CREDIT AND DEPOSITS

Otago Daily Times, Issue 22546, 13 April 1935, Page 20

CREDIT AND DEPOSITS

TO THE EDITOR Sir.—Some time ago I suggested that the self-styled New Zealand Welfare League might be more correctly designated the Bank Welfare League ot New Zealand. We learn now from the league's letter dated at Wellington, April 2 that its purpose in writing to various newspapers all over the Dominion 18 to defend the banking system. We must surely be grateful for such candour. Ul course the league says that its purpose is to "correct the fallacies so diligently circulated by 'Veritas' and some others with the obiect of shaking public confidence in the British hanking gbtemwhich has remained unshaken by the depression." We are left to surmise whether it is the confidence or the system that has remained unshaken, but there can be no doubt about the activities of the league so euphemistically described, lhey are intended to safeguard the banks from any doubt that might enter the public mind as to the nature of the transactions carried on by them, such: for instance, as might he raised by the revelations of Mr Hawtrey—" When banks increase their advances they create money, whoever the borrowers may be and whatever their purpose." (The Art of Central Banking, nage 291)—0r of the secretary to the London Chamber of Commerce—" It _ is common parlance to talk of makinfj money.' but in actual fact the * making of money is a private monopoly of^ the banking system." (Chamber of Commerce Journal, January, 1934.) It would never do for the public to hear too much about these facts, or, having heard about them, to realise what they mean, so the Welfare League tries to confuse the issue by saying that it has never averred that banks only lend the money deposited with them; it says and says again that banks in their general business use the money deposited with them. They use also their share capital and reserves." That is really wonderful. What is the general business of banks? "Lending money. So that the league has never said that banks only lend the money deposited with them; on the contrary jt affirms stoutly that they use the money deposited with them in lending money. Mr Hawtrey says something different. I rather fancy Mr Hawtrey as an authority on these matters. He is quite up to date and is a person of very wide and special experience. He says that "when a bank lends, it creates credit." On one famous occasion he said publicly: "I agree 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." But we do not need to go to the other side of the world for our witness. Did not the representatives of the Associated Banks find themselves somewhat put to it to answer the question of Captain Rushworth before the Monetary Committee early in last year? When asked what actually happened when some time ago the Bank -of New Zealand advanced —or, in plain English, lent—a large sum to the New Zealand Government, one of them —and he the representative of the bank in question—answered: "We wrote up the Government account by that amount and put it to investments." He did not mention how or what or whose deposits were "used "in this transaction —one of a kind occurring quite frequently in the general business of the bank. But, when asked if this was not actually a creation of new money, he was as evasive as the Welfare League itself. That was, he said, too abstract a question for him to answer.— I am. etc.. VERITAS.