MR TWOMEY'S BANK SCHEME.

Temuka Leader, Issue 1200, 5 July 1884, Page 2

MR TWOMEY'S BANK SCHEME.

Tha following appears in the Ashburton Guardian; — TO THE EDITOB. Sib, —Allow me to thank you sincerely for having taken notice of my scheme for removing depression. I think, however, you might have spared yourself the trouble of trying to belittle me. As Mr John Grigg said of the Ashburton Exhibition, that was “ a waste of energy,” because 1 am little enough already without any effort on your part to diminish my political stature. I feel my littleness now more than ever I did before, because I know I have hold of the right end of the slick, but am too little to wield it. It came to my knowledge that a farmer borrowed £IOO on his crop at 16 per cent., 2 i per cent, commission, per cent procuration fee, lawyer’s expenses about £lO. Also that a Geraldine man paid £8 for the loan of £BO for one month. These facts set me thinking at first, and I wrote an article in the Geraldine County Chronicle (the weekly of the Timaru Herald, with which I was then connected), suggesting the desirability of establishing an Association on the Building Society principle, so that farmers in distress might be able to borrow from it on reasonable terms. Shortly afterwards the Farmers’ Co-operative was started, but on different lines altogether. I have often thought over the matter since, and I am sure many will forgive ffiy lolly, if so it is, be*,

causa there can be no doubt but that the cause of the depression is mainly due to the exorbitant rate of interest farmers hare to pay. Thus even my failings lean to virtue’s side. Like everyone that speaks, you seem to think it impossible to buy the Bauk of New Zealasd. Its property consists of cash, land and buildings. Well then, let it lift its cash out of the buildings, keep its land like any landowner, and let the Government bny the buildings. The last report shows that its land and premises are only > worth £280,000. Surely the Government i could raise that sum, but less than half of it would suffice to buy the buildings only. Another way is to buy up all the shares (about £2,000,000 would do it) and land, buildings and cash were secured all atonoe. The Government have borrowed £30,000,600, and judging from present appearances, they will borrow a good deal more. Why not invest £2,000,000 thus. As a matter of expediency this should be done first, because you would thus disarm your greatest opponent; and, second, because it would end a power which is suspected of controlling legislative action. To buy the Bauk of New Zealand appears to me to be easy, and desirable too, if ever we are to have sound legislation. Remember what happened in Victoria a few years ago, and ask yourself, is it not possible that the same thing may happen here if Parliament should pass enactments opposed to the interests of monetary institutions. In the extract which, yon quoted from my address is shown the fact that Banks are allowed to issue three notes in paper to every pound they have in gold, and when I ask this privilege for a Government Bank, yon characterise it ee “colossal ignorance of the first principles which govern the circulation of money.” All I say is, that Banks are allowed to do it, and, if so, why should not a Government Bank do it ? The security of the Government would surely be better. I may not know the theoretical principles which govern the circulation of money, but the practice is that as fast as one man lifts money out of the Bank another puts it in. Sometimes a little money passes through my hands but I never see much of it, because I am generally paid by cheque, and I pay by cheque, and thus the money remains always in the Bank ; almost every businesi man does the same thing. Tom Jones pays £IOO into the Bank. John Smith takes it out to pay Bill Johnson, who goes straight back to the Bank with it. If you argue that Bi 1 Johnson may take it to another Bank, and that thus it is lost to the Bank out of which John Smith took it, I will remind yon that it may possibly have been imported from that same quarter in the first instance by Tom Jones, and that it has now only gone back to it again. The Banks trade on the money of their customers, o: her wise the Bmk of New Zealand, whose capital is only £1,000,000, could not transact business to the extent of £l4 030,130 4? 101 last year. Its report shows over £9,557,542 of discounted bills and securities of other Banks as assets. Bow could it do these things if it were confined to £1,000,000 capital P The fact is, it works upon the money of its customers, and on deposits, for which it pays between 4 and 6 per cent, and chargee 9 per cent. The original capital plays only a very email part in its transactions. In 1880 the capital of the National Bank of New Zealand was £350,000,-but it had £318,138 deposited with it for which it wae not paying interest, and £519,248 bearing interest. Thus it had nearly three times its own capital, of other peoples’ money in hand, and if these people asked for money it would have pail notes unless a demand for gold was made. Ex*Judge Bathgate the other day, at Dunedin, said the proportion of reserve to liability in the Banks of this colony was only 10 per cent. I think now yon will admit that a great deal of the business of Banks is done through having in their possession the money of other people. If eo, my scheme of borrowing £2,000,000, and converting it into £8,000,000 cannot be altogether out of the way. It would have £2,000,000 capital, the Government would keep the revenue account in it, which, after sending one and a-half millions to England, would amount to about £2,000 000. The money of the Post Office, Savings Bank and Insurance Department amount to over £2,000,000, accounts of local bodies £1,000,000. As landowners’ accounts are proposed to be kept in the Bank, and as they are our exporters, the chief part of the value of exports would also go through the Bank. That is about £7,000,000. In ,1880 (sea 194 Statistical there was over £3,200,000 on deposit in the Bank of Ne w Zealand, half of whioh was not bearing interest, and if we are to take that Bank over this would probably go with it. We find then these figures : Capital, £2,000,000 ; revenue, £2,000,000 ; Post Office Savings Bank and insurance, £2,000 000 ; accounts of local bodies, £1,000,000; value of exports, £7,000,000 ; deposits and farmers’ accounts, £4,000.000 ; total, £18,000,000. The on.-reo';-ness of the item capital cannot be disputed, and if you say that the balance is exaggerated yon may divide it by four and then you will have £4,000,000, which, added to £2,000,000 capital, would give you a gold sovereign for every pound note you had turned out. The revenue could be utilised as capital because you could pay civil servants in paper money. That is the way they are paid now. They get a Government cheque, take it to the Bank of New Zsaland and get Bank notes for it. Surely Government Bank notes would be as good ; in fact, they could ba made a legal tender by Act cf Parliament. The same thing applies to' local bodies’ accounts, and the beauty of both items is that you would have them coming in again next year, because the public and local bodies revenue would come every year regularly. Discarding altogether the value of exports, the deposits and farmers’ accounts, you are left £7,000,000 in gold, or £1,000,000 after calling in every note issued. You may say interest would have to be paid for the use of this money, but do not forget at the same time that no directors would have to be paid, that the borrowing rate would be 4 per cent, and the lending 5 per cent. The bank rate of interest is 2i per cent in London, and yet the Banks there pay a dividend of 15 per cent. I fancy such a Bank as I propose would do as much business as some of thrss London Banks (the Bank of England excepted), and that if at a 2J- per cent, rate of interest they pay 15 per cent., the Government Bank ought to be able to pay something also. And now, sir, I am afraid this is too long, although I have given only the merest outline of my scheme. It is hardly fair to me to be called a fool without firet proving that my scheme is wrong. I have had the opinion of financial experts and Bank managers on it, and after pooh-poohing it at first they came to agree with me that it was practicable. To young politicians, you say, all things seem easy. Ton are mistaken so far as I am concerned, because I see almost insuperable difficulties in the way. I see vested interests too powerful, the “free and enlightened franchiser ” too apathetic, and politicians too corrupt to be entrusted with any share of its management. These are the difficulties, but they are possible of being surmounted. If the Bank were placed under the control of men independent of political influences, I am sure it would do. As you have made me pose in an unenviable light before your readers, to many of whom I am personally known, I think you ought to insert this,— I am, etc,, J. M. Twomet. Lhadeb Office, Temuka, June 30, XB3&J I