PURCHASING POWER

New Zealand Listener, Volume 35, Issue 896, 5 October 1956, Page 5

PURCHASING POWER

Sir.-Mr. K. O’Brien may feel that his "cycles," "blocks of assets" and other curiosities are convincing but others may be convinced, not that the doctor is needed for our monetary system, but rather that he is needed for something which seems to be buzzing in the heads of some reformers. Our money derives its value from the fact that we can_count on its acceptance as payment and the fact that it is so accepted enormously, incalculably, facilitates exchanges of goods and services. The banking system brings money into circulation by printing notes and by granting overdraft authorities on which cheques are drawn. That money goes out of circulation when cheques drawn on deposits are paid into overdrawn accounts, when deposits are used to pay banks for external funds that are needed to pay for imports, or to méet other external obligations, and when free deposits are changed into fixed ones. A volume of money far less than would be required to purchase, in a single transaction, the goods available in a year will purchase those goods within the year because the output and imports are sold in small fractions, with the sales distributed over the year, so that the same money will finance many purchases. "Cycles," "N," Z, or any other, need not disturb us, They no more put money out of circulation than they put noses out of joint. Our assets are always wearing out of existence, and so business and industry must provide for depreciation; but depreciation funds are invested and no more create a shortage of purchasing power than any other investments.

J.

JOHNSTONE

(Manurewa).