CREDIT.

New Zealand Herald, Volume LXIX, Issue 21201, 6 June 1932, Page 13

CREDIT.

Sir, —If anyone has quibbled in this discussion, I can leave your readers to say who the party is. Cljeques are a form of money and I have stated consistently the depositing of cheques finances advances, even though arranged for previously. I have also stated clearly that cash reserves are small relatively to advances. The issue is clear and Mr. Robinson cannot be allowed to evade it. He teaches that banks credit advances from nothing and thus gain the value of the advance plus interest. What are the facts ? If a £IOOO advance is arranged for, and a cheque for that amount is deposited, banking may bo said to create both transactions, but the bank, in respect of these transactions, will then owe its depositor precisely the same amount as will be owing to it, and thus gains nothing, apart from interest. As no exchange is involved it is Mr. Robinson's attempt at reply that is "weak," not my question, which remains unanswered. Mr. Robinson cannot meet this statement, as his theory happens to be false. The person who arranged for an advance required goods, the depositor supplied these goods and as he was not paid by either the drawer of the cheque or the bank, he was the only party to give credit. Just as banks can safely promise advances far in excess of their cash reserves because they know from experience that the bulk of the cheques will be deposited, the public thus lending the requirod amount, so they can purchase securities in excess of their cash for die same reason. Jn both cases the credit is supplied by parties outside the banks and in neither is tho credit "costless." It represents wealth in all cases. The credit entries involved aro of no consequence, as they are merely bookkeepers' records. I have cited facts—plenty inoro are available—which prove that the iioto issue varies quite independently of advances. Mr. "Robinson cannot face theso facts, as he must realise they destroy his theory. That investors in times of panic concentrate on public securities and deposits is a fact familiar onough and entirely consistent with any argument of mine. Banks, of course, advance as much as possiblo at all times, and by requiring ample securities make themselves reasonably safe. On the other hand, the fact that advances wero £23,000,000 higher in our slump than in our boom period shatters the theories Mr. Robinson has assiduously taught, and his obvious shuffling neither improves nor conceals their battered condition. Mr. Robinson has not explained why our banks pay £1,400,000 a year to secure deposits they could easily make out of nothing; ho has not told us how they can fail when they can both lend from nothing and buy from nothing; and he has failed to explain their strange modesty in buying when it costs thorn nothing. Certainly Mr. Robinson does supply the "short answer" that banks do "own most of the earth." As tho Year Book shows tlie gross assets of the banks to be about 9 per cent, of the wealth of tho Dominion, the answer appears to be short enough—in the matter of truth. J.' Johnstone. Manurewa.