"OUT OF DATE" MONETARY SYSTEM

Evening Post, Volume CXXVIII, Issue 26, 31 July 1939, Page 8

"OUT OF DATE" MONETARY SYSTEM

{To the Editor.) Sir,—According io Mr. C. A.' Barren (Government member for Hamilton), speaking in the ifbuse of Representatives on Friday, the present monetary system is out of date and New Zealand might give a lead in reform in this direction. Now, Sir, it will be agreed that, in its broad sense, money in these times is the name given to a paper representation of wealth which gives service to the community by enabling the people to exchange their services or goods in one kind for that of another without the necessity of falling back to the archaic and clumsy system of barter. It will be agreed also that a change in the system by substituting some other token for effecting exchange cannot materially increase the service that money has rendered the community. Therefore, the reform which the member for Hamilton must have meant was embodied in the term "credit," a condition in economics which, when expertly handled, enables the issue of money to be expanded or contracted according to the needs of sound business. Mr. Barren quotes the Bank of England as being incapable during last century of coping with the credit position required and further. states "that the Bank in 1847, 1857, and 1866 had closed its doors because there was nothing behind its wonderful note." This statement, Sir, will give readers a wrong impression if not refuted by the foHowing facts: (1) The Bank did not on these dates close its doors, but applied for a suspension of the Bank Charter Act, 1844. (2) This Act had restricted the flexibility of note issue by stating that every note emitted by. the Issue Department beyond i £14,000,000 must be backed by an i equivalent face value of bullion. (3) That the politicians who framed the J Act did not foresee that periods of j increased flow in goods and services! required an increase in fiduciary issue I consistent with confidence in the note. I if contractual relations were to remain i undisturbed. (4) That the English! Government by 1914 decided to repeal j the relevant section of the Act, lifting! the necessity for applying for sus-1 pension, deeming it to be in the best i interests of the people that the Bank' should find its own level of safety in note issue without interference. It was realised that a bank as an issuing authority was automatically curbed from over-issue by its desire to. strive always for confidence- of the people. I would conclude by saying that the existing system of credit has evolved after painstaking and careful consideration by the best brains of two centuries, and although further evolution may be desirable, reform which would inevitably involve overthrowing in a night that-which took two centuries to buiid, would, from the experience of history, bring us to chaos, and the honourable gentleman would do well to listen to the sound reasoning of the present credit system, which says: "The function of credit expansion in a critical time is to mobilise the slow assets of solvent businesses and not to validate the bad assets of insolvent businesses."—l am etc., M. C. BARNETT.