MONETARY PROBLEM

Poverty Bay Herald, Volume LXI, Issue 18465, 2 August 1934, Page 11

MONETARY PROBLEM

(To the Editor of the Herald.)

Sir, —The usual and logical question asked by anyone who is interested in the present Douglas v. Orthodoxy controversy is, “Why has the present banking system been able to function for so long, if a permanent disparity in purchasing power exists?” We look to Douglas for an answer and this is what we receive: “The roots of the disease are as follows: Wages, salaries and dividends will not ■purchase total production. This difficulty is cumulative. The only sources of power necessary to make up the dijferenee are loan and export credits.” Thus we have the much desired answer, but wait; will it coincide with actual figures? Of course it must, seeing thatDouglas has said so—Douglas the humanitarian, the man who will give us ail JGSCO per annum for nothing, the man who knows all about the operation performed bv banks, and called the cbSt-' less creation of credit; the man who knows ail there is to know about banks and bankers’ practices, but who in his own words is only “reasonably well acquainted” with banking practice. One would really think that before a person could remedy defects, and suggest reforms he should ho “very well acquainted” with the peculiarities of his subject, but, oh no, not so with the Major; he is quite prepared to criticise and offer far-reaching reforms on a- subject with which lie is only “reasonably well acquainted.” If Douglas wrote books on "My Experiences as an Engineer.” one would be inclined to believe him.

But now, to get. down to .actual figures, prepared by the Government Statistician of New South Wales for the year 1927-28. Value of goods produced by Australian factories was £416,000,000. Cf this sum, the amount of £100,000,000 was paid away as wages, salaries and dividends, or the A payments of industry totalled £130,000,000. The balance, viz., £286,000,000, represents the B payments—payments for raw materials, bank charges, and other external costs, etc. These payments, according to Douglas, do not represent purchasing power in the hands of the various recipients (this, of course, is not correct, because the amount received; by the raw materialist, etc., represents purchasing power in his hands. He can spend it, can’t he?) Therefore, the only sources of purchasing power left to make up this deficiency are, according to Douglas, “loan and export credits.” Let us now see what these totals reached. Increase in bank overdrafts totalled (1927-28), £4,541,031; increase in public debt (State and Commonwealth), £54,300,000; B.A.W.R.A. dividends, £3,800,000; total, £62,741,031.

Now the export surplus must be added to this sum, but, unfortunately, during this period there was no surplus; on the contrary, there was an excess of imports to the extent of £4,700,000. We will thus have to deduct this sum from the above total, which was going to bridge the deficiency in purchasing power. We have one more deduction to make. The interest (external) and services 'bill during this period came to £35,000,000, and this, of course, has to be deducted from the London funds of £62,741,031. Thus : Excess of imports, £4,700,000; interest and services, £35,000,000; total, £39,700,000. Thus, how much have we now got to help to bridge the deficiency in purchasing power? We have £23,041,031—£23,041,031 to help to bridge 3. gap; of £286,000,000. Why, it is like a drop of water in the ocean.

Thus, when Douglas’ arguments are compared with actual compiled figures, they are seen ten be .ridiculous. Douglasites will now say, “The figures are right, but something must be wrong somewhere because Douglas has told us that a permanent deficiency in purchasing power exists, and therefore it must exist, because Douglas can think no wrong. Perhaps some great capital production schemes or sometliing of that sort can explain the deficiency.” Very well, let us just see how much would be required to be expended on capital production to bridge this disparity of. £286,000,000 minus £23,041,031, £262,958,969. In capital production about 50 per cent, goes in A payments (wages, salaries and dividends) and about 50 per cent, in B payments (payments for raw materials, etc.). Don’t forget that these B payments do not, according to Douglas, function as purchasing power; thus, capital produced to. the extent of £525,917,938 (i.e., £262,958,969 multiplied by 2) would be required to bridge the gap in purchasing power. These figures, of course, are too "fantastic to need any explanation. Iu the words of the Prime Minister of New South Wales, the scheme is more active than accurate, and I think that this is correct. The above figures prove that Douglas’ words are certainly not accurate.

Let us further demonstrate the shallowness of Douglas’ uttorings. Lot us take figures that- relate to New Zealand. The year under review is the year 1928-29:

Value of production, £125,300,000; A payments represent say 50 per cent., £62,650,000; B payments represent say 50 per cent., £62,650,000; total, £125,300,COCK In all probability, 50 per cent, is too high for production as a whole, but just in case we might over-estimate we have taken the A payments as representing 50 per cent. Again looking to' Douglas, we see that the deficiency in purchasing power is bridged by means of “loan and export credits.” Thus, during the period 1928-29, overdrafts increased by approximately £5,000,000; export surplus, i.e., surplus remaining after paying for imports, services and interest charges, £5,000.000; total, £10,000,000. Thus the amount to ba spent in. capital production would have to amount to £105,300,000 (i.e., £52,650,000 multiplied by 2). To demonstrate the utter stupidity of the Douglas explanation of this permanent deficiency in purchasing power, one has just to realise that the amount of £105,300,000 would have to be spent in capital production (buildings .and forestry, etc.) in older to sustain purchasing power—in the year 1928 total deposits in New Zealand were £53,000,000 thus the amount that would be required to be spent on capital production would be twice as great ns the total amount of deposits held by the. banks in New Zealand.

Remember, Douglas lias said that the reasoning of his fallacious A plus ft theorem comes “suddenly rather than by intellectual explanation,” but 1 say that if his reasons as to why the present system continues to exist, in spite, of all its inherent defects, are compared with tlie above figures, then I think that the fallacy of tlie Douglas theory will come suddenly.—Yours, etc., “FAITH IN GOLD STANDARD.”