THE BANKING SYSTEM.

Evening Star, Issue 22144, 26 September 1935, Page 16

THE BANKING SYSTEM.

TO TUB EDITOR.

Sir,—The objections of your correspondent “ Finance ” to my letter remarking on the bulletin of the Associated Banks of New Zealand may be summarised in conjunction with the contentions they are intended to support, as follows;

1. The Reserve Bank is a different institution from the trading banks, and the refusal of its governor to divulge certain information asked for is no criterion by which to judge the behaviour of the trading institutions, whose directors are supposed to be always at the service because holding their positions at the goodwill of the ordinary shareholders, who in turn are just members of the community with widely representative interests. The underlying idea which the public is to swallow is that banks are really very democratic institutions, and that at the bottom their interests are those of the community. If this is so, where is the objection to going the whole hog (so to speak) and nationalising the banks? You cannot have it both ways. If it is evidence of the national character of the banks that they have 10,000 shareholders, who can elect the directors, why not have a million and a-half shareholders who can elect the directors? Their representative character and the nation-wide service they could render would—on the argument presented—bo greatly enhanced. Your correspondent overlooked the fact that [ was obviously aware of the difference between a reserve bank and a trading bank, but also of the fact that we do not find the chairmen of the trading banks much more communicative. In both cases the shareholders and the public are told what the directors and governors think fit to tell them. 2. People like Mr R. G. Hawtrey, however able and experienced, are to be listened to with caution when they say tbai trade depression and its consequences are the result of the action of the Central Banks, Their statements are not to bo accepted because they have not yet been accepted. You have no common sense of your own, nor any knowledge of facts to enable you to decide for yourself. You can only accept a “ monetary thesis ” when it has been widely accepted. Mr Hawtrey draws attention to the “ common feature of pre-war and post-war experience,” but you must trut neither experience nor Mr Hawtrey—only the banks. The Macmillan Commission was notorious!}' a bankers’ committee, and the finding that the great depression was caused by non-monetary factors can be- understood as even honest only on the supposition that certain conventions basic to the present money system are considered as non-monetary. The London Chamber of Commerce, on tbe other band, has been reiterating for years that a vi'eious money system is the sole cause of trade depression and all its attendant evils and miseries : but, then, the “ monetary thesis ” of the London Chamber of Commerce will not yet have become “ generally accepted.” 3. “ Finance ” makes an attempt to show that banking and industry—or, rather, bankihg and the community—prosper together. Ho makes a slip, however, when he says that I 11 expressed doubt as to the statement that sound banking and sound finance go hand in hand. From the banks’ point of view, sound finance is that finance which promotes sound banking—i.e., enables tbe banks to work their system go as to secure both profit and power. Whether this also promotes the wellbeing of industry and of the individuals—the men, women, and children forming the community—is another matter, and may perhaps be judged by the present state of affairs when added to the consideration that practically , all the measures taken since the war that was to make the world safe for democracy have been taken really to make the world safe for banking. Witness the report of the Gunliffe Committee, which recommended a return to the gold standard and “ sound banking,” and which thus describes the “ machinery ” whereby that admirable system “restrained” credit at home, when it ” threatened to become unduly expanded.” The committee outlined the use of the bank discount rate for checking the rise of prices and for restricting credit, with the result that “ new enterprises wore postponed . . . the consequent _ slackening of employment also diminished the . demand for consumable goods, while holders of stocks of commodities carried largely with borrowed money, being confronted with an increase of interest charges if not with actual difficulty in renewing loans, and with the prospect of falling prices, tended to press their goods on a weak market. The result was a decline in genera! prices in the home market.” Seeing that we have consistently been tola that the disastrous fall in prices was the cause of our undoing, pan it honestly be maintained, in face of this bankers’ report, that the causes of the depression are non-monetary? If the banks work on a system that necessitates such measures for their own safety, clearly those measures do not operate to the advantage of industry or of the community, and the system should bo changed. It would save the banks a great deal of expenditure on propaganda if they did not have such a system to bolster up. Finally, your correspondent tries to show that'the well-being of the British people and the profit and prestige of British banks have gone hand in hand. He does not give the source of his figures, but we shall take them as they stand. If the standard of living in Britain has gone up 500 per cent, in the last hundred years, it merely means that the people of Britain have been cheated by the money system to the tune of about 90 per cent., since the output capacity of industry is now more than 50 times what it was a hundred years ago.—l am, etc., September 25. Truth,.