CONTROL OF BANKING
WHERE LABOUR POLICY LEADS A LESSON FROM AMERICA Labour representatives have seen many of their policies fail. The people will not have them. Now Labour representatives in Australia, through Mr Scullin and Mr Lang, are promising the people that when they get into power again they will take over the banking system and that the Commonwealth will be the banker of the people. The appeal (says the Sydney Morning Herald) is to borrowers, to those who are always wanting to use money not their own for their own profit. Labour representatives have joined with that school of economic theory, and want to put the theory into practice,, which asserts that borrowed money gives rise to lent money, that the advance precedes the deposit in the bank, and that it is only necessary to take care of the borrower, because then the depositor will take care of himself. The banks in Australia, though they take care of the borrowers, persist in taking greater care of the depositors. Labour representatives are telling the borrowers “you wait till you put us in and then you will get all the borrowed money you want.” What happens when a Government controls banking can be learned by a study of happenings in the United States during the past 11 years. There the Federal Reserve Board controls banking and the Federal Reserve Board is a creation of the Government. In 1921 the Federal Reserve Board was of opinion that there should be some diminution of borrowed money, and steps were taken to bring about that policy. A steep fall in prices occurred and the Federal Reserve Board being blamed, there arose through the United States so universal a shout that the Capitol at Washington trembled on its foundations. As Garet Garrett writes in the Saturday Evening Post, “ the resentment was politically terrifying. After all this ■time it is still echoing about, especially in the west; the idea that the Government was contracting the volume of money or permitting it to be contracted by the FederaL reserve system. That was all the popular mind could see. It would be the ruin of any administration to persist in such a course. The Federal Reserve Board at Washington repented, this being the Government body that minds the Federal reserve system, and presumably governs it, but does not control it. The Federal reserve system! repented. The next anxiety was how to restore prices. What followed was an incredible uncontrollable expansion of bank loans and credit currency. To finance the war the loans and investments of all banks of the country increased by 7,000,000,000 dollars, but to finance the life of the new era bubble that began in 1922, and burst in 1929, the loans and investments of the banks increased by 15,000,000,000 dollars. The vast part of all that expansion of bank credit went into the bubble, or more specifically into real estate and securities. Hence the wonderful inflation of real estate values, the endless proliferation of securities, called bonds, and the delirious rise in common stocks.” The creed, both political and economic, in the United States, as Mr Garrett understands it, is that if a man can give but security and collateral, he is entitled to all the credit he wants, no matter what he moans to do with it. A British banker or a French banker would be aghast at the idea. Each takes it to be a banker’s responsibility to be guided not only on the security proposed to be pledged for a loan, but also upon the use to which credit will be put—which is to say, the shape of the debt. But that is not the American idea, nor would it be the idea in Australia were the Government to administer banking or be able to control those who administer banking, The member of Parliament would be still more magnified than he is at present. To retain his seat he would have to see that each of his borrowing constituents got as much borrowed money from ihe bank as he required. What pressure would be put on members were the banking administration, controlled by the Government, to attempt to carry out a policy of lending only for carrying out enterprises which gave good hope of profit? But then, profits are anathema to those who seek to lead Labour.
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Bibliographic details
Otago Daily Times, Issue 22023, 4 August 1933, Page 7
Word Count
725CONTROL OF BANKING Otago Daily Times, Issue 22023, 4 August 1933, Page 7
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