TEN-MINUTE TALKS WITH WORKERS.

Taranaki Daily News, 29 May 1920, Page 9

TEN-MINUTE TALKS WITH WORKERS.

WHAT BANKS DO FOR US.

The invention of nioijey, tin! tool of trade, was one of the greatnst- strides ever taUen along the road of progress. It enabled a man to turn a surplus of perishable commodities into a ftocK of coins having a permanent value. A board of apples or eggs henomcg valueUS,i in 11 very short time. Sold for rash, the coins received for them can be easily find wifely stored for an indofimiite period, rttill retaining their power to purchase other goods. Not -all their power maybe, for if you had hidden a sovereign 111 the chimney in 1!)1.1, and took It o.it now, it would .purchase things quickly tflioligh, but only to about half the p'.irehasing extent of WIS. And into the bargain, it has been idle all the time. We havo already seen that the problem ol' keeping unwanted money rjnito fluid tt'im solved at first by locking it up in a uti'ong box or .hiding it in a, "stocking," It was the hoarded wealth of 'li'ninec that enabled her in 1871 to pay off the German indemnity with unexpected rapidity. But it was soon realised that hoarded wealth is unprofitable wealth.' The parable of the talents has both a spiritual meaning and an economic bearing- To keep money safe and busy was a problem that men were long in. solving quite satisfactorily. You will remember how the Vicar of Wakefield's hot argument on the morning of his son's wedding was cut short by unwelcome news: "The merchant in town, in whose hands your money was lodged, has gone off . . . and is thought not to have left a shilling in the pound." To lodge money with a ''merchant in town" did, indeed, ensure that it should not be idle, but did not ensure that it would be safe, as the good vicar learned to his cost. This merchant was a rogue, but if he had been perfectly honest the safety of the money "lodged" with him would have depended upon him alone. Honorable failure on his part would liave been just as heavy a blow to the vicar. The risk of failure must, be spread over so wide an area as to become negligible before a satisfactory method of safe keeping and fruitful using is obtained. Our modern banks have provided us with what we want. HOW BANKS WORK. Suppose that a hundred men in a town have a hundred pounds for -which they have no immediate use, and that they all deposit it in the same bank, which, under modern conditions, is nearly sure to be a branch of a big tanking company, with its head office in London. The manager of the bank now has £IO,OOO, and ho must be prepared to pay every penny of it out on demand. But he knoirs that it is wholly unlikely that all the men will want all their money at exactly the same time, nnd therefore he need not keep it all idle. If, therefore, a man comes to him with a likely proposition to establish a new works in the town, he ean afford to let him have, say, £5,000 to do it with. Of course, be only does this on good security. Moreover, he does not part with all the £5,000 in a lump, but gives the new customer a credit for that amount and allows him to draw- on it. As soon as the new work begins to sell its products, the owner begins to ,pay in the cheques he receives from his customers, and if the business succeeds well, the bank manager will soon have recouped himself for the credit he gave. In actual practice, a banker finds that, taking an average over a long period, he need only keep in his till about one pound in every four or five deposited with him; much of the rest can be utilised to promote new business enterprises;. Occasionally >tfhe banker needs a larger margin in his till. In a country town, for example, he will want more just before harvest or round about rent-day, but this is easily managed by getting cash from London. What the farmers take out to pay in rent, the landlords soon put back as rent received, and the stress is soon over. Chest 9 of sovereigns frequently go from London to Edinburgh in preparation for an emergency such as this and often come back unopened. Their mere presence is enough. They may even go all the way to Egypt to shift the cotton crop.

BANKERS AND WORKERS.

Workers do not generally have accounts in our large joint-stock banks and do not make payments by cheque, but to infer that they have no concern with tho banks would be absurd. The 'banker », in fact, one of the workers' best friends, for, as we have seen, it is the banker's task to put to effective industrial use the greater part of the spare cash and permanent savings which are entrusted to his keeping. Banks grow as industry grows, and industry grows as banks grow. Each keeps the other, for a bank is simply a place Where credit is organised and, as it ivere, harnessed to the industrial wagon; and credit, just so long as it is absolutely flawless, can do anything that cash can do. Neither for current business nor for expansions of business could we return to a "spot cash" basis. There is cash enough for transactions across the counters of retail shops, and not much beyond that. The 'big things of business are all done by cheques on banks, and it is of course transactions of this kind .that provide work and wages. Banks are reservoirs of economic power, but this power will only flow out of them into the channels of trade while the social system of which they are part is stable and active. As soon as the machine-guns began to rattle in Berlin the banks shut and barricaded their doors, and until they opened them again business and the work and wages tilnvt depended on it werp paralysed. Powerful as they are, banks are singularly delicate institutions. WHAT CAPITAL GETS. Suppose a man came to you anil said, "Here is a bag containing a hundred sovereigns. I am going to give it to you, and you can have it now or in a year's time." What, would vou reply? Obviously vou would say, "Thank you very much I'll take it- now" Go a stop farther. Can you imagine any circumstances under which any normal man, moved by ordinary lirnnan feelings, would reply, "Thank you very much. I'll have it u year hence"? Obviously not. A proverb, it has been said, is "(he wisdom of many and the wit of one." Well, the wisdom of the many has settled our question for us: A bird in the hand is worth two in the bush. When we are studying economics we are much worse off than the student of chemistry, for he can make experiments, and we' cannot. Or rather, "experiments" in economics are generally made under such uncertain conditions that

10 lessntis to he> drawn from n '® m are not often clear and decisive. Hut when you are- asked such a. question as the above, you do really perform a sort of experiment on your own mind, lou go farther, for you assume that ft lien other men make the same experiment on their minds they will "et same result. They will all, in short, suy "Aow.

Let us continue the experiment. Suppose the man oiTers you a choice between two baps. One contains exactly hundred sovereigns, and you can have that now. The other, which you can only have a year hence, contains more than a hundred sovereigns. Which would you choose?

Clearly you cannot, answer that ques- • lon straight o(T. Good as it is to have ft hundred sovereigns now, it will be belter to wait a year if the extra sovereigns will make it worth your while. How many extra sovereigns will make it worth your while? To find that out many tilings have to he taken into account. The giver may alter hts mftid during the year, and if you forgo the hundred to get the hundred pins soincyou may get nothing in the end. Or, assuming that he will not alter his mind, he may die in .the year, or you may die. Tf his health is splendid, the extra number of scfi'ereigns required will be less than if his health be poor, because the risk is less. THE RATE OF INTEREST. Suppose, again, that it was a Arm gift under deed, as the lawyers say, from him and his heirs to you and your heirs, and, to make matters doubly sure, the larger bag, if it is that you choose, is to be locked up in a safe in a bank. If you learn that the larger bag contains 101 sovereigns, which bag will you choose? The smaller. If 102? The smaller. If 104? The smaller; but you would not answer quite so quickly, would you? And at, say, 100, you would hesitate no longer. Another man, confronted with the same choice, might stop at 105; another go on to 107; but—that's the real point—all would stop somewhere. And, as men living in the same country and doing pretty much the same thing, come to be pretty much of the same way of thinking, they would all to-day in England stop around about 105.

So we have decided that a bag containing 100 sovereigns to be had now, and a bag containing 105 sovereigns a year hence are of the same value. The writers of the Middle Ages were of opinion that it was wrong to take back more than was lent, and the old usury laws were based on the theory that money was "barren." But if you lend a man a bag of 100 sovereigns to-day and in a year's time he brings you back a bag of 105 sovereigns, he brings you back precisely what you lent him, since, as our argument shows, the two bags are of equal value to you to-day.

How many extra sovereigns: there must be in the larger bag is, as we say, something that cannot be determined exactly if you only take two men into account. But in practice many men are always lending other men sums of money, and, in general, the borrower uses the loan for the purposes of Ills business. And men who borrow for business purposes have a pretty shrewd notion of the worth of the money to the business, while the people who "lend are generally quite as well able to gauge the same thing. So that competition settles how much has to be added to a present hundred to make up for waiting for a year, and, whatever it is, the added number is the current rate of interest.

THE RETURN FOR WAITING. There have boon many explanations of how interest comes to 'be paid, on capital. One tlieory is that it is the reward of abstinence; another, that inasmuch as the capital increases^the productivity of the business, interest is the agreed share of extra product which goes to the owner of the whole truth. Very rich men have such largo incomes that to talk of theni "abstaining" is stilted and unreal; but capital began in very real abstentions from present enjoyment that thoroughly deserved all the reward they got, and very much capital is amassed to-day by painful strivings and savings. Again, capital increases wages just as truly as it earns interest, and the worker cannot get his share of the increase unless the capitalist gets his. But the main justification of interest is the one we got by asking the simple question with which we started. Interest is the money value of the difference we all feel between the present and the future.