MR PATERSON AND THE BANKS.

Timaru Herald, Volume CXXXVII, Issue 19598, 19 September 1933, Page 8

MR PATERSON AND THE BANKS.

To the Editor of “ The Tlmaru Herald ” Sir, —Mr Paterson dares me to answer a question. He never answers questions himself, but that did not restrain his audacity; he dares me in effect, to state whether or not I agree with the socialisation of banking ns portrayed by Douglas. I do not desire to emulate the example set by Mr Paterson; I do not desire to adopt cowardly twisting; therefore, my answer is definite:—l do not agrse with the Douglas system of bank credit socialisation. I believe that it is a fine ideal, but I know for a fact that it is not a practical ideal. I do not agree with Douglas credit. No doubt, my previous letters displayed this fact—it is surprising that the fact escaped Mr Paterson’s perception. Mr Paterson has no need to dare me to answer any relevant question; In order to completely expose the fallacy of Douglas credit. I am willing to answer any relevant questions. I only wish it w r ere possible for Mr Paterson to adopt a similar frank attitude towards questions; nevertheless, his continual twisting and dodging show that it is impossible for him to be frank and definite about the Douglas theory. Now, Mr Paterson’s diatribe about ny cultural and educational accomplishments, requires no consideration; it is just another expression of his remarkable ideas, and moreover, it is just a matter of opinion—and we have justification for suspecting Mr Paterson’s opinion. Indeed, such an opinion could be expected from Mr Paterson because, his ignorance of economic science has been clearly displayed—and now he snarls with bitter vindictiveness. The extent of my education and culture—limited or otherwise—need not be discussed. The subject is not relevant to the present Douglas discussion. This letter will include some references lo banking practice. At the outset—for the benefit of a certain warped intelligence—l might state that I have no shares in a banking company; that I am engaged in this controversy for no personal gain, but because I happened to notice a letter written by Mr Paterson, and because I happened to notice that the letter contained an unusual amount of nonsense. Therefore, we see the cause of the present controversy and since the initial cause, we have seen that Mr Paterson has greatly added to the quantity of his nonsensical letters. Thus, I entered the discussion because Mr Paterson’s writing was liable to create a false impression on the minds of a few people; and some people—w r ho could not spare time to search for fabrications —might have been deluded into thinking that Mr Paterson’s letters really contained facts. It w f as with great regret that I found it necessary to expose Mr Paterson’s ignorance of economic questions. I am sorry for Mr Paterson. However, by his own writing, he brought the trouble on himself. He forced his critics to expose his lack of knowledge. So, I would like to acknowledge the very able and definite letter written by “Analyst” and to commend the recent letter by “Daniel.” However, I should like to convey some thanks to Mr Paterson. His letters have contributed greatly to my amusement and enjoyment. Because of a similar experience, I am sure that a great many people will endorse my sentiment. Douglas maintains that the “rate of outflow” of purchasing power from a bank is less than the rate of “inflow”: he maintains that somebody has to lose. Evidently, among other things. Mr Paterson bases his bank hatred on this contention. A committee of the British Labour Party issued a report on the Douglas theory, and in this report the committee stated; “We see no justification for a general implication that the rate of outflow of purchasing power from the banks is less than the rate of inflow.” Similarly, the Macmillan Committee stated: “It is a rare event for the banks—except quite properly at the height of an inflationary boom—to restrict the accommodation required by their business customers for liquid employment in their own businesses, the banks regarding this as having first claim on their resources.” But, Douglas goes further, and he tries to make a “mathematical” elaboration of his contention and m order to do this, he has to assume that “the cash in hand is kept constant.” Unfortunately for the “mathematical proof" supplied by Douglas, a banks “cash in hand" does not remain constant. In Australia for example, it varied from £m51.96 in 1928 to £m37.6 in 1930, and to £m49.79 in 1932. Every Douglas “proof” is based on an assumption, and we always find that every Douglas "proof" is based on an erroneous assumption. But, Mr Paterson and Major Douglas are not satisfied with their erroneous proofs and foolish assumptions, they imply that bankers are incorrigible rogues; and t.o quote Mr Paterson, “distribution is a system composed equally of petty larceny and lunacy.” However, Mr Paterson forgets that many other company shareholders often receive dividends on a higher scale than bank shareholders. Why not socialise these companies as well? Again, thousands of banks in the United States went bankrupt. How can Mr Paterson account for that calamity if banking is so remunerative? How can «ie account for the fact that the profits of the Bank of New Zealand have fallen more than 50 per cent, during the present depression? By Section 44 of the Finance Act. 1916, the note issue of any bank in New Zealand, was limited as "the total amount of all coin, bullion and public securities held by that bank in New Zealand." The Act is still in force, but probably Mr Paterson was ignorant of its stipulation. He asserts in effect, that banks can do what they like with credit. I agree with “Analyst" when he states that every cost should be a just cost and therefore. I maintain that bank shareholders should not receive more than a just remuneration. If Mr Paterson stopped to think, he would seriously wonder why his peculiar ideas conflicted with the fact that a bank balance sheet must balance. He would wonder why banks accepted money from depositors at all—if Mr Paterson was correct, it would La terrible waste of money for banks to accept deposits, because they have to pay in-

terer on deposits. Banks seldom waste money. Just so. but seeing that Mr Paterson is ignorant of economics, and seeing that he does not even properly understand his terrible Douglas fallacy. we cannot expect him to know anything about banking. As stated in previous letters, I believe and know that a certain amount of currency reform is necessary, but currency reform cannot completely cure our depression. Some systems of currency refor..i would make the position worse Mr Paterson s little paper god is inflation. With many devices and dodges, he tries to conceal this little pai>er god. The Douglas theory represents unlimited inflation. In every country « f which we have a record, inflation on an unlimited scale has been resj>onsible l( • terrible destitution and hardship for the poor: it never affects the rich with the same severity; inflation is the device of ignorant people who believe that money is weilth and they belit ye that a country can be made rich just by isruing paper money. Your correspondent says: •‘Value' accuses me of delaying a:; explanation of the Douglas theory.” Mr Paterson then amplifies his repetition of my accusation by a statement to the effect that he has outlined the theory a dozen times. I agree witn Mr Patersc.i; a dozen times, he has outlined something like the Douglas theory; in fact, it might have been a hundred times, so boring was the repetition But. and that is the helpless part cl it. Mr Paterson has not explained the theory once. Mr Paterson preferred not to explain the theory; he has not explained it yet. He preferred to leave his philosophy to masquerade as facts He asked people to believe his falla.y just because he believed it; he extolled a heresy Just on the strength d his own recommendation—but now. we have considerable justification for

I doubting Mr Paterson’s recommenI dations. If it had not been for ex- | planations supplied by the critics in this discussion, the discussion would I have included no explanations. During I the present discussion. Mr Paterson s ! letters have assisted nobody; judging ) them by their explanatory value. Urey could have been entirely dispeused with. Indeed, conducting an argument with a man who is capable contradicting all the best brains in the world, including gentlemen like Gibbs and Repington. appears as an example of futility. In conclusion. I must quote Professor Sodclv. Mr Paterson tries *.o support his Douglas contentions oy frequently quoting Professor Soddy. “The Douglas System.” says Soddy. "seems somewhat prematurely to assume the existence of a communal rather than on individualistic State, in which there are no debts, no righ*s of property and no private ownership of capital.' and in whic all the existing paraphernalia of wealth prodnetion is to be regarded in all singlemindedness as having been accumulated with the primary object of production rather than that of being hired out for production. —I am. ete VALUE.