Outscheming the Kleptastrophe - II

II Outscheming the Kleptastrophe Virtual Wealth and Debt

Posted by: "Dick Eastman"

Sat Nov 7, 2009 10:42 pm (PST)

Pass this to every man and woman of good mind and good will -- tell them to study it for all they are worth. We can get nowhere against the Money Power if we ignore these principles. -- Dick Eastman

Outscheming the Kleptastrophe

Part II Click for Parts I-A and I-B

"The struggle is not for wealth, but to dispose of it advantageously to its owners, to convert present wealth into a claim upon future wealth, to sell it if possible, but, if not, to lend it so as to be able to derive from the debtor a permanetn tribute of interest in the future. Old wars of conquest were often for similar ends, but universal conscription and the militarization of whole nations, as a consequence of being able to produce more wealth then they can consume, exchange, or even lend, is quite a new and curious phenomenon in history."

"The struggle is only nominally between nations, and, by the survival of deep-seated herd-instinct, is directed along these traditional channels. It is, in reality, between the debtors and creditors of all nations in common, and no solution whether of social or international conflict is possible until debts are made terminable and a proportion of the interest payments upon them devoted as a sinking fund to their redemption. That it is entirely within the jurisdiction of each nation to determine for itself, for its own nationals and for its foreign investors alike, and, if there is no preferential discrimination against the foreigner, no just cause of international quarrel could thereby arise. The property of a private citizen or corporation, invested in a foreign country, is amenable to the laws of that country as regards taxation.

"But international debts, of the kind which the War has left in its wake, are a far more serious menace to the peace of the world. They are not repayable except by injuring the debtor class of the creditor nation, is workers, its industries and its trade, and they are not transferable among individuals are are private indeptednesses.

"The primary mistake, to which the wrecking of the system has been traced, is the passing, with the development of modern banking, of the prerogative of the issue of currency from the nation to private hands for usury as a mode of livlihood, and the fatal dislocation consequent upon money being destroyed when production outruns markets and issued when demand outruns supply."

"The Westerner is not exactly the quickest in the uptake where the elusive principle of Virtual Wealth is concerned. It has escaped the purview of the professed theoretical economists, who seem to have remained entirely oblivious of the profound changes going on under their eyes in the very nature of money. Conspiracy or not, there can be little question that the power these discoveries have put into the hands of financiers, will, if not controlled, enable them in their own time and choice effectively to conquer the world."

"The Douglas scheme seems somewhat prematurely to assume the existence of a communal rather than an individualistic State, in which there are no debts, no rights of property and no private ownership of capital, and in which all the existing paraphernalia of wealth production is to be regarded in all singlemindedness as having been accumulated with the primary object of production rather than with that of being hired out for production. This work is, by contrast, confined to less ambitious themes, and may be regarded as an attempt to find out the best that the individualistic state of society can offer if it were intelligently administered. "

"So in the international field no less than in our internal affairs we have to make up our minds whether it is wealth or debt that we really desire, whether to use the otherwise embarrassing riches of the age to promote economic freedom or servitude among nations as wall as among individuals. "

More excerpts from
Wealth, Virtual Wealth and Debt
by Frederick Soddy

CHAPTER VIII

THE PURCHASING POWER OF MONEY

Gold-Value and Goods-Value -- How Gold-Value of Money was Maintained -- The Present Position -- The Variability of Gold -- The Evils of a Variable Standard -- The Evils of a Shortage of Currency -- Production reduced rather than Prices -- What is left of the Value of the Standard of Value? -- Gold as the Spur of Civilisation -- Gold now a Fraudulent Standard -- Real Wages and Just Wages.

Gold-Value and Goods Value.

The task of trying to understand how money is multiplied by means of bank credit -- apart altogether from the ethics of the transaction -- is, however, simple in comparison with the task of trying to determine exactly what, under the system, fixed the total quantity of money in a country, and to this extent its value or purchasing power. We have seen that this quantity, whatever it may be, expresses the monetary value of the virtual wealth of the communisty. It is simple to visualize the latter as the aggregate of wealth of all the kinds required in living, which the aggregate individuals of the community abstain from buying, though able to do so. Or, as the individuals themselves would look at it, that part of their total possession they have to retain in the form of money to carry on their business and domestic affairs. Regarded as what the money would be used to purchse, it is probably a very definite and conservative amount, growing with the number of people in the community and their material propserity or income, affected, but only very gradually, by changes in financial and banking methods and habits, alterned, but reluctantly and only temporariliy, by changes in the price level or purchasing power of money, but a fairly definite quanity and a very good guage or index of national well-being and prosperity.

If, as in this country before the War, the money is kept on a gold basis by being exchangable ondemand for gold coinage, and if gold can be freely imported and exported at a price fixed by law, minted into sovereigns or melted back into bullion as required, the purchasing power of the money is kept constant in terms of gold, though not in terms of goods in general, which is the true measure of the virtual wealth. If we suppose the latter does not change, and the value of gold relative to goods in general falls, we shall have a rise of the general level of prices, and, conversely, a fall, if the value of gold appreciates with reference to goods in general. So on a gold basis we express virtual wealth which is a fairly intelligible and constant quantity in terms of daily life and its necessities, as a variable quantity of gold, the exchange value of which in terms of goods is one of the most elusive and little understood factors in human experience. We may think we can analyse it and understand it as it operates and has operated in any one country, as, for example, in this country -- only to find that, just as a change comes over the nature of money when we consider nations rather than individuals, so a change comes over gold as international money when we consider not one country, but the whole world. Concerned with its outgoings and incoming between one country and the rest of the world, we overlook that, though the general level of prices is equalised as among countries on a gold basis, we are still as far off as ever from determing what that price level may be and what, in fact, determines it. But, the reader may inquire, does it greatly matter? Certainly, if there were no debts, or none of more than a few weeks; or months' curation, and no traditional ideas as to the magnitude of salaries, wages, etc., it would not matter so much; but in a world which is one inextricable tangle of more or less permanent mutual individual, national and international indebtednesses and contracts nothing can possibly matter more. In the following quotation we have the economist at his best, with cold scientific precision, and crystal clearness setting forth principles it would scarcely be politic economy to apply to problems nearer home, as they are operating in a foreign country:

"If we look ahead, averting our eyes from the ups and downs which can make and unmake fortunes in the meantime, the level of the franc is going to be settled in the long run not by speculation or the balance of trade, or even the outcome of the Ruhr adventure, but by the proportion of his earned income whichthe French taxpayer will permit to be taken from him to pay the claims of the French rentier. The level of the franc exchange will continue to fall until the commodity-value of the francs due to the rentier has fallen to a proportion of the national income, which accords with the habits and mentality of the country." [ J. M. Keynes, Monetary Reform, 1923, p. 73) ]

It would perhaps not be unture to generalize this to explain the world-wide phenomenon of currency depreciation through the ages. If we look ahead, averting our eyes from the haphazard discoveries of gold that can make and unmake fortunes, and the irregular grown of knowledge and invention, the purchasing power of money is settled in the long run neither by science, finance nor trade, but by the proportion of his earned income the worker permits to be taken from him by the rentier. It will continue to fall until the commodity value of money due to the rentier falls to that proportion of the national income which accords with the habits and mentality of the growing world.

How the Gold-Value of Money was Maintained

Quite briefly we must notice the ordinary explanation of the method by which in this country before the War the value of money was kept constant with reference to gold.

The monetary system before the War was based on gold, in the sense that the money could always be exchanged for gold coins on demand, and these, at a definite invariable rate fixed by the Bank Charter Act, for gold bullion for export, to pay for any balance of goods imported from foreign countries over those exported to them. For foreign trade is at bottom necessarily, in the first instance, barter still. With more settled political conditions and the growth of mutual confidence it became unnecessary, in order to secure the circulation of money, that it should be made of gold, and the mere power of being able to demand gold in exchange sufficed. So that, although still largely used in minor transactions, metal money or cash become relegated to a small proportion of all that now functions as money in the community.

In a report to the House of Commons on the cirsis in 1857 one of the leading bankers stated that, in his house, specie entered into transactions little more than 2 per cent, and in the case of otherbanks to only 0 - 25 per cent. Naturally in retail trades cash is used to a much greater extent than in wholesale trades. [ For the United States the figures given by Professor Fisher are, for 1896, 14 per cent money and 91 per cent check; for 1909, 9 per cent money and 91 per cent check. Credit money is growing rapidly in the States, but has not attained yet to the same dominating position as here. (Purchasing Power of Money, 1922, p. 318.) ]

But the power of the public to demand gold -- then the only legal tender in large amounts -- and the legal necessity for the banker to supply it or go out of business, put the onus of seeing that there was a sufficiency of gold in the country upon the banker rather than on the Government.

The vast superstructure of bank credit was prevented from depreciating the currency in terms of gold, and could only be expanded as fast as the community increased its virtual wealth (reckoned in terms of gold) by the following automatically acting mechanism: If too much money were created so that prices rose, the power of demanding gold in exchange for money, though normally useless to the ordinary citizen, was of great importance to those engaged in foreign trade. Though the price of every other commodity had risen, that of gold could not, being kept constant by law. SO that the cheapest way of settling foreign debts was to export the equivalent of gold rather than of any other goods. This reduced the amount of gold legal tender in the country, so that the banker, to maintain solvency, had to cancel credits to many times the amount of gold coin melted and exported, and by thus reducing prices in the home market stop the drain of gold. Hence it became necessary for him to conract credit. He attempted to get his clients to do so themselves voluntarily by raising the bank-rate of interest, but, if this did not suffice, [ E. Dick, in a recent work, The Inerest Standard of Currency, 1925, argues that raising the bank rate of interest increases rather than decreases the demand for credit, and that the correct course is to lower the rate in order to contract the currency. ] he arbitrarily called in loans already granted. This destroyed money in circulation as literally as the granting of credit in the first instance created it, and by lowering the quantity of mony "in the end" lowered prices in proportion. We need not at this stage do more than touch on the mechanism of the process. To go into the ethics of the quesiton and trace out the arbitrary losses and risks it imposes upon perfectly innocent and defenceless people, doing their best according to their lights to serve the needs of the community, would take us far afield.

But it must not be too hastily concluded, as has often been done, that the free market in gold at a fixed price, which this country offered to the world, was a mistaken policy, or that foreign traders were acting unpatriotically in draining the country of its gold in time of need, forcing up the rate of interest and condemning those whose loans were called in often to bankruptcy and ruin. The foreign trader is merely the unwitting instrument for enforcing an unpleasant necessity. [ The rise of prices and outflow of gold is shown later to be the physically necessary consequence of the issue of the fictitious loans in the first instance (p. 246). ] Foreign trade is at basis barter, and is paid for in goods, sometimes in securities or claims to wealth in the future, never by money, which is a claim to wealth on demand valid only in the country of issue. To enable a merchant in this country to by abroad, the merchants abroad must buy the equivalent here. In the long run, if the transactions do not balance, gold must be sent to redress the difference. In this restriction foreign trade differs from the simplicity and freedom of domestic housekeeping.

Thus, at the stage we have reached, the bankers of any one nation appropriated as their own property some four-fifths of the virtual wealth, or money of the country under the system, as interest-bearing debt, but were unable to affect or depreciate the gold value of the money in a permanent fashion. Whether banking, as an international organization, as the power to depreciate the real value of the currency is a much more difficult question, and demands more attention than it has yet received. For the mechanism only keeps the level of prices in different countries on a gold basis roughly alike. It does not pretend to keep the price of goods in terms of gold constant with the progress of time, and, as a matter of fact, has allowed them to very enormously.

The Present Position

The moratorium declared in this country in 1914, actually before a shot had been fired in the Great War, showed that banking has become so vital to the interests of the nation that the banks can call upon the national credit to save them and their depositors from ruin in hte face of any great emergency. The public at that time not only shouldered the burden, but lost their right to demand gold in exchange for their money, and suffered the debasement of the currency. So both restrictions to the expansion of credit have now been removed. The banks need not fear a run on their cash reserves, nor is there any automatic regulation of gold-value of money. That their policy at the moment is to deflate rather than inflate the currency is beside the question. It is they and not the political Government which really regulate the economic affairs of the country. They make the profits and the taxpayers and citizens shoulder the losses under the system.

At the moment of writing (1925) the gold basis has been partly restored, as regards foreign transactions, though whether it can be maintained without repudiation of liability for much of the thereby grossly magnified National Debt still remains to be seen. But it is now open to a merchant to pay for goods bought abroad in gold if he elects to do so. The system which regulated in this country the quantity of money in existence ceased in 1914, and, whatever happens, is certain not to be fully restored. The subject, so to speak, is suspended in the air at the moment, and all the monetary text-books have become out of date and misleading.

In this field it is as though men had just admitted the possbility that day and night are due to the earth rotating on its own axis, and not to the sun revolving round the earth, and that, in spite of its manifest impiety, there may, after all, be something in the new helio-centric view. In absense of any real analysis of the physical nature of wealth, and owing to the universal confusion in both popular and technical economics between wealth and debt, monetary theory has hitherto been as impressionisitic as the Ptolemaic theory of the universe now appears.

The Variability of Gold

Professor Irving Fisher among orthodox economists, has been foremost in calling attention to the evils of a variable monetary standard, and has done much to get the importance of the question more generally recognized. But among the unorthodox, Silvio Gesell on the Continent, and Mr. Arthur Kitson [ Compare A Scientific Solution of the Money Question, 1894, Arena Co., Boston, U.S.A. ; A Fraudulent Standard, 1917 ; Trade Fallacies ; Unemployment, 1921, and other workds by Arthur Kitson; and by Silvio Gessel, Aktire Währungupolitic, 1908, and Die Natürliche Wirtschaftsordnung durch Freiland Freigeld. ] in this country, have been like voices crying in the wilderness, years before any others realised its vital interest. The following are excerpts from a lecture given by Professor Fisher in 1924 before the Boston Ethical Society. [ Ethics of the Monetary System, "The Standard," published by the American Ethical Union, January 1925, p. 145. ] Discussing the United States, he says:

"Let us look at figures in this country back in 1860. If we take 1860, before the Civil War, we find the purchasing power about the same as in 1913, before the Great War. We may call the level of 1860 or 1913 'the pre-War level,' and think of it for convenience as normal. The dollar then was, so to speak, a dollar. In terms of this pre-War dollar we canmeasure the dollar at any other time.

"We find as we pass into the Civil War, from 1860 to 1865, that it was worth only 40 pre-War cents. From that time on it began to appreciate first very rapidly and then more slowly, until it reached its maximum in 1896, when it was worth 152 pre-War cents. From 1896 to 1913 the dollar fell from 152 pre-War cents to 100, or 'normal.' From 1913 it continued to fall, from 199 pre-War cents until in got down to 40 again in May 1920. Then thee was deflation, and rise in the value of the dollar. SO the dollar changed again from 40 until in teached 72 pre-War cents in Januarry 1922. Since that time it has been more stable than we have had it for many years, and yet it has danced about week by week a little. . . . Our unstable dollar has picked the pockets of the bondholder. . . . The extend of this subtle robbing is prodigious.

Professor W. I. King, one of the best statisticians I know, when appearing in favor of a Bill on this subject in Congress a year or so ago, said that as nearly as he could reckon it out there had been a sort of pocket-picking of forty billions of dollars in the United States during the last half-dozen years. . . .

"When, at last, we really stabilise the dollar, as we no stabilise every other measure, to help make business honest, we shall have taken a great step forward in safe-guarding and improving commercial ethics."

In his book, The Purchasing Power of Money (1911), he states that the purchasing power of money a thousand years ago was five times, and from 1200 to 1500 A.D. two to three times, what it was in 1911. During the last centruy before the War there have been five well-marked periods in all countries, as regards the change in the purchasing power of gold. In the forty years between 1809 and 1849 prices fell in the ratio of 5 to 2.

The Evils of a Variable Standard

After the bitter experience of the last few years few people can remain unaware of the crying injustice of a variable monetary standard. The ethical principles underlying the institution of money appeal intuitively to the common sense of humanity. Just as we concede, without arguing the point, that the use of false weights and measures is indfensible in any circumstances, and that our standards ought to be invariable and placed beyond the possibility of being tampered with, so thesame principle ought to be unquestionably conceded with regard tot he value fo money. A variation in the value of money, in terms of wealth, arbitrarily robs one class in the community for the benefit of others. In such matters people are apt "to compound the sins they are inclined to do by damning those they have no mind to." A fall in the value of money, or rise of the general level of prices, defrauds those in receipt of wages, salaries and income of fixed monetary amount and advantages those who live by buying and selling. It lightens the past indeptedness of the community, and if the old currency becomes worthless, as it has done in Russia, Austria and Germany, wipes it out. So that a man may awake to the fact that his life-savings are not worth a farthing and that an empty bottle is now worth more than the money before received from the sale of the vineyard. Nor is a fall in prices and a rise in the value of money in relation to wealth less disasterous. It falls upon another set of people, and puts out of action the merchant, the industrialist and their wage-earners. We cannot progress a step in thissubject unless we can devise a monetary system in which the money is issued neither for usury nor in repsonse to political pressure from this or that particular interest, but by the nation solely and freely as it is required to keep its value in relation to wealth as constant as is possible from century to century. And any ideal short of this is simply to accept Stephen Leacock's definition of political economy as that which teaches we know nothing of the laws of wealth.

The Evils of a Shortage of Currency

It is extraordinarily difficult, but at the same time essential, to understand the real ultimate factors that, during the period of the Bank Charter Act of 1844 to the issue of national Treasury Notes in 1914, really did limit the expansion of the currency and with it the prosperity of the country and its rate of producing consumable wealth. That the forces in operation were not even remotely understood is shown by the alternating periodic sequence of trade booms and slumps, called the trade cycle, which was, like the weather, regarded as completely beyond the wit of man to understand.

It may be of assistance to try to understand what would have been the result if credit money had not so largely replaced the precious metals as currency, and the latter had remained the sole medium of exchange. According to the current view, prices would have tended to fall greatly as the new powers of production outstripped -- not, as usually stated, the rate at which gold was won, but the aggregate of it in existence. Economists have made many such errors through failing to distinguish clearly between the two categories of wealth -- permanent and perishable -- already insisted upon, but this point will be taken up later.

Gold and silver mining, being essentially very speculative and dependent upon chance discoveries, a long time necessarily elapses before a demand for precious metals can much increase the aggregate quantity available for currency. But their use as commodities, for jewellery and as hoards, enables the currency to be increased from these sources if their value or purchasing power increases to such an extent as to induce people to give up their ornaments and spend their accumulations. The triple function of the precious metals as coinage, jewellery and hoards is responsible for much of the complication of the subject.

If prices of goods rise in terms of gold, a given quantity of gold, though its winning consumes the same wealth, as food, etc., buys less and less wealth until gold-mining becomes unprofitable. Per contra a fall of prices stimulates gold-mining. A practical example of the effect, though not the cause, was seen during the War, which though it produced an enormously stimulated demand for gold for the expansion of currency, made gold-mining relatively unprofiable! For the demand was met by the partial demonetization of gold and the creation of an inconvertible paper money. This raised prices and made gold-mining unprofitable, exactly as if the gold had really been won.

Reverting to the probable course of events, if credit money had not been invented, in the end no doubt the fall of prices would have been checked. A larger and larger proportion of the world's energies would have been diverted to the financially profitable, but socially barren, task of accumulating gold and silver for currency, until sufficient had been accumulated to distribute the increasing revenue of wealth without a further fall of price-level. The effect of the great improvements in the knowledge of gold-mining due to scientific discovery, later to be alluded to, would have told in the same direction.

Admittedly there would have been very great and distressing evils and dislocation. The actual course of historical event, when successive waves of commercial prosperity resulted from each of the major gold discoveries of last century, shows that, even with the increasing use of credit currency, these evils were not wholly escaped. Usury would have risen to altogether extortionate rates, though probably the toll taken would have been insignificant in comparison with that extorted today under a monetary system perverted to that end. in general all debts would have appreciated in real amount, as money prices fell. The dead hand of the past would have been heavy on the land.

Production Reduced Rather than Prices

But the really vital evils of a currency scarcity are due to its reducing production rather than prices. The quantity theory of money [ For an exposition of the quantity theory of money see Fisher, The Purchasing Power of Money. ] works beaufifully one way. Increasing the quantity of money temporarily increases, but makes no very lasting differences to, the aggregate virtual wealth, and prices very quickly rise in production to the increase. What some gain others lose. But decreasing the quantity of money is apt to decrease virtual wealth in proportion much more permenently, leaving prices unchanged and production reduced through the ruin of those engaged in enterprise. This is dead loss, not as in the former case merely a redistribution of wealth, and it is reflected in a vary much more permenent reduction of virtual wealth.

Whereas an excess of money is an inducement to a sale, a deficit is a fatal barrier. To the vendors, whose business is to sell wealth for money, money is the primary consideration. To the buyer and consumer wealth is. The consumer is exposed to increased competition with others, due to an increase of the quentity of money, and is powerless to resist a rise in prices. But no one in his senses, who has produced wealth for sale or caused it to be produced, and has, over a period of past time, incurred the charges involved in production, is going willingly to sellit at a loss to suit the quentity theory of money. If his competitors essayed to do so, they could hardly compete long. The result is that less goods are bought with the less money at the same price, not that the same goods are bought at a reduced prices. Or, in the case under consideration, that the opportunity to increase production by new inventions remains for long unexploited, and, with increasing powers of production, the production of wealth, as in this country now, stagnates.

For a period of inflation (money increasing relatively to the revenue of wealth) the quantitative theory is a rought guide to the facts. Whereas for a period of deflation (money decreasing relatively to the revenue of wealth) the older mercantile, or commodity, theory, which regards money as itself a commodity or valuable article, this being the vendor's conception of money, is a better guide. If it is any comfort to the advocates of the former theory, it may readily be admitted that, no doubt, it would work if it did not have the unfortunate consequence of ruining those committed to enterprise -- labor and capital alike -- and, in the end, in Mr. Keynes' sense of the word, "after we are all dead," no doubt must work.

. . .

Gold Now a Fraudulent Standard

Summing up, we may say that with a gold currency in an era of expansion there will ber a long period of currency shortage, attended with dislocation of the economic machinery of society. But the causes which expand production act in the same direction, though not necessarily at the same rate and to the same extent, on gold. So that the standard of value tends to be affected in the same way as the goods it measures, and gold prices tend to revert in time to their former level.

With a currency based on gold, the currency will adapt itself to the expansion very much more quickly. The human effort formerly spent in accumulating gold for coinage is saved, but under existing systems the saving benefits, not the community as a whole, but the banker. So long as convertibility with gold is maintained, even international banking can only debase the gold value of money to a definite extent. For, consider the case of a uniform inflation in all countries to the same degree at the same time. There is then no tendency for gold to flow from one country to another, as in the case of an inflation in one country relatively to another. but gold would, as the demand for it as merchandize absorbed it, disappear entirely from the currency, because the money will buy of gold more than its value in terms of other goods and more gold than could be obtained by expending the same sum in gold-mining. The coinage is thus hoarded or melted down and used in the arts, and would disappear in time from circulation entirely with the debasement of the currency, though the effect at first would be to cheapen gold as a commodity and standard of value.

But by the use of credit money, based upon a small proportion of gold, the quantity of money becomes subject to much greater and more violent variation than before, and the exchange value of gold in terms of goods oscillates. The causes which are inherent in the use of gold as a luxury article, as well as a medium of exchange, are greatly exagerated, producing the trade cycle.

The increasing use of bank credit and paper robs gold of one of its main uses, and, after the oscillations of the past centujryh, we may look forward to a continuously rising gold price-level. So that credit money, having largely rendered gold obsolete, the device of making it convertible into coin on demand has ceased to be effective against its continuous depreciation, and has already come to be deceitful.

Hence arises an increasing necessity for stabilizing the currency entirely without reference to gold, and reducing that latter to the level of a commodity, possibly honoring it meantime as international money at its market value, in redressing international indebtedness, under some equitable convention agreed upon by nations.

Real Wages and Just Wages

Before embarking on this inquiry, it may be pointed out that we are as far as ever from any Absolute Standard of Measure or Value, and it may be instructive to restate in a new form some fo the preceeding points. Economists, when they have taken into account the variabilities of the exchange value of gold and corrected for it -- by means of index numbers, whichenable them to reduce money prices to some former price-level taken as a standard of reference -- arrive at what they term the real value of incomes, wages and the like; that is, values entirely independent of money totals in which they are expressed, but representing the quantity of goods in general these incomes, wages, etc., will buy. But the real values, though real enough in representing definited quantities of purchasable goods and sufficient for economics as a science of exchange or commerce, are not measures at all of the human-being- house expended in their producion If the efficiency of tghe processes of production did not change, or if civilization were stagnant, then they would be -- in fact, their use tends to stabilize wages and incomes and the consumptions they represent, so that we have the interminable argument, already alluded to, as to whether the worker today is economically better off than, at least as well off as, or only slighly worse off than, his predecessor in pre-scientific ages!

Now, if we are considering debt and its repayment, a currency stabilized so as to maintain the price-level of goods in general constant solves the problem -- that is, commerce would be freed from all the legally unrecognized forms of theft attendant upon variation of the standard of monetary value, which are of much the same nature as would result from fraudulent weightes and measures. Businessmen and others could make contracts ahead without fear of being caught in a trap by variations in the general price-level due to monetary manipulation. But if we are considering the reward of work and the right of a worker to produce of his work, clearly we have to tak into account not merely the quantities of goods by which he is remunerated, but also what he produces. His real wages, in the sense used in economics, has to be expressed relatively to what he produces to arrive at his just wages.

The fact that it amy be difficult to assess this, or to solve the problem as between the reward of present and past labor, does not in the least affect the question of the right of the worker to a just wage or the certaintly that with growing knowledge and power he will not rest until he has secured it. Economics is, or ought to be, a far wider and more important study than commerce. Those who deny that it ought to concern itself with anything else may save themselves the trouble of thought, but do not add to the dignity of the subject.

CHAPTER IX

A NATIONAL MONEY SYSTEM

The Social Importance of the Study of Money -- Analysis of Usury -- Lending Money in Current Account Indefensible -- The Breakdown of the Monetary System; The Moratorium -- War Finance -- The Reductio ad Absurdum of the Modern Monetary System -- How the Taxpayer pays £M100 a Year Interest on Non-existent Money -- The Remedy -- The Still Unsolved Problem.

The Social Importance of the Study of Money.

After From the standpoint of society, the study of money is, in its social significanc and effect on human welfare, as uplifting and ennobling as from the individual standpoint it is apt to be selfish and degrading. Its technical jargon of the market-place make it appear a repellent subject, and it is capable of being made drier and duller even thana mathematical treatise on thermodynamics. Indeed, its absolute novelty to most people, and their preconceptions, derived from undue absorption in its individual aquisition, make it a difficult subject, the more so as very powerful vested interests depend for their continued existence upon the public being kept in ignorance of its mysteries. Those essaying the studyoften at first over-estimated -- and the " unsound money-men " have always been a special bête noire to the orthodox economist, though it would hardly be possible to have anything more fundamentally unsound than modern monetary systems, the principles of which the economiss have never seriously challenged. It is essential to have clear physical conceptions of money and finance, as such, to enable us to understand their more important indirect bearing upon the admittedly still to be solved probelms of achieving indsutrialexpansion without the unwelcome concomitants of unemployment and the trade cycle. Those who have penetrated most deeply into the study of himan history find it impossible to exaggerate the importance of the institution of money. As Delmar [ History of Monetary Systems. ] has said: "It is a study thant none can afford to approach with rashness or leave with complacency. "

AMong the list of master-minds he cites as having essayed its study in the past it is encouraging to a scientific man to read the names of Newton, Copernicus and Tycho Brahe. This indicates that scientific men inthe past have not always interpreted their function as narrowly as is the custom today, or been so ready to leave with complacency to others the application of their work to the daily life of the world.

"Unheard, unseen, unfelt, it has the power so to distribute the burdens, gratifications and opportunities of life that each individual shall enjoy that share of them to whcih his merits or his good forturne may entitle him, or contrariwise, to dispense them with so partial a hand as to violate every principle of jusitce and perpetuate a succession of social slaveries to the end of time." [ Delmer, loc. cit. ]

Again, one could hardly better describe " Europe after twenty centuries of Christendom " thanby this passage from Ferraro:

"The Imperial Democracy that held the world beneath its sway, from the senators who bore historic names down to the humblest tiller of the soil, from Julius Cæsar down to the smallest shopkeeper in the back street of Rome, was at the mercy of a small group of userers." [ Ferraro, Greatness and Decline of the Roman Empire, vi, 223 ]

Sir Richard Archibald Allison traces the fall of the Roman Empire to the decline of the gold and silver mines of Spain and Greece, and the Renaissance tot he discovery of the mines of Mexico and Peru. Whilst it is almost in the memorty of living men how the successive discoveries of gold in California, Australia and South Africa ushered in wave after wave of economic prosperity. More recent and striking still, we have the fresh experience of the Great War, when, apart from the destruction of life and property and the effects of blocade on the Central Powers, there was a degree of economic prosperity and abolition of crime and poverty in the belligerent countries unknown inthe time of peace.

We have seen that in modern times a fundamental change has come over the nature of money. Not only is it now a simple token of the community's indebtedness to the individual owner of it, but it is created not by the national authority, but by private institutions for lending at interest. It is therefore essential to go back to first principles in considering it. We must be on our guard against carrying over unchallenged into the modern era the earlier views of the evil power of money and the stigma attaching to usury deriving from ancient and mediæval times when money was a totally different institution.

Analysis of Usury

In its original meaning usury simply meant the interest upon a loan of money, whereas today it has come to be a term of opprobrium, referring rather to excessive and extortionate interest, increasing in proportion to the debtor's inability to repay. The mention of this form of petty usury, as it exists in the underworld of great cities and among the swarming populations of India, conjures up possibly in the mind a memory of evidences of human terror and anguish one had never expected to meet this side the abode of the damned, and gives rise to a feeling of physical loathing as of something at work, ghoulish and inhuman, battening upon, if not responsible for, the extremity of misery.

Whereas, at the other pole, interest upon a money loan to the strong and adventurous, to enable them to develop the resources of the earth and to climb to positions of influence and power within the State, has nowadays occasionally even replaced the ladder offered in earlier times by the Church tot he gifted offspring of the poor, and has beenendowed not only with respectability, but even with an odour of sanctity.

Bothe in the ancient and the mediæval world there is undeniable evidence of the evils of usury. We have quoted the striking passage of Ferraro on its power in ancient Rome. The Christian Church at first universally condemned itl Indeed, the bar on urury was not removed in the Roman Catholic Church till quite recent times. But there is little doubt that these evils arose not so much out of the practice of lending money in itself as from the comparative case with which the currency metals can be monopolized. A period of great Imperial expansion, such as those of Rome, Spain and the modern Western world, demands an increase of currency. But it never seems anyone's business to supply it. The world may be thirsting for gold, the finding of which is, at best, a long and hazardous business, and against the real interests of thosewith gold to spend in the search. For if there are many borrowers and few lenders, the rate of interest rises just as the price of a commodity rises if there are many buyers and few sellers. The evil of interest upon money is not difficult to understand with money made of naturally very scarece materials. "Get your man intoyour debt for what he has not got and cannot get, and you may take the skin off him," is a financialaphorism which sufficiently indicates not only the cause of the evils of usury, but of those of monetary power in general. Make debts repayable in wealth, which, if people have not got they can make, and you strike at the heart of both evils.

With paper money this question, like the question of "hoarding," is utterly different. A nation printing and issuing its own money as required for use would be absolutely free from the suri sacra fames due to the monopoly of the coinage metals, and from the cause of the main evils of money as they arose in the past. It could regulate usury, absolutely within its own judgement, as the national interests demanded, by its control over the issue of money. In a time of abounding productivity due to science, it could, if it wished, repay, or at least redeem, its debts, neither in gold nor " pounds of flesh," but ,mirabile dictu, in wealth in general. If it thought in real terms of wealth, not in that of money, it would not, in a time of greater powers of producing than the world has ever enjoyed, with millions of unemployed, large-scale organs of production lying idel and cultivated land reverting to grass, see the exact point in paying its creditors perennial interest for not repaying them, through, as we shallcome to see, an individualistic society can only redeem debts by levying taxation on the general wealth of the community. [ An individualistic society owns no revenue-producing property, and derives its revenue solely from taxation. ]

Genuine and Fictitious Money Loans

It was necessary at the risk of wearying the reader in Chapter VII, to go with great minuteness into the transition from the old national metal money to the modern money created by loan. Because the real charge against the modern system is not so much that it has caused an enormous increase in the practice of carrying on industry upon borrowed money, as that the bank loans are not genuine money loans, but are entirely fictitious, in that no one gives up the money lent, which is new money created for that purpose.

The owner of money is absolutely within his moral as well as his legal rights to spend or lend or hoard, but if he spends or lends it is to be understood that he really does give up the money spent or lent. With cash the lender must do so. Even a bank deposit is technically distinguished as a current account or a deposit account. With the first, the owner has not given up his power to spend, and cannot, in this country at least, obtain interest on it, though in America interest is, or at least was, commonly givenevenon current accounts. In the case of a deposit proper, the owner of the money does give up and transfer temporarily to the bank his purchasing power, and in return for the loan he received a payment of interest on the deposit. In this distinctionwe see the original restriction that applies to metal money still lingering with regard to bank money. But obviously the question of usury is totally different, whether we consider a genuine loan, as in the case of a loan of cash, or of a sum depositied and not recoverable without due notice, and interest upon money which the woner has never give up at all. It will certainly be argued that the depositor,althoughh e does not give up theright to spend at will, in fact does not exercise it, as is shown by the existence of the deposit, so that between the two classes of account there is a distinctionwithout a difference.

Lending Money in Current Account is Indefensible

This position, though it is very far from justifying what actually does occur in banking where "every loan creates a deposit " (Withers and McKenna), appears plausible, but can easily be shown to be indefensible. For one has only to remember the undeniable fact that the total quantity of money in a country is not affected by its being spent or not spent, to see that the argument is not concerned with the lending of money at all, but with its existence.

Let us suppose that checks entirely replace cash as purchasing power and that everyone has a bank deposit. This is now so near the actual state of affairs that for the purpose of argument it may be takn as already to a very substantial extent true. Now if we concede to the banker the right to lend the deposits on the score that their existence shows the owners are not susing them, we thereby double the money in the country, and double the deposits. The existence of the doubled deposits is as clear evidence as before that their owners are not susing them sothey may be lent again, and now the deposits are increased four times. So we may go on and create an infinte quantity of money.

It is interesting that J. S. Mill, nearly a centruy agao, contemplated precisely such a case, payments being universally by check and "no money anywhere except in the hand of the banker, who might then safely part with all of it by selling it as bullion or lending it, to be sent out of the country in exchange for goods or foreign securiteies. " He concluded: "There would be in all this nothing to conplain of, so long as the money, in disappearing, left an equivalent of other things, applicable when required to the reimbursement of those to whom the money originally belonged."

Why he confined the consideration of the case to lending the money to be sent out of the coutnry is one of those mysteries that may never be solved. If he had not done so he would have made the interesting discovery already deduced, and which even at that time must already have been made by the bankers themselves. Nor do later economists seem to have pointed this out, thought the finicking distinction they seem always so careful to preserve betweenmoney and bank deposits, without being able to point to any practical difference whatever, suggests that they may have known. MacLeod, the barrister, lays great stress upona bank deposit not being money,but a right of action against the banker. Irving Fisher, having arbitraritly defined circulating media or currency as anything, wthether generally acceptable or not, which serves as a means of exchange, and money as "what is generally acceptable in exchange for goods," says: "But while a bank deposit transferable by check is included as circulating media, it is not money. A bank note, on the toerh hand, is both circulating medium and money. Between these two lies the final line of distinction betweenwhat is money and what is not. True, the line is delicately drawn. . . ."

These distinctions may have had some significance a centruy ago, but their retention today seems the merest hair-splitting for the purpose of confusing the issues.

We thus come back to the point that, in the case of the old-fashioned usury, the moneylender did give up the money he lent and received interest upon a genuine loan. In the case of money lent by a bank, it is give up by no one and the loans are entirely fictitious except in the case of genuine "time deposits," which Macrosty estimates, both for this country and the United States, as one-fifth of the whole deposits. Even these, in so far as they exceed the cash held by the banks -- the only money not of its own manjfucture the bank has to lend -- were created in the first instance by the banks themselves. It is true that, up to the time of the War -- which then saw the money of the country multipled almost suddenly two and a half times -- the creation of this money was a gradual affair extending over a centruy. Custom has confirmed the banker in his enjoyment of it, and made it quite out of the question ever to de-create it. But it is not his, as he himself would probably be the first to admit, if it were a question of his spending instead of lending it. It is, as we have seen, the virtual wealth of the community as a whole.

The Breakdown of the Monetary System; The Moratorium

The outbreak of the Great War revealed the complete unsoundness of our currency system. On July 24, 1914, Austria sent its ultimatum to Serbia. The world's Stock Exchanges, of course, took fright and ceased to function. On the last day of that month the London and New York Exchanges followed the example fo the Continental Bourses and closed their doors. Securties of all kinds became temporarily unsaleable. By August 6th a general moratorium was declared. The banks only possessing a small reserve of money against their money liabilities to the public were quite unable to call in their loans and to attempt to recover the money which the system had allowed them to loan without possessing. It could not adopt the usual plan ofselling at any sacrifice the collateral securities deposited by, and the property of, the borrowers so long as the Stock Exchange remained closed. The country had so "economized" inthe use of money that there literally did not exist in the country one-sixth of the amount that those owning money were legally entitled to, or one-fifth of the amount upon which industyr was paying interest. If the Stock Exchanges had not shut and it had been attempted to seel the securites to repay the loans created, this fact would have become most painfully obvious. Those to whom the credits had been granted, of course did dnot own the money, but had exchanged it for wealth with the owners of wealth, whereby the former owners of wealth and not the borrowers now legally owned the money that had no existence. The loans could only therefore be got back, if recalled, by a forced sale fo the borrowers' collateral securites at any price they would fetch. "In the end" the currency would have been reduced to a mere fraction of its former amount, and prices also. Whereas we have seent hat it is very difficult to reduce prices by constricting the currency, because the producers of wealth will not seel below cost price unless forced to do so. The fraction of the currency that the banks would have recovered by the forced sale of their debtors' collateral securites and of all that they themselves possessed in the way of wealth would have been insiginficant. In other words, they would have been hopelessly ruined, and those whohad depositied their money withthem would have lost it but for the moratorium.

Naturally the Goverment had to resume the responsiblity for the regulation of the currency which the nominal political rulers of the country in the nineteenth centruy had shirked and passed on to private firms. It did what ought to have been done from the very commencement of the Industrial Revolution. It printed real money -- money, that is to say, which the owner owns, not money on an unseen string to be called back and put out of circulation at the first financial panic by a power behind the throne. But unfortunately every Treasury note so printed and exchanged for wealth to pay for the cost of the War was multiplied in the old ratio by the banking system, now restored to solvency, and quite relieved from any risk of failing under any circumstances. These credits being only lent passed, of course, into the circulation without paying for anything at all. The necessity for financing the War was unavoidable, but the question has been much discussed as to the methods adopted. Let us examine them.

War Finance.

Patriotic people in this country -- and for that matter in Germany -- were urged to invest money in War Loans to help to win the War, and did so. Some of the very curious consequences that arise from the fact that the same money circulates in an endless round, thoguh the produciton and consumption of wealth is continuous, were then seen in their proper light probably for the first time. The more the nations spent the more they found they could spend -- the flow idea, as contrasted with the store idea, that the more you spend the less you have left to spend, and the more you have to abstain from spending in the future to replenish the store. The more people lent to finance the War, the more they found thaty had to lend among those classes of the community engaged in production. But all classes were encouraged to lend, and if they had no money to lend the country to help it to win the War, they could run into debt to the banks, and payoutfo what they expected to have in the future. For every Treasury note printed and depositied in the banks enabled them to lend six or more pounds as credit, and the new War Loan and borrower would receive was a sufficient collateral security for the loan. The Bank of Englandissued circulars offering to lend at 3 per cent the money necessary to secure War Loan upon which the taxpayer was to provide 4 per cent. So that for each pound the taxpayer contributed, the bank would receive 15s. and the bugus subscribe 5s. The bank took no risk, for it would hold the new script as collateral security for their loan until the debt was redemed. This transaction is merely a rather clearer example than usualof the process of saddling upon the taxpayer the interest chages upon fictitious loans.

The amount of the War Loans so raised, apart from the American debt, was of the order of £M7,000, and the charges for interest amount rought to a million pounds a day. The total amount of money in the possession of the public we have seen was about £M1,200 before the War and about £M2,700 in 1920. A small part of the increase was due to the issue of Treasury notes, probably not more than one-fifth. It is a great pity that the exact amount issued does not sem to be publicly known.

The point has been argued whether a larger part, or even the whole of the War expenditure, could nothave been levied by taxation, since if people have spare moneyto invest, intheory at least, the State ought to be albe to get at it by taxation. It will be generally admitted that taxationis to indiscriminate and impersonal to extractonlymoney from the pockets of those with spare cash and to leave those who have none uninjured. In the stress of war more urgent matters call for consideration thanthe devising of new methods of taxation to strike at the affluent and miss the indigent. It would have made the War unpopular in the City, and that is the same as saying that, for good or evil, it could not have been "fought to a finish."

Apart from printing money, taxation and selling foreign securites to pay for goods received from foreign countries, all of which methods the State employed, it relied upon the patriotism of its citizens to subscribe liberally to War Loand,s which they did to the extent of £M7,000, of greated depreciated money. The ostensible object was to stop the people who subscribed from spending either what they had or in the case of those who borrowed from the banks, what they would receive in the future, so that they should not compete in the market for and inflate the prices of the goodsthe State needed, or would need, fortheconduct of the War, or, now the War is over, for its normal life.

Observe the nature of the contract. We, the taxpayers, are pleged to pay you,and individual, £5 a year for ever after, till the loan is repaid, for every £100 of purchasing power you have agreed to forgo. If the State had not been afraid of individuals exercising their purchasing power, it could have printed and not borrowed the money.

The Reductio ad Absurdum of the Modern Monetary System.

It is perfectly legitimate for an individualto recover his purchasing power by selling his script and so reducing the purchasing power of sombody else, thereby leaving the total unchanged. But as things are, he need not do so. Here merely needs to deposit it at the bank, and, as a gilt-edged security, it would be acceptable immediately as collateral security, through really productive wealth, such as a factory as a going concern, might not be so acceptable. This is one of the by no means minor absurdities of private banking: dead debts are preferred to wealth as security simply because backed by the national powers of taxation.

Whenthe bank accepts War Loan as a collateral security the borrower pays the bank the current bank-rate of interest to do precisely what the State pays him out of the pockets of the taxpayer 5 per cent per annum not to do. Actually the taxpayer pays the tax, not tobut only via the bond-holder to the bank, for doing precisely what the tax was imposed to prevent being done. Thus easily in this simple case we arrive at the reductio ad absurdum of the modern money system.

How the Taxpayer Pays £M100 a Year Interest on Non-Existent Money.

We have seen that something of the order two thousand million pounds have been created by the banks. Lent at interest, it brings in a revenue of some £M100 a year at a bank-rate of 5 per cent. The effect of this creation on prices is completely and absolutely indistinguishable from that of national money. It is unnecessary to print £M2,000 worht of £1 Treasury notes, and put them into circulation. They would merely take up storage room in the vaults of the bank until thenext war or financial panic, when they can be so much more easily printed if required. But there is no reason to continue to pay the £M100 per annum out of the taxes. Although the money has no physical existence, and, except in times of crisis, does not need to have, owing to the popularity of the check system, the legal titles to claim it exist and are owned by genuine depositiors.

If anyone wants a loan of currency on the security of a holding of War Loan, and can get it in a roundabout way by an increase of the total currency, clearly it is an elementary principle of business that the State should cancel the debt and itself issue the money to pay for it. The money is issued in either case with effects indistingusihable, whether it is bank credit or national money. But, if the State issued in in exchange for fresh currency, it would relieve the taxpayer from the necessity of paying interest, and the original contract would thus be terminated in a business-like manner fair to both parties.

The old extreme laissez-faire policy of individualistic economics jealously denied to the State the right of competing in any way with individeuals in the ownership of productive enterprise, our of whichmonetary interest or profit can be made, and this was ignorantly extended evento the virtual wealth of the community. Individualistic economics, ragarding money was wealth instead of debt, hands over to individuals the power to issuing money,and leaves to the taxpayer the duty of payuing interest for the issue. The State, at any time ti wishes, can relieve the taxpayer of some £M100 a year, or 2s. 6d. in the £. It has merely to buy bakc in the open market £M2,000 of War Loan with genuine new money to replace that created by the banks, £ for £ of the bank credit they issue, so enabling them to meet their liabilities at all times. The State must recover its sole prerogative in the issue of money, and make it impossible for the banks to issue money which they do not possess or which has not beensurrendered intotheir charge by the owner as a definite time-deposit as distinct from the deposit in current account. This would terminate the absurdity of taxing one set of people to prevent the currency being increased and handing over the taxes to another set who are increasing it. The situation is that £M2,000 is in circulation by check and forms part of the total currency which determines the levelof prices, but the formal tokens acknowleding the indeptedness of the community to the holders have not yet been issued by the State, and no valuable consideration has been received for them by the State. Therefore, let them be issued.

The Remedy.

Let us consider the nature of this transaction a little more in detail. We have seen that the purchasing power of the nation, as guaged by the total amount of Bank Deposits added tot he total amount of currency in circulation, was estiamted by McKenna in 1920 to be £M2,693 (p.159). For the purpose of illustration, we will assume that the total amount of national money (coins and Treasury notes) today is £M700, and of bank credit £M2,000. It is of about this order as a maximum, but does not seem to be exactly known to the public. It is simpler to have concrete round figures in mind, but, of course, the argument does not depend uponthe figures assumed being correct. Whatever they may be, the appropriate adjustment can be made by the reader, as the principleonly is under discussion.

The State having decided to recover its lost prerogative of issuing moneylegislates to that effect, and notifies the banks that henceforth, after a reasonable interval, they must not lend money in currenct account, but only money surrendered into their keeping for a definite period under a proper deed of tansfer or other authorized legal form. A suitable scale of stamp duties on such deeds could be devised, so that it was not profitable for them to be taken out for finicking periods, in order to avoid the indentions of the Act being made a dead letter by some new development of the system of purely fictitious loans.

The situation then is

(1) The banks now lose one of their sources of income and must be conducted on the same principles as other business services, charging their clients for keeping their accounts.

(2) The debtors -- owing the banks £M2,000 in aggregate, and owning for the most part collateral securites or other property against which the loan has been issued -- must either sell their securities or find someone who has the money -- either individuals or the State -- genuinely to lend it to them.

(3) The State has ultimately to issue £M2,000 of new
national money, and with it buy back and cancel
£M2,000 worth of National Debt.

(4) This new money has in future to be held by the
banks, £ for £ of deposits in current account, so that
instead of their keeping a safe proportion of their
depositors' moneyas at present, they must keep
the whole.

There is no difficulty or danger to be feared in carrying out this operation, provided it were conducted with ordinary financial prudence and acumen. The banks themselves could, with the co-operation of their clients, no doubt easily provide the whole £M2,000 of national securities to be liquidated. It represents less than one-quarter of the amount inexistence, and, if they had not so much in their possession already in the form of collateral securiteis, it would be a simple Stock Exchange matter to exchange other non-national collateral securiteis for them to the requisite amount. Mr. Withers' office-boy in the City nodoubt would be able to explain, if consulted. [Bankers and Credit, p. 200. ]

The position, then, is that all pruely fictitious loans have been terminated. The amount of money in the coutnry has not been affected by the transaction, and indeed, the general public would only know that it had been carried out by the consequent reduction of taxation.

The banks are now solvent in foul financial weather was well as fair. Not a single legitimate feature of their business as moneylenders has been touched. They can lend money at interest as before provided they, or the owners of the money lent, genuinely do transfer the ownership of it to the borrower and give up the use of it. In so far as theloans to industry were due to simple deficit of legal tender, they will have been reapid and industry freed from the incubus by the stale of collateral securties in the debtors' possession. In so far as they are not, they would be continued as genuine and legitimate transactions between the induatries and the lending public.

The way is then cleared for the future task of keeping the index number of prices and the purchasing power of money constant by issuing or withdrawing it, as the virtual wealth of the community grows or diminishes. We have dealth withhow the issue could be effected. Its withdrawal, if necessary, is the converse -- the State issues a new loan to the public and destroys the money so issued. Or, alternatively, the State imposes ad hock taxation destroying the currency so obtained.

The Still Unsolved Problem.

But we have still much ground to cover if we are to understand the laws to be obeyed by a community before it can keep its money from depreciating and its production of wealth a maximum, so that neither capital nor labor is voluntarily unemployed. That is a task which has never yet been achieved, and a problem that has baffled the entire world. It is insolubleif we permit money to vary in purchasinging power and do not distinguish between genuine and fictitious loans. But if we say our money shall be made of constant purchasing power and issued for that sole end, and ensure that all loans must be genuine, we can then easily find the general form of the law as regards the relation between the issue and the accompanying abstinence (genuine loans)required to tune up industry from one level of production to a higher level until all available capital and labor are absorbed.

CHAPTER X

THE PRINCIPLE OF VIRTUAL WEALTH

High Finance or High Treason? -- The Principle of Virtual Wealth -- The Value of Money measured by Virtual Wealth -- The Musical Chairs Analogy -- Why a Standard is Essential -- Index Number -- The Hypocrisy of Standardizing Weights and Measures and not Money -- A Currency Based on Index Number -- At What Value Should Money Be Fixed? --Relation between Price and Goods -- Virtual Wealth and Incomes -- Hoarding and Mutual Credit -- An Analogy to the Governor of a Steam Engine -- Reply to Some Misunderstandings

High Finance or High Treason?

Let us take a breathing space, to come out from the trees and look again at the wood. At the close of the War, which had shaken us all out of ourselves, it did seem that a favorable atmosphere had been created in whcih to mould our national life nearer to the heart's desire. New things were then not necessarily untrue. but now we seem back to a resigned and fatalistic habit of mind which regards our failures as inevitable and part of the natural order of the universe. The upshot of our incursions into the scientific aspect of the social question is that the monetary system of the world is false and abusrd, and that without minute attention to this little understood mechanism for distributing the products of industry, it is not much use thinking about where we all want to go and the supreme importance of our getting there. Politicians of all parties never time of this easy theme, but each and all seem anxious to discuss anything and everything rather than money, which has all in its absolute uncontrolled grip. There is an almost complete byocott of the subject in the Press. It seems impossible to get any of the essential data plainly and unequivocally made public, and for definite statistics one usually has to go to the U.S.A. for illustration. The British public surely has right to information about its own system and to public and impartial inquiry and discussion concerning this new power, into whose hands it has been delivered over without its knnowledge or consent.

Science, as was plainenough to everyone during the War, is amply capable of providing more than can possibly be required to enable everyone, able and willing to earn their livlihood, witht he opportunity to live a decent life in healthy and adequate dwellings. The reward it should offer for efficient work should not be ever more and more work in competiton with machinery, but leisure, honest and well-earned, to cultivate higher faculties and live on a less animal-likme plane. True, there are plenty of people of mediæval views, carefully fostered by lack of education in our schools and universities, still ignorant of this, but facts in the way of masses of unemployed, factories working part-time, and land being allowed to go back out of cultivation, tell their own story. The conflict plainly is between science and finance.

It is, at best, but the counterpart of the bus-dirver's holiday to attempt to get people to devote their leisure hours to the study of the mechanism that drives them about their daily routine. But for all that, it is fascinating to think of ourselves at the wheel instead of being driven. It is the firs step towards understanding the difference between the money we all know and the high finance fo few get the opportunity to learn about. Instead of spending our whole working energies in the endeavor to find some employment, however uncongenial, inwhich to exchange our undervalued services for crisp new Treasury notes -- which in these days of mass-production cannot cost very much more than postage stamps to print -- would it not be a change if we woke up one morning to find somehow ourselves running the printing machine and everyone else offering us everthing they have to give in the way of labor, service, commodities, and the produce of industry in exchange for our coveted pieces of paper? High finance has obvious advantages considered as a vocation.

But this, the unimaginative and stolid politician will tell us, is not High Finance, but High Treason against the State. That is precisely what from the dawn of history it always has been considered, and, before it got Britain by the nose -- if a bulldog can be said to have a nose -- it would have been thought worthy of publicity rather than concealment.

The Principle of Virtual Wealth.

Let us take a survey of ourselves as we are -- many of us priding ourselves on our hard-headed business and commercial acumen, som on our intellectual curiosity,others on our common sense, and none of us obviously escaped lunatics. We all of us have wants and desires of every description, which we should satisfy if only we could "afford" it, of every degree of urgency or expediency, from a lack of proper nourishment and raiment to a mild hankering after a better motor-car or the latest in fashionable Russian footwear. Yet we all carry on our persons legal claims in the way of money to these things, and we do not exercise our claims to these things. Rather we prefer paper tokens setting forth various 10 or less percent truths about George V being , by the grace of God, King of all Great Britain, Defender of the Faith, and Emperor of India. but these tangible and existing tokens, which the public prefer to the things they really need are, as it were, the small change of commerce, almost insignificant compared with vastly greater equally valid claims in bank accounts for which no tokens exist.

Every one of us, as individuals, regard these monetary holdings as at least as valuable as the acutal wealth they would exchange for. There is no compulsion in the choice other than the individual's own preference. It is, moreover, the normal permanent condition of society, for as each individual in turn exercises his purchasing power and obtains the reality in lieu of the token or credit, here merely exchanges it with another individual, who then in turn abstains from the wealth to which he is entitled. Through the vast majority have none too much money, yet the aggregate of allour individual possesssions of this Virtual Wealth is colossal. In 1920 it amounted, according to McKenna, to two thousand seven hundred millions sterling. As the annual total production of wealth in this country is estimated as of the same order, about £M3,000, it thus appears that there is nearly a year's production of the wealth of this country literally going begging, "glittering prizes" waiting to be picked up by sharp brains without producing anything whatever, and once picked up, well able to hire the sharpest swords of the law, and every other weapon that can be bought for money right up to the nation's privately owned Press, in its defense. If we calculate in hard cash how much it is worth to spend in the defence of an unearned income of some £M100 a year, we may be sure it will not be a case of sinking the ship for a ha'porth of tar. But this, again, is a mere nothing compared to the power which the granting, withholding, and arbitrary cancellation of credit money confers on those who exercise it. Only one industrialist in the whole world, so far, Henryy Ford, of motor-car fame, has dared to brave it and has escaped bankruptcy.

Henry Ford

It is as well to picture sometimes what crude realities our idealism comes up against, if we wish to understand the complete rout of the forces working for progress in the past cientry, and their inability to take a step forward without the ground beneath their feet seeming to slip back farther than they have advanced. The world is getting very tiered of the idealist, and the contemplation of an ever more distant goal. Surely a knowledge of the muddled idiocies of public finance is worth many a headache to aquire, and is the first necesssary step to restore to the nations their sovereignty and inheritance.

The Value of Money Measured by the Virtual Wealth

As indicated at the end of the last chapter, our problem falls into two distinct parts, which must not be mixed up but must be considered in logical order. There is the quantity of money, which must always be proportional to the virtual wealth of the community if its purchasing power is to be constant, and there is a very much more complex question, the circulation of this money from hand to hand interlocked with the endless flow of wealth from production to consumption, much as in mechanical movement known as the rack and pinion.

RACK AND PINION

In a rack and pinion, each complete turn of the pinion moves the rack a definite distance in a uniform straight line. A stabilized currency corresponds with such a mechanism, each circulation of the money send forward from production to tconsumption or use the same quantity of wealth. A currency of variable value corresponds with a rack and pinion, in which the number of teeth in the pinion, and, consequently, its diameter, are never the same, but are continuously varying as it turns. Such a mechanism it is mechanically impossible to make, whereas hitherto, for reasons that will later be apparent, it has been politically impossible to distribute wealth by means of a currency of constant purchasing power. Violent alternations over short periods,and an average decrease of purchasing power over long periods, have been ineveitable.

We may briefly recapitualte the position with regard to the first part of the problem, and put some of the points in a slightly different manner. The quantity of meoney in a country is the quantity of a peculiar sort of debt that would exist in that countryh if there wore not money. It is not the only sort of debt, but it is the only sort od debt repayable in any form of purchasable wealth upondemand at the option of the owner of thedebt. There are, of course, plenty of other sorts of debts, but thery are not repayable in wealth, but in mony. So that all of them have first ort be repaid in money and them becomes repayable in wealth in general.

Now this debt, though expressednumericall y by the sum total of the country's money, represents a deficit of real wealth, composed of allthe actual things which the owners of the money are entitled to possess but voluntarily go without, or agstain from possessing, to suit their business or private affairs.

If we think of our own circumstances and the reason why we need money and have to keep a stock of it, the same reasons apply to the community as a whole. It suits some fo the people's convenience and affiars all the time , and all of the people's some of the time, to be owed rather than to possess wealth, so that they may be at liberty ot select at their owntime the world and quantity they need at that particular moment in the market and receive it upondemand in exchange for their money. The quantity of wealth which it so suits a community not to possess, through letgally entitled to possession on demand, is worht all the money in the community.

This negative quantity or shortage of wealth is termed in this book the Virtual Wealth of the Community. We may suppost it to be G -- where G means the aggregate of goods, or real things, the community are abstaining from possessing, and we will first assume that this doe snot change. If the quantity of money in the community is £X, each £1 is worth G/X. Now suppose -- whether by the action of the State, the banks, or of counterfeiters, it matters not at all -- the quantity of money £X is increased in a certain ration r to £rX, where r may be 2, 1.5, 1.1, or any ratio whatever, greater than unity, G is now worth £rX, and each £1 is worth G/rX. The owners of the origianl £X now have claims to XG/rX or only G/r, i.e. to only the 1/rth part of what they had before. The issuers of the new money, or those to whome they pass it off, hold claims to the rest G(1-1/r). If the State issues the new money, it will be to pay for public expenditure which otherwise would have to be defrayed by taxation, and if they withdraw it again from circulation it must be by imposing taxation and destroying the money so raised. Siliarly if a bank issues it as loan credit, and cancels that credit when the loan is repaid, instead of re-issuing it, the community as a whole then regains in additional purchasing power of its money what before it lost. If a counterfeiter passes it off, what he so gains the individual, in whose possession the bad money is ultimately found, loses. But until it is detected, everyone in the community suffers a permanet loss in the purchasing power of their money, and for this reason, no doubt, the law has always regarded the uttering of false money as a treasonable offence rather than theft, thought the actual counerfeiter gains no more in the one case than in the other.

If, now, we regrd G as growing gradually and the money permanently and gradually increased to follow suid, so as always to keep the purchasing power of the £1 the same -- i.e. now rG/rX, which is the same as G/X -- then no injustice is done to money owners, but the increase of virtual wealth of the community is appropriated in the first place by the taxpayer, in the second by the bank, who pass it on to those who borrow money from them, and in the third by the counterfeiter.

But how is G increased or diminished? Only by people abstaining from possessing what they are fully entitled to possess, without any payment of interest as reqard of abstinence, to a greater or to a lesser degree than before. In this the desires and intentions of individuals are not at all the same as the aggregate effects of those desires. People may think there is too much money and that there is going to be less, so that the price-level will fall, or too little and that there will soon be more, so that the price-level will rise. They may in consequence try to reduce or increase their holdings of it, but this has clearly no effect on the total money in existence. What they give up or acquire others acquire or give up, and it is therefore a very complicated inquirty to ascertain under what circumstances their desires and intentions have any effect at all on the aggregate virtual wealth of the community and the purchasing power of money. We may state without fear of contradiction that, since the owners of money do not know, in general, whether money is being increased or decreased until the subsequent effects on the price-level manifest themselves, the temporary effect of an increase of the quantity of money, by conferring new virtual wealth on those before without it, is to increase it, and conversely a decrease of money temporarily decreases by cancellation part of the virtual wealth. But these are only the initial effects, the increase in the first case soon being neutralized by rise of price-level, but the decrease, in the second case, since the price-level is reduced more slowly, is more permanent.

The Musical Chairs Analogy.

One can best illustrate this vitally important feature of all monetary problems by a very homely analogy.

In the game of musical chairs, when the music stops the ring of players moving round the chairs all instantaneously try to sit, but there is always one chair less than the number of players. This gives us easily the fundamental idea in the institution of money. If the instantaneous state of the nation could be similarly immobilized, there would always exist, in addition to those in full possession and enjoyment of all the wealth in the country, others with legal titles to demand it for whom no wealth whatever either exists or need exist. If a nation's affairs were liable to be wound up and the liabilities and assets apportioned, like those of an individual, then it would be necessary for the nation to keep in store, or put into the token itself, a quantity of wealth equal to the quantity of money. But a nation is a perpetual going concern. In so far as it may through adversity have to withdraw and cancel part of its money, it possesses through the right of taxation all that is required for this purpose. Hence it is quite mistaken to insist that there must be the equivalent of wealth behind a token currency. The first essential is that the community should not be robbed by the issue of token money in the first instance, and that it should be put into circulation to pay for costs that would otherwise be defrayed out of taxation. There need not be any backing of real wealth. What is behind the token currency is the necessity for the members of a modern community to abstain from possessing all the wealth to which they are entitled, in order to be able to get what they want in the form and at the time they require it.

The second essential is that the new money must not be issued more rapidly than the virtual wealth of the community increases. If the issue is conducted solely according to the desires of the State to defray expenditure without imposing taxation, by the banks with sole regard to the issue that yields the maximum gross amount of interest, or by the counterfeiter to obtain the greatest quantity of wealth for nothing, the curency is depreciated and the creditor class is robbed. If there is no issue, or insufficient to keep pace with the growing prosperity of the community, the much larger debtor class is defrauded. THe dead hand of the past becomes excessive, and the payments to the rentier an exhorbitant fraction of the national income. Labor, being without agents of production and forced to borrow the use of them, is in the debtor class and is permanently depressed by a fall of prices. Being also remunerated by wages fixed largely by custom and long term agreements, it is temporarily injured by a rise in prices. Though, as we have seen, fixing the level of prices is not a means of ensuring a just wage, but tends, if the nature of the standard is misunderstood, to stablize rates of remuneration, yet it is absolutely essential to have a definite standard of monetary value before any progress at all in these further economic problems is even possible.

Why a Standard is Essential.

If politicians decide that it is essential for easy government that people should be led or tricked along the way they should go for their own good, and that the object in view had best be secured by some such rapidly depreciating standard as the gold standard, to lighten the dead hand of the past without arousing too openly the furies of private interest, the nation may rest assured that at the game of deceit in money matters the politician will not prove a match to those who have made the study of these questions a means of personal livelihood. So for the rest of this book we shall accept the advisability of stabilizing the purchasing power of money, with reference to the general price-level of commodities, as an essential preliminary to any attempt to secure justice between all classes of the community. If, then, further adjustments are required as time goes on, it is far better that they should be made in the open by the State's powers of suitabily graduated taxation than deceitfully, and iwth much unnecessary transference from the pockets of one class to another, by tampering with the standard of value. It is understood that the standard is essentially a debtor-creditor standard, and does not attempt to settle the just wage. It merely clears the way for possible reform so that in future each step towards progress will not be more than offset by the ground on which we are attempting to progress slipping backward beneath our feet.

. . .

The Hypocrisy of Standardizing Weights and Measures and Not Money.

If the State is to keep faith with all parties the value of its money must remain constant. It is obviously a pretence to set up a bureau of national standards and to maintain an army of inspectors of weights and measures to ensure that those who buy coal by the ton, cloth by the yeard, or beer by the gallon, shall receive the quantities which they pay for, when the money itself which is exchanged for these commodities buys them more or less according to the quantity of it that is put into circulation by purely private lending concerns.

If the nation does not control the issue of its money, it should give up the pretence of controlling the standards of weights and measures. It is the very acme of hypocrisy to enarct laws against the utterers of false coins for use, and against usurers who, however exorbitant their interest, do, presumably, give up the money they lend, whilst allowing a creation of the order of two thousand million pounds sterling of new money for usury by the banks.

The only satisfactory test of the honesty of the currency is the constancy of its average value in terms of the goods for which it exchanges. In other words, the Index Number, which measures relative cost of living in terms of monetary units, should remain constant at a definite prearranged value from century to century.

With the expansion of wealth-producing- power due to science and invention, we have seen that if the quantity of money in circulation were not increased, the value of money would increase, but that -- owing to the ruination of industry if it is compelled to seel its goods below cost due to the rise in the value of money -- what actually occurs is that the shortage of money tokens paralyses industry, and instead of prices being reduced, production is. So that the scientific advance remains utilized, and the nation preserves its former state as regards production with fewer employed in the work, whereby unemployment and idle land and factories are the result. In fact the existing inversion of science and its consequences, from internal destitution to external insecurity and the phenomenon of world war, are the consequences of the nations not deliberately increasing their currency FOR USE, pari passu with the growth of their prosperity and virtual wealth.

We have seen that the purchasing power of the £1 sterling is the virtual wealth of the community divided by the total quantity of money. Or,

Virtual Wealth = Quantity of Money x Purchasing Power
of Money.

The virtual wealth of a community refers to all the kinds of wealth that are about to be purchased both in consumption and production, each kind in relative amounts the same as those actually being purchased. The Index Number is the modern way of representing the average price of goods in terms of the monetary unit, and the purchasing power of money in inversely proportional to the index number at the time. Thus an index number of 230 means that prices on the average are 2.3 times what they were at some former time, taken as a standard and given the value 100. The purchasing power of money with an index number of 230 is only 100/230 of what it was at the standard purchasing power of 100. Many index numbers are used, some concerned with wholesale prices, some with retail prices, and some dealing not only with the cost of commodities but including other expenses of living, as rent, rates, and so on. Wha is wanted is an index that so expresses the average money cost of the quantites of the things required in due relative proportion to maintain an average family, and then to keep that index number constant by regulating currency so that always the total cost of these definite quantities of things shall not vary, however much they vary in price among themselves. It does not matter greatly how the various expenses of living are averaged in computing the index number, so long as the index number adopted is always calculated on the same principle and not departed from. There might be small variations in index numbers differently computed at the same time, but they would be of quite secondary importance. It might favor one class slightly more than another to reckon a greater proportion of the total living expenses going to food, for example, but the differences would be small, sometimes one way and sometimes another. Fixing the index number, and altering arbitrarily the total money so as to keep the index number always the same, would suffice for all practical purposes. Exactly how the index number was made up, if the averaging of the living expenses was at all reasonably done, would be of minor importance, and is a matter for expert discussion.

At What Value Should Money Be Fixed?

At what value to fix the index number, or rather, at what purchasing power of the £1 sterling to call the standard index number of 100, is, of course, of very great importance, for thereby the community fixes the ratio in whcih its income is to be in future divided as between the present and the past. If it makes the standard correspond to a low purchasing power of the £, it lightens the burden of its past debts -- the National Debt and similar securities or debentures which yield a fixed monetary rate of interest, and in general all claims which do not depend upon present earnings. It will temporarily depress the real wages of labor, and all professional incomes and salaries inwhich the remuneration is fixed by custom and tradition, also such services as those of transport, where the charges are fixed by statute, and will temporarily increase the profits of those who live by buying and selling, and who receive as profits the balance left over after working expenses are paid. But "in the end" these will find a new level. Society has unfortunately become recently accustomed to large variations in the value of its money, so that the new level would today be more quickly attained, whereas before the War it would have been a long-drawn-out fight and the cause of much injustice and hardship on those advesely affected. But all those calls on the communal income whcih derive from fixed monetary payments will not alter in absolute amount, once the index number is fixed. As Mr. Keynes has put it in the paragraph already quoted, in discussing the internal affairs of France, and the future value of the franc, but altering the world italicized to apply to the question of the index number and to this country.

"If we look ahead, averting our eyes from the ups and downs which can make and unmake fortunes in the meantime, the level of the £ sterling is going to be fixed not by speculation or the balance of trade, nor even by the outcome of the return to the gold-standard, but by the proportion of his earned income which the British taxpayer will permit to be taken from him to pay the claims of the British rentier. The level of the £ sterling will continue to fall until the commodity value of the pounds due to the rentier has fallen to a proportion of the national income, which accords with the habits and mentality of the country."

The times are highly abonormal, and it may not be yet possible to do more than provisionally to fix the price-level. But, even so, it would be a great political advantage if this vital question could be decided openly and above board, and due and sufficient notice given of the nature of any future change of price-level if that should prove necessary. This and the issue of the money are the nation's affair, not the bank's. It is their function to keep accounts and lend money, not to create it, and so determine price level. In practice their interests are purely those of the creditor class, and although under the system they cannot help raising the price-level by their fictitious loans, they are always striving to force it back, though their decisions invariably condemn those, who have staked their fortunes upon producing the things which the community needs, to loss if not ruin, and the community to an artifically increased burden of indeptedness.

If the price-level is held constant, money values express real values, and the total quantity of money accurately expresses the virtual wealth of the community.

Thus although at first sight a highly curious and uncertain quantity, virtual wealth is a very definite one, and its measurement presents no real difficulty. With constant quantity of money, it is proportional to the purchasing power of the money or inversely proportional to the index number of price-level. With constant index number of price-level it is measure by the quantity of money. Its use avoids certain difficulties which best the quantity theory of money, which we have seen only works in practice one way. The latter pretends to correlate price not only with the quanity of money, but alos with the positive quantity of existing goods, rather than with the negative quantity of of stocks in course of production as well as already produced, or the quantity actually in the market awaiting sale at the moment, is not made clear.

In reality it correlates price with the amount of money expended on goods bought and sold in a year, which is a definition rather than an explanation of price, and the amount of money expended on goods in a year with the quantity of money and the number of times it is expended, which again is repetitional. It established no other relation whatever between price and goods, beyond that in the equation.

Price = Money expended '/. Goods sold and
purchased.

Whereas the virtual wealth is quite independent of this complication, as itself, like the quantity of money which it measures the value of, it is a quantity and not a rate. The causes that produce a change of virtual wealth are largely psychological. This is sometimes recongized in the statemenjt that it is only the quantity of money in circulation that can affect prices, and that the part hoarded cannot exert any influence. but there is by no means any sharp difference. A manufacturer is always deciding from day to day the question whether toheard or spend in his business, and precisely similar questions affect every individual purchaser.

There can be no dispute that the value of money is determined and can only be affected by the quantities of goods people in the aggregate voluntarily abstain from enjoying, and only indirectly by the quantities in the market for sale. But this view does not even pretend to answer the further question how the goods offered for sale affect people's incomes either real or monetary, except in so far as to suggest that habit and necessity will at any particular period prescribe some most convenient ratio between virtual wealth and income, which, if disturbed, will tend to come back to its original value.

Virtual Wealth and Incomes.

We shall make no exhaustive attempt here to analyze virtual wealth, but shall treat it as a fact capable of measurement by the price-level. But it may be of help to trace further the consequences of individuals trying to increase or decrease their virtual wealth.

To simplify the issue, let us suppose the total quantity of money is unchanged, and consider a purchaser deciding that, in future, instead of keeping in the house, or the bank, money sufficient on the average for a month's housekeeping, he will keep only enough for a week. He consequently buys at once three weeks' supplies, and that is all he can do. If the shopkeepers took no action, all that would have occurred would have been that the buyer's individual virtual wealth had decreased, but that of other people had increased to thesame extent, and therewould be no change. But if the shopkeepers refused to retain the extra money, and passed it on, and even if everyone equally tried to reduce his virtual wealth, then it must not be rashly assumed that the virtual wealth of the community as a whole would have diminished. We must remember the musical chair analogy. Individuals may balance the pleasures of the table against the moral and æsthetic satisfaction that is engendered by gloating over crisp exemplars of the art of engraving, but for the community it is a case of Hobson's choice. Someone has got to own all the money in the community, and not own the wealth it can buy, whether they want to or not. The speed or reluctance with which they pass it on, or grudgingly part with it, to others less or more clever or fortunate than themselves, does not necessarily affect the virtual wealth or the purchasing power of money.

THus with the total money constant, the desire to pass off money more quickly than before, if general, means that people on the whole receive it more quickly than before. Theri monetary incomes increase, but whether their real incomes increase or not depends on whether the quickened demand operates to increase the supplies. It has this tendency, for the retailer finding his stocks depleted will order more, thus transmitting the stimulus of demand, so that more goods are produced, more wages and profits earned, and the money comes round more quickly to purchase the increased production. But, in general, there would probably be some rise of price as well , and to this extent, a consequent decrease of the aggregate virtual wealth along with some increase of real incomes, caused by the desire of everyone to diminish their virtual wealth. Conversely a geneal desire to increase virtual wealth tends to increase it, but it also diminishes money incomes and to a smaller extent, probably, real incomes.

This point of view certainly brings out vividly the effect of everyone's desire to possess more money. The only way for everyone to possess more money is to increase the total quantity of money. IF this is not done, the desire operates to reduce the national monetary income. Most people are beginning to realize that life itself is not a quantity but a rate, and that it is far more important to possess a big income than a large sum of money. If all peopel acted oppositely to their natural inclinations, and refused to retain any money a moment longer than they could help, the national monetary income would thereby be increased. Whilst the desire to possess more or less money cannot affect the total quantity of money, it can and does affect incomes in the opposite sense; the more freely the nation spends money the more money it has to spend, and the less freely it spends the less it has to spend. The universal desire to possess money is not to be confused with the desire for leisure and the disinclination to work, but is its exact opposite. POple whopossess money and esire to continue possessing it have to forgo spending it faster than they are receiving it. Those who will work only under the stimulus of an empty larder are trying to reducetheir money, i.e., their virutal wealth, to a minimum. Under the system described, individuals would be free to keep as much or as little money precisely as they chose without interfering in the least with the circulation of money or the produciton of wealth. It would be possible to make the latter a maximum, so that neither labor nor capital was unemployed, however avericious people were, and loth to pass on the money they received.

Hoarding and Mutual Credit.

If the price-level, rather than the quantity of money, is kept constant, two of the main factors which affect the virtual wealth of a country, in opposite directions, are first, hoarding, which increases it, and secondly, mutual credit or lending, which diminishes it. Under a precious metal currency the first is an evil and the second a benefit, but under a stablized paper currency the position is reversed. We have seen that the only part of the nation's credit different from an individual's power of running into debt is the virtual wealth. To increase the latter means that people volunarily abstain to a greater extent than before, which enables, and indeed should compel, the nation to pay part of its expenses by the issue of new money. Hoarding as a practice increases the virtual wealth and enables a nation to that extent ot run into debt without paying interest. Clearly when a miser's hoards are put back into circulation the virtual wealth is diminished to this extent. In the opposite category, the much vaunted financial expedients in the economising of money diminish the virtual wealth and the quantity of money corresponding with a given price-level.

It is instructive to consider a simplified example. If we take the case of an agriculturist and his annual crops, and suppose that, just before his harvest, he has no money and no wealth, finished and ready for sale. When the harvest is reaped he has, say, £H, when it is sold he has £H, and for a year this sum then steadily diminishes till at the next harvest it is zero again. [ Recall, the symbol £ is used to express a pound-sterling' s worth of wealth or goods.] Now bring in a merchant agreeing with the farmer to give one another mutual credit, so that just before the harvest the farmer instead of having no money owes the merchant £H/2. THe harvest when reaped is thus now sold by the farmer to the merchant for £H/2. Half-way through the year the farmer has exhausted his money, and the merchant has sold half the crop for £H/2, which he lends again to the farmer. In this way only half as much money is necessary as would have been required but for mutual credit. If, again, the farmer parts with his crop, and gives the merchant credit for the remaining £H/4, clearly only one-fourth as much money as before is required. These mutual arrangements between individuals take the place of the precisely similar ones between the individual and the community, which the institution of money effects. It is one thing to regard as beneficent such methods of economizing in the use of currency, when its provison entailed much waste of labour in the search for the precious metals, but quite another when, without any labor at all, people can be released from the necessity of contracting such mutual indeptedness and given the comfort of owing nothing to anybody by the right use of paper money. Bilgram (loc. cit..) estimates the sum total of debts on which interest must be paid as probably four times the amount of currency, including deposit currency, in use in the U.S.A., and that the yearly interest payments "absorb" more than a quarter of the whole currency. This is no doubt excellent from the creditors' standpoint, but there can be little doubt also that the debtors would prefer to be less fleeced under a system where money was not so overworked.

An Analogy to the Governor of a Steam Engine

Fortunately it is entirely unnecessary to go further into all these complicated paradoxes. "We should be lost in endless calculations. " It is manifest an absurdity to try to calculate the precise effect of all the relevant circumstances upon the general price-level, as to calculate the effect on the speed of a steam engine of each unknown variation from moment to moment in the load, the lubrication, and the supply of steam. Nevertheless, the speed of a steam engine is regulated automatically with the utmost ease.

utmost ease. The speed of the engine, which is the integrated and determinable result of every factor which operates in the working of the engine, itself, by means of a governor, opens or closes the throttle admitting steam, opening it should the speed fall off, and closing it should the speed increase.

On this analogy, the price is the integrated and determinable result of all the separate and indeterminable factors which affect the working of the industrial system and the virtual wealth of the community. It is measured by the index number which expresses the cost of lving in monetary units. A governor of price-levels would increase the currency in circulation gradually as the industrial machine was given a larger and larger load, just as the governor of a steam engine under the same conditions would gradually increase the quantity of steam admitted from the boiler. When the maximum amount of wealth the industrial system can produce is being produced, just as when the maximum amount of steam the boiler can furnish is being used, a larger demand will raise prices in the one case and reduce the speed in the other.

We must, in contemplating the proposed system, shake off some of the illusions induced by the experiences of the operation of the old system. It is undeniable that wealth could be increased, and that millions of workers, much unemployed land and capital are waiting financial permission to increase production. It is undeniable that science has increased production. It is undeniable that science has increased, and still is increasing, the factor of human efficiency in producing wealth. It is undeniable that an increase in the quantity of money in circulation without a corresponding increase in the rate of wealth-production does increase prices. But the experience that it is practically impossible to reduce prices by contracting the currency, without at the same time contracting production and ruining those engaged in industry, is derived from our haphazard system.

By hypothesis, on the new system prices are kept constant, so far as any variation of them is delectable by its effect on index number. Skilled statisticians would detect the tendency to rise or fall before the public became aware of it in their marketing, just as the governor of a steam engine detects the tendency for the speed to increase or diminish before it can be ascertained by the eye or otherwise than by a very delicate instrument. The reasons why a contraction of the currency does not, in fact, reduce prices do not operate when prices are maintained constant by an automatic regulation of the currency by index number. Industry is ruined not by the constancy of prices, but by their fall, by stocks becoming unsalable except below cost. A contraction of the currency to check an upward tendency of prices would ruin nobody, though after the upward tendency has occured, the contraction is powerless to bring them down again without imposing still graver evils.

Hence, although there is every reason to suppose, so long at least as science and invention continue to develope, that the task of the statisticians advising as to the volume of currency the nation required, would be at first, and for a long time, the easy task of advising the issue of more money, should the necessity arise for them to advise a contraction of the currency, there is no reason to anticipate the evil effects that now attend the contraction of the currency after prices have already greatly risen.

In an age of scientific expansion and powerful incentives towards "saving," implies a time of war, civil commotion, pestilence or famine, whereby the revenue of wealth falls off, not, as at present, a time of boom and speculation, due to the quantity of money being arbitrarily increased. Of course to the speculator and profiter, although probably not to the solid business man, if any such remain, the system will naturally appear to work the wrong way. So far from a time of rising prices being regarded as a calamity to be avoided at all costs, it will be regarded as a time of expansive prosperity. Mr. Hartley Withers, discussing the writer's proposals, makes this illuminating comment. [Bankers and Credit, p. 244] After approving of the plan of issuing the new money required to maintain the constancy of prices, by repurchasing and destroying the equivalent amount of State Debt, as "a simple and inexpensive operation," he proceeds:

"But when it is the other way about, and dept is issued so as to contract currency at a time of rising prices, the process seems likely to be both expensive and unpopular. No use could be made by the Government of the currency received from subscribers to the new loan; it would have to be destroyed to carry out the scheme, and so the operation would be dead loss; at a time of expansive prosperity implied by the circumstances, the Government would probably have to pay a handsome rate to get its loan out, and it would have to lay this sacrifice on the shoulders of the taxpayer, knowing that thereby, if the measure succeeded, it would be checking the rise of prices that makes the business world so happy."

It is a curious commentary ujpon the writier's thesis that what is wrong with the ruling classes of the world is that they begin by mistaking debt for wealth, and end by regarding scarcity as expansive prosperity. At the same time the passage illustrate the almos incredible state of fog in the minds of those supposed to be financial experts when matters of national rather than of individual finance are under consideration. To redeem National Debt is an act of financial rectitude, provided for by honest Chancellors of the Exchequer by the Sinking Fund, into which any excess of money extracted by taxation automatically flows. But to destroy Treasury notes extracted by the same process is "dead loss." It makes one wonder whether those who are responsible for the Nation's fiances realize that National securities and money are both wealth from the standpoint of the individual owner and both debt from the standpoint of the community. The only difference is that the one is a deferred debt, not repayable on demand, and the other a debt repayable in wealth on demand.

Excerpts from the following chapters, will be sent out next week. However, realizing that our time for thinking and acting for our good in the current crisis is short, five sub-sections of the utmost importance are included below.

Analysis of the Douglas Scheme of Social Credit Reform
The Risk of Discrediting the New Economics
Economic Freedom versus Servitude
Is there a Financial Conspiracy?

Summary of Practical Conclusions

Every man is repsonsible to every other man.

CHAPTER XI

THE RIDDLE OF THE SPHINX
Read this chapter here: http://abob.libs.uga.edu/bobk/wvwd/ Click on "Page 115" on the left.

A Symbolism for Representing Economic Transactions -- The System in Equilibrium -- "Price" is Distributed as well as Extracted -- How to Increase Production -- The Six Possible Operations -- The Necessary Quantity of Money -- The Efect of Increasing Money -- The Need of Abstinence or Saving -- The Problem Solved -- The Relation between Abstinence and New Money -- A more Detailed Illustration -- The Case of Existing Glut -- How it would look to a Banker -- The Consequences of Fictitious Abstinence -- What hitherto has limited Production and Consumption -- The Only Way of avoiding Initial Abstinence -- Who Gains and Who Pays?

CHAPTER XII

ACCUMULATION VERSUS DISTRIBUTION

Read complete chapter here: http://abob.libs.uga.edu/bobk/wvwd/ click on Page 129

The Accumulation of Capital -- Like Money, Capital is Individual Wealth and Communal Debt -- The Doubtful Heritage of Science -- The Futility of Taxation -- The Agricultural Position of this Country -- Analysis of the Douglas Scheme of Social Credit Reform -- The Risk of Discrediting the New Economics

The Futility of Taxation

Taxation, death duties and the like, as will be obvious if the effect is worked out on the diagram, normally merely transfers ownership from one set of people to another, and only alters the particular individuals who arrive at the consumer's mart with money. Except in the rare event of being levied to provide loans to industry, as, for example, when £M3 of public money was loaned at 3 per cent against the construction of the Lusitania and Mauretania, it does not by-pass the consumer's mart. On the contrary, by reducing the amount of surplus money in the hands of consumers, it may prevent them from investing it.

The State finds that, for its continued existence, it is vital to lessen the weight of the dead hand of the past, so that its citizens may not be reduced to helots under the burden of debt into which they are born. The canons of an individualistic society, which will not allow it to own revenue-producing enterprises, and have confined its powers of taxation to providing for its expenditure upon services out of which a monetary profit cannot be made, render it impotent. It may slash as savagely as it pleases at the individual capitalist, but supertaxes and death duties merely transfer his property to other individuals. In so far as the debts, unlike the National Debt, represent wealth permanently immobilized in the arteries of the productive system, they defy repudiation and that facile remedy of the statesman the depreciation of the currency. Taxation on these lines merely transfers the ownership from the original holders to a new set and results in substituting for one aristocratic devil seven plebeian ones.

The State, owning no revenue-producing enterprise, cannot, if the value of money is not to be depreciated, subsidize an industry, endow motherhood, grant pensions to widows, assist universities and hospitals, or grant everyone a National Divident save directly out of the pockets of taxpayers in the community. Apart from its Virtual Wealth, its much appealed to credit is simply its power of running into debt. In this it is certainly the superiour of any individual corporation, but merely because it can tax its citizens to provide for interest. Even the gigantic credit of the State is now, surely, nearly spent.

But without owning the industries or even the banks or the land, the State could, if it controlled the issue of currency and every form of credit in which new money is created, go a long way to putting its house in order, and could strike effectively at monopolies in every form. It could give economic freedom to its citizens in so far as to ensure everyone the right to earn a living.

We are approaching here certain questions raised by Major Douglas and the school of Social Credit Reformers. [ Compare Economic Democracy and Credit Power and Democracy, C. H. Douglas ; The Community's Credit, C. Marshall Hattersley ; The Flaw in the Price System , P. W. Martin, and other recent works ; and the weekly review, The New Age, which is the organ of the movement. ] It must be said at once that. although there are obvious points of resemblance between many of the points of view set forth in this book and those of the Douglas School, especially as regards the diagnosis of the industrial deadlock and the existence of fundamental errors in national as distinct from individual accountancy, the resemblance ends there.

Analysis of the Douglas Scheme of Social Credit Reform

But as regards concrete proposals to bring about the new era and, still more important, as regards the theoretical and physical interpretation of the working of an economic system, the Douglas School is, for the most part, not merely divergence with but in point-blank contradiction to the conclusions here set forth. Here the primary mistake, to which the wrecking of the system has been traced, is the passing, with the development of modern banking, of the prerogative of the issue of currency from the nation to private hands for usury as a mode of livlihood, and the fatal dislocation consequent upon money being destroyed when production outruns markets and issued when demand outruns supply. It is claimed that beyond a definite amount of wealth, called the Virtual Wealth, which the owners of money voluntarily abstain from owning -- the monetary value of which is measured by the money in circulation and which is a function of the number of the population and their economic properity -- the "National Credit" is indistinguishable from that of an individual, being simply a power of running into debt and paying interest out of the taxes. Salvation, if society is to remain individualistic, must come by enforcing initial and genuine abstinence from individuals equal to the growth of the cost-value of the whole inductrial mechanism as it expanded, less only the relatively trivial part represented by the increase of Virtual Wealth as measured by the total money circulating.

The Douglas School appear to look for salvation in the precisely opposite direction. They look to the National Credit as a means of distributing new purchasing power, and, so far from recognizing the necessity of any initial abstinence, even go so far as to stipulate that these national issues shall be new money and not out of past savings. They claim that since only a small part of the costs of industry are distributed as payments to consumers, goods must be sold below cost price to make up the difference. Or, alternatively, National Dividends should be paid out of the National Credit to everyone irrespective of their participation in production -- much as the subsidies are now paid, but out of taxation, to the unemployed. Basing their stand on the undeniable proposition that industry exists to produce goods in the largest possible quantity and in the most expeditious and efficient manner rather than to make work for unnecessary and often highly inefficient and unwilling workers, and that industry could, if allowed, produce more than sufficient for everyone, they set their face against taxation and, in general, the limitation of large incomes to provide for those in need as entirely unnecessary and politically, if not ethically, mistaken. They look to the State to dispense money rather than to take it away. They appear vaguely to contemplate so bringing about a state of things in which wealth was restored to its proper importance in the economic life, for the use and maintenance of life, rather than, in Ruskin's phrase, the "power over the lives and labours of others." Everyone having their physical wants abundantly supplied, the wealthy could neither consume so much as to cause any inconvenience to the rest nor could they unduly increase their consumption by employing a retinue of hired personal servants and attendants to minister to their wants, since no one would be compelled by reason of actual economic want to work for them. If they needed servants they would have to pay them liberally and treat them properly. Similarly in industry their would be no need of economic compulsion to get the work done. Machinery and growing intelligence would make of industry a profession, sought by those desiring to devote themselves to its service and shunned by the degraded and servile, who even now do more harm than good.

This will probably be recognized as not unsympathetic, if imperfect, exposition of the principles and aspirations of this very interesting new school of economic thought. Much more will be heard of it. It possesses vision and may one day become a real driving force in politics. It has already brought back into being some of the origianl passion and enthusiasm of the earlier reformers, before the sterilizing and paralyzing influence of mercantile economics side-tracked the leaders of the progressive movement into devious paths and insincere denunciation "about it and about," the while their followers "evermore came out by the same door wherein they went."

Those who agree with the essential conclusions arrived at in this book will find no compromise possible on certain fundamental principles relating to the physical nature of money, credit and capital. Beyond this the school neglecting altogether the facts of the existing ownership of wealth, do not honestly face the real obstacles to its more abundant distribution. Further, the view that all the costs of production are not distributed already, as payments for services real or imaginary, as well as recovered from the consumer, seems of the nature of a misunderstanding. In the same category is the argument that because all wealth produced is not distributed to, but is paid for by, the consumer, it is physically possible to make up the deficit out of the national credit. The Douglas scheme seems somewhat prematurely to assume the existence of a communal rather than an individualistic State, in which there are no debts, no rights of property and no private ownership of capital, and in which all the existing paraphernalia of wealth production is to be regarded in all singlemindedness as having been accumulated with the primary object of production rather than with that of being hired out for production. This work is, by contrast, confined to less ambitious themes, and may be regarded as an attempt to find out the best that the individualistic state of society can offer if it were intelligently administered.

The Risk of Discrediting the New Economics

These relatively mild and practical proposals will not satisfy an extreme "New Economist." He will say with force: You admit the continuous displacement of human labor by machinery and every form of labor-saving device, which, if it has not yet gone so far in agriculture as in engineering trades, has for that reason the further yet to go. You admit, therefore, that with increasing potential production the titles to consume will find their way into fewer and fewer hands. How do you propose to meet this fundamental difficulty, or who does what you have proposed meet it?

The only answer that can be made to this is that the situation ultimately anticipated is still very far from having arisen, and that if we do not understand how the existing system works and wherein it fails we are likely to make it worse rather than better. Those who desire the immediate payment ot everyone of a National Dividend -- and women especially are attracted by this form of the Douglas scheme as a way of escape from the poistion of economic dependence upon the other sex -- should face frankly the question where it is to come from and who is to give it up. For even science cannot create wealth with the same facility as it is possible to create debts. Taxation is one source; unlimited credit, or running into debt indefinitely, is another; depreciating the value fo the currency progressively, a third; while expropriation, the public ownership of all sources of revenue and the abolition of private property altogether, with common ownership of the national revenue, are eothers ; and all of them have their avoud or secret advocates. But the idea that the nation is in possession of a mysterious talisman called credit which, when industry is unable to pay for the initiation of fresh production, can supply it with all that is needed without anyone giving up anything at all, and that this national credit consists of the accumulated result of allthe past centuries of past effort, when the whole trouble is that these accumulations are owned by private individuals, is to push the confusion between debt and wealth to lengths that would have surprised even the author of The Theory of Credit.

On the other hand, even for modern science, the cleaning of the Augfean stable of an industrialized nation is no light task. There would be very few, for a long time to come, unable to find in useful occupations the titles to consume if the nation seriously set itself to the task. There are millions requiring a largely increased supply of necessaries and ordinary commodities -- not to mention the capital accumulations in increased stocks. We need also houses to live in, wholse cities of slums to be rebuilt and poverty-striken areas must be resuscitated, railways modernized and roads made, super-power stations created at the coalfields to distribute to every corner of the country electric power, and there are increasing demands to be met for higher education, both of the young and the adult, and universities will have to be built to provide for the growing army of seekers after knowledge. All these projects involve production far in excess of consumption -- hard work and abstinence for everybody. It would indeed be a matter for astonishment if, for a long time to come, in this country there were any prospect of dispensing with the services of any useful and willing member of the community. By then at least, if the suggestions made in this book were adopted, the nation would be already in possession of a large part of its capital by the process of redemption to be outlined, and could begin to consider seriously the question of a National Dividend. As things are at present that would be both premature and impracticable, and its colossal failure by discrediting the new economics would set back progess for a generation.

At the same time it is not necessary to follow the mistakes of the othodox economists due to their ignorance of the modern science of production and their devotion to doctrines which, however applicable in the time of Adam Smith and Ricardo are today, with the growth of physical and biological science, very considerably out of date. Even in agriculture it is not possible to look at the problem solely "with the eye of a farmer." There is such a thing as "Power-Farming" a themse which Mr. Henry Ford waxes eloquent in his book, My Life and Work (Heinemann, 1923). Mr. Ford, looking at agriculture with the eye of the engineer, concludes: "We shall have as great a development in farming during the next twenty years as we have had in manufacturing during the last twenty." Even in this country the change that has come over the subject is already very marked.

CHAPTER XIII

CAPITAL REDEMPTION

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The Production of Capital involves Less Consumption -- The Effect of Real Wages -- The Depreciation of Capital and the Shifting of the Burden on to the Public -- The Origin of Interest on Capital -- Inevitability of Interest in an Individualistic Community -- The Scientific Argument against the Unregulated Continuous Private Ownership of Capital -- The Deeper Futilities of Individualistic Economics -- A Scheme of Compound Capital Redemption -- Simple Redemption -- Mathematical Appendix.

CHAPTER XIV

INTERNATIONAL RELATIONS

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The Elements of Foreign Trade -- The Trade Balance -- The International Aspect of Wealth and Debt -- The Fundamental Nature of the Problem -- Edged Tools -- Economic Freedom versus Servitude -- The Practical Problem -- The Function of Gold -- A Suggestion for the Statistical Regulation of the Trade Balance -- A National Stabilized Currency would Assist, not Retard Foreign Trade -- Is there a Financial Conspiracy? -- The Real Conspiracy.

Economic Freedom versus Servitude

So in the international field no less than in our internal affairs we have to make up our minds whether it is wealth or debt that we really desire, whether to use the otherwise embarrassing riches of the age to promote economic freedom or servitude among nations as wall as among individuals. International rivalries and antagonisms would be more intelligible if there were any longer a real economic, as distinct from chresmatistic, foundation for them. In times when population was always tending to outrun food supply, before the effective occupation of thw whole world, together with intensive modes of cultivation, had reduced the law of diminishing returns in agriculture to its proper local significance, growing nations were forever being faced with the alternative of war or starvation. But now it is all the other way. The struggle is not for wealth, but to dispose of it advantageously to its owners, to convert present wealth into a claim upon future wealth, to sell it if possible, but, if not, to lend it so as to be able to derive from the debtor a permanetn tribute of interest in the future. Old wars of conquest were often for similar ends, but universal conscription and the militarization of whole nations, as a consequence of being able to produce more wealth then they can consume, exchange, or even lend, is quite a new and curious phenomenon in history.

The struggle is only nominally between nations, and, by the survival of deep-seated herd-instinct, is directed along these traditional channels. It is, in reality, between the debtors and creditors of all nations in common, and no solution whether of social or international conflict is possible until debts are made terminable and a proportion of the interest payments upon them devoted as a sinking fund to their redemption. That it is entirely within the jurisdiction of each nation to determine for itself, for its own nationals and for its foreign investors alike, and, if there is no preferential discrimination against the foreigner, no just cause of international quarrel could thereby arise. The property of a private citizen or corporation, invested in a foreign country, is amenable to the laws of that country as regards taxation.

But international debts, of the kind which the War has left in its wake, are a far more serious menace to the peace of the world. They are not repayable except by injuring the debtor class of the creditor nation, is workers, its industries and its trade, and they are not transferable among individuals are are private indeptednesses. They are like stale waters, conserved during a drought, after the rains have come and the rivers have resumed their normal flow, as unhealthy as they are unnecessary.

Is there a Financial Conspiracy?

It is very widely believed that there has been something akin to an actual financial conspiracy to enslave the world. [Compare, for example, Protocols of the Learned Elders of Zion from the Russian of Nilus, translated by V. E. Marsden, The Britons Publishing Co., 1925 ] The Westerner is not exactly the quickest in the uptake where the elusive principle of Virtual Wealth is concerned. It has escaped the purview of the professed theoretical economists, who seem to have remained entirely oblivious of the profound changes going on under their eyes in the very nature of money. Conspiracy or not, there can be little question that the power these discoveries have put into the hands of financiers, will, if not controlled, enable them in their own time and choice effectively to conquer the world.

Hitherto in this field of high finance the semi-Oriental, cradle in the battleground between East and West, has been supreme. Before the development of science, the flood of mystical half-truths that inundated the Western world from this quarter had effectually subjugated it intellectually. The Westerner, in trying to assimilate and digest this exotic spiritual diet, entirely lost -- and, indeed, counted it well lost -- any intellectual indpendence. He was fascinated and hypnotized by the iridescent bubble of beliefs blown around the world by the Hebraic hierarchy, and even now, long after the lancet of science has pricked the bubble and let in the light, the alleged doings of the chosen people thousands of years ago is still considered an essential part of everyone's education, whatever else of human story and achievement be omitted. It would be unwise to underrate the influence of the dominant force of this magnitude over people's lives in accounting for the inversion of science, and it explains a great deal, otherwise unintelligible, about the terrible Victorian era.

But conscious conspiracy or not, and whether one race rather than another is responsible, there can be no doubt of the fact that finace has already more than half enslaved the world and few, if any, individuals, corporations, or even nations can afford to displease the monetary power. In 1916 President Woodrow Wilson said:

"A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. . .l . We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world -- no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Goverment by the opinion and duress of small groups of dominant men."

We have given up the belief in physical miracles, only to be ensnared by metaphysical ones. Until the apparent miracle of Virtual Wealth is understood and mastered by those who would easay to influence the destinies of nations they will continue to be like clay in the hands of the astute financier. It is a consequence of this miracle that science has endowed ghouls and become the King-maker of Cacus, offering men the choice of freedom to be worked and preyed upon or leisure to starve in the richest age the wolrd has ever known, and to nations armaments and conscription to destroy one another in order to create national security and securites, so that pious posterity may eternally honor their sacrifice and never cease to pay tribute to the national debt.

In this situation one distrusts the ability of the League of Nations to hold its own and bring about real peace. Their suggestions that there should be a sort of gold standard, the value of which can be made much what it is considered best by the eminent bankers and financiers advising them, is a sinister and distressing move, for it frankly hands over the real control of the world to the monetary power. The suggestions in this work, needless to say, are at the poles apart from this, which sounds like a travesty of the dream of uniting the world under a more catholic religion -- a revised version of the golden calf, with a garment "not golden but gilded," and under a standard "not of gold but of gain." It would be the final step, whether a conspiracy exists or not, in the enslavement of the whole world by one central financial power.

Whereas it is obvious that national safety lies in the precisely opposite direction, it each nation understanding and controlling completely its own financial mechanism and regaining the powers so unwittingly abdicated and lightly allowed to go by default. Only then is it to be expected that it will be used to the general good and that the riches of science will be used to promote wealth rather than debt.

The Real Conspiracy

Whether or not there is a conspiracy among the "chosen people" to re-establish by gold the dominance they were wont to derive from God -- and the Biblical History (Exod. xxxii) recalls a strictly parallel attempt, frustrated by the energetic action of their chief legislator -- it must be admitted that it would be a revenge upon science for its iconoclastic tendencies, not without a certain sardonic humor, if we wake up one day and find instead of the ten commandments a single golden rule. These are conjectural possibilities, and, no doubt, as in the time of Moses, there are still Jews and Jews. Let us hope so, at least.

But of the existence of a real conspiracy -- a conspiracy of silence -- on all monetary problems, in the Press and on political platforms, among editors, publishers and economists, who more than any others ought to be alive and awake to their infinite importance -- there can be no question whatever. It exists, and anyone who has tried to call attention to the evils of the present system will affirm it. Mr. H. G. Wells is reported to have said:

"To write of currency is generally recongized as an objectionable, indeed almost an indecent practice. Editors will implore the writer most tearfully not to write about money, not because it is an uninteresting subject, but because it has always been a profoundly disturbing one."

It was indeed a revelation to the author, accustomed to think of the battle for liberty of thought in scientific matters as having been fought and won centuries ago at the time of Galileo and the Inquisition, to find that in economies, as distict from physics, it has not yet been won at all. If he had been a biologist no doubt he would have put the date as late as the controversy between Huxley and the bishops. On the other hand, if he had been a pure mathematician, he might have smiled at the very idea of anyone having to fight at all about, say, the truth of the propositions of Euclid. Which is to say, that liberty of thought is an evolutionary growth rather than a sudden birth, extending in order from the affairs of the intellect to those of the soul, and only finally, if ever, to the affairs of the pocket. It was not without its humourous aspect in this connection to find in the recent condemnations in this countryh of the campaign against the teaching of evolutionary doctrine in certain States of the American Union certain disquieting parallels drawn between it and the precisely similar attitude of our own liberal savants towards psychical research, the teaching and methods of birth control, or, as might have been cited as an instance, towards the new doctrine of Physical Economics. Liberty of through still much depends on the circumstances.

One may sympathize with the motive for preserving a decent concealment and obscurity from the public gaze of the inner mysteries of the subject of money, whilst condemning the danger and folly of it. If economics were really a science it would not need to protect itself from criticism by a conspiracy of silence. A responsible criticism would in any scientific subject be met with instant response, and not by the ostrich policy of burying the head in the sand in the hope that that will thereby choke the ears and throw dust in the eyes of the pursuer also.

Every proposal to reform the system is always met by powerful interests pretending that the reform proposed is the old heresy of economic salvation by creating money. Precisely, then if when practiced by the Government or the private counterfeiter, it is a quack remedy, why are the banks constituted the duly qualified practitioners of such quack remedies and relieved by their office from responsibility for the ruin they cause?

It may be that our publicists are silent for the same reason as a doctor is when he hesitates to inform his patient that he is suffering from a fatal malady that baffles all scientific inquiry. What, then, canthey reply to this charge, that the patient is made and kept ill by administering drugs that all know to be harmful and fatal? It amy be that the danger is not to the coutnry, exccept, indded, the danger of recovery from its present impotent and drained condition, but to our public servants and officials, who, unelss an amnesty werre granted them, might reasonably expect to find themselves impeached, if real political government came to be re-established. Lastely, it may be, and probably is, that our professed leaders and experts in these intricate matters are in a dense fog themselves, and, not knowing what else to say, go on repeating what they were taught in their youth at college as economic science. Whatever the reason, if this attempt to hide from the public the real facts of the existing monetary system and to suppress all public criticism and common-sense argumetns in favor of its reform is continued, the already very prevalent view of the existence of a treasonable conspiracy against the State by the leaders of Finance will not lack foundation. Conscious conspiracy or not, the danger is exactly the same. A corrupt monetary systme strikes at the very life of the nation.

Chapter XV

SUMMARY OF PRACTICAL CONCLUSIONS

Summary of Practical Conclusions

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begining on Page 151

Populist Nationalist Social Credit Brotherhood of American Citizen Peacemakers of All Races and Creeds -- This is our Common Ground!!!