based upon the capital supplied by shareholders, their restricted note issues and their depositors’ funds. “Members of a community have no right to bank credit merely because they are members of that community. There can be no inherent right to bank credit for the banks, necessarily responsible to their own creditors, can lend only where they consider repayment is well assured ; they must refuse to lend . in. all other cases. The real purpose behind the demand for nationalisation of the banks is to get control of the millions placed in the banks.” , . ~ Mr Dodds said the recent declaration against bank nationalisation by the American Federation of Labour was significant. He also referred to the fact that the Socialist Standard, cial organ of the Socialist Party of Great Britain, had repeatedly criticised the theory and had warned supporters of the Socialist Party not to waste their time with schenis for nationalising the banks.