BANKING PRACTICE

New Zealand Herald, Volume LXX, Issue 21589, 6 September 1933, Page 15

BANKING PRACTICE

Sir, —A bank advance originates as any other loan does. Someone produces goods and saves them; the borrower receives these goods, and does not pay for them. This is the whole substance of all borrowing and credit. If J. purchase a milking machine, priced at £IOO, but make no payment, I obtain credit to the extent of £IOO. This credit docs not represent any property of "the people," but the property of the seller, who has not yet been paid. If, requiring a longer-term of credit than the seller cares to give me, 1 draw a cheque on overdraft for £IOO, and the seller deposits the cheque, tho transaction, in all its substance, remains tho same. 1 obtain the same machine from the same seller, but in place of owing the price direct to the seller, I owe it to the bank, and the bank owes it to the seller who has become its depositor. The bank promises my advance before the deposit is made, and it may lack the' cash to make the advance it has promised me, but-these facts do not affect the nature of the transactions. The bank, in accepting the deposit, becomes liable for the price of my machine, and it passes the liability on to me, that is all. If I repay m.v advance, and the bank passes my payment on to the seller by returning his deposit, the obligations incurred will be honourably discharged and the machine will be paid for. "Tho people" will receive nothing, because they gave nothing, and have, in fact, precisely the same claim to this credit as they have to my horse or my pocket money. If, on the other hand, being a conscientious Douglasite, I allege that my advance was created from nothing, that it belongs to "the people," and therefore refuse to make repayment, I will pay nothing for my machine, while the bank, when required to return the seller's deposit, will be forced to pay for a machine it never owned and never saw. No doubt to Douglasites this curious method of making payment would seem incomparably more enlightened than the painful and antiquated usage that requires me to pay for my machine myself. No doubt also a general extension of this policy, ensuring that banks would pay for everything while no one paid the banks, would, in their opinion, give us a system as perfect as could be devised, being in fact the new economics in full blast. J. Johnstone. Manurewa.