BANKS AND CREDIT

Wanganui Chronicle, Volume 75, Issue 258, 1 November 1932, Page 6

BANKS AND CREDIT

Sir. —Quite an interesting dialogue has followed your leading articles of October 6 and 11. Afarcus James: “The banks have, and use, the power of creating something out of nothing.” (October 6.) Old Guard: “This also is incorrect. The banks issue credit only against some form of wealth.” (October 11.) Marcus James: “This credit is created out of nothing.” (October 11.) Old Guard: “A banker can issue credit only when the owner of wealth requests him to do so, and only when that owner conveys to the banker, for the purpose of transfer to others, a title to the wealth conveyed or transferred. ’ ’ Let me add a few ipore opinions on this point: 11. D. AlcLcod: “Banks do not lend money deposited by their customers; they create credit by book-keeping entries.” (This author is the foremost writer on banking). Hawtrey, in “Credit and Currency” substantiates the above statement. Encyclopoedia Britannica (4th edition): “Bank credit is costless to create, and is a matter of book-keeping.” Hon. R. McKenna elaborates this definition, saying: “The amount of money in the community varies only with the action of banks in increasing and decreasing deposits (loans\.” AlcAlillan Report, page 34: “Most people will be surprised to learn that banks do not lend money on deposits in cash put there by their customers. Banks create credit. They grant overdrafts, and each overdraft granted forms a deposit, and each deposit forms the basis for a further overdraft, or loan. ’ ’ Arthur Kitson (in “A Fraudulent Standard”): “A relatively small addition of legal tender can seriously affect the price level —not due so much to the increase in legal tender, but to the disproportionate amount of bank credit based upon it. The sudden creation or withdrawal of credit is sufficient to ensure certain, profits to the cosmopolitan gamblers in finance.” For verification of statements given see “Bankers’ Alagazine,” for 1896, pages 486, 505, 6.11, and 687. C. Afarshall Ilatterslcy, AI.A. L.L.R : “A bank only allows a person to overdraw, or in other words, “gives him credit,” if it believes that in the course of time he will be able to pay off the loan with interest.” Professor Soddy, in “Wealth, Virtual Wealth, and Debt,” admitting that banks create and destroy money at will, suggests: “Banks should only be permitted to lend money genuinely deposited into their keeping by its owners,” and at page 297: “The issue of money should be regulated by its purchasing power. . . . Money issued .‘■liould defray national expenditure, in lieu of taxation, or redeem interestbearing national debt. The withdrawal and destruction of money should be by taxation, or by raising a national loan. ” An old saying runs: “A wise man changes his mind; a fool never,” Perhaps “Old Guard,” who has up till to-day assorted that banks cannot create credit out of nothing, will see sufficient evidence to cause him to reconsider his decision, or at any rate, to study the latest findings on this cmcial matter. —I am, etc., SIGNPOST. October 28.