Arthur Kitson


BY increasing the effective demand for our own products in our home markets we do not in any sense lessen the foreign demand for them.  On the contrary, by adding to the total effective demand, our manufacturers would be enabled to produce in larger quantities and so cheapen the costs of production.

The German and American producers would not be able so readily to dump their goods on our markets at prices less than we can produce them for, were they to follow our example and sacrifice their home markets by sharing them with their rivals.  They first control their own and then take advantage of our folly by annexing ours.  German writers have already admitted that the prodigious growth of their trade and industries in pre-war days was due very largely to our philanthropic free trade system coupled with our free gold and credit market.  This enabled German manufacturers to borrow British credit at low rates of interest and build up rival industries with which to cripple ours.  As our politicians have learned nothing from the war, they are permitting our late enemies to resume the same methods of “ peaceful penetration,” and, in consequence, we have already lost several industries built up during the war.  Now, since we are not yet a self-contained nation, as we are still dependent upon others for certain raw materials, we are forced to cultivate our foreign trade.  But this should not lead us to the other extreme of neglecting our own markets and leaving them altogether free for foreign invasion.  Foreign trade is a system of indirect barter.  We buy our cotton, for example, from America, and pay for it ultimately in manufactured cotton and other goods and services.  Our productive facilities are quite capable of satisfying all the wants of our own people as well as the needs of various foreign markets in certain lines—certainly to the extent of paying for all the foreign-grown raw material we may require.  This answers the query in the Editor’s footnote to my article in last week’s issue.


The strangle-hold that finance maintains over industry (Capital and Labour) is the result of two conditions:—(1) the monopoly of credit issues by Governments and bankers ;  (2) the interest (usury) system.  All business nowadays is done with borrowed money.  Some of it is subscribed by the public, upon which only the interest or dividends have to be paid.  But very much consists of bank overdrafts which have to be repaid periodically, together with interest charges.  Suppose, for example, the banks loan to manufacturers and merchants 1,000,000,000 for one year at the bank rate.  The borrowers must then return to their banks 1,070,000,000, that is, 70,000,000 more credit than has been issued.  How are they to get it ?  The industrial world does not “ make money.” It makes goods.  But bankers and moneylenders do not receive goods in settlement of money debts.  They demand payment in their own coin, which nobody else is permitted to issue.  And this is true of all loans and of all business undertakings outside of financial institutions.  Industry is thus given an impossible task which results periodically in wholesale bankruptcies.  The system can only work during short periods, so long as the lenders of money exercise forbearance.  Fortunately loans do not all become due at the same time.  If they did, or if any large proportion fell due and settlement was demanded at any given time, we should experience results similar to those which would ensue if the owners of 10 per cent. of our bank depositors were to attempt to withdraw their balances on a certain day.  Let me put the matter in a nutshell.  The currency and credit with which debts can be paid is furnished by the banks.  The public cannot increase this.  They cannot return more than they receive.  But our interest system demands more.  Hence industry has become the absolute slave of finance.  Prometheus is securely bound to his rock, from which there is no chance of escape under our present system.  To make matters much worse, the Government impose taxes of colossal proportion which are also payable in currency, but they fail to provide anything like the amount necessary to enable the public to pay with.  Hence the banks have been compelled to increase overdrafts extensively to save the country from utter collapse.  If we add to all this the amount of rates and other charges inflicted upon the unfortunate British taxpayer, as well as the high scale of prices, the utter impossibility of our present financial system will be readily realized.  It is safe to say that the demands upon the average business mans financial resources are four times those of pre-war days, whilst the cash and credit available is scarcely more than twice the pre-war supply !  Yet, in face of this disproportion, we find the Treasury and Bank of England officials advocating a further reduction of the debt-paying media, and there are people who wonder what can be the cause of our present industrial paralysis !


What, then, is the remedy for our present plight ?  The first thing is to make it possible for business men and taxpayers to meet their obligations.  The present public burdens must either be removed or sufficient financial strength given them to enable them to carry on.  The gigantic National Debt created by our ignorant politicians need not and ought never to have been incurred.  The Government cannot expect to continue collecting 1,000,000,000 a year in credit and currency unless it increases the volume in circulation.  Such a huge sum drains the channels of trade and commerce and leaves them exhausted.

Neither can industry flourish under a 7 per cent. Bank rate.  It would be a thousand times better to adopt the German plan of cheapening—or as our professors delight to term it “debasing”—our currency than to go to the other extreme.  Germany to-day is about the only industrial country whose industries are flourishing.  Her “debased” currency is one of the main causes.  Moreover, it has saved her from being crushed by taxation as we are.

UK Treasury note As an immediate, although temporary, measure of relief for the present trade paralysis, the Government might with perfect justice and safety convert the Treasury’s floating debt by degrees into legal currency.  The payment of Treasury bills in Treasury rotes could be spread over a reasonable period so as to avoid any serious or sudden advance in prices.  This would not only revive trade and start the wheels of industry, but it would get rid of the burden of interest charges on this particular debt.  It is an astonishing fact that no member of Parliament has ever challenged the Government to furnish reasons for burdening the country with interest charges on borrowed bank credit whilst they already controlled an unlimited volume of credit of a higher order, the use of which would have cost the nation nothing.  Our old friend Euclid tells us that the whole is greater than a part.  And the National Credit comprises that of all the citizens and institutions of Great Britain, including the banks.  For the past six years the basis of all our currency has been the nation’s credit.  The credit behind a Treasury bill is the same as that behind a Treasury note.  In fact, a Treasury bill can be settled with Treasury notes.  Yet our Treasury officials exchange the superior credit of the nation for the inferior credit of a bank and compel the taxpayers to pay over 60,000,000 annually for the accommodation !


A further advantage gained would be to bring our currency nearer to the currencies of those countries with whom our merchants wish to trade.  Our statesmen give as a prime cause of our declining foreign trade the inequality in the rates of exchange.  Yet they are doing all in their power to make this inequality still greater.  Our Indian trade has become demoralized owing to the fall in the purchasing power of the rupee.  Had our pound fallen in the same ratio, our trade with all Eastern countries might have continued.  Similarly with our European Allies.  Why the Treasury should seek to increase the rate of exchange between France, Belgium, Italy, and even between Germany, and ourselves is somewhat of a mystery.  If the object is to get us deeper into debt by making it easier for us to buy foreign goods and harder to sell our own products abroad, their dear-money-deflation policy can be readily understood.  Otherwise it is incomprehensible.

The remedy for industrial stagnation will be found along the line of a cheaper and increased currency.  There is a general insufficiency of purchasing power throughout the country.  To establish an industrial system which will continually provide for all the needs of all the people without these periodical trade crises, one which will get rid of poverty and involuntary idleness, a system which will be automatic in producing goods in abundance and distributing them, will require that the public shall have some control over both credit and prices.  It is quite evident that so long as producers are free to raise prices with every fresh issue of currency such issues can be of little permanent advantage to the consumer.  What the average consumer wants is to secure a larger proportion of all the goods he needs.  He can only get this either by a fall in prices whilst receiving the same income or by receiving a larger income whilst prices remain the same.  Further, to enable the public to buy all the goods offered, to be able to sell goods as fast as they are produced—which is the ideal condition for employment and trade prosperity—there must be enough money circulating with which the public can purchase.  This means the establishment of a system which causes a constant flow of purchasing power to the consumers and a return flow to the producers.  Now there are various methods embodying these conditions which one might propose.  But by far the most carefully thought out system yet suggested is that described by Major Douglas (Royal Air Force) in his remarkable books entitled “Economic Democracy” and “Credit Power and Democracy,” the latter being the joint product of Major Douglas and Mr. A.R. Orage.  The system described would, in my judgment, effectively solve the whole problem of unemployment, trade depression, and all their attendant evils, and if adopted universally remove the causes which have been so fruitful in provoking wars and which if not speedily removed must soon give rise to fresh and more desolating wars than any yet waged.

In the next article I hope to give an outline of Major Douglas’s scheme.