Page:The Economics of Unemployment.djvu/129

a line of business is not required to, and does not, repay the banker the sum of his advance out of the money he receives for the goods. He only pays the interest. The banker makes a continuous advance of a certain amount, receiving periodically from his client the price of this advance. Out of this interest, the banker pays wages, salaries and dividend in the banking business. These incomes, distributed in the banking business, are precisely on a par with the other incomes which figure in the factory, warehouse or shop as costs of production, and are available precisely in the same way as purchasing power to buy the goods produced.

This represents the normal play of industry and of finance. If it were true that the body of the bank advance formed a cost of production, and had to be repaid out of the prices received for the goods, the whole trade would stop with a jerk. Something like this actually happens when bankers get frightened and call in their money, refusing further advances. Here is the element of truth in the criticism of trade financing by banks. They wield a dangerous power of stopping suddenly what has grown to be a normal and a necessary method of conducting business. The result of this abnormal action of banks in calling in and constricting credit is to stop trade and cause unemployment and under -production. Such a result may, if we like, be said to be due to the necessity under which traders are placed of repaying bank advances out of the proceeds of their sales, diverting to this purpose the money which normally they could and would have used to pay wages, salaries, etc.,