A Fraudulent Standard



THERE is yet a further indictment to draw against the gold standard, and that is the disadvantageous position in which it places our industries in respect of foreign competition.  Prior to the Franco-German War, Great Britain had what was practically a national currency—a currency that offered comparatively little inducement to foreign traders for exporting abroad.  The silver monetary standard at that time held the predominant position and was universally recognized, whilst the gold standard was practically confined to our own country.  The result was that during the first Free Trade era—from 1846 to 1873—our foreign trade was literally an exchange of our surplus products for those of other nations.  It consisted of barter pure and simple.  Its wisdom was shown by the marvellous growth of our foreign trade, amounting to over 500 per cent. during those years !  But with the adoption by our trade rivals of the gold standard, very much of this mutually advantageous barter system was replaced by trade competition.  Foreign trade soon degenerated into a fierce scramble for gold.  The results were very disastrous to this country, as shown by our trade statistics.  Our foreign trade remained almost stationary for the twenty-seven years following.  After 1873, our trade rivals were able to send over their goods which competed with ours, and take either goods or gold in exchange, whichever proved the more profitable.  This also enabled them to affect the level of our prices.  By exporting gold abroad, our rivals were able from time to time to raise our bank rate against us, thereby crippling our own manufactures, our trade and commerce, which were penalized by our banks to the extent of the increased rate of interest.  This in turn naturally enhanced the cost of production in this country.  At the same time, by shipping gold to Germany or the United States, money and credit were made “ easier ” for the German and American producers.  Further, since gold prices for some years after 1873, were much lower on the Continent than in England, there was every inducement for the foreign dealers to demand gold in payment of imports.  The adoption of our monetary standard by Europe and by Germany especially, exposed our wage-earners to the direct competition of the ill-paid German and other Continental labour.  The results are ably set forth in the well-reasoned chapters of a little book entitled The True Cause, by the late Major Cecil Balfour Phipson.  The True Cause was written fifteen years ago at the commencement of the great Tariff Reform controversy.  The author saw what apparently very few had previously recognized, viz., that the original character of our Free Trade system as started under Sir Robert Peel and Richard Cobden, was completely altered in 1873 by the adoption of the British gold monetary standard, first by Germany and later by all other industrial nations.

Just here it may be well to explain the vast difference between barter (i.e., the exchange of one kind of labour product for another kind) and trade competition.  If America sends us cotton and accepts our woollen goods in exchange, the results are mutually beneficial.  No competition is here involved.  Each nation benefits by getting at a comparatively low cost, goods it is unable otherwise to procure.  But if Germany sends to our free and open markets cotton and woollen goods similar to those our manufacturers are already supplying, competition is at once set up.  Our producers are then brought into direct rivalry with German producers for British gold or for some other commodity which both nations require.  Both sides are usually after the same thing, viz., gold—because it represents general legal purchasing power in Germany as well as in Great Britain.  Its possession enables one to buy in all the markets of the world.

Major Phipson was thus able to demonstrate that the age-long controversy between the advocates of Free Trade and Protection, had never been finally settled for the reason, that both sides had overlooked one of the most important factors affecting international trade.  The remedy became apparent as soon as the “true cause” was discovered.  The establishment of a national paper currency—a money which has no circulating power abroad—at once suggests itself as a simple means of safeguarding our home markets.  This would tend to bring our international trade back to simple barter, to an exchange of our surplus products for those of foreign countries.  If America sends us cotton under such conditions, she must accept payment in our own labour products or services.  Our paper money would be useless unless spent in our own country.  If gold were demanded under these conditions, its exportation could not affect our bank rate and would then have no injurious effects upon our own industries.  It will be seen that under our original national currency system, our producing classes were the chief beneficiaries.  But under the international gold-standard system, the profiteers are chiefly the great banking houses and international financiers !   From 1873 until 1903 our foreign trade showed no substantial increase.  Since then its development recommenced :  the reason of this recent development being that during the thirty years of our arrested trade development, both Germany and America were securing their grip upon the world’s trade, until their financial condition approached ours.  Since then we have merely taken such a proportion of trade as our financial position permits.  It is somewhat paradoxical that the very instrument set up to enable us to secure foreign trade, is the same that gave our trade rivals their opportunity of successfully competing against us !

A national currency is a national safeguard, and by extending it to our colonies—by making our currency valid throughout the Empire—we at once complete the chain which would form a bond of commercial union between every British possession.  Such a system would do more to develop our home and colonial trade than all the gold mines of the world !

It should be pointed out that all currency—legal tender—is limited in its circulation to the countries issuing it and to those allied thereto.  Even gold sovereigns do not circulate on foreign soil as sovereigns.  They have to be remelted and recoined into French twenty-franc pieces or United States five- and ten-dollar gold pieces, to enable them to function in these countries as legal tender.  Money is like a monarch—all powerful in its native land, but powerless after crossing its frontiers.  But since the metal gold is legal tender everywhere, when coined under each country’s respective laws, it will be seen that the results of establishing it as the world’s money standard, are to bring the producing classes of all countries into direct economic conflict, so that the tendency is for wages to fall to the level of the lowest paid labour in any country, instead of soaring to the highest level.  The system of trade protection by tariffs, owes its political strength largely to this fact.  Protectionists assert, that tariffs are necessary in order to protect labour from direct competition with the lowest paid labour in foreign countries.

It is undeniable that foreign trade competition has never been so keen or so ruthless as since gold became the universal money standard.  Moreover, we may expect that after the war, this competition will become more ruthless than ever.  Certainly as far as our enemy is concerned —knowing how treacherous, unscrupulous and cunning is the foe we are fighting—we cannot afford to offer him any ground or advantage in our future trade methods which may enable him to regain his former superiority.

Just now the whole of the civilized world practically, is engaged, in a struggle to rid itself of the Huns, their works, their ways and their influence.  And the reason and necessity for this is the discovery of the past three years that all the activities of this industrious but unscrupulous race in every field—industrial, educational, commercial, economic, political, financial, literary, religious and social—are focussed upon one final object, viz., the establishment of a universal political and military despotism under the control of Prussia.  Every nation is now fully aware, that to grant the German people the same freedom and privileges they enjoyed prior to the war, is to expose themselves to the dangers of economic and political subjugation at the hands of this criminal race.

In dealing with one phase of the subject in the House of Commons recently (March 27, 1917), Lord Robert Cecil said :—

“ I agree with Mr. Hewins that the investigations that have been made have shown the enormous extent of the German trade organization, and the completely different theory that has prevailed in Germany than that here ;  that trade and politics must go hand in hand ;  that you establish your commercial house in a foreign country partly with a view to improving the trade of Germany, but partly also to extending your political power.”

Lord Robert might have added to “ commercial house ” the words, “ factory, bank, school, Church, social and business clubs,” which would much more faithfully describe Germany’s foreign policy.

Germany’s prodigious successes in all lands and fields have been due first to the loyalty of her subjects, and second, to the efficiency of the instruments she employed.  And among these instruments, none has served her more faithfully nor proved more useful in opening up foreign markets than the “ gold standard.”  The adoption of the gold standard by Germany, together with our policy of granting her the freedom of our markets and ports, were most important factors which enabled her to raise herself to our own commercial level, and exposed our people to the direct competition of her slavish and underpaid producing classes.  It enabled our enemy to obtain in a single generation, results which it had taken us more than two centuries to accomplish.  We have seen how this apparently innocent and harmless measure changed the whole character of our foreign trade, from peaceful barter to the fiercest trade competition.  Whilst it is true that foreign trade is always a sale of goods for money or credit in the first instance—even where such trade is between nations using different monetary standards—the character or nature of the money makes all the difference whether such trade is mutually beneficial to both countries or not.  For example, suppose we had a limited number of cotton-spinning machines which could not be replaced without extreme difficulty, and only after a delay of months or years.  It would surely be madness to allow these to be exported under these conditions, even if they were demanded as payment for other necessaries.  Since our laws have made gold the mechanism and tool of our home trade, its export has often affected our industries as disastrously as the export of cotton machinery would do, in the above illustration.

How valuable an instrument the gold standard has been to Germany in her conquest of our markets, may be readily seen from the following analogy.  Those who have travelled from Germany to Russia will have noticed a different railway gauge employed by the two countries, as soon as one reaches the Russian frontier, the Russian gauge being several inches wider than that in Germany.  In consequence of this difference in standards, it would be impossible for Germany to run her railway cars into Russian territory, even if each nation agreed to allow the free use of its rails and roadbeds to its neighbour ;  this difference in standards would prevent either nation from running through cars from its own industrial centres to those of its neighbour and so competing in passenger and freight rates.  Under these conditions we may say that the difference in standard gauges, constitutes a complete system of protection against foreign competition in transportation rates.  Suppose now under similar treaty rights regarding the free use of each other’s railroads, Germany decided to adopt the standard gauge of Russia.  The result would be a fierce war in cutting rates similar to those which were formerly waged between the trans­Atlantic steamship companies of this country and Germany, to determine which nation should acquire complete control of the traffic of both countries.

The latter condition is analogous to our pre-war trade relations with, not only Germany, but every other great industrial nation.  And whilst all nations by adopting the same monetary standard, weakened their positions in one respect, these countries with but one solitary exception, viz., our own, erected tariff barriers to take the place of the natural protection which would have been afforded, if each had possessed its own national currency standard.

Curiously enough, gold is the one commodity which is above all tariff laws.  No duties are imposed upon the import of this favoured metal by any country on earth, owing to the universal superstition and belief that it is the highest and most desirable form of wealth.

It does not seem to have occurred to the statesmen of any country, that this freedom of movement, coupled with the unlimited free coinage of gold, constitutes a most fraudulent system of tampering with the standard, just as much as though we were allowed to alter the standards of weight and length from time to time.  All nations regard the latter operations as crimes of the highest magnitude punishable by imprisonment.  But our cosmopolitan bullionists are permitted to change the units of value in every country to their hearts’ content, whenever they find it to their advantage to do so.

There is nothing to prevent financiers flooding with gold the markets first of one and then of another country, for the purpose of first booming and then depressing prices and winning on both operations in each country.

As we have seen, with the adoption of the gold standard, Germany secured many advantages over us.  Gold prices were higher here than in Germany for many years, owing to the greater abundance of metal here.  We had an almost exclusive gold currency, whilst Germany’s currency was largely paper.  She had no free gold market, whilst we have been the only country possessing such a philanthropic institution ready to sacrifice ourselves for the benefit of foreigners.

But the advantages the Germans gained by gold were many.  They were able to regulate their own price scale and undersell us in our own markets.  They were also able to manipulate our scale by withdrawing gold or supplying it to our markets.  Their costs of production, reckoned on our scale, were far less than ours.  And as they suffered no legal trade restrictions from us, our markets became, for all practical purposes, merely an extension of Germany’s markets.  A Westphalian or Saxon manufacturer could send his wares to England and enjoy the same privileges in London, Manchester, and Birmingham as he did in Berlin, Leipzig, or Munich.  He had no trade or financial barriers to get over.  On the contrary, he had advantages which the British manufacturer had never enjoyed.  He had better and cheaper banking and credit accommodation.  Loans were freely made him by his own banker for indefinite periods until he could repay them out of his profits.  He had little fear that his banker would suddenly swoop down upon him and demand a settlement under a threat of bankruptcy.  If his plant was inefficient or out­of-date, his banker would advise scrapping it and buying a new one.  He had the help and assistance of his Government in all matters of foreign trade.  Every German Ambassador and Consul stood ready to help him in getting foreign orders, in advising him regarding foreign requirements, prices, costs, etc.  At home he stood entrenched behind tariff walls that made him secure against all foreign encroachments.  The extraordinary loyalty of the German people to their Government is very largely due to the knowledge that  their business interests have always been one of the chief considerations of the Kaiser and the various departments of his Government.  Every German has been taught to believe that his welfare is the special wish of his rulers.  Contrast all this with the condition of the average business man of this country.  His Government has no interest in or knowledge of his existence except at general or special elections of Members of Parliament, when it solicits his vote, or when his taxes fall due ;  nor does it ever display the slightest solicitation for his well-being.  Beyond voting and paying taxes, the Government has no use for him, and his British citizenship is of little or no benefit to him.  He has no more rights, freedom or benefit, than any foreigner may enjoy who chooses to reside here.  British Ambassadors and Consuls hitherto, would never lift a finger to help him secure trade or extend his business in any quarter of the globe.  Under the regime of men like Lord Lansdowne and Viscount Grey, our Foreign Office apparently considered the interests of their countrymen just as safe in the hands of Germans and other aliens, as in those of their own people.  Hence we find that prior to the war a large proportion of our Consuls were Germans.

In the matter of credit, the British business man, unlike his German rival, finds no banker welcoming him as a friend, ready and anxious to help him.  On the contrary, he often has difficulty in getting accommodation at all, and when he does he is given to understand that such accommodation is a great favour and can only be granted for a very limited period.  He is exposed to the most variable bank rate in the world, and is liable to have the loan called in whenever a flurry or crisis occurs.  He dare not think of scrapping his old machines or improving his plant, lest his banker should suddenly pounce on him and sell him out.  Neither his rulers nor his bankers care a rap whether he sinks or swims so long as he does not let them suffer.  Whilst his Government leaves him unprotected by either tariffs or a national currency, he finds tariff walls against him the world over.  Foreigners come and compete freely with him in his own markets and those of his Colonies, and get better credit facilities from their own bankers (who have been permitted to establish branches in London) than he could obtain.  If he were prosecuted , abroad, his own courts of justice were willing to recognize and enforce the decisions of foreign courts.  On the other hand, if he prosecuted and obtained judgment against a German temporarily residing in this country, the German courts always refused to recognize such decisions, and he was compelled to start his suit from the beginning in a German court, and deposit sufficient security to pay all costs in the event of his losing his case.  And yet some of our arm-chair professors have had the impudence to attribute the loss of our trade supremacy to lack of enterprise on the part of our own manufacturers !  The marvel is, not that Germany has forged ahead so tremendously and overtaken us industrially and commercially, but that we are still in the running !  Our Governments have all been obsessed with the belief that so long as London remained the world’s money market nothing else mattered.  Hence every protection and privilege demanded by the bankers has been granted, whilst the industrial and producing classes have been utterly ignored.  And as often remarked, Great Britain for the past fifty years has been fast drifting into the position that Holland occupied in the seventeenth and eighteenth centuries.  We have been sacrificing our producing classes on behalf of the moneylenders.  We have been priding ourselves upon being the pawnshop of the world.  And to-day we are beginning to realize the folly of such a policy.  For the first time in a century we are painfully aware of our dangerous position.  The submarine menace is doing more to destroy our insane economic and financial systems than all the warnings ever uttered !  The gold standard has been the ignis-fatuus that has lured the nation on to the brink of destruction.  The people have been taught from infancy that it is better to acquire gold and buy commodities from abroad, than produce them at home.  Statesmen have told us that the export of our national credit to foreign lands for the purpose of developing the trade, productions, and industries of other countries was a wise thing, and economically sound.  Hence whilst British wealth was employed in building the railways and developing the wheat fields and cattle ranches of America and Argentina, whilst German bankers were allowed to send British credit to build up German industries to compete with ours, to acquire German colonies as a menace to our own and to prepare for the great war in which Germany intended to ruin our Empire, British agriculture was allowed to starve, our country was becoming a vast game preserve, our industries were neglected, our youths were compelled to emigrate in thousands to find employment, discontent was engendered and encouraged among the working classes, and the nation was showing every sign of disintegration.  Our Parliamentary geniuses had not the intelligence to see that the export of our capital meant the emigration of the most valuable part of our population.  But our statesmen were satisfied because the banks prospered in spite of everything.  It mattered little what happened to British trade and agriculture so long as our financiers were busy arranging foreign loans to support foreign industries—which paid them far better than financing home industries.  And our financial prosperity was regarded by these blind, apathetic politicians, whom we politely called statesmen, as the barometer of the national welfare and industrial safety.  The natural result of all these foreign investments was that our vessels came laden with tributary goods in the shape of meat and wheat from South America, cotton and metals and machines and manufactured goods from America, dyes, electrical apparatus, chemicals and innumerable manufactured articles from Germany, hops from Hungary, and so on.  And with the exception of certain raw materials like cotton, these tributary goods displaced our home-made articles and helped to destroy our native industries !

Let us hope the people will have learned the great lessons this war is teaching, so that they will refuse hereafter to tolerate the rule of men in the offices of state whose sole qualification for office is either a glib tongue, the accident of birth, or great wealth.

The profession of the statesman, should demand something more efficient than these non-essentials.