8.—3.

To Captain Rushworth you said that notes came into circulation by buying land ? —Notes might buy land. In your statements you say it is for paying wages, salaries. If the only authority that it is necessary for the banks to have in order to pay for services is the statute law, which gives them the right to issue money on the credit of the people of New Zealand, then it is really the people outside who are paying the tellers and clerks in the banks for the services they are doing ? —That is true of the banks in the same way as other members of the community. The whole basis of the economical organization of the community is that services are given in return for a quid pro quo. The Hon. Mr. Downie Stewart spoke a while ago about other concerns accepting money on deposit, but if they accept money on deposit that is the total amount they can lend out again. You admitted yesterday that that was not the total amount a bank could lend. Before the Cunliffe Commission and the Macmillan Commission it was estimated that they could lend nine times the amount of cash deposits —that is, £1,000 of cash deposits could be turned into a loan of £10,000 ? —I do not think it said quite that. I think it was said it could be used as the basis of it. £1,000 would be the basis of a £10,000 loan. It was said that 10 per cent, cash was sufficient to keep against the demands ? —I would like to explain that this is in accordance with the English banking system which is not quite the same as ours. In England the bank-notes in the till are money assets of the bank, but there the bank-notes issued are not the liability of the trading banks, and the banks have found that by keeping about one-tenth of their advances or deposits in the form of cash reserves, they have sufficient against demands. McLeod, in his report, stated that if the banks found that their lending had outstepped their cash reserves they got their reserves back again by calling in their overdrafts ? —That does not happen in this country. I think by using the term " calling in overdrafts " they mean they increase the rate and make them less attractive. They ask them to reduce them just the same as in this country. It is quite common for banks to say to their customers that they must reduce their overdraft by a certain date. The only way they can reduce them is by selling something ? —That is so. If you have a lot of people in the same industry affected —farmers we will say —and they are all sellers because their credit has been restricted, then the prices must fall, must they not ?—lt might have the effect of causing prices to fall. If prices fall for sheep and cattle, then the land and the other securities must also fall ? —You would go further back and see what caused the banks to have the overdrafts reduced. They find their cash reserve is less than it should be according to prudent banking. To get their cash back again they call in the overdrafts and thus get their cash back ?—What I mentioned about the cash in the till is not the same system as we have in New Zealand, although it will be the same when we have the Reserve Bank. In New Zealand other aspects come into it. Here the banks generally adopt the policy that advances must not exceed deposits by too great an amount. It is better to have a system that works in practice. Talking about advances, naturally when there is a plentitude of money about and people are using it, there is a demand for labour and most labour is paid in cash. Therefore there is a bigger demand for cash ? —Yes. There would be more notes in circulation when there was more labour employed. Most of our business is done by cheque, and that is a matter of cancelling and increasing book entries from one person to another. But currency does not do that. When there is a big demand for cash and the banks call in the overdrafts the only way people can reduce those overdrafts is by selling their goods, if they have them to sell. If there are no buyers and prices fall, then you find you create unemployment. Is that not exactly what takes place ? —I should not say that is the case. I am going to quote Neville Chamberlain, Chancellor of the Exchequer, at London last June. He is dealing with the position there. He says, " After the termination of the war we in this country, taking as it proved too hopeful a view of world tendencies, set ourselves to restore the pre-war situation." (That meant go back to 1914.) The war-time created such a huge expansion of currency by thousands of millions that prices rose, and we created a new standard of values. If we had to pay £80 a ton for wire and also had to pay in ratio for all the things we wanted, going back to 1914 would cripple us ?—Any sudden change in the volume of money and in the prices affects people, as has been mentioned before. A fall in price is beneficial to one section of the community ; a rise in price is beneficial to another section. To continue : "We established our equilibrium by a long and severe process of deflation. We struggled to bring sterling back to its pre-war period. At the same time, we made every effort to establish peaceful relations in Europe and to restore the international gold standard in the countries whose currencies had broken down. In the early part of 1925 Great Britain, together with the British Empire and certain other countries, returned to the gold standard ; and, although in fact this step entailed further heavy sacrifices for our people in the shape of unemployment and depression for our industries, there was no reason why the restoration of the gold standard should not have been a great success had world price-levels at the critical moment displayed a tendency to rise, or even remain stable " ? —What you are driving at is that the price-level is an important factor. lam saying that the monetary factor is the cause of the price-level falling. Further quotation from above report: "In the opinion of the United Kingdom, delegation an attempt to obtain equilibrium by further large reductions of costs would be attended by intolerable suffering, and holds out no hope of success. No doubt it would be possible to restore equilibrium between prices and costs by reducing costs if only prices would remain steady. Under present conditions that does not happen, but, on the contrary, an all-round reduction of costs produce further reduction of prices, and so costs and prices chase each other downwards without getting to equilibrium " ?—lt is true that if costs are less the price is less,

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