FLAW IN ECONOMIC SYSTEM.

Waikato Times, Volume 109, Issue 18342, 30 May 1931, Page 9

FLAW IN ECONOMIC SYSTEM.

(To the Editor.) Sir, —Readers who have intelligently followed my letters on economics will have been able to see the truth in what I have said about our faulty economic system and the need for making fundamental adjustments; but many may not yet understand precisely why our present system does not function as It should—-why it does not allow industry to flourish to the utmost limits of human and mechanical resources. In this letter I wish to throw light on the economic factor which operates to restrain the forward movement of industry—a restraint whose most dangerous effect is seen in the Jealous rivalry over foreign markets, which all too readily engenders fear, hatred and war. It Is a fact from which none can escape that under the existing method of providing the community with purchasing power—i.e., the money distributed In respect of services rendered to industry—wages, dividends, profits, etc.—falls far short of being able to buy the goods produced hy industry at the price which is necessarily attached to them. It is, of oourse, obvious that if all money distributed during the process of production were returned to industry via the channel provided by consumerpurchasers, the balance between consumption and production would remain even—that is, so long as there was no increase in production, which would require, to balance it, a corresponding expansion in currency. But in the first place the question arises: Is the money so distributed to the consumer publio invariably only returned to industry after it has bought the goods which industry has produced? The fact Is, no I A large portion is reinvested, thus leading to production and the creation of costs twice in rotation without in any way cancelling those costs hy buying the goods .to which they .are attached. The consequence Is glaringly evident. Purchasing power can never catch up on increasing total costs unless purchasing power is augmented in a way that will create no new costs —in other words, a national dividend in some form is required. The form of proposed national dividend outlined in a previous letter would enable the purchasing community to catch up on costs—to obtain a balance between consumption and production, while in ho way debasing the currency; the effect would be in the opposite direction. Besides the fatal error involved in the investment of money which should be spent on goods in the absence of a method for restoring such loss to purchasing power, there is another (though similar) serious defect in our economic' system—a matter of accountancy, It has to do with the Issue of credit, a primary function of the bcinks. When it is desired that new industries should be set going, thereby increasing the volume of production, the banks issue credit for that purpose. Now, at this point it should be clearly grasp.ed. that, an increase in production requires also an Increase of money active circulation. At first sight it seems that that automatically happens when the banker issues credit. Alas I this .costless thing, this necessary credit and real money which is put into the hands of the community is not allowed to remain in circulation. The day comes when it is yvithdrawn and cancelled, destroyed by the banker, and no attempt is made to replace money which really belonged to the community by virtue of increased production. This useless robbing of costless, but absolutely neoessary, money from the community results inevitably in investment and business losses, bankruptcies, writing down of assets, industrial stagnation, semi-idle plants, high costs of production, lowered wages, glutted markets, unemployment, heart-rending impoverishment, class antagonism, and, most dreadful of all, a universal incentive to war. .Surely a genuine democratic Government, with full legislative power and knowing these things, would be in a position to do better by its citizenelectors than we can ever hope for from a plutocratic autocracy and financial dictatorship whose one object is self-enrichment, regardless of the sufferings of humanity. When will New Zealanders bd awake enough to elect such a Government?—l am, etc., R. E. HANSEN. Orini, May 28, 1931.