A Fraudulent Standard



LET us now collect the various points we have already discussed and see at what conclusions we are justified in arriving.  Those who have had the patience to read and to consider the previous chapters, will realize that our present financial system is built chiefly upon a fallacy arising out of a gross misconception of the true meaning of exchange-values, and this misconception has been fostered by those who have desired to reconcile economic theories with private and class interests.  And how persistent this desire has been may be seen in every branch of the science.  Take, for example, the numerous theories regarding interest (better named usury, i.e., payment for use), upon which innumerable treatises have been written, and to which reference has already been made in a former chapter.  Instead of recognizing the simple truth that interest is the price of a legally created scarcity which has resulted in a world-wide monopoly, economists have invented all sorts of theories, such as the “ reward of abstinence,” the “ fructification theory,” the Austrian theory that “ present goods are worth more than future goods,” and numerous others equally untenable.  Interest will cease as soon as nations abolish the laws which have converted the factors of production and exchange—land, money and credit—into private monopolies, and not before !

It has been well said that if it were to the pecuniary interests of any class to deny the validity of the multiplication table, the denial would be forthcoming.  More than half a century ago Marx wrote as follows :—

“ In the domain of political economy, free scientific inquiry meets not only the same enemies as in all other domains.  The peculiar nature of the material with which it deals, summons as foes into the field of battle, the most violent, mean, and malignant passions of the human breast—the furies of private interest.”

He added that even the Churches would more readily pardon an attack upon their creeds than upon their incomes !

Orthodox economic science is founded upon the assumption that existing property rights—no matter how acquired—that class privileges and vested interests created by the selfishness, corruption, the ignorance and caprice of both modern and ancient rulers, are permanent and essential to the existence of society.  And the main object of orthodox writers has been to justify these interests.  Were we about to found a new colony in a far-off land uncontaminated and unhampered with tradition, juridical rights, vested interests, precedents and privileges, it would not be a difficult task to map out an economic system which would work harmoniously in all its branches for the equal welfare of all classes.  But our laws have raised so many impediments to any such system, these private interests so often clash with the public interests, that any attempt to establish a science built upon our present social and economic inequalities can only end in failure.  The present system reminds one of a machine which has been constructed from various pieces of machinery, built in different ages and for different purposes, no two parts of which can be properly fitted or adjusted.  The result is a horribly noisy, wasteful, grinding machine which goes by fits and starts and is continually breaking down in spite of the enormous amount of lubricants employed !

Exchange-value has hitherto been regarded as the most abstruse—although admittedly the most important—of all the numerous branches with which political economy deals.  And the cause of this abstruseness is due to the attempt of its professors to reconcile theories which are either naturally conflicting and irreconcilable or are wholly unrelated.  We have seen that exchange values are merely the arithmetic of trade and are expressed by numbers.  The “ measurement of values,” as it is called, is practically a system of numbering or counting.  It is identical with the “measurement” of games like billiards and cards.  Chips and counters are the money of card games, i.e., they are used to indicate the number of points won by each party, just as sovereigns and one­pound notes are used to indicate in numbers of pounds, one’s winnings or earnings in trade and industry.  These pounds merely represent certain fractional proportions of the whole of our national wealth.  That the function of money is to enumerate or count is shown by the fact that in all financial and trade dealings where money is concerned the only question that arises is, “ How much money ? ”  One never hears such a question as “ What degree of value is your commodity worth ? ” or “ What quality of money do you require for such an article? ”  Even where different kinds of money are in circulation, if there exists any preference for one kind over another, such as gold or silver over paper, or paper over gold coins, such choice is due to special circumstances, to convenience or the requirements of foreign trade where paper has no legal-tender powers.  If a difference in value exists, it is indicated numerically, i.e., one kind will be quoted at a discount compared with another.  There is no such thing as degree or quality in exchange-value.  Chips and counters are no better indicators for being made of gold and silver than if made of bone or ivory.  Similarly money—legal tender—performs the same functions whether made of gold, silver, paper, or tin.  By confining legal tender to gold, all we do is to make our counters unnecessarily scarce and costly.  And by so doing we burden our trade, limit our output of wealth, and make ourselves poorer than if we used something less costly and less scarce.  We have seen that the inevitable results of establishing a commodity standard are :  (1) Variability in the money unit, so that prices and debts are made to fluctuate with the variations in the supply of and demand for the money commodity.  (2) The exchange-values of all other commodities are falsified from time to time by the intrusion of the standard commodity’s own value, which takes the name of prices, and the industrial and trading classes are continually defrauded.

We have seen that, scientifically speaking, the “pound” is not as our laws define it, although Sir Robert Peel’s fallacious definition provides the basis of our present dangerous and irrational banking and currency systems.  This fallacy has cost the British nation untold millions, not merely by the taxation which it has inflicted upon all our industries, trade and commerce, as well as by increasing our national obligations, but chiefly through its limiting the amount of our annual production.  It is estimated that every rise in the bank rate of 1 per cent. costs the industrial and commercial classes from £60,000 to £100,000 per week in increased interest charges on loans !  No form of oppression can be more intolerable than for a Government to first establish the legal necessity for an article and then fail or refuse to provide an adequate supply of it.  This, however, is a description of most of the world’s legal-tender laws.  Its results are shown in the annual record of bankruptcies, suicides, lockouts, strikes, and industrial disputes.  Sir Robert Peel made it doubly oppressive by making gold our sole legal tender for sums over £2, and refusing to allow the issue of one-pound notes.  The inevitable tendency of this legislation was to thwart enterprise, to drive the small producer out of business, to concentrate industry in the hands of the wealthy classes, in short to enrich the wealthy and to weaken the middle and poorer classes.

We have also seen that the gold standard imposes an elastic monetary unit which functions as a fraudulent measure of wealth.  Natural conditions alone, such as fresh gold discoveries, the failure of existing sources of supply and the variations in demand due to the growth of population and trade, are sufficient to create serious fluctuations in the value of the standard.  But added to these natural causes are the variations produced through the creation and cancellation of vast sums of national and bank credit which function as currency from time to time, and affect the purchasing power of money just as the issue and distribution of so much legal tender would do.  And when we remember that a considerable proportion of all this currency is controlled by a few international banking firms whose interest it is to cause periodically these sudden fluctuations in the purchasing power of money, we can get some faint idea of the unfortunate position of the trading and industrial communities.  Some years ago a well-known United States Senator, speaking of the unlimited power in the hands of a few New York bankers, made the following announcement.  He said :—

“ There are fifty men in the City of New York who can in twenty-four hours stop every wheel on every railway, close the doors of every factory, lock every switch on every telegraph line and shut down every coal and iron mine in the United States !  They can do this because they control all the money of the country.  The control of money gives its possessors absolute power over a nation’s industries.”

A somewhat similar condition exists in this country to-day.  The Bank of England—which, bear in mind, is a privately owned and controlled Joint Stock bank—with about twelve other joint Stock banks, practically control the entire currency and credit of Great Britain.  Walter Bagehot once wrote (Lombard Street) :—

“ All our credit system depends upon the Bank of England for its security.  On the wisdom of the directors of that one Joint Stock company it depends whether England shall be solvent or insolvent.  This may seem too strong, but it is not.  All banks depend on the Bank of England, and all merchants depend on some banker ! ”

It speaks volumes for the comparative honesty of British bankers as a class (compared with those of other nations) that they have, generally speaking, so moderately used the enormous powers which privileged legislation has placed in their hands.  But it must be remembered that they are members of a larger circle of cosmopolitan financiers who operate in all countries and are not troubled by the scruples of most of our British bankers.  And who is to ensure a continuance of this policy of moderation ?  And what is to prevent our bank shares from falling entirely into the possession of a syndicate of unscrupulous cosmopolitan financiers, amongst whom the Hun banker is notoriously conspicuous ?  Bank shares are purchasable with money.  Imagine the results, if the bulk of these shares fell under the control of some foreign syndicate, whose policy might be to destroy British commerce !

Currency, whether legal tender or bank cheques, is a social instrument.  No man or group of men, outside the halls of legislature, can create a nation’s currency.  This requires the confidence and consent of the trading public.  It is the public, and not the bankers, who give currency and therefore value, to paper and credit.  The refusal on the part of the industrial and commercial classes to accept any particular instrument in exchange for their commodities, would render any instrument useless for currency purposes.

We have also seen that nearly 99 per cent. of our trade and commerce is transacted by means of bank credit, and most of this bank credit is issued against the wealth belonging to the public.  As Sir Edward Holden says, “ Loans create bank credit.”  Hence it follows that bank credit is, properly speaking, the property of the public, although our Governments have always permitted the banks to charge the public for its use.  On the other hand, it has been shown how an invariable unit can be established without altering our present monetary denominations.  The one-pound unit can be made stable by a very simple alteration in our banking and legal-tender laws.  All that is required is to repeal the Bank Charter Legal Tender Acts which have made gold the sole legal debt-paying commodity, and establish the one-pound Treasury note as the unit.  Simultaneously with this, the banks should be compelled to issue bank credit to all those demanding it who are willing to pledge productive wealth to an amount which will allow for all possible variations in the values of such wealth—say 50 per cent. of its appraised value, to be repayable in definite yearly proportions as may be agreed.  There should be a definite Government issue of Treasury notes based upon the national credit, equivalent at least to the annual sum required by the Government for its support, for pension purposes, and interest on the National Debt.  Since the Government must collect taxes in the form of legal tender, it must necessarily first provide a sufficiency to enable taxpayers to meet the Government demands.  The most convenient price-level consistent with political and industrial ante-war conditions would have to be pre-determined.  This level would be obtained by the issue of Treasury notes sufficient to reach that level.  Here it may be pointed out that this level will of necessity have to be not lower than it is at present.  The nation cannot go through an era of industrial stagnation and starvation in order to reach a lower level of prices merely for the benefit of bond­holders and moneylenders !

Much has been said of late about high prices due to inflation of the currency, but, as pointed out in the chapter on this subject, it would be difficult to carry on a great war in which a nation must devote its whole energies to producing munitions of destruction without inflation.  If we were to employ slave labour as Germany is doing, inflation might be avoided to a certain extent, but not otherwise.  The Government is compelled to buy its munitions.  It cannot very well steal them.  It buys with its credit and the proceeds of taxation.  To pay wholly out of taxation the Government would have to impose an all-round tax of twenty shillings in the pound.  In other words, we should all have to work without food and other necessaries which, as Euclid would say, is absurd !  Hence the Government must pay from loans and credit.  Having acquired the goods, our armies proceed promptly to destroy all this wealth, but the debt naturally remains in the form of promises to pay, which are divided into floating and funded credits or debts.  Hence our national labour merely creates a void which is represented by so much credit (or debt).  If we were all similarly engaged in producing wealth, if we were building up towns and increasing and improving our agriculture instead of destroying them, all this credit or money now being spent would be represented by wealth and the inflation complained of would not occur.

Having selected our monetary unit, we have demonstrated that the maintenance of its stability and invariability is entirely dependent upon a sufficiency of the money supply.  What material the “ pound ” should be expressed by is altogether of minor importance.  The main question is :  How can the supply of pounds be kept always equal to the demand ?  And the selection of the material should be governed entirely by this consideration.

In his history of Europe, Sir Archibald Alison tells us that the “ thousand-year night,” commencing with the break-up of the Roman Empire about the sixth century, was largely due to the loss of the precious metals which created a dearth of currency.  And as no other currency was possible at that period of European history, trade and industry dwindled and decayed and mankind sank into universal poverty and misery.  With the discovery of America, and especially the great silver mines of Potosi, trade, enterprise and production were quickened and the great awakening known as the “ Renaissance ” began.  Whether the Renaissance was the cause or the result of these discoveries need not trouble us.  What is indisputable is the fact that the condition of trade does depend very largely upon the supply of currency.  A deficiency of money invariably brings industrial crises, bankruptcies and depression, whilst an abundance tends to encourage and stimulate both trade and production.  And this brings us to the crux of the whole question.  The value of the “pound” depends far more upon our banking mechanism and administration than upon the weight of gold in a sovereign !  And to establish an invariable monetary unit without some arrangement or general control of our entire banking business, would be equivalent to attempting to define the standard capacity of a railway truck or car necessary for the transportation of so many thousands of tons monthly, without considering the number of such cars or their speed.  It appears to me, therefore, that it will be difficult to satisfy the legitimate currency needs of this country on any just basis unless we nationalize the whole of our banks.  Consideration of this subject from every standpoint, patriotic, scientific, commercial, economic, points conclusively to the necessity for nationalizing the banks, and as speedily as possible.

Its accomplishment would be far simpler and cheaper than the nationalization of either our land or our railways.  Let the Government purchase the shares of our banks by an exchange of War Loan certificates at a just valuation.  This would involve no injustice to bank shareholders, whilst it would give the nation a vaster mine of wealth than all the gold mines of Africa and America combined.  By taking the banks as running concerns with their present efficient staffs, the transfer would occasion no difficulty or interference with trade.  On the contrary, it would enormously improve our industrial outlook.  To­day, the average bank manager occupies a difficult and often an unpleasant position.  He must obey the instructions of his head London officers, and these instructions are not always acceptable to his clients.  Instead of catering to the public welfare and interests, he has to think only of the wishes of his directors and shareholders.  His promotion often depends upon his ability to secure deposits and transfer to London as much money as possible.  The policy of the great London bankers is similar to that of the bankers of New York and Chicago—to draw as much money to headquarters and leave the provinces with as little as is consistent with the continuance of trade.  This enables the banks to make large loans to those who can pay the most.  How disastrous this policy has been in the past may be seen from the financial plight in which we were placed prior to the war.  Millions of pounds belonging to British depositors were loaned to German bankers, and the money remains in their possession at the present time.  Many of our enemy’s enterprises which have driven British industries out of the running have been financed by loans of British credit by London bankers !  Percentage has hitherto ranked in the eyes of many of our money merchants above patriotism.  If the Germans wanted a railway to Baghdad or elsewhere, no matter what their political motives might be, they could always come to London and get the accommodation they needed (which was often refused to British merchants and engineers) so long as they paid the rate demanded !  As to what took place prior to the war we have already seen in all earlier chapter.

How many of our manufacturers, farmers, merchants, and traders, how many of our former industries have been sacrificed in the temple of usury for the maintenance of our “ good, sound, honest ” banking system, i.e., to enable our banks to maintain their large dividends !  I do not altogether blame the bankers.  As a class they are, according to their light, probably as honourable as any other class of the community.  But they are both conservative and selfish, and it is perhaps only fair to add that they are often quite innocent of the injury their system inflicts upon their fellow-countrymen.  The banker is what the system has made him.  And probably no one would derive greater benefit from the nationalization of the banks, so far as his own mental development is concerned.  To realize that his work henceforth is to be for the exclusive benefit of his own country, that instead of scheming to make profits for a comparatively small group of shareholders, instead of having to take part in “ holding up ” production as he is sometimes forced to do, he would be working hand in hand with the wealth creators of the British Empire, building up its trade and industries, surely such a prospect would be worth his striving for !  To-day, our monetary and banking Acts block the path of our national progress, and must be swept away with many other antiquated obstructions which, beyond a certain archaeological interest, are of no national benefit whatever.

The greatest indictment against the gold standard is its alliance with usury (i.e., payment for use)—the most destructive principle in the economy of any society.  It is one of the amazing paradoxes of economic science that the instrument established for facilitating commerce should prove its most fatal enemy.  Under our legal-tender laws gold is said to facilitate and encourage trade and industry.  But the interest system which it fosters tends to burden and destroy them.  It was pointed out by Aristotle more than two thousand years ago that money was unproductive.  For this reason the taking of interest was forbidden by every religion and by every moral teacher from Moses to John Ruskin.  It was forbidden by the Roman Catholic Church down to the eighteenth century.  It is still forbidden by the Mohammedans.  Its maintenance here and elsewhere is due to State-granted monopolies and privileges.  And yet our entire economic and social systems are built upon this false principle.  The system of interest is impossible for any very large amount and for any long period, for the reason that interest charges tend to grow faster than surplus wealth.  From the returns of industry, sufficient wealth must first be given to the prime factors, to labour, capital and land, to repair wastage and maintain their productive powers so as to ensure future production.  After allowing for all this and for the maintenance of the State, for the care, nourishment and education of each coming generation, it will be found that the balance left is not sufficient to pay interest charges even at the rate of 5 per cent. on more than a comparatively small proportion of the national capital.  The result is that the amount of capital that can be employed is necessarily limited by the rate of interest prevailing.  Some writers, with a taste for sensational figures, have given us examples proving the impossibility of satisfying the claims of interest by showing the results of a five per cent. investment at compound interest.  Proudhon showed that if a man in the reign of St. Louis had left 1,000 francs on interest at the rate of 5 per cent., with instructions that this interest should be reinvested at the same rate at the end of each and every year and the accrued amount should be divided among the French people in the year 1840, the total sum would have far exceeded the whole wealth of Europe !  A recent American writer has also figured out that if Mr. Rockefeller will leave his wealth in trust at a similar rate of interest to accumulate for the benefit of American posterity five hundred years hence, the amount accruing will suffice to pension off the entire population of the United States, allowing for its natural growth, with an income for each person of one million dollars per annum for ever !

Our monetary laws have eclipsed even the laws of nature, for they have conferred the life principle upon inert matter.  Nay, more, they have conferred the boon of immortality upon an unproductive metal.  A chunk of gold which an ordinary workman can carry on his shoulders, which takes no part in production nor adds one iota to the general wealth, comfort, or happiness of mankind, and which, for all the use it is, might as well have remained in the bowels of the earth, will buy his life’s labour six times over, even if he managed to outlive Methuselah !  It is more valuable to its owners (thanks to these laws) than the labour of six men for all time—so long as the present system is maintained !  The gold represents the equivalent of this amount of economic power exerted so long as these infamous laws and the gold superstition exist.  The gold produces nothing, but it gives its owners the legal right to purchase, to pay debts, and enables them to exact a tribute from wealth producers year after year during their lives and of their descendants for ever !  The principle of usury continues to operate, however, only because it is confined strictly within limited amounts and limited periods.  But even with these limitations it entails widespread poverty on the masses of the world’s producing classes.  Single taxers and land reformers, who see in the monopoly of land the cause of all social misery, should sit down quietly and make a simple comparison of the total amount of our annual wealth production paid in rent of land with that extorted in the shape of interest on loans and capital.  For the monopoly of credit not only determines the rate of interest on all capital, but it is the chief cause of such interest !  And since the gold standard is at present the one factor limiting the issue of credit below the needs of all industrial communities, and preventing the free mobilization of wealth, it follows that it is also the cause of interest.

The whole currency and interest problem is to-day merely a question of insufficiency—of an inadequate supply.  The supply should be regulated by the demands of industry and commerce, not by the precarious and accidental discoveries and production of gold.  The industrial and social needs of the world after the war, will necessitate the complete abandonment of our present financial and banking ideas and methods.  Deposit banking will not suffice for the financial needs of industry.  The theory that trade and production can only be properly financed by the surplus idle wealth of individuals, will also have to be scrapped.  Cheap money and credit facilities will be imperative in order to save the world—and Europe especially—from a degree of misery and starvation, such as has never been witnessed.  Taxation alone will require such an amount of money as we have never yet been accustomed to.

Again, it is probably not realized that the excess profit tax will wreck hundreds of our industries unless ample credit facilities are furnished by the banks or the Government.  In the majority of cases, profits are shown by an increase in machinery, tools, plant, stock, material, whilst taxes are payable in legal tender.  How are firms to pay these excess profits unless the Government provides the necessary means for mobilizing all this capital ?  How is it possible for the nation to pay £600,000,000 in taxes annually without crippling its industrial resources, when the Government has only provided about one-third of this amount for all purposes ?

No doubt, to the average reader, this somewhat tedious discussion regarding values, standards, ratios, etc., will appear highly technical and most uninteresting.  A cursory glance over the preceding chapters may raise the question, “ What does it all signify ? ”  “ Who cares whether exchange values are merely ‘ extrinsic relations ’ or ‘ intrinsic qualities,’ and how can it affect me ? ”  The intelligent business man, however, will realize as well as the financier, the enormous importance of these seemingly unimportant questions.  The answers that the world’s moneylenders have been able to give to the above questions in the form of banking and legal-tender laws, have enabled them to gamble with the lives and fortunes of the industrial classes in all countries, with the certainty of winning.  These laws made it possible for a man like the late W.H. Harriman, whose original capital consisted merely of a seat on the New York Stock Exchange, to secure control of thousands of miles of railway which were built and paid for by other people !  They also gave to the late Pierrepont Morgan greater economic power than was ever previously wielded by mortal man !  These same laws make it possible for a few men to acquire fortunes overnight, to take wealth from those that have created it and give nothing in return.  It makes the producing and business classes the pawns and playthings and their possessions the prizes of those who deal in money and credit.  Neither banking nor money-lending creates one solitary grain of wealth, and yet the men in these professions invariably grow rich, and often fabulously so.  Where does it all come from ?  From the labour and sweat of the masses !  These laws have made our economic system topsy-turvy.  They have placed non-producers at the top of our social scale and the producers at the bottom.  They have made the most useless and least important commodity the most valuable, whilst the things that are indispensable have been treated as of the least importance.  The banker who has spent his whole life in the sole pursuit of enriching himself at the public expense is ennobled by being raised to the Peerage, whilst the farmer, the inventor, the manufacturer, the distributor, whose labours have benefited and enriched the whole nation generally, die neglected, unknown or forgotten.  But the war is exposing this system of false values in a manner hitherto undreamt of.  It is now the worker, not the idler, the wealth producer, not the wealth grabber, the fighter, not the shirker, the patriot, not the pacifist, who are in demand.  These are the men whom the nation will delight to honour.

Let us then get rid at once and for ever of all our false ideas, principles, laws, systems and institutions under the sheltering care of which the useless and costly drones of humanity have hitherto flourished.  We are endeavouring to destroy the greatest foreign despotism that has ever existed.  Are we to permit the continued growth of a despotism in our midst far more insidious and equally dangerous ?  There is none more cruel, more intolerant, more soul-destroying or more universal than the money despotism.  It exists in all lands, and its results are the same everywhere.  Its policy is to enrich the wealthy and enslave the poor, to divide society into two antagonistic classes, and to establish and perpetuate everywhere and in every department of life the money standard.  It is the most degrading, the most corrupt ideal ever presented to mankind.  It is destructive of everything noble and praiseworthy in human life and character.  And its power and maintenance depend entirely upon two or three Parliamentary Acts.  The remedy is therefore to repeal them.  The Bank Charter and Legal Tender Gold Acts must be annulled.  We must nationalize the whole of our banks, and substitute Treasury- and bank-notes for our former gold currency by issuing them against the national wealth.  Finally, provision should be made for the free mobilization of our exchangeable and productive wealth by the issue of bank credit against such wealth as may be required to meet the demands of trade and industry.

These measures would reduce gold to the level of other commodities, and destroy the economic despotism which has grown up under the privileges accorded it.

We have already discussed the question of the monetary unit or standard.  This would correspond to the purchasing power of the one-pound note at the time the new system became established.  And so long as the supply of credit and legal tender were maintained equivalent to the demand, the unit would remain invariable.  Such results would completely change all industrial and trade conditions.  Accompanied by a land nationalization policy, these measures would banish the speculative nature of production almost entirely.  They would enormously lighten the load of the toiler.  They would ensure larger returns to those who labour and less for those who “neither toil nor spin.”  They would vastly increase the amount of our national wealth.  They would destroy involuntary idleness, and starvation would vanish from our towns and cities.  They would lead to harmony between capital and labour and put an end to strikes and industrial unrest.  They would enable the State to meet its obligations and lighten the burden of taxation.  The saving which they would effect would be sufficient to pay all the interest charges on the National Debt, and enable the nation ultimately to replace the National Debt with a vast fund of National Wealth.  Surely such a prospect is worthy of the most serious consideration of all classes.

As a final word, let me again warn the public to resist at all costs any attempt on the part of the Government to re-establish a gold currency.  Such a measure will inevit­ably rivet the chains of industrial slavery upon 95 per cent. of the population and their descendants for all time.  All that our armies are fighting for, viz., political and industrial freedom, will be irretrievably lost, if the world’s financial despots, among whom are the leaders of Germany, are permitted to gain control.  We shall have gained but little if, by destroying the Huns’ military power, we fall beneath the sway of cosmopolitan finance.