MR TWOMEY EXPLAINS.

Ashburton Guardian, Volume V, Issue 1295, 2 July 1884, Page 2

MR TWOMEY EXPLAINS.

To the Editor. . Sir, —Allow me to thank you sincerely for having taken notice of ray schema for removing depression. I think, however, you might have spared yourself the trouble of trying to belittle me. As Mr John ‘Trigg said of the Ashburton Exhibition, that was “ a waste of energy,” because I am little enough already without any effort on your part to diminish ray political stature. I feel my littleness now more than ever I did before, because I know I have a hold of the right end of the stick, but that 1 am too little to wield it. As you have not reported Mr Jolly’s Bank scheme, and as I have never had the advantage of hearing that gentleman, I do not think I can be said to have bean inspired by him. What inspired me is this. It came to my knowledge that a farmer borrowed LIOO on his crop at 15 per cent., 2£ per cent, commission, 2} per cent, procuration fee, and lawyers’ expenses about LlO. Also that a Geraldine man paid L 8 for the loan of LBO for one month. These facts set mo thinking at first, and I wrote an article in the Geraldine County Chronicle (the weekly of the Timeim Herald, with which I was then connected), suggesting the desirability of establishing an Association on the Building Society principle, so that farmers in distress might be able to borrow from it on reasonable terms. Shortly afterwards the Farmers’ Co-operative was started, but on different lines altogether. 1 have often thought over the matter

since, and I am sure many will forgive my folly, if so it is, because there can be no doubt but that the cause of the depression is mainly due to the exorbitant rate of interest farmers have to pay. Thus even my failings lean to virtue's side. But you seem to sink all considerations in the terrifying prospect of my becoming a legislator. To allay your distressing fears, I may as well toll you that such a notion has not yet entered my head, and that 1 only issued the with the view of drawing attention to it. And like every one that speaks you seem to think it impossible to buy the Bank of New Zealand. Its propsrty consists of cash, land and buildings. Well then let it lift its cash out of tke buildings, keep its land like any landowner, and let the Government buy the buildings. The last report shows that its land and premises are only worth L 280,000. Surely, the Government could raise that sum, but leas than half of it would suffice to buy the buildings only. Another way is to bay up all the shares (about L 2,000,000 would do it), and land, buildings and cash were all secured at once. The Government have borrowed L 30,000,003, and judging from present appearances, it will borrow a good deal more. Why not invest L 2,000,000 thus. As a matter of expediency this should be done. Ist, because you would thus disarm your greateit opponent, and, 2nd, because it would end a power which is suspected of controlling legislative action. To buy the Bank of New Zealand appears t© me easy, and desirable, too, if ever we are to have sound legislation. Remember what happened in Victoria a few years ago, and ask yourself ia it not possible that the same thing may happen here if Parliament should pass enactments opposed to the interests of monetary institutions. In the extract which you quoted from my address is shown the fact that Banks are allowed to issue three notes in paper to every pound they have in gold, and when I ask this privilege for a Government Bank, you characterise it as “colossal ignorance of the first principles j which govern the circulation of money." j All I say is, that Banks are allowed to do it, and if so why should not a Government Bank do it ? The security of the Government would surely be batter. I may not know the theoretical principles which govern the circulation of money, but the practice is that as fast as one man lifts money out of the Bank another puts it in. Sometimes a little money passes through my hands but I never see much of it, because 1 am paid generally by cheque, and I pay by cheque and thus the money remains always in the Bank. Almost every business man does the same thing. Tom Jones pays LIOO into the Bank, John Smith takes it out to pay Bill Johnson, who gees straight back to the Bank with it. If you argue that Bill Johnson may take it to another Bank, and that thus it was lost to the Bank out of which Jehu Smith took it, I will remind you that it may possibly have been imported from that same quarter in the first instance by Tom Jones, and that it has now only gone back to it again. The Banks trade on the money of their customers, otherwise, the Hank of New Zealand whose capital is only L 1,000,000 could not transact business to the extent of L 14,030,130 4s lOd last year. Its report shows over L 9,557,542 of discounted bills and securities of other Banks as assets. Sow could it do these things if it were confined to L 1,000,000 capital ? The fact is it works upon the money of its customers and deposits for which it pays between 4 and 6 percent., and charges 9 per. cent. The original capital plays only a small part in its transactions. In 1880 the capital of the National Bank of New Zealand was L 330,000,. but it had L 318.138 deposited with it for which it was not paying interest and L5L9,248 bearing interest. Thus it had nearly three times its own

capital of other people*’ money in hand

and if these people asked for money it would have paid notes unless a demand for gold was made. Ex-Judge Bathgate the other day, at Duuedin, said the proportion of reserve to liability in the Banks of this colony was only 10 per cent. £ think now you will admit that a great deal of the business of Banks is done through having in their possession, the money of otltfer people. If so, my scheme of borrowing L 2,000,000, and converting it into L 8,000,000 cannot be altogether out of the way. It would have L 2,000,000 capital, the Government would keep the revenue account id it, which,*fcfter sending one and a half millions to England, would amount to about L 2,000,000. The money of the ' Post Office Savings Bank and Insurance Department amount to over L 2,000,000, accounts of local bodies L 1,000,000. As landowners’ accounts are proposed to be kept in the Bank, and as they are our exporters, the chief part of the value of exports would also go through the Bank. That is abont L 7.000,000. In 1830 (see

194 statistics) there was over L 3,200,000 on deposit in the Bank of New Zealand, half of which was not bearing interest, and if we are to take the Bank over this

would probably go with it. We find then tljeae figures : —Capital, L 2,0 'O,OOO ; revenue, L 2,000,000; Post Office Savings Bank and insurance, L 2,000,000; accounts of local bodies, L 1,000,000 ; value of exports, L 7,000,000; deposits and farmers’ accounts,' L 4,000,000; total, LIB,OOO 000. The correctness of the item capital cannot be disputed, and if you say that the balance is exaggerated you may divide it by four and then you will have L 4,000,000, which, added to L 2,000,000 capital, would give you a sovereign for every pound note you had turned out. The revenue could be utilised as capital because you could pay civil servants in paper money. That is how they get paid now. They get a Government cheque, take it to the Bank of New Zealand and get Bank notes for it. Surely Government Bank notes would be as good, in fact, they could be made a legal tender by Act of Parliament. The same thing applies to local bodies' accounts, and the beauty of both items is that you would have them coming in again next year, because the public and local body revenue would come every year regularly. Discarding altogether the value of exports, the deposits and farmers’ accounts, yo'u are left L7,00.),000 in gold or L 1,000,000 after calling in every note issued. You may tell mo interest would have to be paid for the use of this money, but do not forget at the same time that no directors would have to be paid, that the borrowing rate would be 4 per cent, and the leading spo - cent. The bank rate of interest is par cent, in London, and yet the Banks there pay a dividend of 15 per cent. I fancy such a Bank as I propose would do as much badness as some of those London Banks (Bank of England excepted), and tha: if at a 2| oer cent. rate of interest they pay 15 per cent, the Government Bank ought to be able to pay something also. And now, Sir, I am afraid this is too long, although I have given only the merest outline of my scheme. It is hardly fair to me to be called a fool without first proving that my scheme is wrong. I have had the opinions of financial experts and Bank managers on it, and after pooh-poohing itjat first they come to agree with me that it was practicable. To young politicians, you say, all things seem easy. You are mistaken so far as I am concerned, because 1 see almost insuperable difficulties in the way. I see vested interests too powerful, the “free and enlightened franchiser ” too apathetic, and politicians too corrupt to be 'entrusted with any share m its management. These are the difficulties, but they are possible of being surmounted. If the Bank were placed under the control of men independent of political influences, I am sure it would do. As you have made me pcae in an unenviable light before your readers.

to many of whom I am personally known,' I think yon ought to insert this. lam, etc., J. M. Twomby. «S| Leader Office, Temnka, June 30,1884. We have acceded to Mr Twomey’a roqaert to publish his rather but wo question if a single sensible son will be convinced that the scheme i he propounds is in any way practicable, jg&e The theory our correspondent lates, that a remedy™ o waver ab^Miga,! ‘ it is, should be looked at senejudy A simply because it is put forward good intention is, in our opinion, ptffe" ably false. In writing of the mi we did not consider the scheme woi of criticism, because, admitting the eY-> .• i, ‘ orbitant rate of interest te be the c uuf of our present depression, the remedy ,~y, can only be found in altering 'the which govern the circulation of r psti money. Does Mr Twomey not seefe-j; that the rate of interest is dete&hM mined almost entirely by the vaki*‘ of the security, and that it scarcely improve our affairs to founds* * National Bank, trading npon money that would be absolutely w °rih%,.£s| less! The most serious aspect of case is not that Mr Twomey believes his scheme himself —wahaye becwne quite used to amateur politicians aitujgsSm ridiculous fads of all kinds-rbnt he should find men who consider MK-gfoi i folly wisdom. In charity, we pteferJftjE* believe that the Bank managers i merchants ha refers to are what is vntj&jcl garly called 1 “ taking a rise ” out. . him when they say that they believe i scheme practicable. —Ed. G.]