8.—3.

They could do that. They do not have to consider their deposits before considering the question ? — On Government securities they could issue to the Government. So that they do not lend their depositors' money to the Government ? —They lend against it. Do they lend their depositors' money to the Government I—l have mentioned before that I do not consider that the banks actually lend what the depositors paid in. And so we are coming back to the money that these depositors, through lack of confidence, have put on deposit. Now what happens to that ?—On fixed deposit ? Yes, on fixed deposit. I have driven you oft the suggestion that that money has been invested in Government bonds or Treasury bills. Now one of two things remains ?—I was never on the suggestion that that money was invested in Treasury bills. There remains the possibility that that money lies dormant in the bank, or is used by the bank directly or indirectly in investments in industry. Which is it I—The1 —The money is not lying dormant in the banks. The thing is that the deposits on the one hand, including those fixed deposits, are claims that the banks owe. But what do the banks do with them ? Will they hold them ? —They represent banking resources. But what do the banks do with them. lam not talking about what they represent. What do the banks do with them ?—The banks use them as a basis for trading. Yes, but what do they do with them ? —What do you mean ? Do those pounds sterling or pounds New Zealand lie dormant in the bank ?—No. They do not lie dormant because they perform a service. You suggested that those funds are withdrawn from industry. That was your suggestion ? —No. What I mean is that, as far as the individuals are concerned who deposited the money, they are investing their money in deposits rather than investing it in industry. Now those deposits, are they still invested in industry through the bank ?—Part of them are. If they are not, they must be lying dormant. Is that so ? —No; the deposits do not lie dormant. Well, if they are not dormant they must be used in industry ?—They form the basis of claims which the banks have on others. But whilst they are forming the basis for claims on others, do you suggest they are lying dormant ? —No, Ido not suggest that they are lying dormant. Well, what are they doing ? —Forming the basis of trade claims. They are book entries, are they not ?—The amount of the deposits is entered in the books. Is there anything more tangible ?—Do you mean, are there any assets behind those deposits ? No.—Do you mean, Can you go into a bank and take out a handful of them ? No. If I sell shares in the Bank of New Zealand realizing £2,000, I come along and pay the cheque in to you, into your bank, and put it on fixed deposit. What happens to the £2,000 ? —That £2,000 represents a claim you have on the bank. Yes, I know what it represents. I should know a photograph of it if I saw it, and all that sort of thing. But what happens to the £2,000 ? What does it do ? I have parted with the use of £2,000. I have handed it in to you. What are you going to do with it ?—lt is credited to your account there, and the bank owes you a claim. Yes, but what do you do with it ?—For instance, if you owed somebody something, what would you do with it ? Yes, but what do you do with that £2,000 ? Do you put it in the vault ? Do you keep it dormant in the bank ready to pay me, or do you use it in industry directly or indirectly ? —lt is used for the bank's business as a basis for the other side of the balance-sheet. Very well, we will not pursue that any further. I cannot get any further with it anyhow. You said this morning that the cause of the depression is largely non-monetary. Do you really suggest that ?—Yes. It does not originate in monetary causes, because if conditions of trade returned to what they were before, the monetary position would not retard, but would reflect it. Would you go so far as to say that there is no monetary cause to the depression ? —To the extent that economic conditions are reflected in the monetary matters, there is some monetary reflex. For instance, no one will deny that the war debts have some basis, but that was not a monetary cause in the first place. It was a political cause. Would you go so far as to say that there is no monetary cause to the world-wide depression ?— What do you mean by that,, because if you mean whether it is due to banks and money, I should say there is no cause there at all. May I make a distinction here. I think there should be a very clear distinction between banks and banking functions and between the manufacture and issue of money. In my opinion the difference in function is clear and distinct. I have nothing but admiration for the way in which the banking companies of this Dominion carry out their purely banking functions. That is not my point. I have no criticism to offer in regard to the way in which the banks carry out their banking functions. My criticisms are all directed towards the monetary sytem. In old times the control of the monetary system was the prime function of the Government. It is the very essence of sovereignty to control the monetary system, to manufacture, to issue, and to cancel money. That is not a banking function, and my questions are directed towards showing the difference between the two functions. Now, the question of the monetary system as such is : Do you think the world depression is caused by circumstances other than monetary ? —Yes, I consider so. Such as ?—For instance, anybody having goods or services which other people effectively desired would not find that there would be any obstacle to his having the money for them if he wishes to exchange them for money. You think that it is due to the inherent wickedness of human nature or some cause non-monetary that is behind the depression ? —I consider so.

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