8.—3.

Referring to my previous question regarding helping the man who has only got 10s. and wants to purchase an article which costs 15s. : I understand from correspondence I have had with supporters of the scheme that this scheme would help that man to get that article ? —What it does straight away, if my scheme were put into operation, would be to give him a little more than 10s., perhaps only very little and indirectly it makes his 10s. buy more, because, by reducing the out-of-pocket expenses of the producer, by reducing his overdraft, reducing the amount he has to pay interest on his overdraft, and reimbursing him in regard to interest he has already paid, it should enable him to charge lower prices. If it does not enable that, then you will have to give effect to the second part of my scheme. Mr. Langstone.] Yes, I will follow up that question. Suppose a man never paid any interest and never had a bank overdraft, how would he benefit ?—He will apply for a proportion of the shares of every new issue of preference or debenture shares issued in New Zealand, and he will get a pro rata allocation of those shares for nothing. It would be some time before they were issued ; it would not immediately affect his 15s. ? —lt would not affect it this week. In the next two or three months ? —ln order to affect him at once, you will have to traverse the whole of the tenets of the existing financial system. I would like to ask you this : Is not price the keystone or the determining factor at all ?—Yes. Therefore in formulating any scheme you must have some definite form of price-level or pricefixation ?—Agreed. You are now asking me questions which I am answering in accordance with my own beliefs, not in accordance with the existing financial system. This Committee can consider things not just in line with the present financial system ; we can discuss or get information on all proposed remedies for the defects and errors of the present financial system ? —I feel confident —if you will let me put it that way —I feel confident, from my own experience, that no specific results are likely to accrue from that course. We almost immediately get into a maze of statements as to the positive fact. I might very rapidly say a number of things which would immediately be contradicted by traversing the existing financial system as it works at the present time. In order to proceed any distance along these lines it is necessary to establish the facts, and in order to do that I feel sure that only one method will apply, and that is an inquiry at which witnesses are produced and the matter is threshed out. The fact that I say such-and-such is so does not, I think, carry necessarily any weight, and therefore I am trying not to say anything which will be merely an expression of opinion. You talk of the subscribed capital of a bank ; you mean the paid-up capital ? —I should not quibble over details of that sort. The subscribed capital or paid-up capital is so very small in the average bank in comparison with its operations that the difference is very slight. One other question follows on : We will take the disclosed secret reserves of the banks and will assume it is £1,000,000. You are going to distribute £500,000 the first year, then half every succeeding year until it " peters out." How is that going to increase ? You said they would increase their share. Seeing that the amount is a diminishing quantity each year, how would it increase the purchasingpower of the people generally, or their interests in the community ? —The first comment I should make on that is that I should not judge these proposals on the assumption that there is only £1,000,000. Make the figure anything you like —£10,000,000 ? —lf it is only a figure, then we will say £1,000,000. The answer is that if it is true, as I believe it to be true, that under the existing financial system the whole property of the country must inevitably pass into the possession of the banks either directly or by lien, then there is a constant stream of properties under these conditions passing into the hands of the banks, and that will keep up the strength. The whole of the property of the country will be handed to the banks, but the difference between the disclosed and the real reserves has already been distributed in the form of a financial lien on the property, so that the country will gain. One other question I would like to ask : Does the volume of various classes of goods in existence determine the variation of price between those various commodities ? There may be an alteration in prices between boots and clothing, for instance—an alteration in prices so that one becomes more valuable and the other less valuable in relation with one another ? —The answer to that depends entirely on what you might call a question of relationship of cost and price. If you take the assumption of the existing financial system —that the price of an article is what it will fetch —then quite obviously it is true to say that the price of an article varies with the quantity produced, and directly there is a scarcity the price is raised. Following on that, then, the money and quantity factors determine the general level of prices for everything ?—Not necessarily ; the general level of prices can be varied, not according to the absolute quantity of goods produced—that is correct; but by the application of correct methods it is possible to apply a creation of credit to a reduction of price. In your opinion, what percentage of the money or credit which we have and can use in the community originates by way of bank loans in one form or another ? —I think that is a matter which is capable of very easy statistical proof. There is only one form of money which is not bank loan, and that is currency, absolute legal tender, and the ratio of legal tender in Great Britain (I am quoting very loosely from memory) is somewhere in the neighbourhood of £350,000,000 all told, and the bank credit of Great Britain per annum is round about £39,000,000,000. .These figures are, of course, subject to correction, and are not exact, and the figures require intelligent interpretation. I was coming to that point. Seeing that wool has gone up in price in New Zealand I do not know whether lam right in this contention. Assuming that a Japanese buyer wants to buy wool ; he sells £10,000 worth of goods in London and gets credit there. He sells that credit to one of the New Zealand banks guaranteed by our Government. Then he has a credit of £10,000, but he wants to buy wool in New Zealand. He is able to buy £12,500 of wool owing to our 25 per cent, exchange

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