New Zealand Times. THURSDAY, JANUARY 14, 1875.

New Zealand Times, Volume XXX, Issue 4311, 14 January 1875, Page 2

New Zealand Times. THURSDAY, JANUARY 14, 1875.

The Zyttelton Times is greatly exercised in thought by the prevailing "tightness "of the chest" throughout the colony, but wonders most of all how it happens that "the Bank screw" is applied in Canterbury, which is exceptionally prosperous. Our contemporary remarks :

There are six banks in Christchurch, # The country is in a state of almost unexampled prosperity. Tho Provincial Government is suffering from a plethora of wealth,—an object of anxious solicitude to Its frionds, and of cupidity to its enemies. Yet there is, and has been for some time, a tightness in the local money market. The credit which was freely extended some months ago, is now very much restricted or altogether withheld. Even the Banks themselves are offering terms for money which wo are tolerably sure they never offered before. Deposits for one month receive the full interest allowed by the Government Savings Bank, and a higher rate is given for any term beyond. Such a state of matters is a source of much perplexity to the public, and of some anxiety to thoso more immediately engaged in business. Tho natural result of such a change ought to bo that as money became dearer other things became cheaper ; that rent, food, clothing, wages, should bo lower. But it is not so, and there are no signs of it becoming so. In fact, money has become scarce without increasing in value. Tho man who wishes to borrow a thousand pounds upon the best security has to pay high for the accommodation; but when ho goes into the market to buy, he finds that his money will not get him either more material or more labor than it did before. In some cases it will get him less than'he could have formerly got. Take the case of tho Building trade. It Is well known that the advances usually made by the Bankß to builders during tho progress of their contracts have lately been made very sparingly, and have somewhat cramped the arrangements of contractors. The consequence is that contractors have (for this among other reasons) been compelled to raise their prices, and porsons desirous of building are compelled to pay a higher price, because money fa so scarce. The facts are undeniable. .But.lt is impossible to propose a greater paradox. A man proposes to build a house for himself. If ho requires a loan for a longer or shorter term, ho must pay higher than usual for It. If the builder requires accommodation while tho work is going on, ho must pay higher than usual for it. There is, at the same time, no reduction In wages or in the price of materials; for tho cost of living is high, and materials are scarce. How is this simultaneous rise in tho vr.l'ia of money, arid of tho things which money buys.to bo accounted for ? It is putting the same question in another form to ask, What reason can the flanks havo for restricting their operations and for raising their discount ? The public function of a bank, tho reason for which It obtains its privileges, is to facilitate tho transaction of business, to promote tho exchange of. valuable commodi T ties. Where does the difficulty 110 which compots tho banks to charge higher than usual for the assistance they afford ' ' ;

It is said that a large amount of the land purchased and of the building carried on, has been by means of borrowed money, and that the borrowers are,, therefore, circumscribed in their means. This, might be, true if the buildings erected drew no rents, and the land were not cultivated ; but such is.not the case. Thanks to the continuous stream of immigration, there is scarcely an unoccupied building in the province, and a greater proportion of newly purchased land has been brought into cultivation than former poriod. At the same time, the-..purchase, money coming into the hands of the; Government is not allowed to lie dormant in the public chest, but is expended in labor upon public' works, and so comes again into general circulation. . Large sums are also expended upon the railways and other works of the General Government. There is abundant employment for the people, and there are sufficient workmen for the demand. There is no reckless speculation either in public or private works. If the railways and harbor works will pay anywuore, it is in Canterbury. Both the private dwellings and mercantile oliices are much behind those in other places of not greater wealth or prospects. Why, then, should money be so scarce and dear, and the articles purchased by it also be so dear? A time when money is plentiful and prices high has its con-, solations. The prudent man can, out of the larger, sums which pass through his hands, save rather more than at other times. A time when money is scarce and prices low allows retrenchment, or enables the prudent man to lay out to unusually good advantage the savings he had made before. But when both money is scarce and prices are high, there is no counterbalancing advantage; there is loss both to buyer and seller, to consumer and producer, to workman and employer. Such a state of things is natural enough in an old country, where the limits of productive power have been readied, and may be taken as one of the indisputable signs of its decay; but it is altogether unnatural in a new country, the limits of whoso resources have been approached in no one direction. Yet, at present, it is the case with this flourishing province. In its lusty manhood it suffers the woes of age; it feels the prickles of the rose without scenting its perfume.

Now, there are two sides to every question. Banks, like every other commercial undertaking, are carried on for the solo purpose of making money. No matter what "the public function of a Bank " may be, " for which it obtains its privileges," the primary and indeed the only end of its existence and operations is to make money for the shareholders. Without " facilitating the transaction of busi- " ness, and promoting the exchange of " valuable commodities," it would not be -a Bank. It is idle, therefore, to ask " where does the difficulty lie which com- " pels the Banks to charge higher than " usual for the assistance they afford." Money, like water, invariably finds its own level :" it will find its way to places where it is dear or in request, and forsake places where it is easy or plentiful. In this way the ebb and flow of the financial tide has a most salutary effect, preventing anything' like a long-continued derangement of commerce and manufactures, even although reckless trading and bubble speculations produce a crisis. If, therefore, the province of Canterbury feels the pressure which the Banks are now pretty generally applying throughout the colony, the cause must be sought for below the surface. In the action of the Banks, restricting credit, we have the effect, and not the cause ; and our Christchurch contemporary has simply mistaken the one for the other. It would be a really useful work, and one for which we feel certain the whole province of Canterbury would thank our contemporary, to go honestly and thoroughly into this question and place the causes of the very anomalous state of things, which it so forcibly describes, before its readers. Having clone this, it might be found that after all the BauUs are blameless : that the wasteful extravagance of the people, their excessive use of the credit system, and the all but general tendency to live beyond one's means, compel the Banks, as a measure of precaution, to restrict credits. The shareholders are to be considered, so also are depositors ; but the Lyttelton Times thinks only of the discounters. Now, these are a very important class in the community, and banking business could not be profitably conducted without them, but they are not the element in the complicated system of banking which the Bank directory takes into consideration, when they apprehend a large demand for specie abroad, or conceive that the safe limit of credit has been touched at home. Very far from it. The discounters are squeezed, in the interest of the shareholders and depositors. Dividends must be paid, and the credit and reputation of the Bauk must be sustained at all hazards. Wherefore '' the screw" is applied, and the unpleasant operation of "winding-up" begins. But the Lyttelton Times apparently objects to this simple and effective method of securing to investors and the creditors of the Banks what is undoubtedly their due. It is altogether in favor of borrowers. It would seemingly limit the rate of discount, whatever disturbing causes might exist rendering a rise inevitable, and even salutary. It would maintain a fictitious value on land by the simple process of compelling the Banks to advance money to build, on easy terms, to persons who bought their building sites at exorbitant rates on long credit, carrying a high rate of interest. But a moment's reflection should satisfy any one that such a proposition has only to be started to ensure its condemnation.

We think, in the present circumstances of the country, that the Banks are fully justified in acting with caution. There has been far too much speculation of a most questionable character: legitimate trade has been crippled by the withdrawal of capital, and its investment in presently unremunerativo speculations. It is the duty of the Banks, therefore, while encouraging legitimate enterprise, to put down the break in time to prevent a general smash. With regard to the purchasing power of money noted by the Lyttelton Times, the new tariff has something to do with it; and wages, house rent, and the general price of food and clothing are kept up by the Government expenditure on public works, the competitive expenditure of private individuals in building, (mostly on borrowed money), and the general tendency toexpensive and extravagant living induced by the causes already indicated. We do not, however, intend to go into this matter at greater length at present. We throw out these thoughts for reflection, and we hopo our Christchurch contemporary will undertake the task of tracing the present anomalous state of things in New Zealand to their true cause. By doing so, it will deserve the thanks of tho public.