COSTLESS CREDIT

Otago Daily Times, Issue 22964, 20 August 1936, Page 5

COSTLESS CREDIT

TO THE EDITOR.

Six% —Recently there has been a lot in your paper" about social credit. I submit this is a subject both interesting and important. There are two types of credit. First, there is the variety advocated by Major Douglas, which I cannot follow, and am therefore unable to urge. Secondly, there is national credit based on the production of a country. Mr Nash recently discussed national credit under three heads. I wish to confine myself to one of these heads—commonly known as bank credit. As many appear to knew nothing about this subject. I trust I shall be excused if I attempt to explain it to the best of my ability. There are two forms of money —cash and credit. Cash is a very small part of a country's money (less than 10 per cent.). The proportion of paper money is usually fixed by law. Credit through the use of cheques is not fixed except by the banks themselves. A commercial bank's reserve of cash takes the place of the Reserve Bank's gold and is the basis on which token money through cheques is issued. Nearly all business transactions are carried out through the issue of cheques. When a bank lends, say, £IOOO to a manufacturer to finance new production till his returns come in, it does not really part with cash. It merely writes £IOOO in a book against the borrower's name and thus creates money out of nothing. The amusing part of this loan is that in the eyes of the bank it automatically also creates a deposit. In the words of Mr M'Kenna, chairman of the Midland Bank, " every loan creates a deposit" This new money created out ot nothing is treated by the bank as a loan of real wealth. The Government recently said that this power is to be taken from the banks. Let us see how this system of credit could be adapted by the Government to serve the farmer and the'community in general. A farmer requires £IOOO till his returns come in. To make it clearer, let us imagine that, instead of cheques, the Government decides to print week by week the notes required by this farmer, and that by the time his sheep have been shorn £IOOO has been advanced to him. When this farmers wool has been baled, either bales worth £IOOO, or notes to thai value are remitted to , the Government. The Government then, following the example of the banks, would destroy the £IOOO worth of notes it had printed or, if the transactions had been done, bv cheque, the credit of the £IOOU. this credit could be supplied to the farmer free of interest or at a low rate, for. after all. it is only fair that the community should get some benefit from this transaction. The Government could obtain much revenue in this way. Certain vested interests would, of course, object. This cannot be helped, for nothing can be done to improve the people's lot without treading on what these interests wrongly consider to be their preserves. It appears that a Douglas Creditor would urge the same procedure as described above, but would, in the end, not destroy the credit or the notes specially printed for the purpose; for, he asks, if you destroy the notes how can the public purchase this wool? This would mean £IOOO to the Government, but surely it would also mean inflation. Besides being dangerous, it appears to be unnecessary, provided the Government carries out its intention to make con sumption equal production.—l am, etc.. C. S. J. Berkeley, Capt, August 18.