State Banking.

New Zealand Illustrated Magazine, 1 June 1901, Page 700

State Banking.

By J. M. Veiuull

(A Member of the Parliament of New Zealand in 1888, 1889, and 1890)

fgANKING is a modern institution. | The Bank of England and tho 1 Bank of Scotland are very little / more than two hundred year?' old. It is, therefore, quite probable that ■the science of banking has not yet arrived at perfection. Moreover, banking is a business which has hitherto been studied rather from the point of view of the bank shareholder, and of the money-lender, than as it concerns the public welfare. Banking legislation has also naturally been carried out according to the advice and suggestions of men who have had some experience of banking. These men were, of course, •usually interested in, and often indebted to, private banks. If an English judge were a director or a shareholder, or chief creditor ■ or debtor of a bank, he would probably refuse to give judgment in any law case •connected with that bank. But in reference to making laws with respect to a bank or banks, it would appear— at any rate, in the colonies, and, it is to be feared, also in England — that representatives of the people, and Ministers of the Government, do not hesitate to legislate with regard to banks, the interests of which may be vitally related to their own private affairs. Every one knows that the coinage of money is a prerogative of the Crown. But "at the time of the Domesday survey in England (1086) every important town had, as part of its privileges, the right to a mint." ("Nicholson's Money and Money Problems.") It is for the interest of the whole community that the State only should have the rights, responsibilities, and profits of the coinage. No Government would give Mint Charters to private individuals ov companies. But paper money is the chief money of the day, and in

granting Bank Charters, Governments give away to private persons and companies the right to make paper money. Mints manufacture metallic coinage by melting down gold, siXer, bronze and copper into coins. Banks create banking capital by placing securities in their safes, and by making advances against them in the shape of cash credits or deposits. These credits are transferred and circulated by the medium of bank notes, cheques, and bills of exchange. Bullion which can be melted down into coin is just as good banking assets as coin ; and securities which can be sold for money, and thus converted into gold, are equally good assets. Bank notes, cheques, and bills of exchange are all equivalent to coin. Commerce is barter, barter is commerce, and most exchanges are effected by the transfer of credits and credit balances through the banks.

As McLeod says in his " Theory of Credit" (1891): " It is these banking credits which are, for all practical purposes, the current money of the country. The total amount of credits in the United Kingdom may be taken in round numbers as about £1,000,000,000. And the amount of these credits, circulated by means of notes, is absolutely insignificant as compared with those which are circulated by means of cheques. In Scotland, with banking credits to the amount of £95,000,000, there are only five millions of notes in circulation ; because in recent times cheques have come greatly more into use in Scotland, and have superseded notes." And again : "In modern banking probably not one bill of exchange in ten thousand, and only a small proportion of cheques, are paid in coin or bank notes. An investigation, instituted by some bankers after the late Gold aud Silver Commission,

showed that only "0025 per cent, of banking transactions are settled in coin." Now, just as the pound sterling is the British unit and standard of value, so the bank reserves of gold and other assets are the basis and measurement of the paper currency. And, as it is the business of the State to guarantee the weight and purity of the coinage, so it ought to be the duty of the State to keep and guard the gold reserves, and to guarantee the value of banking assets. Mr. Gladstone once declared that, " The rights, responsibilities, and profits of the note issue ought to belong to the State only." How much more, then, ought not the infinitely greater rights, responsibilities, and profits of cheqnes and bills of exchange, which are equally convertible into coin or cash credits ? Ruskin wrote that, " National debts paying interest are the purchase of the rich of power to tax and plunder the poor." The Bank of England is founded upon national debt, and one of its great profits is the manufacture and sale of these national debts. The profits of the whole paper currency mean the whole profits of banking. If the State were to take these profits, it would have also to untortake the responsibilities of banking. But the dangers of issuing one pound notes, or cash credits or securities, are not to be compared with the dangers of issuing £100 debentures. The difference is that, upon a million of bank notes (or bank credit), the State might make a profit of £50,000 a year, whilst upon a million of debentures, the State has to pay at least £30,000 a year. This is a difference of £80,000 a year. Now, as McLeod says, " The use of money or credit is to set industry in motion. Money locked up in a box, or credit unused, only l'epresent latent power." State banking is the key to unlock this latent power. Instead of using our credit direct to employ labour and skill in the development of the resources and wealth of the colony and of the people 5 we have abused our credit by pledging it for the use Vol lI.— No. 9.-48.

of foreign papor money, upon which tho people have to pay interest out of tho colony. The results are that the people of New Zealand have a public debt of about fifty millions, municipal debts of several millions, and many more millions of private debt, tho interest of which goes out of the country. The foregoing theories are all embodied in the two following resolutions, which were brought forward by fhe writer in the New Zealand Parliament: — Ist. "That it is desirable that a State Hank should be established." (August 25th, 1888.) 2nd. " That the Government of New Zealand ought not to increase the debt and taxation of the colony by exchanging its debentures for the credit of private banks ; and that the revenues of the colony ought to be increased, and the taxation thereby diminished by the State having the profits of the paper currency in bank credit, bank notes, cheques, etc." One or other, or both, of these resolutions were endorsed by the votes of the late Mr. lial lance, since Premier, and of Mr. .Seddon, the present Premier, and a member of tho Privy Council; also live members since Ministers: Messrs. J. MoK'enzie, Cadrnan, Hall-Jones, Carroll and Duncan, and of Mr., now Sir, W. 13. Perceval, since AgentGreueral, and twenty-one other members, of whom seven were lawyers. The fact that many of thoso members who supported these State Bank resolutions have since acted in a totally contrary direction, is for them to explain. Of the forty-five members, who voted against one or other, or both of these resolutions, not one of them attempted to debate the question.

Speaking in Parliament a few days afterwards (September 12th, 1890), the late Sir George Grey said, " It is truly a great principle that the regulation of the currency belongs to us, and that the profits of the whole paper currency ought to bo swept into the Treasury."

State Banking is the true policy of selfreliance and non-borrowing. It is the only suggestion ever made for the reduction of

the public debt. In times of peace we ought to prepare for war. In times of prosperity we ought to prepare for times of depression and panic. We have no right to mortgage the resources and revenues of posterity. We have no right to make the land and the railways virtually the property of foreign debenture-holders, and to allow our Government to become the agents of absentee landlords and foreign money lenders. And it is a disgrace that the colony should be in a practically defenceless condition owing to the want of

capital. Half the gold now in the hands of the bank, which really belongs to the Government and to private deposits, would, if there were only one State Bank instead of five private banks, be an ample gold reserve for a population of less than a million. The I'emaindex*, instead of being a temptation to foreign enemies in time of war, would be enough to provide great and small arms and ammunition, and equip every man in the colony, and to defend our ports and harbour's. In short, State Banking means National Independence.