The Guardian (And Evening Star, with which is in. corporated the West Coast Times.) TUESDAY, APRIL 8th, 1924. THE FISCAL SYSTEM.

Hokitika Guardian, 8 April 1924, Page 2

The Guardian (And Evening Star, with which is in. corporated the West Coast Times.) TUESDAY, APRIL Bth, 1924. THE FISCAL SYSTEM.

| At the hist meeting of Lloyds Bank, ithe last of these important gatherings lor t--o current year, says a London commercial journal, the chairman, Mr IJ. Beaumont pease, did not spare those who sought to improve the economic state of this country by the introduction of schemes, which, to say the least, would he doubtful experiments. The subversion of our liscal system, the inflation of our currency, the imposition of a capital levy, the manipulation of our monetary policy, the final abandonment of any idea of a gold standard, and the substitution of an artificial index number as the basis of our currency have all found advocates who have based great hopes upon them. In dealing with these matters, Mr J. Beaumont Pease contrasted the striving after complicated remedies and the expenditure of mental agility in propounding ingenious theories on the one hand, and, on the other, the simple straightforward negotiations on the question of the debt settlement with America. He pointed out that there is no way of liquidating a debt, except hv paying it. and the merits of this somewhat old-fashioned principle' have been clearly exemplified in the credit which this country lias gained in the eyes of the world through the arrangement mentioned. Mr Beaumont Pease dealt with the criticism that the tanks retard an improvement in trade liv not creating an additional volume of credit when such is required. In regard to this he said that hardly a. board meeting passes, when the directors are considering an application for an advance which comes mther near the border

line what is desirable and what is doubtful, that someone does not say, ‘‘Wo want more advances, let him have the benefit of the doubt.” Afterwards the speaker dealt with the hypothesis recently laid down bv the chairman of the Midland Bank that every bank loan and every bank purchase of securities creates a deposit, and that every repayment of a bank loan and every bank sale destroys one. Assuming the truth of this, and that it is desirable from a monetary policy point of view to create additional credits and consequently additional deposits when trade is active, it is safe to sav that this procedure is readily followed by tbe banks up to the limit of safe banking possibilities. But, tbe chairman of Loyds Bank said there comes a time when banks are ultimately forced, in order to keep up their proper cask ratio to sell investments, which, according to the hypothesis mentioned, ‘‘destroys a deposit and thus cuts down the amount of money available in the country at a time when the advocates of this monetary policy think it should be increased.” In this it would seem that Air Beaumont Pease perhaps misunderstands tho chairman of the Midland Bank. If a bank sells investments it is true that the total of banking deposits will be reduced by the amount of the sale, because somebody has to make payment, but the bank will receive the purchase money, and thus its cash resources will be preserved, assuming that tbe withdrawal of a deposit for the purpose of paying for the investments means a corresponding drop in tile item of cash held. Further, the position should be improved through the bank being left with a larger proportion of cash to deposits as a result of the operation mentioned. Tbe process would, indeed, represent a measure of deflation very similar to that which was effected by the Government, when they repaid large amounts of Treasury Bills out of the proceeds of sales of longer-dated securities. The 'I reasury Bills largely represented a creation of credit, which is the case with tbe bulk of bank deposits.