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The Pamphlet Collection of Sir Robert Stout: Volume 61

A State Bank

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A State Bank.

It is generally admitted that of all the British colonies, New Zealand is naturally the one best adapted to British emigrants. Its climate is known to be very healthy, it is free from droughts, its soil is fertile, it is rich in minerals, and life and property are as safe and secure as in England. It is wonderfully free from insect plagues and from noxious animals.

There are plenty of cities and towns, ports and harbours, roads and railways, churches and chapels, schools and hospitals, and all other kinds of civilized institutions. In short, New Zealand is not only a land "flowing with milk and honey," but overflowing also with corn and meat.

But in spite of all these advantages, few New Zealand colonists at the present time would like to advise people in England to come out to New Zealand. The questions of the day now are in New Zealand as in England, "What are we to do with our boys?" and "What are we to do with our unemployed?" Yet we have virgin soil that can be tilled, forests that can be cut down, land that wants draining, land that wants irrigating, mines that want working, industries and manufactures that want starting, more roads and railways that want making, etc., etc., but all is at a standstill because we want (or think we want) "Money."

And not only are all the industries in the colony hindered by the want of money, but the high rates of interest, together with the late bad seasons and excessively low prices for produce, and consequent impoverishment of the farmers, have obliged them to diminish their production of corn crops, and so employ less labour and pay less money in wages. The consequences of this will be that we shall have less corn to export, and therefore less money with which to-pay for our imports and for interest upon foreign loans. It is quite evident that, unless the prices of produce increase, either the employment of labour and rate of wages, or the price of land, or the interest upon money, must decrease.

To decrease the employment of labour and rate of wages would be to increase the present distress; to decrease the price of land would be to take away from many of the already impoverished farmers their small share, as mortgagers, in the value of their farms; but to decrease the rates of interest would be simply to diminish the profits of capital.

As most of our borrowed capital is English money it would only be just that, as England pays less money to New Zealand farmers for their grain, New Zealand farmers should pay English capitalists less interest upon money lent upon the land which grows that grain.

It might very naturally be supposed, from the fact of New Zealand borrowing so much money from England, that there is far more money in the United Kingdom, in proportion to population, than there is in New Zealand.

Yet, according to the figures given by Augustus Mongredien, in his John-Bright-belauded little pamphlet of 1879, entitled "Free Trade and page 4 English Commerce," it appears that the value of all the gold and silver coin in circulation in the United Kingdom, added to the value of all the precious metals it possesses as articles of ornament or utility, from a gold tankard to a silver pencil-case, barely amounts to £143,000,000. This sum divided amongst the 33,000,000 population of the United Kingdom gives each the value of £4 6s. 8d. in gold and silver.

But as the gold and silver coin in circulation in New Zealand (without counting it in other shapes) amounts to about, £1,750,000, and as this, divided equally between the 500,000 white population of New Zealand, gives each man, woman, and child £3 10s. in coin, it appears probable that there is actually more gold and silver coin in proportion to population in New Zealand than in the United Kingdom.

These figures should convince any disinterested and unprejudiced person that New Zealand does not want more money in the shape of coin; and that if she did, the United Kingdom could not afford to lend it.

Neither the United Kingdom, New Zealand, nor any other country requires more than a very limited amount of gold and silver coin in proportion to its real wealth. Neither does a bank require anything like its nominal capital in coin. Nor does any man (except a miser) want to keep much money by him. Coins are but counters, and money is simply a measure. Men work to get money as counters, to exchange for food and clothing, necessaries and luxuries, land, &c. Men are as willing to be paid in bank notes, or cheques, as in coin, so long as they can get the nominal money's value in exchange. Gold and silver coin is chiefly wanted for small payments and change.

Thus it happens that although the nominal capital of all the New Zealand banks is about £5,450,000, and their liabilities amount to about £10,000,000, yet all the gold and silver coin in the colony only amounts to about £1,750,000. And with this small amount of gold and silver coin (belonging as much to the people as to the banks!) the banks of New Zealand carry on the whole money business of the Government and people of the colony! It is evident that the greater part of their working capital is paper money. Debentures, shares, bank credit, cheques, and promissory notes are all as much paper money as bank notes are.

The New Zealand banks are allowed to issue three pounds in notes to every sovereign they have; but are supposed to have securities, or property, of the value of the remaining two-thirds of their note issue, which is, or ought to be, easily convertible into money. Upon the amount of their note issue the banks have to pay a tax of 2 per cent. This is almost equivalent to Government lending the banks money at 2 per cent, interest, to the full value of their property, and allowing them to hold their own securities!

Now, by so doing, the New Zealand Government increases the power of the banks; and by increasing their capital, or its equivalent, increases the interest which the banks draw out of the colony. Rut if bank notes, representing property which is supposed to be convertible page 5 into money at a short notice, can be, and are, used by the banks instead of money, the question arises, Why should the banks have the monopoly of using paper money? Why should not the New Zealand Government use paper instead of money? And why should not the New Zealand Government assist the farmers to increase the exports and real wealth of the colony by lending them paper money, or by giving them bank credit on mortgage of land, to two-thirds of its rateable value, at 3 or 4 per cent, interest, instead of assisting the foreign banks in New Zealand to increase their profits by permitting them to issue their own notes?

The attention of the writer of this pamphlet was first attracted to the subject of paper money by some articles in the Temuka Leader, by the editor, Mr. J. M. Twomey, who wrote advocating the establishment of a National Bank. Since then have appeared in Hansard some very interesting debates on "A State Bank of Issue," and "Advances to Settlers," being the subjects of bills brought forward by the Hon. Mr. Bathgate, M.L.C., and Mr. J. Macandrew, M.H.R.

Now, as the present banks can carry on the whole public and private business of the colony with no more than £1,750,000 in coin, it is clear that a National Bank would not require more to share in the present banking business of the colony. And if, as is admitted, the State alone has the right to issue bank notes, a National Bank could get as much of this coin as is required in exchange for its own State bank notes which the other banks would then require. And, besides, what would the public indebtedness of the colony mean if she could not really borrow one million in hard cash? The remaining capital of the National Bank would be the lands, public property, and revenues of the colony. Such a bank might make "advances to settlers," in the shape of cash credit, to the amount of two-thirds of the rateable value of their land upon mortgage. A bank holding the borrower's title deeds to land worth a third more money than the advance, should regard those title deeds as securities, convertible at a short notice into money, and therefore the same as money or capital. A draft upon the Bank of England, or a Bank of England note is regarded as money simply because it is convertible into money, or "payable on demand in gold." But the title to land worth £300, or £3000, is just as much (and more indeed!) convertible into £200, or £2000, as a £1000 Bank of England note into a thousand pounds in gold.

Again, title deeds to land are at least as good a kind of Nominal Capital as Debentures or any kind of Stock Exchange paper. "Things which are equal to the same thing are equal to one another."

That such a system is practical may be proved by the following extract from a letter of Mr. Arthur Clayden, which appeared in the Lyttelton Times, of August 19th last. He writes:—

"Why do the United States prove so much more attractive to English farmers than our colonies—especially the Australasian ones? It is simply because the Yankee shrewdness has found out the secret of attraction. In Pennsylvania, for instance, land is, as it were, coined and passed into circulation. A man who purchases 200 acres of land can at once receive notes to half the amount of the value of the land, and these notes are money throughout the State. One tenth of these notes is paid back each year. Who can conceive the difference between such help as page 6 this to the small capitalist and the help to be derived from a mortgage at from 7 to 10 per cent? "

But Sir Julius Vogel and the supporters of his Mortgage Debentures Bill prefer the Circumlocution Offices System, by which the New Zealand Government and people pledge their real capital for the use of London Stockbrokers' paper and hieroglyphics, for which, and not for the use of real gold and silver coin, New Zealand has been and is paying an enormous tribute of produce as interest, and on account of which New Zealand has been described as "the most debt-ridden spot in the world."

A State Bank also would not only assist farmers by giving them cash credit at a low interest, it would soon produce for Government an enormous addition to the revenue in the amount of that interest.

Government now receives only about £20,000 per annum on their note circulation from the banks.

Four per cent upon £30,000,000, the present amount of mortgages in New Zealand, would represent an addition to the revenue ok Over. £1,000,000 Per Annum.