LAND & WATER
Treasury Notes
Their Present Advantage and Permanent Value
By Arthur Kitson
Source:
https://archive.org/stream/1916landawater200belluoft#page/128/mode/2up
THAT saving quality of the British race known as adaptability — which has become our proverbial characteristic — may be regarded both as a national blessing and a national curse. Its influence has made us the hope as well as the despair of our Allies. Whilst it has made us the greatest colonising people in history, it has also made us the most unprepared and ill-equipped nation for meeting emergencies. Conscious of the fact that we are capable of quickly improvising plans and methods enabling us to meet new conditions, we instinctively postpone even the discussion of dangers, until the dreaded events are actually happening.
This habit of procrastination has made us a byword among the nations for sloth and improvidence. And one can almost sympathise with the Germans in their cry of " hypocrisy " on their finding this apparently unmilitary, decadent, pacific, indolent race suddenly converting itself into a military power of the highest order, as capable of heroic deeds and as full of martial ardour as themselves ! Had the Germans understood the psychology of the British people as they under- stand themselves, they could not have fallen into such a fatal error as to suppose us incapable ol what we are now achieving. A future writer might be justified in characterising us as a race of " Houdinis." As all the world probably knows, Houdini is the man who allows himself to be bound with ropes and tied in a sack or nailed in a box and thrown into the sea, and within the space of a few minutes he is seen calmly swimming to shore as though nothing unusual had happened. The British nation apparently loves to show its skill in surmounting obstacles and getting safely out of tight corners.
By all the rules of warfare and common sense our Expeditionary Force should have been annihilated in the first two or three weeks of the war. To-day — two years after the beginning of hostilities— we are attacking the enemy in superior numbers and with superior weapons. Two years ago our army was numerically inferior to that of Serbia or Greece, whilst our munition works compared to those of Germany were absolutely insignificant. At the end of those two years we find ourselves as well equipped as Germany was after forty years preparation !
Our Currency System.
Take again our currency and banking systems. When war broke out we found ourselves bound hand-and-foot by a ridiculous restrictive parliamentary Act which forbade the Bank of England to issue legal tender notes without an equivalent of gold reserves. The gold had vanished — much of it to Germany — through the lack of foresight on the part of our Government, and the operation of the Bank Charter Act. And it was impossible to secure supplies from abroad in time to save the country from an impending catastrophe. The credit system built up under this suicidal measure collapsed— as every intelligent writer predicted it would — as soon as a great crisis was in sight. The nation was brought face to face with a panic of unprecedented magnitude. In any other country panic must have ensued.
A meeting of the bankers was called at the Bank of England and a three days' holiday proclaimed during which a safe and simple remedy was devised by one of our greatest bankers, and within twenty-four hours the whole situation was changed. What threatened to be a terrible financial storm became a dead calm. Treasury notes were issued in denominations of one pound and ten shillings to the extent of the country's needs. Sovereigns and ten shilling pieces were gradually called in and the people hitherto accustomed only to gold and silver coins — nay — even taught by foolish financial writers to regard paper money as dangerous and unreliable — immediately adapted itself to the new circumstances.
The credit of the British Nation — unsurpassed in quality in the commercial history of nations — has taken the place of gold since August, 1914, and circulates without let or hindrance from one end of the country to the other. Confidence was immediately restored, and as far as financial accommodation is concerned, no one would imagine we were in the midst of the greatest war in history. So much for our adaptability !
Time to Learn a Lesson.
But it is surely time to learn a lesson. Adaptability is a good quality, but like a good memory it may some day fail us, and then will come the deluge. Having successfully avoided the financial storm to which wars give rise, it is time to consider what is to happen after peace is declared. The issue of Treasury notes was distinctly a war measure. There are at present something like £120,000,000 of these notes in circulation and the Treasury holds £28,000,000 in gold as a sort of basis for them. Already there are indications that efforts will be made in certain circles to get rid of them when the war is over.
The public will be told that having served their purpose during the war, as soon as the crisis is over they will be no longer needed. This movement which, if successful, would deprive our industrial and trading classes of this most efficient and absolutely safe medium of exchange, and would make money much dearer, should be resisted by everyone who wishes to save the country from the horrors of trade depression and unemployment. Under the plausible excuse of desiring to reduce prices, certain money-trading concerns are already pointing to the Treasury notes as the main cause of the high prices prevailing. Their real motive is to reduce the supply of legal tender in order to raise the purchasing power of gold. It should be remembered that a general fall in prices means a shortage of money, and a consequent falling off in the effective demand for commodities. And this means a slackening of production, reduction of wages, unemployment, sometimes ending in industrial stagnation.
There are infinitely greater economic evils than high prices. In fact a high level of prices is the usual accompaniment of industrial prosperity — except in cases where the supplies of commodities are either cut off as the result of war (as is the case in Germany and Austria) or the consequence of famine, from natural causes. But where — as in America — trade and industries are flourishing as they have never flourished before, prices are abnormally high. Money is the mechanism of exchange. To reduce suddenly its volume below that necessary for carrying on business is to create every kind of economic disaster, bankruptcy, starvation and ruin ! It will be found that every attempt in the past to do what some of our financiers are already suggesting we should do after the war, has been attended invariably by commercial, industrial and social distress in the acutest form. What our Cobdenites have christened the " hungry forties," was a period of severe monetary restriction, and the social miseries endured by millions of our people were due more to the unfortunate financial policy inaugurated by our legislators (whose knowledge of monetary science was absolutely medieval) than to the Corn Laws.
Again, when, through the instigation of certain international financiers, the United States Government was induced to destroy millions of greenbacks which had carried them safely through their Civil War, America paid the inevitable penalty of an industrial crisis with all its accompanying social horrors.
With the return of our armies, the problem of productive employment will become a very serious one and all our financial resources and facilities will be taxed to the utmost. Are we to throw away the most important national credit instrument we possess at the bidding of certain money-traders whose object is to enhance the value of their own commodities — gold and credit ? It is surely of infinitely greater importance to ensure employment and consequent food, shelter and comfort to all — even at high prices — than to risk industrial stagnation ! Let me say at once, that our most progressive bankers are opposed to this wanton destruction. The movement is confined to a very small, although a very influential clique. But the leaders of our great Joint Stock Ranks, the majority of those who are conversant with the commercial needs of the nation, desire to preserve these notes. What they wish to see, however, is an absolutely solid gold backing to the entire Treasury issue. They realise that £100,000,000 or £120,000,000 of ten shillings and one pound notes are essential for the country's needs but they are anxious that the Government should create a Treasury reserve equal in amount to the face value of the notes issued.
Now, experience has demonstrated beyond any question, that for the purpose of our Home trade. Treasury notes, whether backed by gold or not, are readily accepted, and they facilitate trade quite as well as sovereigns and half sovereigns, and with far less cost to the nation. But our commercial dealings with foreign countries are necessarily based upon gold — the international commodity for settling trade balances. And at present we are entirely dependent for our gold supplies upon a private trading Company, viz., the Bank of England, whose interests are not always in harmony with those of the trading community. The Great War has shown the importance of maintaining a War Chest.
By securing a Treasury gold reserve of £100,000,000 or more, as a basis for the notes, the Government would be able to satisfy all parties, except the contractionists whose interests are opposed to those of the nation. Those who are superstitious enough to believe gold of more value than the national credit based upon the productive energies and capacities of the British nation, would have their present fears allayed. Those who recognise the enormous help to trade which these notes have been, will admit that they lose nothing by the addition of so much gold. But above all, the use of the national credit as legal tender, takes the nation's industries to a large extent out of control of the manipulators of specie, whose policy has been a brake upon the wheels of industry for the past century. In establishing such a national gold reserve, safeguards should be provided to prevent effectually cosmopolitan financiers from manipulating these reserves for their own interests.
The truth is that for our home trade, gold is entirely unnecessary. It is only abroad, where our legal tender laws have no effect, that Treasury notes would fail to circulate, and hence gold becomes a necessity. But it is precisely the fact that our legal tender notes would not circulate abroad, that makes them far preferable for our national currency than gold. Our manufacturing and commercial interests demand a currency that can be relied upon, which will stay at home and not travel abroad and can be obtained when it is needed. They demand a uniform bank rate and not one that is continually oscillating like a pump handle. Under the Bank Charter Act our bank rate has been the most variable of any in the world. And this variability is the price we have had to pay for using as legal tender a metal that our laws have deliberately made so enticing to foreigners as to impel them to ship it abroad and restrict our banking facilities.
Our Treasury notes tend to reduce these evils considerably. Moreover they tend to broaden the basis upon which our bank credit is issued, and permit our bankers to increase their facilities with far less risk than heretofore. There is therefore every reason in favour of continuing these notes after the war, and not a single valid excuse for destroying them.
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