A Fraudulent Standard

Arthur Kitson


AGES ago, there existed in the Pacific Ocean, a certain group of small islands, inhabited by a highly intelligent, sober and industrious people who were eventually cut off from intercourse with the rest of the world, partly through natural conditions but mainly from choice.  These islands had doubtless been thrown up by some volcanic disturbances, and they later disappeared from similar causes.  Although it is evident that some means of communication between one or other of the great continents was in use at one period, this was afterwards stopped and all communication strictly forbidden by the law of the islanders.  The reason for this, forms the subject of this narrative.  At some early period of these islanders’ history, a vessel sailing from some distant port became stranded on one of the dangerously hidden rocks near their coast, and became a total wreck.  The vessel was carrying a valuable store of the precious metals belonging to its owners—some Oriental Jews—who were on board, and who managed not only to escape with their lives, but to save their cargo of gold and silver, which, with the help of the natives, they brought safely to shore.  The natives treated them so generously and hospitably, that out of gratitude, the Jews presented to the wives of the rulers, some pieces of these rare metals, which were hitherto quite unknown to them.  These gifts gave great joy to the natives, who desired to obtain further supplies, and consequently they offered in exchange such products as they possessed, such as food of all kinds, clothing, and ornaments.  But the Jews refused to part with any more pieces.  After some months of exploration of the islands, the Jews, having observed the fertility of the land, and the industry and intelligence of these people, decided to establish themselves permanently, and become the supreme owners of the group and thus enslave their inhabitants.  At this time the only method of trading known to these people, was simple barter.  Goods of one kind were exchanged directly for those of another kind, which involved many difficulties and inconveniences.  The Jews therefore conceived an idea of “ killing two birds with one stone,” as the saying is.  They decided to persuade the natives to use their gold and silver as the medium of exchange.  By this means they would be able to satisfy the desires of the people who wished to handle these new metals, and at the same time accomplish their chief purpose.  Permission was readily granted the strangers by the governing body to establish a bank, and gold and silver were made the sole legal tender.  The circulation of these metals was obtained through loans made to the bank’s clients.  Traders were thus compelled to borrow from the bank in order to obtain the means of paying their debts, as the Jews refused to sell either gold or silver outright.  They took as security for the loans, mortgages on the lands of the natives.  The loans were repayable at the end of twelve months, at the rate of 5 per cent. interest.  The total amount of the loans during the first week, was the equivalent of £300,000 in British currency.  Now at the end of the first year, the islanders found themselves debited altogether with £315,000 for principal and interest payable to the bank in gold and silver.  They then realized that as £300,000 was the total amount of all the precious metals the Jews possessed, having loaned all they had, they were indebted for a sum which, if the Jews insisted upon fulfilment of their obligations, they could not possibly pay.  The governors therefore approached the Jews, and pointed out the impossibility of the people paying their debts.  After some discussion, the Jews agreed to extend the time for repayment another year, on condition that the first year’s interest be paid in gold immediately, and that additional security be given in the shape of a mortgage covering the entire islands.  This was agreed to, and the trade of the islanders resumed.

When the second year’s interest became due, it was found that although the total amount owing by the islanders was as before, viz., £315,000, there was only £285,000 in the hands of the people to pay with, as the Jews had received already £15,000 of the metals for the first year’s interest.  It soon began to dawn on the islanders that if this continued long enough, at the end of twenty years they would have repaid the Jews in interest charges alone, all the gold and silver they originally borrowed, and would then still owe the original amount, viz., £300,000, without having a solitary piece of the precious metals left, with which to pay even their interest, in which case the whole islands would be bankrupt, and the Jews would then become owners of all their lands and possessions.  The Government thereupon consulted with the Jews once more, and pointed out to them the peril in which the new money system had placed them.  Now it appears that the Jews had been buying food and goods of all descriptions for themselves and their families, not with gold and silver, but with written promises to pay gold or silver, and they represented to the people that such promises were better than gold itself, because it saved them the trouble and care of handling and guarding it.  They then suggested to the Government that the difficulty might be surmounted if they would enact a law making the bankers’ promises to pay gold and silver legal tender, as well as the metals themselves.  They also urged the people to deposit all the precious metals they still had with them, and use their paper instead, as a precaution against losing any of the scarce and precious coins.  The result was, that as each year passed, and interest charges grew with the development of trade and production, the paper issues also increased, until the bankers again held all the gold and silver with which they first started (which had been repaid them as interest), and they also had £1,000,000 of their notes circulating, upon which they were drawing the same rate of interest.  In addition they held mortgages covering the whole islands.  The Government also found it necessary to borrow from the bankers from time to time, and as they were unable to pay any more in gold and silver, they had to redeem their loans in land and produce, until the Jews became the absolute owners of the islands, whilst the inhabitants fell into a state of absolute slavery.  This condition might have continued indefinitely, had not the Jews grown very insolent, autocratic and tyrannical, until finally the people, unable to bear the tyranny longer, revolted, and destroyed the bank and massacred the money­lenders !  The gold and silver was all collected and wrapped round the bodies of their victims, and thrown into the sea.  From that time on, the term “ money ” was anathematized.  As it was the symbol of slavery, and signified everything base and vile, the word was regarded with loathing and horror !  And in order that the misery which the use of gold and silver money had brought to the islands should never be forgotten, they called the group “ No-money Islands.”  The old barter system was then revived, but with all its crudities it was found infinitely preferable in its operations to “money,” since it gave no man any undue advantage over his neighbour.

In course of time, however, an ingenious native conceived a method of facilitating exchange without the dangers arising from the use of gold and silver.  The system was as follows :  He first arranged a table of all the exchangeable goods brought to the markets from time to time, in terms of the quantities in which they were exchange equivalents.  Although this table is far voluminous to republish here, I reproduce a few items which will illustrate the system.

Butter in lbs.Wheat in Bushels.Suits of Clothes.Shoes in Pairs.Wine in Gallons.Cows.Zinc in lbs.Tin in lbs.

The above table simply meant that the commodities mentioned, were equal in exchange in the above quantities.  Thus 100 lb. of butter = 60 bushels of wheat = 5 suits of clothes, etc. After ranging all commodities in quantities of equal exchange power, the inventor then proceeded to discover a common denominator of the numbers.  He first found their least common multiple and divided this by each quantity.  For example, the least common multiple of the above table of numbers is 5,250.  Dividing this by each number respectively he arrived at the following :—

Butter in lbs.Wheat in Bushels.Suits of Clothes.Shoes in Pairs.Wine in Gallons.Cows.Zinc in lbs.Tin in lbs.

Now the meaning of this last table was, that the value of butter in pounds to wheat in bushels, and wheat to suits of clothes, etc., were as the numbers mentioned.  He then invented a name to designate the unit which corresponded somewhat to our penny.  He thus obtained a common language in which to express the values of all commodities.  Taking the word penny as denoting the unit of purchasing power, he then tabulated each commodity as follows :—

1 lb. butter = 52½d.
1 bushel wheat = 87½d.
1 suit of clothes = 1050d. and so on.

This unit had no definite relation to any fixed quantity of any commodity.  It merely served as a counter or number, in which to express all the exchange-values of the goods coming to market.  For instance, if the cattle-breeder brought a cow to market to buy wheat, since a cow = 5250 units and 1 bushel of wheat = 87.5 units, it was evident that the wheat-grower had to give 5250/87.5 = 60 bushels in exchange for the cow.  Of course, with the variations in the supply of and demand for various goods, these relations varied with each other, which variations were easily expressed in terms of the unit.  But the unit itself was invariable in relation to the total wealth of the community.  Having invented this simple method of expressing values in terms of an ideal and an invariable unit, the inventor then induced the Government to open a commercial bank for supplying tokens to represent the units.  These were merely convenient pieces of paper printed in denominations of 1, 2, 5, 10, 20, 50, 100, 1,000 and 10,000 units.  They were issued by the Government in two ways.  First, in payment of their services to all the governing officials and servants, and in settlement of all Government debts for purchases.  Secondly, in loans against securities and mortgages.  A nominal charge was made for such loans, to pay the cost of running the bank and an insurance for bad debts.  Loans were issued to the extent of 50 per cent. of the assessed value of the wealth pledged as security, and were repayable at the rate of at least 10 per cent. of the amount of each loan per annum.  No interest was charged on loans, but a tax of 1 per cent. per annum was made for insurance and expenses.  Taxes were payable solely in these notes, which sufficed to give them currency.  Since their issue was restricted entirely to all kinds of wealth pledged, and to the expenses of Government, there was neither “ inflation ” nor “ contraction ” of the currency.  Usury was unknown, and the islanders prospered exceedingly.  Such phenomena as a general rise and fall in prices were thus made impossible, because prices always coincided with values.  The bank paid its expenses, and kept a reserve as an insurance fund.  Beyond this there were neither profits nor dividends, and it is recorded that there were none who might be called very wealthy, and none who were really poor.  But all had enough and to spare.  There were no disputes between Capital and Labour because every man owned capital and contributed his share of labour to the general commonwealth.  And until the final disappearance of the islands, one day each year was set apart to commemorate the final redemption of the islanders from the galling yoke and oppression which the use of gold and silver money had inflicted upon them.