SOCIAL CREDIT

Hokitika Guardian, 22 July 1933, Page 2

SOCIAL CREDIT

By X.

ARTICLE 3

Before further considering eondiions under which currency may be issued—either by the banks or directly by the Government it is necessary to refer to its “stabilisation.” The World Conference was endeavouring to bring this about, and as a preliminary step trying to fix a standard of value as between the LI sterling, the dollar, and the franc. It was of course evident that unless some standard could be fixed “currency” must drift in hopeless confusion. If weights and measures were subject t () fluctuations as is the case with currency to-day, and a foot-might mean anything from eight to eighteen inches, and a pound anything from ten to twenty ounces, industry would at once have to cease until a recognised standard was again adopted. Is it a matter for surprise therefore if trade stagnates, and confidence disappears when the standard of values lias bv exchange manipulation ceased to mean anything definite ? At first sight it would appear easy enough to stop this gambling in exchange values by fixing definitely the ratio between world currencies. But in practice there is a very real difficulty. We have seen that paper currency is simply I.O.TJa. Now one man’s 1.0. U. may be safely taken at its face value, being backed by wealth, and unimpeachable integrity. Another man’s may have to be accepted with caution because though lie may be strictly honest, Ills financial position may be involved, A third man’s 1.0. U. might nut be worth the paper it is written on. The same applies with the nations, and therefore national integrity, political stability and economic soundness have all to be taken into account in considering the value to be assessed to the ' currency or the national 1.0. U.

Possibly an International! Congress of Bankers at which each country would be represented by its Central Bank (practically the Neimever scheme) is the first O bvious resolution. As the individual who requires accommodation has now to go to his banker, explain what he wants monetary accommodation for, and- what If is financial position actually is, so would the nations' through representations of their Central Bank have to explain to the Banking Congress why they wished to issue further currency. If they could show that the additional currency was required for development work, and the expenditure would be economically sound, a permit would .be given to issue a limited amount of additional currency. If, not permission would be refused. Now this would not prevent that country from using currency. Any government of any country can declare any paper issued by its authority “legal tender.” But the country’s international credit would he stopped, and its paper—though it might still be forced into internal circulation — would soon become practically worthless. On the other hand, if the issue was approved the currency would remain internationally of -the value fixed, as compared with that of other countries of the world. Probably something of this kind is now being evolved by the Bankers Conference which is now being held, and will be submitted later to the World Economic Conference, after the' experiment of the U.S. A. in inflation—or reflation—has been finalised. But there will be a strong feeling against establishing a virtual dictatorship of the Banks. Some would consider it little less disastrous than a “dictatorship of the proletariat,” The human race has certain aspirations which it can only express politically. No Congress of Bankers would be allowed to rule the world, nor possibly would they wish to do so. Again let us take the personal illustration. A man’s hanker cannot control his actions. He can only refuse to increase his overdraft, or insist on his paying his overdraft off He is generally ready to give good sound advice—from the financial point of view. It is optional with the client whether he takes it. Admittedly lie exercises an influence on the reckless and extravagant, and if this is salutary in the case of the individual it is far more so in the case of a country. A man is always individually responsible for liia actions whereas in the case of a country under the control of democracy is not unusual to find a minority have temporarily assumed power, and speak with the voice of a people they d 0 not really represent. Some curb must at times in the interests of its people as a whole, be put on an extravagant and irresponsible government. And the economic curb is the only practical one. I

Now take the ease of a small country like New Zealand for instance! with a population of about a million and a half. Suppose a government gets into power by making extravagant promises to the electoi’s, and to carry out these applies to the International Congress of Bankers for authority to issue, say ten millions of new currency in the year. The Congress after considering the application is convinced that only half of the amount asked is 'to be spent on reproductive and economically sound schemes. Its reply would bo that five millions new currency, earmarked for specific purposes might be issued without affecting the exchange ratiOj and the balance—if the government still insisted on spending ten millions—must be raised by taxation. This would he a most salutary curb on the political demagogue, and would prevent him ruining his country by an unlimited issue of paper. He could still do so only after a very definite warfi-

ing that if lie did the paper would not be internationally recognised and would therefore become sooner or later valueless. It will be objected of course that no Congress of Bankers would sanction the issue of. paper currency at all except through the banks. I will deal with this objection in my next article. But it may be taken that practically all issues of new currency must be made through, or with the sanction of some recognised banking institution if it is to retain recognised exchange value with other currencies, issued in other parts of the world.