BANKS AND MONEY

New Zealand Herald, Volume LXXII, Issue 22193, 21 August 1935, Page 15

BANKS AND MONEY

Sir, —It is certainly refreshing to learn from "New Economics" that a State bank, controlled by an "independent national authority" forms no part of Douglas Credit policy. "New Economics" must know that free loans, to enable producers to sell below cost, form tbe whole substance of Douglas Credit policy. Obviously no private bank would grant such loans. I pointed out that the cheques that would bring these advances into existence would be deposited. thus making the State bank liable for tbe cost of, say, one-fourth of the goods sold in the Dominion. "New Economics" has not attempted to show us how these monstrous obligations to depositors could be met by a bank that could not call in the corresponding advances. Will he kindly do so? It is gross error to say that borrowing originates with banking. Borrowing originates in the fact that many parties possess capital without requiring its use, while many others require the use of capital without possessing it. If no banks existed, borrowing and the need for borrowing woxild be as they now are. Interest charges also would be the same, and the difficulties incurred in meeting them would be no less. To say that banks control the prosperity of mankind by controlling the supply of money is nonsense. Money supply has very little to do with prosperity and money has rarely been as abundant as it now is. Moreover, banks do not control the cheque circulation, no matter how often they may he said to do so. We have over 90 millions of deposits in our trading and savings banks on which no cheques can be drawn, and the whole of that vast amount could, if the depositors bo chose, be added to the credits on which cheques can be drawn without the least change in bankingi policy. As in the case of the note circulation, it is chiefly a matter of business and industrial requirements. Manurewa. J. Johnston-*.