The Guardian And Evening Star, with which is incorporated the West Coast Times. THURSDAY, JUNE 18th, 1925. A BANKING POLICY.

Hokitika Guardian, 18 June 1925, Page 2

The Guardian And Evening Star, with which is incorporated the West Coast Times. THURSDAY, JUNE 18th, 1925. A BANKING POLICY.

Aeitopos tho remarks of the Member for Westland this week in regard to the subject of banking, wo read yesterday an interesting article bearing on the matter in the London Chamber of Commerce journal in relation to the Bank of England. The position as affecting the Home bank and the Bank of New Zealand, is largely analogous, excepting that in regard to tho latter the Government of tbe Dominion is a principal shareholder, deriving a sub-

; slant ial share of ju'oliis '•.liich atvrue, as i "el! :;.s having a. voice on the direeto%j rale. Here is a. study ol the whole | hanking question as matters are affeeted in European affairs, and the j conclusion .seems so sound as to be np- '■ j plicable "ith all .safety to New I land. Tbe paper coos on to -ay that •if l a study oi the present position, and the possibilities of the future, clearly 11 sliuws that exceptional responsibility attaches to the Bank of England. The monetary policy of the country is largely in the hands of the directors id' that L ■ institution, and heeause of this it is essential that the central bank should ’■ he managed hy men with a great knowI s ledge of financial affairs, not only in this country hut in America and on tlie European continent. The Bank of England are sometimes criticised, hut it can he claimed that over a long series r of years, including the exceptionally difficult war period, the policy adoptoil 1 lias been sound, and in the best > interests of the country. This fact really provides an answer to those who urge that the Bank of England and ~ the other hanking institutions of the * country should lie nationalised. There are some directions in which Government ownership or control might he successful, hut blinking is probably tho last department which should lie selected for an experiment in Socialist finance. This idea of nationalisation is apparently based on two main grounds I —one. that hanking profits are unduly ’ large, and the other that with Government control the trading community and anybody else could obtain an unlimited amount of credit. Admittedly the hanks do make big profits, and , very largely hy tho use of other people's [ money, hut the profits are not excessive in comparison with those of some industrial corporations, and if they were the circumstance is not a sound argu- ( meat in favour of Government control. That, to some extent, there is a monopoly of hanking business can lie granted, but there is also such a condition in various industries. The question of credit- is a very delicate one and probably is not fully understood by some of those who strongly urge the nationalisation of hanks for the purpose of making credit more easy to obtain. The principles upon which the banks grant credit to their customers are based upon the experience of a century or more. Occasionally they may extend credit unwisely, or they may refuse it on inadequate grounds, hut on the whole the policy of the hanks is sound, and it has been a very important factor in building up the financial supremacy of which this country has ieason to be proud. It is extremely improbable that under Government control the business of banking would lie managed as well as it is at present. There is. however, a more serious dan- , ger in such n course. The step would only be taken, presumably, by a Government. with advanced Socialist views, one composed of politicians who want i to ‘'capture the inmost fortress of capitalism so as to extend credit, put ( more money into the hands of the i people to buy, and consequently ereate a demand for the manufacture of ] goods.” These people argue that the t banks now issue producers’ credit to f produce for non-existent markets, but t if consumers’ credits were issued to tbe s unemployed a demand would lie ere- j ated for the necessaries of life. "What f is apparently meant- by this is not the c creation of a demand, for that exists now, but tlw creation of means with which to satisfy the demand. These are the doctrines of such writers as Major Douglas, who has written several v works in support of his views, and ( there is no doubt that his opinions 1 have obtained acceptance among a fair- T ]y wide circle of misinformed people. I It is very easy to see to what sneh doctrines would lead. The inducement to “ work would completely disappear, and si as regards the issue of credit. instru- k

ments —notes with purchasing power—the country would be simply following in the wake of Russia, Poland, Austria and Germany. There would be a veritable boom in the note-printing industry, the only one which would be really flourishing. There would probably also be a short-lived boom in trade, because until people realised wluit was actually g-dug on there would be a large increase in purchasing jxiwer without any increase in purchasable goods, with tin- result that prices would rise to such an extent as to lesson the purchasing power of the existing Government notes almost daily. Little more than two years ago Germany indulged in .such an orgy of inflation, and one effect was that notes with a nominal value of a thousand million marks were put into circulation, and even then did not provide sufficient, for a meal. The experience of Germany and other countries during the war. and of Prance to some extent since, shows that it is most desirable that the central bank of a country should lie disassociated from jrolitical inilueiices.