OVERDRAFT INTEREST

New Zealand Herald, Volume LXXII, Issue 22145, 26 June 1935, Page 15

OVERDRAFT INTEREST

Sir.—ln answer to Mr. J. Johnstone, the new economists claim no brilliance, but only truth. We base our science upon fact, and not upon fiction, upon practice, and not upon theory. We have history to help us; and the history of the banking system is a history of repeated failure. Under the pressure of truth and fact, the system has always failed. Why? To answer this question, Mr. J. Johnstone invokes to his aid the phenomena of velocity of circulation. But he gives no finished illustration as to how interest-bear-ing debts cancel themselves out in justice and equity. Mr. Johnstone is quite wrong in assuming that lending by a bank upon overdraft amounts to the same thing as lending by a private person of some credit won by him. There is no such similarity. The bank creates a credit, the other wins his credit, and creating and winning are ideas almost diametrically opposed to one another. Mr. Johnstone confuses the phenomena of velocity of circulation as applying with equal force and equal beneficence to debit circulation, as well as to credit circulation. He is quite wrong, however, and the quality of his wrongness may be assessed by comparing his brilliant confidence with the "humility and ignorance" frankly confessed by Mr. Montagu Norman, Governor of the Bank of England. P. B. Fitzhkrbebt.