"KEEPING THE MONEY IN THE COUNTRY."

New Zealand Herald, Volume XXIV, Issue 7904, 24 March 1887, Page 3

"KEEPING THE MONEY IN THE COUNTRY."

' TO THE EDITOR. i Sib,— Yonr correspondent " Enlim" has en« ! deavoured to clear up what he considers to bea 1 popular fallacy, and to showlmat this popular expression has no foundation in fact, but is a mere chimera born of the vulgar imagination, In place of shedding any refulgence . on the subject, he baa merely raised the dust, and still further aided in throwing a robe of obscurity round this interesting and vital question. I submit that the expression, "Keeping I the money in the country," can be accepted lon the same terms on which we accept Euclid's propositions—namely, it will serve our purpose until we can get better. That it expresses, inaccurately it may be, a greats general truth a mere glance at the present circumstances of this colony will convince us. In New Zealand we find at present abundance of land at a price, abundanoe of labour at a price, and abundance of capital ,at a price. Here they are : land and labour, with their offspring capital, lying cheek by jowl, and doing—nothing. They require the connecting link of the free circulation of money to set them all in motion. There are no doubt several causes which have contributed to this state of matters, but limits will not permit the discussion of them all, and we can but just note what is meant by "keeping the money in the country." If we take money to mean metallic currency, which " Enlim " clearly infers when he speaks of sending seven millions of sovereigns to pay for our imports and vice versa, it is absolutely true that the phrase we are discussing is erroneously used. As j the largest part of the currency of every country consists, however, of paper, and aa the metallic part of our currency ia exceedingly small, it is evident that the phrase cannot be limited to merely coin, and that it! is not so used in ordinary terms by unsophisticated people. It must, therefore, refer? in ordinary use to the usual everyday and by far the largest class of transactions which are bere.effected by the use of paper only. This currency takes the form of billii, cheques, and notes, and we are enabled with the assistance of the banks to substitute this cheaper form for the more costly and cumbersome gold coin. The extent to which we are enabled to avail ourselves of this convenient substitute is, alas, limited, and is ruled by the amount of coin held by the banks in London. When they are in possession of a large number of sovereigns they are enabled to extend their operations, and by discounting bills and granting overdrafts, to put into circulation a proportional value of their notes, which, strictly speaking,' take the place of those sovereigns held by them, or under their control at home. When from any cause the stock of sovereigns " grows small by degrees and beautifully less," the banks are obliged to restrict their issues by refusing to discount and calling-up overdrafts. The consequence is that there are fewer notes in circulation, and the ultimata result is precisely tho same as if we had been using sovereigns and sent some of them away in payment of our debts. It will thus be apparent than when (to quote " Enlim") persons say that we send money out of the country to pay for our imports, they may have some ground for the use of that expression, as the effect of any money payment having to be made at home is to denude the country of currency just as much as if we had been using gold coin, anal had sent that away to pay our debts with. Thus we may be able to understand, that! when we have debts and wish to be honest, we have got to pay them, and that when we have received a larger value of imports from a country than the value of exports we have sent in return, we must pay the balance either by a new loan, so providing the sove* reigns for the banks, or at the expense of our circulation. Space will not allow the discussion of protection, but I cannot conclude without noting an absurdity which has crept into the argument set forth by " Enlim." After explaining that imports and exports are balanced one against the other, and that interest ob loan is charged to the account, he conoludes by saying, " These are all included in the account without any money passing." The inference from this is that no money is required, and returning to our mutual friend Euclid, we might put " Knlim's" argument into the familiar form of a demonstration; thus : — (General assertion) All international trade is barter pure and simple : it is required to be shown thai: there is no such thing as money. (Proof) All trade is barter pure and simple (ax. ««Enlim"), and all imports may be balanced against all exports. (Postulate). And the values of all imports are equal to ; the values of all exports, each to each, the greater to the less and the less to the greater. (Prop. I. "Enlim.") Therefore,' no money is required, because there are no differences to settle. But let it be supposed, for the purpose of demonstration that, if it were possible, the value of the imports, with interest added, exceeds the value of the exports. Then, because the only use for money is to settle the differences of exchange (ax. populi)., money must be found, or the differences must settle themselves. But no money is found to pass (ax. "Enlim"), therefore the differences settle themselves, which is absurd. Therefore there can be no differences in value. Again, the only übc for money is to settle differences of value (ax. populi), and it has been shown that there are no differences of value, and money cannot exist without a use (def. 1). But it has been shown there is no use for money, therefore there can be no such thing as money.— am, etc., Q.E.D.