ECONOMIC FALLACIES

Otago Daily Times, Issue 21990, 27 June 1933, Page 8

ECONOMIC FALLACIES

TO TIIK KDITOR.

Sir, —In connection with the fantastic thesis known as Douglas social credit it is quite clear that, almost without exception, the diligent propogandiets know nothing whatever about economics, whilst their audiences, stricken with dull amaze, are quite content to know less. The vast majority of these disciples of Major Douglas have never read a book on economics in their lives, and, despite the explicit instructions given by him to all followers to study the existing system, have no intention of doing so. Incidentally, it may be said that Major Douglas should follow his own advice. His writings betray no indication whatever at any time that he has squarely looked economic complexities in the face. On the contrary his scheme for Scotland proclaims aloud his shocking unfamiliarity with the central truths embalmed in our currency system. Locally, his followers evidence the same distaste for cloistered effort in the search for sound doctrine. They love slogans, and hate thoughts. Two correspondents in your issues last week " Truth" and " Britannia of the Market," with minds attuned to the Douglas viewpoint, stress the cross quackery involved in the_ claim that banks create money or credit out of nothing. It is insisted that astronomical deposits wax and wane with dreary iteration as the years go by and leave no trace in human activity outside mere figures in the books of those dreadful banks. Scores of quotations from Social Credit literature supporting his weird fallacy could be given One must suffice. Thus Major Douglas, lecturing a few months ago: " But when a bank makes money it makes money out of nothing; it gives nothing, and lends everything." This iniquitous drivel de- 4 ceives no one outside of those destitute of reasoned opinions on currency matters, yet we find tbat in all Social Credit literature it assumes a peculiar dominance, whilst the "creative instinct attributed to bankers has so obsessed that dreary publication, the New Age, that recently in defending its Australian, friend, Mr Lang, it announced that " If no Communist movement existed the banks would create one."

Turning now from what Douglas people term their " exponential" literature, we easily reach firm ground. A high authority amongst men that matter in this connection. Professor Edwin Cannan, tersely presents the actual poeition. "This is obvious when looked at from the side of those customers from whom the banks all their power to lend except what is derived from their own capital. The opposite view arises entirely from a curious belief that the power of the banks' creditors ' (i.e., the depositors) to deposit is derived from the sums lent to the borrowers instead of the banks' power to lend being derived from the depositors. Banks are thus supposed to make something out of nothing, and the only wonder is that they use their power with such extraordinary moderation." Nothing apocryphal about this utterance of the learned professor! Portraying the shifting machinery of modern commerce. Professor Laughlin, of Chicago University, sketches the actualities so that he who runs may read. The following quotation from his " Money and Prices" is well worth preserving: "Banks are not merely lenders of capital, but are the acquirers through which the titles to goods pass, so that article can be set off against another. Like division of labour, international trade, and great railways, banks are a means of abridging human labour. While ponderous trains thunder into our eastern cities from the western grain fields, and others in return roll westward filled with silks and cottons, the titles to these goods' (and the means by which all are exchanged, one for _ the other) are being carried to and fro in the shape of bills and drafts by the banks, the great railways of credit. For every transaction, every line of steamers, every network of railways there is a corresponding credit service, 1 , tallying with each exchange of goods, as it were, in the air overhead; and unseen, but really running •on its quick despatch through the mails, the telegraph, and the telephone, and officered by the bankers of the country." The banks merely handle the* titles" referred to by Professor Laughlin as attached to each transaction, and_ their provision emanates from those owning the goods and services perpetually exchanging in the commercial field. The congealed wisdom embodied in expert opinion is ever fatal to social credit aspirations. In March" of this year the' postal and telegraph employees of Australia requested the Federal Government to institute an impartial inquiry into the merits or demerits of the Douglas proposals. Here is the Government's reply: " Your" organisation's suggestion has received careful consideration by the Commonwealth Treasury authorities and their advisers, and I am directed to say that it is not considered that any useful purpose would be served in the Commonwealth Government arranging for a commission to be appointed along the lines indicated in the resolution embodied in your letter of January 18, 1933." The Government statistician of New South Wales is also pleased to father the sensible attitude of the Commonwealth Government. —I am, etc., Credit. Dunedin, June 24.