Western Star WALLACE COUNTY GAZETTE. TUESDAY NOVEMBER 26, 1935. NATIONALISATION OF BANKING

Western Star, 26 November 1935, Page 2

Western Star WALLACE COUNTY GAZETTE. TUESDAY NOVEMBER 26, 1935. NATIONALISATION OF BANKING

At the present time it is the desire of Labour to have a State bank, and if such iv course were adopted it would only be a. matter of a few years before our money would have the same value as the German mark. It will be recall, ed that M r Lang instituted a, State bank in Australia with the result that many investors were virtually ruined. \ It has always been observed that periods of prolonged depression have the effect of concentrating critical public attention on economic institutions, and notably on the mechanism of currency; and banking, which at ordinary times is, taken for granted, and, because of its technical nature, is not closely understood by the general public. Notwithstanding that the balance of authoritative opinion considers that the present depression has in the main been caused by fundamental factors mainly of a nonmonetary character, there is a tendency to hold that the difficulties of the time can be .adjusted by some manipulation of our banking and credit system, a view which overlooks the tact vnat oux" trouble s are initiated, iiom abroad, mainly by the fall in world prices. The) depression undoubtedly has led to a widespread if unciitical tendency tq blame the banks for economic difficulties which the banks have done nothing to cause, but are doing all in their pjwer to cope with; and the prevalent sentiment in favour of nationalisation of commercial banking in some quarters is in the main attributable to this cause. It is important not to confas.3 this issue with the general problem of Socialism as contrasted with a system of private property and free enterprise, subject xo social control such as prevails in New Zealand to-day. It is of course admitted that in a Socialist State the banking business would be socialised along with all other types of business. This, however, i s not the point at issue. The question is whether in u country whoso institutions are based on private enterpri.se, the business of voiiimercialj banking should bo left to operate as jtl does at the present time, or made a function of State and run undci a State Department on the liue s of other economic functions that have been assumed by the public authorities. Advocacy of this course, it is important to notice, does not come from the business class.es of the community, who make most use. of the facilities provided by the banking system, and for whose service commercial banking mainly c .\ists. It usually springs fi >m politically minded persons, and the motives behind it are political and not. lusinoss motives Nationalisation or State control of commercial banking, ,n other words, is desired cs .->, rule, not by those who from practical experje: .(••' appreciate the benefits of r.,bunking s .•stem, with a view to .iinprrving the service, but rather by those: who see in c< ntrol of the banking system a convcnf'U; and pfwcr.'ui to : ,i for i ji:<;. ing a bo it a larger measure of State control n- er economic life in general. They do not .-.ay : ; 'Y\'c want Slulu con.

trol of banking in order to improve the banking service or to protect the people from monopoly," but rather "We want State control of banking to. employ it to bring about State control in general." This attempt to project political objectives into a service that should remain quite clear of political considerations, if it is to function with efficiency, is the most fatal objection to nationalisation of the banks, instead of being a; factor in its favour. Apart from this' dominant political objective, and the usual considerations that are adduced ini | favour of State assumption of economic activities, there is a special line of argument relating to State control of the banking service, which recent developments have deprived of all weight. It has been contended that in present conditions, now that standard metallic money ha s ceased to circulate, the standard money of the country is the Lur.k note. As it is the prerogative and function of the State to determine the volume of money and the conditions .>f its issue, thi s should not be delegated to the commercial banks, which, since they are traders in money and credit, have a pecuniary interest in t n e matter. There is force in this contention, but it has 10 application to New Zealand commercial banking at all, the point having been met by the establishment of the Eeserve Bank of New Zealand, which is the sole note-issuing authority in the country, iand is in effective control cf the basic money and credit conditions of the Dom. inion. As the issue of note s and control of the credit basis are now jn the hands of a central institution over which the Government has effective power, this arugmcut for nationalisation has BO relevancy to commercial banking in New Zealand at all. Th© case of State con-i tro] or operation of commercial banking must therefore rest on other grounds,* To establish it, it must be shown that sound reasons exist, based on the public interest, for such a, transfer and in a society based on free enterprise the burden of proof must rest in the first instance on tho s e who advocate a widen. . ing of the economic functions of the State. It must be shown that the present system is inefficient, wasteful or costly, that it is oppressive to the people, and that transfer to the State will remedy these defects. It is impossible to establish any of these points, and indeed they can be definitely refuted: Another fatal objection to nationalised banking is its unavoidable political bias. Being a Department of State, it would be subject to political influence and control ; and while that does not necessarily entail personal corruption, it means that it would certainly be employed directly or indirectly to give assistance to projects and' policies and persons in favour with the Government of the day, and to refrain from assistance to opponents of th s dominant political party. This tendency could hardly be avoided under a system of democratic party government swayed primarily by electoral considerations : and it would speedily undermine confidence in the bank, alarm depositors, cause withdrawal of funds, and impair or even paralyse the economic utility of the bank. If poli-; tical-influence or party considerations took the place of credit worthiness or soundness of investment policy, bank deposits would not be safe, as they are now, nor could the bank long remain) solvent if thi s policy were persisted in. It is of course possible that no such; influences would be exerted, but politics; as they are to-day, and in the light oft past experience with financial functions taken over by the State, it is impossible to resist the inference that poli-; tical considerations, to a greater or less extent, would influence the policy of the! nationalised bank. The primary loyalty of a banker to-day is towards his depositors, and his motives are economic] and financial to the exclusion of political or other irrelevant considerations He! would not be allowed to retain thi s at-' titude under a nationalised system, es, pecially as the open objective of mostl advocates of nationalisation is the em-t ployment of the banking function for the attainment of other social objectives,' such as the re-distribution of wealth or the inauguration of general Socialism.