The Timaru Herald. MONDAY, AUGUST 15. 1910. CREDIT AND CAPITAL.

Timaru Herald, Volume XIIIC, Issue 14274, 15 August 1910, Page 4

The Timaru Herald. MONDAY, AUGUST 15. 1910. CREDIT AND CAPITAL.

Major Phipsou. quoted by Mr E. Wood ' ;p a letter to-day. is more ingenious tlhan honest, and lie measures bankers' hynesty by his own. However, his . dUhonesty i= only imaginary, and his iiiLX-auity chimerical. At ilie same j time bis supposititious device for manu- i facturing capital is very plausible—or j our correspondent would not havo been : taken in by it. Let Mr Wood follow : up tics supposed fictitious capital and ' see wliere the imaginaiy creator of capita! is landed. It is not far to go. ; If the banker furnishes a rietitious ere- : dit for £IOO.OOO, the borrower dis- j tributes cheques upon ft. and -he ' banker Las to pay gold for them or ". give his notes, which are Lis own ; drafts upon his own stock of -old. Ihe possession of bonds or debentures for tramway loans does not help him to avoid a draft- upon Lis own resources to the full amount that lis "credit'' is taken advantage of by the borrower. The borrower's cheques flre only accepted on the understanding' that the banker is prepared to cash ' them. The important point, that Major Phipsou and Mr Wood lost sight

of. is the fact that the credit does not operate, the lauding does not really begm. until the cheques begin i-o come in: till then there is only an entry m a book; the actual lending proceeds gradually with, the payment of the cheques as they are successively re- , eeivod. That is made plain by point- : ing out that the borrower could not be asked to repay the broker any part of the advance bargained for which he had not drawn.. though a shrewd broker I would probably demand interest- upon ' it. It is possible for a banker to ; make such fictitious credits, just as it is ; possible for a man to give promissory ! notes beyond his ability to meet them: I but a. day of reckoning must, come i sooner or later for both of them. Where ! Major I'hipson goes astray, and .Mr ' follows him. is in forgetting that the credit given by a banker or a money-lender :o one porsen wines back to him very so.-n in the shape of do- I mands for ready nu.ney by many per- ■ sous, and this as we have said Ls the ! real 'lending. To go hack to the be- ', ginning of Mr Wood's letter, and Mill's ' definition of ••capital" as "a stock!

previously accumulated of the products of former labour." Clearly this o.ti not mean a stork of goods.'ani'eios Vf use or consumption, because if .so ;he definition would not include what "is most commonly understood by ■■,,,,.,.-. tal ■' in tliis riniiurv—loanable credit Nevertheless I ]. l . definition does i, 1( .; lu J 0 it. because loanable credit is ; , -product of former labour—using the word labour to cover ail the deductive - H -v v.ty. T!io kind of ~; , .,i i:11 v]uK . h bankers and money brokers dea! in r ■- pre.-euts rights to' products of" labour produced in some ras: time near or distant, which rights have „ o! , v ., n exercised by the persons possessing thorn. An illustration will l v useful hero. Suppose that t\{rv ve-rs -,--, •, farmer. A. IV. had : , particularly' ?',W year, and his produce sold lor' 'MOu) more than his expenditure, ami suppose that A.B. has never needed that £IOOO .since. What was ho t „ vio with it aT the time, and since? He „„Vh t have obtained gold for the amount'and hoarded it; in which case he would clearly have been in „ (R<l ,„j, in >lf !!u , right to buy £IOOO wort It of the products of labour of any later time, because he had the currently accepted equivalent- for products to that value. - The banking system = >,-n.i i- i ' ~ -•■ ,l "i him the trouble of keeping the -old . safe •» hoarding, took it f n ,m him. and has > ever since used that persistant beoruso unused n>ht of ,\.R. to JjlOTi worth of anything whaie Vor , nr tn ,i, 0 a , r -,„,,, in html cash, as a marketable-a loan- 1

aoh —'" acr-ujiiiilnuoii oi the products of | i..!'i:.,t labour": that is. as capital in j '•!'<■ lamiliar >,-n.-o of the word. That J> <-ajuia! <!<-im.-l from sjivjiil;. from ii"ii-|.i-ii.liu- surplus income The u-» | <•!' >!;,•>,■ .1, ;.. ru ,l to excise '•'•'"••'■ i !>r:i-i- lur thai u>e i; ui- '""-'• -\.I!. may ]!-•! i,.-..<l to ,u/nd >!,.• :,,,..,. ~ ~-;-,j M . r . :III ,j ~!!,,„•„ ],; s '••-:"•■'•:• >: mal*.. ,],;< : ,] M ,. Vf , :lr hy vp;ir ,,l ' r " 1 '•!::"ii ii> cniii or <ioods. and '>!'"- -ii:i.i;il unm-iied hy the owner m-"'"'i-oal " thai the X,-,v Zealand Go)v -.'"'T 1 " ,i ) ''"': v - il; W.d0,,. the overr",r "''' , " I '"' ' ! • yis from his hanker, "'';'■ ' ;"•■" "'••-"<■<) locally for Harbour ,"''"'. consists of such do-i-M.-i ..;,,!•;; to .ob, or j, oo ,] s t j, at hjnv. a.-,,:,,,,]:.!-] i„ B r ; tri ; n ajI(J ;„ .V;'.v /-a-i.d. The borrows on obtl,em d.-p nv „ s the k-nder of '•"-■ , " '' ; !,,; ""!:!= Hn iil ]„. rf . ulJ . ng ;!: "'" y repay:,,:: T V t . ] fl;!11 . , Jnd h j„ 1: "' c 1!; ;' I:l ''.'•' "--H-runtr a eh,;,,] to coin or ;:.,ods to tli.? amount of the loan. I'-:---:., , vj , ;i ;.. ITV ~,.,.., w .^ sup.-n.-ml writ-r. as Major I'bipsom ":t..-n po.u; to the fa.-t that notwith:h:,t Xe-.v Z,;:;a:„! has Wr- ''''."•''.'."" "° I;, " n;> " hi London, the :.'!:::.o;js do i.ot curae to Xew Zealand—n.'." :i) " " sor '•''' t ' ie 1 ; number of millions f„ r which our exports are sold :» London e.,ir;e here in coin. The ,l!; '" ; _ nro r; '--"'J as. and the exports for. pur, hash;- power and dt-bt-payjii- power; and the proceeds of both l ;; : '» i -''"'3 •■=■■>■--■ l;.v thorinamia] system '''. '■'-'>'>>'• ■i'-- ntib-ed tor the purchase -•: our imports and the payment of j n . Tere.t and other debts due at Home, l.uho.- and private. The -'credit'' which the London money lender transmits to n i.anl: iv. Xew Zealand represents suh deferred cla::its to wealth as luive been de='-rihr-d : and :t means thai tiie lender, or thosa he represents, has transferred to the ban]; in London his r;2iit to siicii claims, deferring his own use of them for the t«rm of the loan.