MR M'KENNA’S LATEST.

Otago Daily Times, Issue 21244, 27 January 1931, Page 6

MR M'KENNA’S LATEST.

TO THE EDITOR. Sus,—The chairman of the Midland Bank is beyond dispute not only one of the foremost authorities on banking, but he is also one of the most fascinating delineators. Hie annual address is probably read with more interest than any other banker’s review in the Empire. Paradoxically, and strange at it may appear, no banker, however, eminent, has ever attained to a high degree of eminence as an authority on economic science, in spite of the fact that banking requires a profoundly intimate acquaintanc with economics. This peculiar fact arises from a personal aim that controls every mind in quest of gain. The function of banking exclusively consists in controlling finance. _ Finance, on the other hand, has to do with a great deal more than banking because it also embraces production of which banking forms only an important but subordinate branch. Now, the minds that control production are in turn also controlled by banking, and precisely the same aim that controls the bankers also controls the producers in their daily vocation—namely, to gain a profitable return. It is the aim of every human being to obtain as much money as possible, but the amount available, in every instance where an exchange takes place, is always dependent upon the amount in possession of the buyer, and no seller can obtain more money than the buyer is willing, or is forced to part with. Hence it was assumed ages ago—and is still assumed — that it is the shortage of money that causes financial depression. But now, with the advent of a period in which money never was more plentiful, we have the experience of a depression unsurpassed in magnitude, and the assumption that money is scarce no longer explains the position to an intelligent mind. As Mr M'Kenna is one of the most intelligent of all observers, he is also the first prominent financier to advance an explanation that a depression “ might at times be the consequence of excessive saving. Whatever blessing thrift might confer on the there were times when, judged by, the interest of the general economic welfare, it might be carried to excess.” The truth of this statement is of very limited dimensions, and it gives rise only to further inquiry. A much more forceful contention can be presented by claiming, as Mr M’Kenna does, “that the present crisis was one of under-consumption.” As this arises principally from the controlling factors which determine remuneration, and apportion to a small section in the community /a much larger share than it can profitably consume, and to another and by tar a much larger section—an insufficient share, all points to distribution as the sphere wherein the flaw is to be found. Consumption requires no artificial stimulation. We eat when we are hungry, buy clothes when we need them, and drink when we are thirsty. But to obtain our wants requires purchasing powder, and purchasing power resides in rponey. It is here that the economist requires to explain the principles upon which the comparatively smaller section in the community receives the largest share of remuneration and by which the majority are deprived of purchasing power. The experience which the world has just passed through shows us that increased purchasing power is not obtained by increasing wages, or by increasing the volume of money. The reason is obvious. An increase in wages always immediately reacts upon the cost of production and increases prices which, in turn, reduce the purchasing power of money. This is an unalterable fact from which there is no escape. It arises from a law inherent in the nature of things when exchange takes place. Every industrial Act, and every tangible commodity has a commercial value, whenrexchanged, that must balance, or it will either disclose a deficiency or a profit. This part of industrialism forms the financial side and is exclusively dominated by the collective activities of employers. Employees in this connection act only as producers and consumers, and have no financial power. Now, Mr M'Kenna’s advice is that of a banker, and not that of either an economist or a statesman. He views the subject from the point of commercial gain, and this ignores equity, which is essentially the foundation upon which the purchasing power of money is secured; and while his statement “ that the first essential must be full recognition of the imperative need of the study of a general level of commodity prices,” may appeal to a good many minds as sound, a general level of commodity prices has no bearing upon the solution of the problem. Commodity prices must be left free in order that the advantage accruing from an increased production can be secured to every consumer by a fall in price, but a fall in price is not the aim of Mr M'Kenna, when he says “ it is not likely that there will be a marked revival of confidence until prices show a tendency to harden. When the present trend of prices is arrested and reversed, we shall see tbe end of the growth of unemployment." This very clearly shows that Mr M'Kenna aims at avoiding an explanation that would entangle the banks and convict them of being the primary factors in causing a departure from the gold standard.—l am, etc., W. SIVERTSEN.