ABOUT MONEY

Press, Volume LXXI, Issue 21412, 2 March 1935, Page 7

ABOUT MONEY

TO TUB EDITOR OP THE PRESS. Sir—Mr Lovell-Smith charges me with confused thinking without indicating where I have slipped or correcting me. Indeed, he immediately proceeds to confirm my definition of money by quoting Professor Soddy. Money is "the nothing you get for something before you can buy anything." But the professor seems more anxious about his epigram than the clearness of his definition. Mr Lovell-Smith ignores the rest or my letter. No doubt is it distasteful to him to be told that his cherished scheme is a delusion. This money which he would create is nothing more or less than a demand on the goods and services of the community, a free gift to the recipients. Trade is the exchange of goods arid services. His method is not exchange and is therefore no addition to trade. But, it is argued, new money is put into circulation and benefits trade. On that reasoning counterfeiters would be a blessing, for their money is of the same character. Defects in the money system did not cause the depression and manipulation of the money system will not end it. Money is a product of trade, not trade of money: "Credit flows naturally from trade." Your correspondent, "W.P.J.," has the truth also: "Currency in any l'orrn cannot do anything of its own volition." The reason that there is so much money for Investment is that trade cannot absorb it. "Querist" queries my assertion that "created" money becomes real money once it has passed into circulation. As indicated above even a counterfeiter's notes or coin function as money once they are accepted and until they are discovered. His suggested special currency to facilitate the exchange of goods and services in the country is superfluous. Our currency exists for that very purpose alone and is distinct from any outside currency. As "The Press" asserted recently, New Zealand has a separate currency. We are not "tied to gold," antf the "sterling exchange" is, I believe, a pure fiction. We exchange our currency with America or France or any foreign country just as we do with Great Britain. "Altruist," while admitting the_ inequalities arising from the "creation" of money, maintains that these are rectified in a well-designed scheme. Well, if he has an antidote let him now declare the same; he surely does not expect your readers to take his word that tiu' "just-price discount" or the American device will fix it. For my part I maintain that the only way of preventing undue accumulation of money is redemption by the authority that issued it. . I am not condemning fiduciary issues of money by the people (the government) for the people. In that case the public get a public work done and they pay for it; but there is a limit to this, and the .effect on the currency has to be considered. What becomes of these fiduciary issues? Are they added to the fnoney in circula-

lion or do they freeze out an equal or nearly equal amount of money already circulating? The issue m Great Britain of £260,000,000 is just .about balanced bv the Exchange Stabilisation Fund, which appears to have become "ballast." Our own issue of somt £22,000,000 is now represented mainly by deposits in the Reserve Bank, to the credit of the trading banks. What advantage does "Kaye Hoe think it to have ten millions of money coming into New Zealand annually.' There is no way of getting it m. Witness the £22,000.000 of British credits fixed immovably in London until we take it out in British goods. Any money that we may borrow in Great Britain at present is just added to that credit, and buys so much New Zealand exchange money already m ., e *" istence in New Zealand, for the British bond-holders. He would issue money to put capital into business and give more purchasing power to farmers and workers. Does he not see that he is issuing nothing at all? The common fallacy of mistaking money for real wealth! Your correspondent, "L.D.," writing on mortgage finance, provides me with useful support in quoting Sir Henry Strakosch. "The value of money resides solely in the fact that it confers a title to exchange it for other wealth. Also, "The Man in the Street": Money is good only for what it will buy. "X" confirms exactly my definition of money by his illustration. He recognises that it exists solely for the purpose of exchanging goods and services. His statement that money is a measure of value is not accurate. The exchange value of goods is expressed in money and the amount of money is measured by the money-unit, the pound. "In Earnest" says I have convinced no one'but myself that there is a sufficiency of money in existence. Side by side with his letter in "The Press" is a letter from the New Zealand Welfare League, making the same statement as mine, which I m&de as an acknowledged fact. All my critics arraign or suspect the money system of inadequacy at the best, and of grossinjustice at the worst, and I would therefore reply to them on this point en bloc.

To exercise the fundamental principles of money let us take a typical example. A farmer sells his wheat to a miller for £IOOO. The latter arranges with his bank for an overdraft, then writes his cheque for the amount and hands it to the seller, v/ho lodges it in his bank (for timr,J:t ity, the same bank). Thereupon, Uih farmer is credited at the bank and in the currency with £IOOO. Now, hoe is where the money is issued, as a credit for the wheat and to its value, just what our Douglas Credit friends demand: money equated to production. The miller receives no money; on the contrary, ho incurs a debit to the bank and to the currency. But he has the wheat: the bank has bought it for him and paid the farmer, and quite fairly charges him interest on the unpaid debt, just as many commercial firms do. Now, where is the "creation" of money? Not a pound issued, but as a credit for goods! Where is the "monopoly of credit"? Is the farmer not to own the credits and guarantee payment of wheat. There is no other way to do the business. In a simple and profoundly true view, the banks keep the accounts of the exchange of goods and services of the community; they issue the credits and guarantee payment of the debits. The system is thus in its principles final and unalterable. Tha*t is why I would like to see my opponents, with whom I agree on the greatest economic truths, desist from faultless assaults on an impregnable position.—Youvs, etc., J.M.W. Hilton, February 27, 1935. LThis corresDondence is now closed.— Ed., "The Press."!