Are Deposits Savings?

Dominion, Volume 28, Issue 107, 30 January 1935, Page 11

Are Deposits Savings?

Sir, —The New’ Zealand Welfare League need not try to upset my argument by splitting hairs. To the most casual observer it was quite evident that aiy remarks were confined to the term "deposit” as applied to a current account, fixed deposits, and moneys invested in the Post Office Savings Bank—which is nothing more than, a backwater of the main stream —being outside the discussion. Nobody doubts that deposits may be the hard-earned savings of the people, but what I object to is the “dope” that is constantly being dished up by our so-called economists, who try to tell us that the banks lend their customers’ deposits, and that to query the principles of banking is to throw into jeopardy the savings of the people! What on earth does Air. Reginald AlcKenna, chairman of the Midland Bank, mean when he says that the amount of money in existence varies only with the action of the banks in increasing or diminishing deposits? “We know,” he adds, "how this is effected. Every bank loan and every bank purchase of securities creates a deposit, and.every repayment of a bank loan and every bank sale destroys one.” According to H. D. Alacleod, in his book, "The Theory and Practice of Banking,” a bank is not an office for borrowing and lending money, but it is a manufactory of credit. In banking language a deposit and a loan are the same thing. How can a deposit in this sense be a saving? If these gentlemen are not authorities, will the Welfare League please show me why? Is the league quite sure that one has to place money on fixed deposit to open an account? Not so long ago it was with reluctance that the banks would lend against fixed deposits. I have yet to m«t a firm which is outside banking circles, and I wonder what these firm,s do with the money they receive on fixed deposit. Statistics can show anything. If the commercial banks hold less than half the deposits made by the people of New Zealand it is because half the people are tenants on sufl’ranee. In other words they are secured clients of mercantile firms. The fact that the banks possess or charter to deal in money does not refute my statement that they have acquired unto themselves the right of issuing the nation’s currency. Were I Mussolini or Hitler I could have a law passed giving myself the sole rights of shoemaking. But the league knows as well as I do that there is much more to it thau that. The banks not only are protected bylaw, but they also possess a modus operand! that makes their position supreme. If twice as much credit be granted by way of loan from sources outside the banks as from the banks themselves, the principle adopted is the delayed payment plan and that only. If 1 am a small grocer and require £lOO to [ urchase new stocks I do not bother to go to the bank. Providing I aiii a good mark most mercantile firms will supply me with goods in lieu of bank credit, and some moneylenders will lend mo cash. On paper this looks as if the banks have not figured anywhere in the transaction. Oa the other hand it is quite clear that they have, as I find out when I start to pay back. This is 1935, and not the Stone Age. I pay back in money, not goods. Where does the money go to and to what purpose?—l am. etc.. C. 11. MILLER. Pahiatua, January 24.