THE BANKING SYSTEM

Otago Daily Times, Issue 21985, 21 June 1933, Page 4

THE BANKING SYSTEM

TO THE EDITOR.

Sir, —Your leading article trots out once more, for the acceptance of the public, the now hoary error that banks lend their depositors’ money. They must “find a remunerative outlet for the funds entrusted to them.” Seriously, it is a little late in the day to be foisting this pretence on the public,. V'A high official of the British Treasury, Mr R. G. Hawtrey, says that he'“agrees with Major Douglas that banks create money, and that trade depression is caused by faults of the banking system in the discharge of that vital function” (at Birmingham, March 22, see the verbatim reEort in the New Age of April 6); the lacmillan report acknowledges that deposits are the creation of the banks themselves by making advances; Mr M'Kenna has been, saying for years that "every bank loan and every purchase of a security by a bank.erlhtes a deposit”; years ago MT/eod wrote that “ a bank is not an office, for the borrowing and lending of money, it-is a manufactory of credit,” and. to quote Mr Hawtrey again, “the banks create the means of payment by lending.” As a matter of fact, the criticism launched against the financial system by Major Douglas is that the core of the problem is the costing system, which renders the wages, salaries, and dividends distributed by industry decreasingly able to buy the whole product of industry. What is to be noted, however, is that this increasing shortage of effective demand in the hands, of consumers renders the power of the banks to create supplenientary. purchasing power of immense irhportance. “My complaint against the banks, such as it is,” said Major Douglas on the same occasion as that on which Mr Hawtrey uttered the words quoted above, “ is that by their determination to, perpetuate the system, and by stifling public criticism, they make themselves responsible for a defective system.”—l, am, etc., Dunedin, June 20. Truth. i