A Fraudulent Standard



Now that our pre-war methods of trade, industry and finance have been found to be inadequate to meet the conditions with which we shall be confronted when peace is declared, it is essential to examine most carefully and critically the foundations upon which these have been built.

The basis of all our financial and commercial transactions is the monetary “ pound.”  What is a pound ?  Just now the Government is soliciting subscriptions to a loan of 2,000,000,000 “ pounds.”  And yet no satisfactory nor up-to­date definition of a pound has been given us.  What kind of a “ pound ” does the Government require ?  And more important still, with what kind of a “ pound ” will the nation be called upon to repay this gigantic loan ?

These questions are of stupendous importance.  The answer to the second question will determine whether the British Nation is to be solvent or insolvent, whether the wealth producers are to be bond or free, whether the loan can ever be repaid or not.

Seventy odd years ago British business circles were in a ferment over the first question.  The Prime Minister, Sir Robert Peel, had propounded this conundrum to the nation and then furnished the answer to his own riddle, an answer which was incorporated in our Legal Tender and Bank Charter Acts, both of which are still in force.  Sir Robert Peel’s definition of the pound was as follows :—

“ That which is implied in the word `pound ’ is a certain definite quantity of gold with a mark upon it to determine its weight and fineness, and the engagement to pay a 'pound’ means nothing, and can mean nothing else than the promise to pay the holder, when he demands, that definite quantity of gold.”  This ` definite quantity ’ is the mass of standard gold 11/12ths fine, contained in our golden sovereign, viz., 123.7447 grains.  This is at present the only legal definition of the ` pound ’ extant, and constitutes what is called the British `standard unit measure of value’ !

In the following chapters the utter fallacy, danger and absurdity of this definition will be demonstrated.  It will be shown that the definition is contrary to both reason and facts, and that its incorporation into our laws has been the source of innumerable industrial disturbances, bankruptcies and incalculable losses.  This legalized fallacy—the golden pound as the “ measure of value ”—has done more injury to our wealth producers, more to restrict our trade and commerce, than all the foreign tariffs ever raised against us !  It has made industry the tool, the slave of finance.  It is an instrument which our foreign trade competitors have long used against us to their own advantage.

At the risk of anticipating a portion of the discussion in the succeeding chapters, it maybe pointed out that the legal “ pound ” as enacted by Peel (and which hereafter is called the “ Peel­pound ”) makes the present War Loan an impossibility.  Two thousand million “ Peel-pounds represent in round numbers 20,000 tons of pure gold !  Such an amount would, if it could be collected and brought to London, exhaust the gold supplies of the entire world !  The gold in this country available as bullion does not amount 1/200th part of the loan !  Evidently, therefore, our Government cannot expect the loan, or any substantial portion of it, to be subscribed in “ golden pounds.”

Again, suppose we take the present one-pound and ten-shilling Treasury notes which are now legal tender.  Since there are less than £150,000,000 in existence, we are still miles away from discovering the source from whence the Government expects to secure the full amount of the loan.

If we drain the banks and denude the channels of trade of all their legal-tender pounds, we shall still be unable to supply more than 10 per cent. of the loan.  Where are we to find the balance ?  The answer is that materially the money does not exist.  The vast loan will be subscribed by cheques consisting of orders upon bankers to pay the Government something which has, as yet, no material existence.  The people who subscribe are giving their personal credit in exchange for the national credit.  And as we shall see the national credit is merely the aggregation of the individual credit of every citizen.

The subscribed “ pounds ” are therefore credit-pounds, and are backed by legal claims upon the personal wealth and the productive capacities of the subscribers.  It is this vast mountain of credit which not only supports the war, but even in times of peace carries the great bulk of the nation’s trade, industries and commerce.

Since the great War Loan will consist merely of credit in the shape of bank-book entries, one is forced to ask why the Government has adopted so expensive, so circumgyratory a method of organizing it ?  In the first place, the Government has, with the consent of Parliament, full control of the national credit at all times.  And since the national credit rests upon the taxing power of the Government—which is unlimited—it follows that the national credit logically comprises the credit of all British citizens, and is based upon the total wealth and productive powers of the people, lands, factories and capital generally.  In short, the Government has had the right with the consent of Parliament to use all the credit it required since the commencement of the war with which to finance its vast obligations.  But apparently it has not known how to organize or employ it, and because of this lack of knowledge, the war will cost the taxpayers double or treble what it might otherwise have done !

Moreover, since our bankers offer to grant loans against the national credit (which has always been regarded as “ gilt edged ”), why in the name of common sense could not the Government have employed this credit direct ?  One has heard of people “ carrying coals to Newcastle,” but commercial stupidity never yet descended to the level of exchanging Kent coal for Newcastle coal, and building a special double-track railway for the sole purpose of facilitating the exchange !  We are all striving to discover the straight and narrow path leading to national economic success !  But surely one could hardly conceive a more costly, cumbersome, inefficient method of financing the war than that chosen by the Government’s financial advisers !

Does any one doubt that the credit of the British Nation is greater in volume and stronger than that of merely its banking and credit institutions combined ?

During the financial crisis in August, 1914, when the bankers’ credit was tottering to its fall, was it not the national credit in the shape of Treasury notes that saved the country from financial shipwreck ?  What shall we say then of a system which offers to exchange the national and superior credit for the bankers’ inferior credit ?  Not only so, but the superior credit is actually sold at a discount, plus an annuity of 5 per cent. !

One has heard of a practical joker offering to sell golden sovereigns at ten shillings each, and finding no buyers.  But no one ever heard of this being suggested as a regular and serious business.  And yet, such is the force of custom and the Cimmerian darkness in which all questions of public finance are purposely enveloped, that the average man regards the flotation of an interest-bearing Government loan as a perfectly natural and proper performance !

Again, most people evidently overlook the fact that the repayment of the loan with all its interest charges must be made by themselves and their descendants, otherwise they could not but regard the Government’s terms with considerable amazement, if not amusement.  All these tempting offers—a hundred pound bond at £95 with interest at 5 per cent.—every penny must be paid by themselves and their descendants.  It follows that if the entire loan were subscribed within the country, and every inhabitant contributed and was taxed in proportion to his or her income, it would be cheaper for both the subscribers individually and the nation collectively to have the issue of the loan without interest.  And if the loan had to be repaid within the lifetime of the present generation, it would be far more economical for the public to donate the amount of the loan entirely and gratuitously !

Let us suppose a nation consisting of one million citizens, where perfect equality of wealth and income existed.  And suppose the Government of that nation needed £5,000,000.  Let us further suppose that the Government adopted the regulation plan of inviting subscribers to the loan by offering an annuity and that each citizen subscribed the sum of £5.  Suppose also that the loan is to be repaid within five years.  Then every subscriber pays first £5, and receives 5s. per annum for five years and then gets his £5 returned.  He has thus received in all £6 5s.!  But as this comes from taxation, he has had to first pay the £6 5s. to the Government in taxes.  Hence he has had to pay in subscriptions and taxation a total of £11 5s. in order to get back £6 5s. !  But this is not all.  The costs of advertising and collecting subscriptions, together with the salaries of innumerable clerks and officials, all have to be paid out of taxation.  So that in the end, the amount each citizen has had to pay to the Government will be found to be far more than his subscription plus the amount paid him by the Government in principal and interest !  In short, he would find eventually he had much better have donated his £5 to the Government in the very beginning.

Since in the above example the repayment must come solely from taxation, and since each subscriber would have to pay the same tax, it follows that the loan is merely a gift in disguise by the citizens to the Government, and it would be far simpler and cheaper for the citizens to give the £5,000,000 outright than to go through all this tortuous, expensive rigmarole.  It would save all the bank charges together with the costs mentioned and general interference with trade.

Where, then, is the advantage of making the present War Loan interest-bearing ?

From the national standpoint I can see no advantage whatsoever.  But from the standpoint of the large investors—and particularly the banking and credit companies, the advantages are only too evident.  The loan has created an enormous demand for bank credit, and one may expect to see the already large bank dividends augmented very considerably, especially if—as whispered—the banks are to be allowed to evade the excess profits tax.

The loan also furnishes the great insurance and credit companies with a safe and profitable investment for their surplus funds, and since the loan is not likely to be paid off for generations, these investments may be regarded as perpetual.  It is evident, therefore, that whilst the method of issuing the loan can be of no benefit to probably 99 per cent. of the population, to the vast masses who have little or nothing to invest, nor even to the small investors, whilst it is ruinously expensive to the nation as a whole, it is extremely advantageous to the few—to the wealthy, and especially to our professional money and credit dealers.  Indeed the whole policy upon which the loan is issued may be expressed in the Scriptural saying, “ To him that hath shall be given, but to him that hath not shall be taken away even that which he hath,” which may be taken as the text for usury !

But let it be said at once, that although in the years to come future generations will regard this War Loan with its ruinous interest-bearing charges, the stupidly circumgyratory method of obtaining what the Government already controlled, as the crowning act of financial folly, the present Government is not entirely to blame.  “ Needs must, when the devil drives,” and just now the devil incarnate, in the shape of the Hun Kaiser, is driving very hard and fast.  There has been no time in which to educate financially either the people or Parliament since the war started.  The blame falls first upon the Government’s financial advisers, and secondly upon our orthodox economists, our financial writers and others for continuing to propagate ancient fallacies—some of which are dealt with in succeeding chapters of this book.  Economic science is a plant of very slow growth, and the branch known as finance is one of much slower growth :  the reason being that both are mixed up with private interests, the policy of which has always been to keep these subjects shrouded in mystery.  When we find economic professors teaching the same fallacies that were taught one, two, or even three centuries ago, what can we expect from their disciples and the public generally ?

And this brings us to the most important question of all.

In what kind of “ pound ” shall the debt be paid ?  In the first place, let us not forget that the present rate of interest—5 per cent.—means doubling the debt every twenty years.  The British public will have paid £2,000,000,000 in interest charges alone on the present War Loan (if fully subscribed) by the year 1937, without reducing the original debt by one penny !  Our people have already paid in interest charges the entire original cost of the Napoleonic wars ten times over, and the debt is not yet extinguished ! . . . But this is not by any means the worst.  Taxes are compulsorily payable in legal tender, or orders on bankers to pay legal tender.  Now the only way by which the farmer, merchant, manufacturer, workman, etc., are able to procure legal tender is by selling their services or commodities.  In other words, taxpayers must first buy money with their services in order to pay their taxes.  It follows that the exchange relations of money to commodities and services are of the most vital importance.  The present purchasing power of money is very low, lower than it has been for very many years.

The subscribers to the great War Loan are loaning very “ cheap ” pounds, i.e., cheap in relation to all the necessities of life.  A taxpayer can pay his taxes to-day without very serious difficulty, because he can buy money with little labour and few commodities.  The £2,000,000,000 loan will represent in labour and general wealth not more than £1,000,000,000 represented ten years ago !  With what kind of pounds will the Government repay the subscribers their interest and principal ?  With cheap or dear ones ?  Will they be the credit and paper pounds subscribed, or golden pounds which may ultimately change to pounds of human flesh and blood ?  How much labour will the highly skilled mechanic, how many pounds of potatoes, how much butter, how many pairs of boots, how much wheat, etc., must our wealth producers offer in the years to come to obtain the “ pounds ” with which to pay their taxes ?

It is one of the conditions inherent in our variable monetary standard system, that the very creation of such vast amounts of credit cheapens purchasing power, and raises prices, whilst the redemption of the loan will have the very opposite result.  Remember what happened to the United States soon after the conclusion of their Civil War.  The American bonds that cost so many cheap dollars grew to be worth 100 dollars in gold because of the destruction of the people’s money.  The prices of commodities fell and money again became scarce.  And the moneylenders and bondholders doubled and even quadrupled their wealth.  Hence the American National Debt became twice and in some cases four times its original dimensions, so that the American manufacturers, farmers, and working classes generally, were forced to pay the cost of the Civil War, principal and interest, many times over, reckoned in terms of the money originally subscribed and in terms of their own labour products.  This will be the great danger to the British nation when the present war terminates.  Watch the bankers !  Watch the Government !  The trick of doubling the National Debt can be done almost without publicity !  It will be attempted as sure as the sun rises !  We shall first be told that the present high prices are ruinous ;  especially to the poor.  Some of our half-baked Parliamentary economists will be induced to start this cry.  Then we shall read that the cause is entirely owing to “ inflation,” to our great credit issues and our “ cheap paper money.”  The banks will begin to call in loans, to reduce banking facilities, whilst the Government will be requested to retire the Treasury notes and revert to our former “ good, sound, honest gold currency ”!  And down will go prices, and up will go the purchasing power of money.  Meanwhile trade will be depressed, factories will close, and unemployment become general.  Every modern currency swindle has been heralded in as a “ good, sound, honest system.”  It will simply mean a doubling of all debts or a reduction of the means for paying the debts, by 50 per cent. !  The first man, whether statesman, banker, moneylender or labour leader, who attempts to destroy the people’s money—the one pound Treasury notes—should be publicly hanged as a salutary lesson :  “ pour encourages les autres ”!  Every time a Government has attempted to lower prices by increasing the value of its currency, the people have had to pay for it by experiencing all the horrors of an industrial crisis.

During the past century, money has become as essential as food and clothing—thanks to our legal-tender laws—because it is with money that one must pay for every commodity necessary for preserving life, happiness and well-being.  Our Free Import economists grow highly indignant at the mere suggestion of protective tariffs because these, they declare, tend to raise the price of food.  But they have never shown the slightest concern with measures calculated to enhance the cost of money.  Cobden himself commended Peel’s restrictive monetary system, which compelled the poor to give far more of their labour to secure a golden pound than would have been required to earn a bank-note pound had the national credit been properly employed for the nation’s currency.  And the sufferings of the poor during the so-called “ hungry ’forties ” were due as much to financial causes—an unduly restricted currency system—as to the Corn Laws.

What is the use of having cheap food if one is unable to procure the money with which to buy the food ?  Suppose, for example, that the new road from Trafalgar Square to Buckingham Palace were provided with two toll-gates, so that every passenger and vehicle using the road was bound to pass through both gates.  And suppose that the toll charge at each gate is 6d. per head.  Along comes a “ free-roader ” who demands the abolition of one of the two gates.  Public agitation is aroused, and the toll-gate proprietors bend to the storm, agreeing to get rid of one of the offending obstructions.  But they manage to preserve the other, and immediately raise the tariff from 6d.  to 1s. 6d. per head !  Is not the last state of that public worse than the first ?  What shall it profit the British people to have cheaper food if money becomes much dearer in proportion ?  Are not our working classes, generally speaking, better off to-day than they have been for the past quarter of a century, in spite of food and other commodities being twice the price they were formerly ?  Is it not better to earn £3 or £4 per week under the present regime of high prices than it was to receive only 25s. to 28s. four years ago when prices were much lower ?

Improving the currency means curtailing the supply of money and credit, reducing the mechanism of trade, lessening the demand for commodities, depressing trade, ending in unemployment and starvation !

I have selected the War Loan as an object lesson for illustrating the supreme importance of establishing an invariable monetary unit, because it shows up most glaringly the evils of our present system.  A debt can be halved, doubled, trebled, or quadrupled without altering the figures by which the debt is represented by a single number !


1 Since this work has been in the publisher’s hands I have seen a copy of Mr. Hartley Withers’ book entitled Our Money and the State.  As some of the views expressed in this chapter appear to be of a somewhat similar character to those published in Mr. Withers’ book, I think it is only fair to myself to say that most of this work was written in March, 1917, whilst Mr. Withers’ book was published, I understand, some time in the following July.  The above-mentioned similarity is therefore a mere coincidence.—AUTHOR.