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Full text of "A fraudulent standard; an exposure of the fraudulent character of our monetary standard, with suggestions for the establishment of an invariable unit of value"

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/t.v Lihris 
' C. K. OGDEN 


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The ideas expressed and the conclusions arrived 
at in this work, are the result of many years of 
careful thought and study, coupled with the 
practical and varied experience of a very busy life 
in connection with industrial, commercial, and 
hnancial affairs, both here and abroad. 

It is now nearly a quarter of a centur\', since I 
first called attention in my book entitled A 
Scientific Sohition of the Money Question, (published 
in 1894 by the Arena Co., Boston, U.S.A.) to the 
fraudulent character of the so-called " Gold 
Standard of Value," and to the impossibility of 
any commodity functioning in its commodity 
capacity, as either a just measure or an honest 
expression of Exchange- values. I endeavoured at 
the same time, to point out a method, by which an 
invariable monetary unit might be established and 
maintained : viz., by definitely fixing the pur- 
chasing power of gold or of any other commodity, 
in relation to wealth generally with reference to 
time and place, just as the unit of length is fixed 
by temperature and pressure, and the unit of 
weight b}' altitude and atmospheric conditions. 1 
sliowed how most of our financial authorities had 
confused themselves and their readers, b\' con- 


founding money with the material with which it 
has hitherto been chiefly associated. 

Further study and experience have served only 
to strengthen the conviction therein expressed, 
that the root of the world's economic troubles is 
to be traced to the false and fraudulent money and 
credit systems existing. 

When the above work first made its appearance, 
the United States was in the throes of the great 
bi-metallic controversy, which ended in the over- 
throw of free silver coinage and the establishment 
of the gold basis — much to the openly-expressed 
joy and satisfaction of every usurer and money- 
lender in America. This measure constituted the 
remaining link in the chain which the financiers 
had been forging for thirty years previously, for 
controlling the industries and trade of the world 
under the reign of the gold standard. But 
although bi-metallism offered a far more honest 
and saner method of financing trade and enterprise 
than its rival, gold monometallism, both systems 
are relics of barbarism, which education and 
civilization are bound sooner or later to consign to 

The appearance of A Solution of the Money 
Question, led to several long and interesting dis- 
cussions in various American journals, the chief 
criticism being (as expressed by the Philadelphia 
Evening Bulletin) that although " Mr. Kitson has 
got hold of the truth and his theor}^ cannot be 
permanently subverted," its application necessi- 
tates "ideal conditions." 

In the present work, I have endeavoured to show 


that no higher " ideal " conditions than those now 
prevaihng, or those which will most likely prevail 
after the war, are necessary to make the system 

Incidentally, as illustrating the intolerance of 
those who benefit by the present system, I may 
mention that one of the unfortunate effects of that 
publication, was to procure the dismissal of two 
well-known professors of Economics from their 
respective Colleges, at the instigation of their chief 
financial supporters, for having introduced and 
endorsed " Kitson's heresies " in their College 
lectures ! 

The majority of books on Finance are closed to 
the average reader, many being only intelligible 
to those having a knowledge of the higher mathe- 
matics. I have striven in the present work to 
write so that any one at all conversant with the 
mere elements of trade and banking, will be able 
to grasp the main principles of Finance. It is 
high time that knowledge of this subject — hitherto 
confined to experts and professors — became popu- 
larized, owing to its vast importance to every 
member of the community. The ramifications of 
finance are so extensive, it w^ould be impossible to 
deal with it exhaustively in one, two, or even a 
dozen ordinary volumes. I have therefore merely 
attempted to deal in a general manner with the 
main problem, in the hope that it may arouse the 
attention of the general public to a subject which, 
although of such vital interest, is still shrouded in 

Readers of my former works may notice the 


reappearance of certain passages already published. 
I have not hesitated to reproduce one or two 
illustrations and quotations contained in Trade 
Fallacies, The Money Prohlem, An Open Letter to 
the Chancellor, and other of my works, for the reason 
that they tend to strengthen the line of argument 
and serve to make the book complete to those who 
may not have read m\' former writings. I con- 
sider that Sir Edward Holden's address delivered 
in December, 19!'/, before the Liverpool Association 
of Bankers, on the Depreciation, of Securities in 
Relation to Gold, from which I have often quoted, 
is one of the most luminous exposures and most 
damaging criticisms of the gold basis ever written, 
notwithstanding that the address was delivered 
for a very different purpose. Coming from so 
eminent a source — the greatest banker in the 
world— I know of no better evidence than Sir 
Edward's triangles, in the support of my contention 
that the gold standard is a legalized fraud, a 
delusion and a snare ! 

In striving to make this somewhat difficult 
subject quite clear, it may seem to some that I 
ha\'e explained \'arious points with unnecessary 
prolixity, and have indulged in the literary weak- 
ness of rej)etition. ?^Iy defence to such criticism 
is tliat in m\- judgment the fault of rei)etition is 
far less heinous than the sin of ambiguit\-, and in 
tr\ing to avoid the greater I may liave fallen into 
the lesser evil. The reiteration of a truth will 
harm no (;ne. The evil to be shunned in a subject 
of this nature and importance is obscurity. 

Ju-l lierr, it ma\' be con\enient to ex|)iaiii what 


some readers of my former books may regard as 
my change of attitude towards the banking 
question. Prior to the war I advocated both free 
and mutual banking. I beheved that if our banks 
were permitted to issue their own notes freely 
against the wealth or securities offered them, bv 
the industrial and commercial classes for produc- 
tive purposes, subject of course to certain rules — 
as to the proportion of credit issued to the amount 
of wealth held as security, and to reasonable State 
supervision — the results would work out satis- 
factorily, and through healthy competition, the 
public interests would on the whole, be better 
served than by a State monopoly. But I also 
pointed out, that our present system is neithe 
freely competitive nor even State-controlled. To 
use an Americanism, it is neither " fish, flesh, fowl, 
nor good red herring " ! Competition exists, it is 
true, but this does not result in any particular 
cheapening of money or credit. It is merely a 
friendly rivalry to see who can secure the greatest 
number of depositors. Peel's stupid Bank Charter 
Act, has made progress and enterprise in the 
banking world a very dangerous undertaking, and 
the only chance for growth with comparative 
safety, has been through the process of amalgama- 
tion. Hence we are rapidly approaching the most 
dangerous financial condition possible to any 
nation, viz., a privately owned and controlled 
banking monopoly. Unless Parliament interferes, 
the whole of our British banks will be under the 
control of a single board of directors within the 
next twenty years — if not sooner. And this 


board will have no responsibilities to any but its 
depositors and shareholders ! I cannot imagine 
a more dangerous inenace to the public 
interests ! All our trade and commerce, our 
industries, our economic and social well-being, 
rest at present with the proper, honest, and 
efficient administration of the banks, which pro- 
vide and control the nation's currency. 

To leave this entirely in the hands of men whose 
duty is first — if not last — to heap up profits for a 
few shareholders, is, from the national standpoint, 
almost suicidal. The question as to the future of 
our banking business is, whether it is to continue 
to be a private monopoly or become a nationalized 
institution ? There appears to be no other 

Since the midsummer of 1914, entirely new 
conditions have arisen. The disclosures regarding 
Gcrman\-'s economic methods of " peaceful pene- 
tration " have opened our eyes to the fact that 
industrial and financial competition is no longer 
confmed to private firms and individuals, but that 
the entire German nation, under the direction of 
the most highly efficient, most brutal and un- 
scrupulous Government the world has ever known, 
is organized as a unit to destroy every branch of 
foreign trade and industry that either competes 
with those of German}-, or refuses to accept such 
terms as she chooses to offer. Against this solid 
front, the free industrial nations will have to 
oppfjse an organization of ecjual, if not greater 
strength. Anrl in n(j ])ranch of business is the 
truth of the adage that " Organization is strength," 


more apparent than in the banking world. Our 
future place in the industrial and commercial 
struggle that is approaching, will largely depend 
upon the proper organization of our financial 

Some readers who may agree with the following 
indictment against the gold standard, may possibly 
object to my criticisms of our Free Import Policy, 
and especially to Chapter XIII. I have been a 
Freetrader all my life, and I fought and worked 
for the cause when it was regarded as almost 
treason to do so, during a prolonged residence of 
some twenty years in the U.S.A. But, like 
thousands of others, I believed that the welfare of 
my own country was bound up in the welfare of 
all others. With Edmund Burke, I rejoiced in the 
prosperity of foreign States, believing that such 
prosperity would materially assist our own. Belief 
in the essential " brotherhood of all mankind," 
under the blissful reign of peace and prosperity 
seemed to have become the generally accepted 
creed of all civilized races. Under such conditions. 
Free Trade seemed the only sane and natural trade 
policy. The outbreak of the great war, wdiich 
revealed the diabolical plottings of the Germans 
and their Allies to conquer the world, dispelled 
this beautiful dream and brought us all to a 
stern sense of realities. We can no longer 
afford to indulge in such visions as " brotherly " 
or " friendly " alliances and intercourse with the 
bloodthirsty and inhuman race of trained savages 
the Huns are now known to be. We cannot 
afford to endanger our national and political 


safety for the sake of mere eommercial gains. 
i\Iore(n-cr, Free Trade, like cricket, lias its rules and 
regulations, and as our enemy has shown that he 
respects neither God nor man, neither treaties nor 
moral obligations of any nature whatsoever, any 
attempt to resume our former trade relations 
either with Germany or her Allies, or with those 
neutrals who have been supporting them, would be 
sheer madness. What would the world have said 
if our ancestors had offered Free Trade privileges to 
the Barbary pirates, who at their worst were w^hite 
angels in comparison with the Huns ? It will also 
be found that Freetraders-at-any-price are usually 
Pacifists- at-any-price as well as the chief supporters 
of the gold standard. To such people the war 
has taught nothing. They are simph^ wedded to 
their idols. So it is probabh' best to follow the 
Scriptural advice, and "let them alone " \ I would 
earnestly advise those who have not time to wade 
through the whole fifteen chapters of this book 
to read carefully the first two chapters for their 
own as well as their countr}''s interests. They 
will then learn something of the nature of the two 
great financial conspiracies, the first, in which, by 
wrecking our financial s\'stem (and for which 
purpose branches of the three greatest (icrman 
Banks were originally estabhslied in London ; the 
Germans hoped to keep linghmd neutral, and the 
second now being planned by (Cosmopolitan 
Financiers, which is for the j^urpose of doubling 
the values of the great War Loans at the expense 
of the Britisli taxpayers as s(Kjn as peace is 
declared I 


I desire to express my thanks and indebtedness 
to Mr. Harold A. Grimshaw, B.A., (B.Sc.Econ.,) of 
the London School of Economics, for reading the 
proof of this work and for having made some 
valuable suggestions and criticisms. 

To Mr. Grimshaw I am entirely indebted for 
the diagrams in Chapter VI, showing the variations 
in the purchasing power of gold, and their effect 
on the conditions of bankruptcy, which he both 
suggested and prepared. 

My object in writing the story of the " No- 
Money Islands " (Chapter XV of this book) was 
merely to illustrate the practical utility of an in- 
variable unit of value. The monetary and banking 
systems mentioned in that story, were first sug- 
gested by me in 1894, in my first work on finance, 
already mentioned. Although this unit and the 
systems described were, so far as I was then 
aware, entirely novel and original, the well-known 
American Economist, Mr. M. C. Walsh, pointed 
out in a letter to me a few years ago, that these 
ideas bore a likeness to those expressed by Lowe 
in 1822, and G. Poulett Scrope a few years later. 
I have not been able to obtain copies of either 
Lowe's or Scrope's pamphlet, and from the rather 
short and vague descriptions given by the few 
modern writers who mention them, I am unable 
to find any near resemblance. 

My suggestions for establishing and main- 
taining an invariable unit, as herein described, as 
well as those contained in my former works, I 
believe to be quite original. Certainly, I have 
never seen anv reference to anv similar ideas or 


methods in any of the hundreds of books I have 
read on this branch of Economics. Nevertheless, 
it would be a great satisfaction to me to learn 
that other and far abler minds than mine, had 
discovered the same solutions to problems that 
have puzzled the brains of thousands of the 
world's greatest thinkers for centuries. 


Stamford, Lings, 
October, 1917. 



Preface ...... 

I Introduction and a Warning 

II The Great Crisis .... 

III The War Loan and the Pound . 

IV Exchange -Value and its Expression . 
V What Determines the Values of Com 

MODITIES ?..... 

VI The Variability of Gold . 

VII The Great Peel Fallacy . 

VIII The Functions of Money . 

IX An Invariable Monetary Unit . 

X Money Supply and Inflation 

XI The People's Credit .... 

XII How the War might have been Financed 

XIII Free Trade and the Gold Standard . 

XIV Summary 

XV The No-Money Islands 








10 1 








The basis upon which all our industries, trade, 
and commerce are conducted, is the legally 
established "standard of value," represented by 
the golden sovereign or " pound,'' which is sup- 
posed to " measure " the values of all labour 

As will hereinafter be shown, this " standard " 
is founded upon a most egregious fallacy, and 
although it occupies a position in the domain of 
trade of similar importance to that of the stan- 
dards of length, weight and capacity in the 
manufacturing and industrial world, unlike them, 
it is extremely variable, and purposely made so by 
the great financiers of this and foreign countries, 
who are able to juggle with prices to an almost 
unlimited extent, and by so doing reap enormous 
fortunes from the producing classes. It has 
placed the fortunes of all engaged in trade and 
industry, wholly at the mercy of the world's money 
dealers. These men exercise, by means of the 
legal privileges accorded to gold and the banking 
profession, far greater influence over economic 
conditions than any potentate, ruler or govern- 
ment. They have the power to stimulate indus- 
trial prosperity, and to destroy it by increasing or 

F.S. 1 B 


diminishing the available gold supplies as well as 
by the mere manipulation of credit. They are 
the world's real autocrats. 

Just now a few of their number are contemplat- 
ing the most gigantic " deal " that has probably 
ever been conceived, and one which if perpe- 
trated by any other class of the community, even 
on a very much smaller scale, would be denounced 
as barefaced robbery. 

And it is in regard to this projected crime 
particularly that I desire immediately to sound 
a note of warning to the British public as well 
as to those of all our Allies engaged in the 
present war. This "deal" is nothing less 
than doubling the national and, incidentally, 
all other debts by doubling the present value 
of our monetary units ! 

The object of this, is to double the value of their 
War Loan investments, regardless of the terribly 
disastrous industrial and social results which must 
ensue. This robbery will be accomplished, if it 
is not checked in time by public sentiment, in a 
perfectly legal manner by a complacent Chan- 
cellor under the guise of a measure for the public 
welfare, for the sole purpose of removing " infla- 
tion " and reducing prices which have risen mainly 
through the creation of the very currency and 
credit constituting the War Loans. The measure 
will aim at restoring, what the money dealers term 
our "good, sound, honest gold currency" by 
destroying the Treasury notes and reducing bank 
credit to its pre-war proportions. The effect will 
naturally be to double the purchasing power of 


the pound at the expense of every wage earner, 
producer, merchant, manufacturer, tradesman, and 
taxpayer in the country. 

The great banking and financial companies that 
have invested large sums in the War Loans, will 
thus, by the mere stroke of the pen, enormously 
add to their fortunes without any further expense 
or effort on their part. 

If we imagine the whole of the War Debt placed 
in one scale of a balance, and the total volume of 
the money and credit which have been loaned to 
the Government in the other scale, what these 
men are plotting to do is, to tamper so with the 
scales as to double the weight of the money side 
of the balance and thus double the amount of the 
debt in the other scale. Nominally, of course, the 
amount of the War Debt will undergo no change. 
The figures will remain the same. The amount of 
the National Debt will probably be not less than 
£6,000,000,000, even if the war is terminated 
within a year, which is still doubtful. By 
altering the value of the pound, which is very 
easily accomplished, the trick is done and 
the debt, although nominally £6,000,000,000, 
becomes in reality £12,000,000,000 in terms 
of the present purchasing power of money, 
corresponding to that of the money actually 
loaned ! Similarly, although the nominal rate of 
interest is 5 per cent., by this method of tampering 
with the value of the pound, these investors will 
actually receive 10 per cent, on their original 
investment. The interest charges on the actual 
loans together with the expenses of Government, 


including the soldiers', sailors' and old-age pensions, 
etc., which will have to be paid out of taxation 
after the war, will, even if the value of the pound 
remains unaltered, inflict a burden upon the 
British taxpayers which will be almost intolerable, 
and will heavily handicap us in the coming econo- 
mic struggle for trade supremacy, particularly as 
it is probable that Germany will either repudiate 
her war debts or fix the rate of interest at very 
nearly zero. If, however, the value of money is 
raised as suggested, if the plotters succeed in 
persuading the Government to accede to their 
demands, it will mean either the complete 
enslavement of the people of this country to a 
soulless money despotism for ages, or com- 
pulsory repudiation of the debt. 

Now these War Loans have been subscribed in 
very cheap pounds. Practically all that the 
Government received, in the form of subscriptions, 
were bank cheques constituting credit entries 
created in the books of the banks. These credit 
pounds have no material existence. They are 
merely legal claims against firms and individuals. 
Moreover these are the very pounds to which the 
" inflation " resulting in the rise in prices, is largely 

Now the actual value of this money when sub- 
scribed, may be readily traced by studying the daily 
market quotations for all kinds of commodities. 
The value of the pound in wheat at the time of 
the last loan, was from 2 to 3 bushels ; in potatoes, 
from 50 lb. to Go lb. ; in butter, from 8 lb. to 
10 lb. ; in eggs, from 80 to 100 ; in steel, from 


20 lb. to 30 lb. ; in rolled brass, from 12 lb. to 
20 lb., etc. To the average mechanic, a pound 
to-day represents from 20 to 25 hours of labour, 
to the tool maker, from 10 to 15 hours, and so on. 
Now what the War Loan subscribers have really 
furnished, and what the nation has received, is 
the means of securing commodities and services 
under the above conditions and at the above 
prices. Having loaned these " cheap " pounds 
to the nation in its crisis, certain of our finan- 
ciers are expecting to be repaid their principal 
and interest, not in the pounds they actually 
subscribed, but in pre-war pounds— in dear 
pounds ! That is to say, having supplied the 
Government with one kind of pound with which to 
buy guns, munitions, commodities and services 
generally for carrying on the war, they expect 
their interest and loans to be repaid in another 
kind of pound which will buy twice the goods and 
services their money has furnished. This will 
mean that every taxpayer will have to give at 
least twice the amount of his goods and labour 
to meet his taxes, than that which he has had to 
furnish under present conditions. 

A part of this plot has already been rehearsed 
in the published statements appearing in the Press 
by various financial writers, to the effect that the 
gold standard has not been really discarded since 
the war started. It is said that we are still doing 
business on the gold basis. If this statement is 
true, why do the bankers contemplate altering it 
after the war ? And why all this talk of " infla- 
tion " ? The fact is, that the present basis consists 


of probabl}' i per cent, gold and 99 per cent, credit. 
To call this basis gold is sheer deception ! The 
object of these writers is plain enough. It is to 
reconcile the public to the contemplated robbery 
when the time arrives for making the grand coup. 

Let us, however, clearly understand what this 
conspiracy means to our social and industrial 
conditions. You cannot increase the purchasing 
power of money without decreasing the value of 
all goods and services proportionately. If the 
moneylenders are to be granted their demands 
for the " dear " pound, the merchant, the manu- 
facturer, the farmer, the wage-earner, will all be 
compelled to sacrifice the value of their goods and 
services to a similar extent. 

If the gold currency is restored and prices put 
back to where they were four or five years ago, 
wages will have to go down with them. 

You cannot reduce prices generally, as certain 
politicians are urging, and retain the same banking 
facilities and the same currency circulation. Now 
mark what will inevitably follow such an 
attempt. To reduce prices you must reduce the 
volume of the currency, including bank credit. 
This means reducing banking accommodation, 
over-drafts, loans, etc., and consequently curtailing 
trade and depressing industry. It means reducing 
employment and both wages and salaries. This 
will add to the depression by reducing still further 
the demand for goods, since the wage-earners are 
the great consuming classes, and if you reduce 
their wages 3'ou reduce their power of purchasing 
commodities — in short, reducing prices, or 


what is the same thing, raising the value of 
money, means trade depression, lock-outs, 
strikes, emigration, starvation, pauperism, 
riots, with the possibility of civil war ! 

The crime proposed is not a novel one. It has 
been perpetrated in all countries usually during 
their most serious crises. Moreover the men who 
do these things are usually the pillars of society, 
whose names figure in the highest circles, who 
support many of our national charities, and after 
plunging hundreds of thousands into social want 
and misery, ease their consciences by donating a 
mere fraction of their ill-gotten gains to some 
church, hospital, or orphan asylum ! 

Now whilst the great financiers, the members 
of that mysterious circle — the real "hidden hand " — 
who exercise an all-powerful sway over the world's 
economic conditions, are fully alive to the conse- 
quences of their financial juggler}', it is only fair to 
say, that the majority of their tools, the politicians 
and Cabinet Ministers, are wholly ignorant of these 
effects. Finance, under present conditions, is an 
extremely abstruse and difficult study, and it is 
hardly possible for a man whose knowledge is 
confined to reading the money market report in 
his daily paper,to obtain, any real grasp of monetary 
science. Most of these men would be horrified 
if a deputation of taxpayers were to interview the 
Chancellor for the purpose of urging a measure for 
inflating the currency, in order to lighten the burden 
of taxation. Whilst they are quick to see the 
injustice of paying the national debts in a depre- 
ciated currency, they are singularly blind to the 


injustice of increasing the public burdens by 
paying debts in an appreciated currency. 

And yet this has been the practice for the past 
two centuries. The bulk of the national debts 
created represent double and treble the actual 
values originally subscribed. British taxpayers 
are still paying interest charges on the munitions 
supplied to defeat Napoleon's armies a century and 
more ago, because of the similar trick played upon 
them by the financiers to that now contemplated. 
And yet the nation has paid the actual cost of 
those wars in interest charges alone at least 
ten times over without seriously reducing the 
original debt ! 

Whilst science and discovery have added little to 
the prolongation of human life, finance has long 
since solved the problem of immortality ! Need 
one ask, " O debt ! where is thy sting " ? The 
sting of debt is usury — the author of its eternal 

The most notable parallel to the present con- 
spiracy, was that which followed the American 
Civil War. The international moneylenders 
bought the war-bonds issued by the United States 
Government at from forty to sixty cents on the 
dollar. They bought them during the period of 
inflation, and succeeded later in bribing Congress- 
men and Senators to vote for a " sound and 
honest " currency, which meant raising the value 
of the dollar by slaughtering the prices of all 
commodities. These bondholders trebled and 
quadrupled their wealth as if by magic. But as a 
Senator once told me, the American people went 


through an industrial hell to satisfy the insatiable 
appetites of these financial cormorants ! 

Lest it be thought that I am using terms abu- 
sively, I would refer the reader to the terms adopted 
by the financial classes to describe those who have 
at various times in the past, seriously suggested 
the redemption of national obligations in legal 
tender without specifying the kind of legal tender. 

If the repayment of the National Debt in a 
currency less valuable than the money origin- 
ally loaned, is to be classified as robbery, is not 
the compulsory repayment in a more valuable 
currency a greater robbery, since the econo- 
mic effects are far more disastrous — the evils 
far more widespread ? But in this present 
instance I am pleading merely for justice. 
Let repayment be made in tokens of exactly 
the same value as those subscribed. And if 
the bankers are determined to bring back all 
the restrictions and consequent horrors which 
must follow the re -adoption of a gold cur- 
rency, let the Government institute an honest 
standard and scale all debts incurred during 
the era of inflation, down to their proper 
dimensions in relation to the more valuable 

This would be strictly honourable in every sense 
of the word. The War Loans would then be 
represented according to the index numbers, at 
probably one-half of their original dimensions. 

If these terms are insisted upon, the nation will 
soon see a considerable moderation of the present 
outcry against inflation and high prices. 


At present the country is indignant over the 
disclosures regarding profiteering. But the for- 
tunes made by all the shipowners and commodity 
merchants since the war started, are a mere 
pittance compared to the profits which the finan- 
cial magnates will win by raising the value of the 
monetary pound. 

It may be asked, " Will not the Government 
and Parliament particularly, w^atch the people's 
interests and protect them from this threatened 
financial raid ? 

The answer is that neither Parliament nor the 
Government will move a finger to save the public, 
unless the public protest is made so effective as to 
engender fear in the minds of the majority of the 
members. This is not so much the result of 
corruption or any lack of honesty on the part of 
the average politician, as to his incredible inertia. 

When the opening of the great conflict suddenly 
rent the veil which had served to hide the truth 
from the British public, it brought us all to the 
realization of our two greatest dangers, the one 
foreign and the other domestic. 

The former was our mortal enemy, with the 
organized and well-drilled hatred, ambition and 
unscrupulousncss of his seventy million subjects 
under the leadership of a clever, cunning, blood- 
thirsty fiend utterly devoid of any moral or 
humane sentiment ! 

The other was tlie lofty and appalling conceit, 
ignorance, incfiicicnc}' and apathy of our so-called 
governing classes, comprising all shades of party 
politics. And of these two, the latter will most 


probably prove to have been the more dangerous 
and costh^ in the long run. 

Our national unpreparcdness for war, our 
diplomatic failures through the supineness, the 
sublime innocence, simplicity and trustfulness of 
our Foreign Office officials, and the public indiffer- 
ence to the warnings given by events which were 
hastening the advent of the great crisis, are being 
paid for not only by the people throughout our 
Empire, but by all our Allies in the sacrifice of 
millions of precious lives and untold millions of 
wealth. The education of a nation's rulers is 
often a costly undertaking. But where the 
education has to be provided by actual object 
lessons, the costs are apt to be ruinous. Where 
advice, history and organized knowdedge are 
disregarded, where the lessons of the past go 
unheeded, there remain only the methods of 

To teach such people the explosive effects of 
dynamite, half a dozen factories and warships 
must be blown up, together with hundreds of 
human lives ! To force them to realize the danger 
of trusting and harbouring a treacherous foe, the 
safety of a whole nation must be jeopardized. 
To make them understand the folly of opposing 
the diabolical cunning, ferocious cruelty and 
barbarism of a powerful enemy, with the strict 
observance of international regulations, peace- 
conference rules and church principles, whole 
nations must be sacrificed ! To get them to admit 
the necessity for reprisals and air defences, thou- 
sands of their own people must be starved, tor- 


tured, torn, mangled, and their homes blown to 
atoms. And similarly to knock financial wisdom 
into their heavy intellects, to show them the evil 
results of a fraudulent money standard, the public 
must be cheated, robbed and starved into revolt ! 

In short, amongst the world's ruling classes 
generally speaking, the only method of instruction 
which is at all effective, is the calamity method. 
It required the mart^'rdom of thousands who 
suffered death by fire and suffocation, to get the 
governing authorities to compel theatre managers 
to adopt the simple fire-proof curtain. The 
education of such people involves a system of 
political vivisection. Our present great financial 
peril is due entirely to similar official ignorance 
and stupidity. 

One has but to read the speeches of our Chan- 
cellors for the past few years to realize that they 
are all, irrespective of parties, merely the mouth- 
pieces of the great bankers. 

The financial arrangements of this country are 
entirely controlled by a class whose hrst object 
is to make dividends for themselves and their 

P2very politician accepting the responsibilities 
of the Chancellorship of the Exchequer, realizes 
that he dare not run counter to the rapacious 
demands of the financial octopus whose lair is 
Threadneedle and Lombard Streets. Even so 
pronounced a democrat as Mr. Lloyd George, had 
to bow the knee to Baal, so that his most enthu- 
siastic admirer will never be able to detect the 
shghtest trace of democracy's influence in his 


dealings with the money power ! And yet no one 
ever had greater opportunities for destroying this 
soulless monopoly and saving the nation untold 
millions of money, than our present Prime Minister. 

Had he exercised the same patriotic spirit and 
energy, the same disregard of private monopolies 
and privileges which he displayed as the first 
Minister of Munitions, he might have nationalized 
the whole of the private joint stock banks of 
Great Britain, and obtained precisely the same 
credit with which the war has been and is now 
being financed, with but a mere fraction of the 
costs already incurred. 

If and when the inside history of the financial 
methods which have been employed to carry 
on the war is ever published, it will probably 
cause widespread amazement. Possibly also 
the public may then begin to realize the truth 
of what several writers have been endeavour- 
ing to point out for many years past, viz., 
the terrible dangers to which our trade and 
industries are always exposed by the maintenance 
of Peel's suicidal Bank Charter Act of 1844, and 
especially when they learn how near to the brink 
of financial and industrial ruin the country was 
brought in 1914, through the facilities afforded our 
enemy for our undoing. It only required a 
cunning and unscrupulous nation like Germany 
to seize the end of the financial rope which our 
Bank Act has so long, so freely, and so temptingly 
dangled in front of her and other trade rivals, in 
order to tighten the noose round the throat of 
the British nation and, metaphorically speaking. 


hang us all ! And Germany came within an 
ace of doing it ! We escaped b}^ ignoring Peel's 
Act, just as we escaped on three former occasions 
and by similar means; just as we have escaped 
the destruction of our Empire b}' ignoring a 
similar piece of Governmental folly — the Declara- 
tion of London — although only after its authors 
had been taught their lesson by the terrible 
disasters and incredible losses which it inflicted 
upon the Allied cause. 

The financial education of the average Briton 
seldom goes beyond the occasional perusal of the 
daily press columns of the money market, where 
finance is regarded as a great game of gamble. 
The result is that any book or pamphlet on this 
tremendously important branch of economics, is 
apt to be received with about as much warmth of 
interest as a treatise on Strains or Quaternions. 
And yet its importance to every individual can be 
scarcely exaggerated. The subject confronts one 
at every stage of life, in every occupation, in every 
class of society. 

Finance is the arithmetic of trade and commerce, 
and an understanding of the subject should be 
generally regarded quite as essential to the average 
business man, as the knowledge of the science of 
numbers is to the accountant. It is the key to the 
knowledge of practically all other branches of 
economics. The interminable dispute between the 
various trade schools, which are to-day apparently 
as far from a settlement as ever, is largely due to 
the failure of both parties to consider the hnancial 
aspect of international trade. 


Orthodox finance is undoubtedly both difficult 
and abstruse, due mainly to the unscientific and 
often contradictory theories which have been 
incorporated into it. We have been taught to 
believe in the essential harmony of science, and I 
agree with Proudhon when he says — 

" It is surely a sad symptom for a science when, in 
developing itself according to its own principles, it reaches 
its object just in time to be contradicted by another, as 
for example when the postulates of political economy 
are found to be opposed to those of morality, for I sup- 
pose morality is a science as well as political economy ? 
What, then, is human knowledge if all its afiirmations 
destroy each other, and on what shall we rely ? " [System 
of Economical Contradictions.) 

Those who are uninitiated into the mysteries of 
finance, doubtless imagine that when they incur a 
debt, all that is necessary to fix the amount, is to 
obtain a written statement expressed in pounds, 
shillings and pence. But the financier knows 
better. The pound to-day can be made to equal 
two pounds next month or next year without the 
debtor knowing what has really happened ! A 
miner in Australia or South Africa, may be the 
innocent cause of reducing the volume of debts 
throughout the world in a very sensible degree, 
whilst a riot or civil war in some South American 
republic, may have the opposite effect. In short, 
finance as it exists, pertains far more to the realm 
of m3-stery like astrology and to what has been 
called the " Science of the Infinitel}' Absurd," 
than to any of the exact sciences. 

Imagine what confusion would ensue, if some 
day the secret of gravitation and some available 


means for seriously affecting it were discovered, 
so that any unscrupulous individual possessing 
the secret, could at will cause all our standard 
weights to sensibly increase or decrease ! Would 
not the passion of greed compel many to use such 
knowledge and power to enrich themselves at 
the expense of others ? Well, there are several 
great financiers and groups of financiers, who hold 
similar power in the world of finance, so that they 
can raise or lower the purchasing power of money, 
and they use it as a means of self- enrichment at the 
expense of others. Now supposing this condition 
existing in regard to gravitation such as that 
suggested, what sort of a legal system of measuring 
the weights of bodies would that be which paid no 
heed to these frequent interferences with gravita- 
tion ? And what would be the public attitude if 
the Government forced us to continue to employ 
our present standard weights, regardless of these 
continual variations in the force of gravity ? 
Possibly those interested might procure hired 
writers and professors, to instruct us that such 
fluctuations were not of the least importance. 
This is somewhat analogous to our financial 
system as established by law. 

The very term " Money Market,'' discloses the 
speculative and irrational character of our mone- 
tary system. What should we say if the Govern- 
ment permitted postage stamps to be issued 
exclusively by certain privileged firms, and a 
" stamp market " were established by which the 
prices of stamps were arbitrarily arranged from 
day to day and week to week, by a stamp committee 


appointed by these private firms, in order to 
swell their dividends ? 

It is difficult to see anything more startling 
in the creation of a postage stamp " market," or 
a railway-ticket '' market," than in the existence 
of a money market. A money market practically 
means a debt market, where debts both public and 
private are from time to time raised and lowered, 
because debts being payable in money (i.e., legal 
tender) naturally vary with the money unit. And 
since the money markets are largely controlled 
by the great international gold and credit dealers, 
the debts of both nations and individuals are 
similarly under the same influence. In short, no 
one can exactly foretell what his debts will be 
in terms of his own services and products 
at any future period ! A more dangerous and 
unstable system upon which to build a nation's 
trade and industries, it is impossible to conceive. 
We cannot afford to continue a system that has 
been tried and found wanting at every crisis of our 
history during the last two centuries ! 

We are now in the midst of the greatest economic 
revolution that has taken place in our history 
for ages. Our most venerable institutions, our 
most cherished theories, are either being swept 
away or are undergoing minute scrutiny and 
amendment. Many have already been condemned 
to the scrap heap, and many more must follow. 
Not only our future supremacy but our very 
existence as a great industrial nation is at stake. 
We are being tried by fire, and most of our old 
heirlooms must go. The reign of tradition and 

F.S c 


conservatism is over. We can no longer afford to 
maintain economic systems merely because they 
support certain private or class interests. If an 
institution— no matter how sacred by reason of 
its antiquit}' — blocks the path of national progress, 
woe betide us if we hesitate to get rid of it ! The 
seriousness of the economic struggle ahead of us 
leaves no room for either apathy or false sentiment. 
We are living in a new world, in which new condi- 
tions are continually appearing, and we shall have 
to construct our political and trade methods to 
suit these conditions. No matter how successful 
policies may have been under former conditions, 
this is no argument in favour of retaining them 
under new ones. 

Those who talk of " fixed principles," as applied 
to political and economic systems, should remem- 
ber that principles are only "fixed" so long as 
the conditions to which such principles are applic- 
able are "fixed.'' And as conditions are rapidly 
changing, it is evident our economic policy must 
be governed by the new conditions. \^Y^ cannot 
solve d3aiamic problems by the application of 
static laws. 

Nations and societies are organisms, and are 
destined to progress or perish. 

Our industrial classes have long been painfully 
aware of the fact that the economic system under 
which they toil generation after generation, with 
but a scanty return for their lal^our, whilst a large 
and growing class of non-producers and unem- 
plo\'ed enjoy unlimited wealth, is founded upon 
injustice, although they are unable to understand 


the fundamental causes. But the natural effects 
are disastrous to their industrial morale and 
engender discontent and class hatred, and seri- 
ously curtail the annual amount of wealth produc- 
tion. It is safe to say that under a system in 
which labour received a just proportion of the 
produce, the annual output could easily be 
doubled, with the same number of producers. 

Notwithstanding the fact that the vast majority 
of the people of all industrial nations are engaged 
directly or indirectly in what is often termed 
" the creation of values,'' to all but an extremely 
small circle, the science w^hich deals with this 
subject, is as vague and as mysterious as the rites 
and theories of the Rosicrucians. 

The industrial world presents to us the spectacle 
of millions of men and women constantly engaged 
in the production of commodities created for the 
use and enjoyment of all classes, but who are 
totally ignorant of what share in the general 
wealth their labour will entitle them to. They 
bargain their labour for coins and tokens, which 
have no fixed or certain relation to any or all 
of the good things they need and produce. During 
the process of exchange, these commodities undergo 
certain curious and apparently inexplicable 
metamorphoses, and by the time they reach their 
final destination — the consumers- — their values 
have been transmuted into prices, and the pro- 
ducers find their remuneration will only buy a 
fraction of the produce their lal)our has created. 
Between the farmer and dairyman who raise 
corn, potatoes, butter, eggs, etc., on the one side, 


and the hatter, shoemaker and tailor who manu- 
facture hats, boots, and clothes, on the other side 
(each of whom needs some of the products of his 
fellow-producers'), stands the market with its 
complicated system and mechanism of exchange, 
the chief function of which (so we are told) is to 
" measure " the values of all commodities. But 
why the mere operations of '' measurement " and 
exchange, should result in such frequent and vast 
changes in the prices of commodities, and therefore 
in the fortunes of their makers and dealers, and 
why they should raise a partial barrier between 
the products and their producers, are problems 
which the average man cannot fathom. Under 
the old barter system where goods were exchanged 
directly for other goods, the producers received 
what the}^ believed to be the full value for their 
labour. And if we were to go back to that crude 
system to-day, it is probable that a greater 
measure of satisfaction would result to the pro- 
ducing classes. 

These operations wliicli affect the world's 
markets and prices so mysteriously are, however, 
directly controlled b\' human agency, and behind 
the scenes there are certain individuals who can 
and do influence to an extraordinary degree the 
machinery of exchange, which determines the 
exchange relations of all commodities. 

My personal interest in this subject, which led 
me to stud\' the science, commenced more than 
a (|uarter of a century ago when, as a resident of 
the United States, lousiness interests brought me 
ill c'/Htacl with certain higli financial circles. The 


experience and knowledge gained, led me to 
investigate the underlying cause of economic 
phenomena, with the result that I became con- 
vinced that the basis upon which the economic 
system of every nation has been established, is a 
fraudulent one. 

Those who have read Thomas W. Lawson's 
Frenzied Finance, will understand the methods by 
which a group of men were enabled to secure 
millions of wealth, not a single cent of which they 
themselves had ever created. The history of the 
Copper Trust as related by Mr. Lawson, was 
merely an instance of scores of similar conspiracies 
perpetrated universally by leaders both in the 
financial and social world. During my own 
experience I have seen half a dozen men at a 
private dinner party plan a financial " coup " 
which a few days later gave to them the possession 
of many millions of dollars of wealth without 
their investing a solitary nickel piece ! I was an 
unwilling witness of the ruin of a railway magnate 
who refused to sell his control of a certain railroad 
at the bidding of an all-powerful syndicate at 
the figure they offered. Whereupon the syndicate 
ordered the bankers to call in all their loans on 
the shares and bonds of this road held by them 
as security, with the result that a panic ensued 
and the securities were thrown upon the market 
and bought by the syndicate at half the figure 
thcv originally tendered ! I have seen several 
iirms whose assets were worth twice the amount 
of their debts, deliberately ruined by being thrown 
into the Bankruptcy Court ; as they could not 


obtain sufficient legal tender to meet their liabili- 
ties on demand (their creditors being their own 
bankers, who were hoarding large sums of money) 
they were forced into liquidation. 

I was one of four men who bought under the 
hammer, an entire railway system which had 
been previously ruined by a financial group to 
prevent competition with the system they 

I instance these operations merely to show the 
almost economic omnipotence of those who control 
the money and credit of a community. 

During Dr. Wilson's first presidential campaign 
he said, " The greatest monopoly in America is 
the ' money monopoly.' " To which iheNeio York 
Times (which was then the organ of the late 
Pierrepont Morgan) gave a direct denial. The 
New York World then took up the cudgels in an 
article from which the following is taken : — 

" The same da\' the Times ingeniously asked Governor 
Wilson what he meant by the ' money monopoly,' the 
newspapers announced that ^Ir. Morgan's ' Bankers' 
Trust Company ' had bought from ]\Ir. Morgan's Inequit- 
able Life /Assurance Society its holdings in the Mercantile 
Trust Company, and that by this transfer the aggregate 
assets of the banks dominated by J. P. Morgan & Co. 
exceeded Si, 000,000,000. This $1,000,000,000 is not 
]\Ir. Morgan's money, but it is in the hands of the Morgan 
interests, which say who ca)! borrow it and who cannot 
borrow it, liow it shall be used and how it shall not be 

" When Mr. Morgan took over the Equitable Company 
from Thomas V. Kyan, lie paid more than $2,500,000 for 
stock that can le.qitimatcly earn only $3,514 a year, but 
what he really bought was control over the Equitable 's 


$400,000,000 of assets and $80,000,000 of surplus. After 
this control was acquired, the statement was made in one 
of the financial newspapers, that no man could borrow 
$1,000,000 in New York, whatever ^he security, if Mr. 
Morgan objected to his having it. No doubt this is true, 
for there are few independent bankers anywhere who 
would care to incur the hostility of the money trust that 
has been built up by the Morgan-Standard-Oil interests 
and their allies. 

" The ' money monopoly ' controls more than money 
and credit. It controls oil and steel and railroads and 
all manner of corporations, by means of interlocking 
directorates and a well-defined community of interest. 
Its political activities are as far-reaching as its financial 
activities, working through railroad lawyers, corporation 
lawyers, country bankers, and political bosses. 

" In fact there has been created in Wall Street what is 
practically a Central Bank, more formidable than the old 
United States Bank ever was or could be, wholly irrespon- 
sible in its use of power except as restrained by the merely 
technical provisions of the banking laws, and more danger- 
ous politically than a whole regiment of Nick Biddies ^ 
such as President Jackson crushed." 

Those who congratulate themselves that these 
powerful financial syndicates are confined to 
America, and therefore do not concern us, are 
harbouring a great delusion. They exist in all 
countries to a greater or less degree. And when 
our Chancellors and Cabinet Ministers are some- 
times selected from such syndicates, the public 
ought to realize the gravity of the position. 
Sometimes these syndicates are composed of 

1 " Nick " Biddle was president of the United States Bank 
during President Jackson's first term, and exercised enormous 
political influence. Biddle threatened to defeat Jackson for the 
Presidency for his second term, and Jackson replied that if he 
dared to corrupt the electors by promises of money, he would 
hang him " as high as Haman ! " 


citizens of the countries in which they operate. 
Sometimes the members are aUens in race, reUgion, 
pohtics and national interests, as in Italy, and 
Russia, whose fmances were, prior to the war, 
controlled entirely by German Jew firms. Some 
years ago a friend of the writer sought the assist- 
ance of a well-known banking house in the estab- 
lishment of a French industry, necessitating the 
employment of some millions of pounds of capital. 
The head of the house, having examined the 
scheme, pronounced it excellent, but added that he 
could not offer any material help, as France was 
out of his " sphere of influence." " The financial 
world," he said, " is divided among the various 
international and financial firms. Messrs. So and 
So handle France, and So and So Argentina, etc. 
Had your enterprise been for Eg^'pt we could have 
financed you." 

Now the most serious feature of this world-wide 
money monopoly, is the power it gives a few men 
to alter the purchasing power of money whenever 
it is to their advantage to do so. The operation 
is extremely simple. The business of the world 
is conducted chiefly upon credit by means of loans, 
so that the mere calling in of loans and the refusal 
to extend credit suffices greatly to increase the 
purchasing power of money. A similar result can 
be obtained by withdrawing gold supplies from 
circulation, and by reversing these processes 
prices can be advanced and the danger from the 
previous operations relieved. Hence the world's 
financiers have the power to acc^uire unlimited 
wealth by merely juggling with prices. And this 


dangerous power, this perpetual menace to econo- 
mic peace and welfare, exists at the present time 
mainly by reason of the legal establishment of 
the gold standard. 



Our ignorance and unreadiness for the stupen- 
dous struggle in which we are now engaged, has 
been the subject of much discussion and many 
heart searchings. Criticisms have been launched 
against our guardians and caretakers — the govern- 
ing classes — for their refusal to heed the warnings 
which for years prior to the war, were constantly 
sounded, both by events and by well-informed 

The Empire is now paying the inevitable 
penalty for the listlessness and indifference of the 
public and its leaders to the cry of the " alarmists." 
When we look back over the past nine or ten 
years, it seems incredible that all the sign-posts 
pointing to the catastrophe towards which Europe 
was steadily marching, could have been so com- 
pletely ignored. It is a sad reflection upon human 
intelligence to have to admit what history teaches, 
viz., the general futility of warning the public 
against dangers which appear more or less remote. 
Erom the time that Xoah commenced to build 
his ark until now, calamity prophets have had 
little return for their warnings but ridicule. 
Jeremiahs have never been popular. We are all 



so prone to regard present conditions as per- 
manent, particularly if they arc agreeable, that 
we naturally resent any suggestion of impending 
trouble or disaster. Like other races, we are 
much better pupils in the school of Uame 
Experience than in that of General Advice. If 
our foresight were as good as our " hindsight,'' 
no doubt we should be a wonderful people. But 
although our aptitude in learning from experience 
is perhaps one of our saving qualities, it is obvi- 
ously necessary that the lessons from experience 
should be quite clear and simple. Any ambiguity 
as to the real cause of our past failures will prob- 
ably lead us to future failures. W^oe betide us if 
the appalling dangers and disasters, w^hich we have 
barely escaped during the past three years through 
unpreparedness, are ever forgotten or ignored. 
The dangers of military and naval unreadiness are 
now fully realized by the vast majority of the 
nation. The dangers from our foolish economic 
and financial systems are, however, not yet 
realized- — even by a sensibly small minority. The 
reason for this is twofold. First, our experience 
has not yet been sufficiently severe to impress the 
average citizen with the perils of either food 
shortage, or our economic dependence upon foreign 
countries. And in the realm of finance we have 
been saved from the results of the folly of our 
banking laws and methods, b\' the action of the 
Government in placing the national credit at the 
disposal of the bankers and moneylenders. 

In the second place, certain popular writers 
have given the public entirely false accounts of 


the system of " peaceful penetration " by means 
of which the enemy was steadily undermining our 
economic and political independence, and of the 
financial crisis through which the country passed 
in the midsummer of 1914, i.e., both the causes 
which precipitated the crisis and the methods 
by which a most terrible panic was but narrowly 
averted. That it is to tne interests of certain 
classes to revert to our pre-war methods when 
peace is declared, is evident. And it is perhaps 
only natural that they should wish to preserve 
these interests, even though they are, at certain 
times, a menace to the welfare of the nation. 
But as the strength and safety of the British 
Empire is of far greater moment than the pecuniary 
interests of any single class, these interests must 
not be allowed to obstruct the path of progress. 
No greater disservice can be done to a nation 
than to misrepresent or disguise the real 
causes of its social, political or economic 
weakness or failures. To deliberately and 
intentionally falsify the obvious lessons from 
events, is a crime of the first magnitude. 
If the Government were to assist a jerry-builder 
by shoring up his buildings whenever they showed 
signs of collapse, we might applaud its motives 
in trying to avoid accidents, but we should cer- 
tainly consider it censurable if it permitted the 
culprit to continue his dangerous business without 
cautioning both him and the public ! And 
whilst the Government was justified in saving 
the banks in 1914, it has no right to screen their 
weaknesses, nor allow the public to believe such 


obviously untrue statements as those made on 
their behalf by apologists who assert that the 
crisis " was not brought about by any internal 
weakness in the English banking S3/'stem/' ^ 

Our financial experience from the moment the 
war cloud first appeared until to-da}', is so 
important, the lessons to be learnt arc of such 
incalculable value to our future safety and welfare, 
that the Government ought to publish an 
absolutely authentic report of everything 
that happened in regard to its financial trans- 
actions with the banks, and the banks' methods of 
dealing with their foreign and domestic clients. 
Whilst a good deal is already publicly known, very 
much is still hidden that the public ought to know. 
For example, wh}-' was the Bank Charter Act not 
immediately suspended in July, 1914, when the 
crisis was imminent ? Who was responsible 
for this delay which allowed the crisis to develop ? 
Is it true that certain banking officials failed to 
carry out the Chancellor's instructions immedi- 
ately when issued ? Why were Treasury notes 
issued — instead of bank notes — as on former 
occasions ? Why was the use of the National 
Credit — which belongs to the British public — 
first offered solely to the bankers and not to the 
public direct ? Why have the bankers been 
allowed to benefit by their pre-war recklessness 
at the public expense ? Why was a Moratorium 
declared which the prompt suspension of the 
Bank Charter Act might have avoided ? Why 
are tlic banks exempt from the operations of the 

^ Hartley Withers, War and Lombard Street. 


excess profit tax ? And above all, why have our 
authorities invariably turned a deaf ear to the 
advice and warnings repeatedly given them by 
men like Walter Bagehot, Lord Goschen, and Sir 
Edward Holden ? Why must our Chancellors 
— with but few exceptions — be members of or 
allied to the banking profession ? The public 
have a right to demand answers to these questions. 

With the conclusion of hostilities, we are expect- 
ing to enter into a mighty contest in another 
field. The enemy vows to wage against us an 
economic war with all his characteristic energy, 
ruthlessness and unscrupulousness. Are we to 
enter this struggle as unprepared as we were 
rushed into the war ? Are all the warnings to be 
again ignored ? Surely it is but mere sanity to 
ascertain the real facts regarding our financial 
and commercial methods ? Are they safe ? Are 
they warranted to carry us to victory ? Are 
systems originally devised by certain individuals 
for their own enrichment, good enough for a 
nation when engaged in an economic struggle 
with a powerful industrial foe like Germany ? 
Are we silently to submit to the re-establishment 
of institutions which have collapsed on every 
occasion when exposed to conditions which are 
likely to reappear from time to time ? 

Let us first deal with the financial question. 
Wliat happened in the fateful summer of 1914 ? 
I give it in the words oi one of the most strenuous 
apologists of (jur present mcjnopolistic banking 
system, Mr. Martley Withers, fcjr whom a special 
post in the Treasury department was provided b\' 


Mr. Asquith's Government. In his recent book, 

War and Lombard Street, the author says : — 

"On Friday, July 24, Austria sent its uhimatum to 
Serbia. On Saturday, July 25, there was something very 
like a panic on the London Stock Exchange and the 
Continental Bourses. At the beginning of the next week 
the foreign exchanges began a series of erratic and unpre- 
cedented movements which ended in a breakdown. On 
Thursday, July 30, the Bank of England's rate was 
raised from 3 per cent, to 4 per cent., and on July 31st it W'as 
multiplied by 2, jumping from 4 per cent, to 8 per cent. 
On that day, July 31, some of the other banks w'ere refus- 
ing to pay out gold to their customers, and making them 
take payment in Bank of England notes. Consequently 
there was a long string of people wanting money for the 
holidays, waiting to cash notes at the Bank of England. 
On Saturday, August i, the Bank rate went up to 10 per 
cent., and the string of people waiting to cash notes at tho 
Bank of England was still watched by an amused crowd 
from the steps of the Royal Exchange. All this happened 
before a shot had been fired on the Continent, and before it 
was even certain that England would go to war at all. Then 
came Sunday and Bank Holiday, and war, and then three 
more days of Bank Holidays and then the general 

" It was an unpleasant string of surprises, but it was not 
brought about by any internal weakness in the EnglisJi 
banking system. The fury of the tempest was such that 
no credit system could possibly have stood up against 
it. 1)1 fact, as i&ill be shown, the chief reason for the sud- 
dcnvxss and fullness of the blow that fell oil London was 
nothi)ig else but her overwhelming strength. She was so 
strong and so lonely in her strength that her strength over- 
came her. She held the rest of the world in fee with so 
mighty a grip that when she said to the rest of the Vi'orld, 
' Please pa\- what you owu me,' the world could onh' gasp 
out, ' But how can 1 pay you if you don't lend me the 
wherewithal ? ' If there had been any rival who could 
have taken London's mantle from her shoulders, and come 
forward as the provider of credit, London could then ha\-e 
called in her debts. But there was none. The maeliin- 


cry of credit broke down in both hemispheres, and London 
as its centre had to be given time to arrange matters 
mider the new conditions." (ItaHcsare the present writer's.) 

The reader who is uninitiated in the practices, 
phraseolog3% and pecuHar ideas current throughout 
the realm of finance, may find it difftcult to 
reconcile Mr. Withers' history of those eventful 
days with his conclusions. To most people it 
would appear that a firm that cannot pay its 
obligations is either bankrupt or next door to it. 
The London banks owed their depositors and 
clients very large sums of legal tender money. 
Xo doubt there were larger sums owing to the 
banks from foreign and domestic clients which 
they were unable to collect. But that was no 
fault of the depositors. If I entrust my money 
to a firm on the express condition that they are 
to pay me on demand, they must either pay 
on demand, or they become defaulters. The 
London bankers had loaned the money 
belonging to their clients to people all over the 
world — including German firms and German 
bankers. In fact, Germany's readiness for 
war, was partly due to the gold and credit 
facilities furnished her by our cosmopolitan 
money-lenders ! And now when war was 
threatened, the British public wanted to know 
that its money was safe. The bankers were 
caught — and were unable to fulfil their obli- 
gations. Had they been ordinary mer- 
chants or manufacturers, they would have 
gone into liquidation amidst the denimciation 
of the press and public. They would have been 


accused of " over- trading." Had they been 
private trustees— solicitors entrusted with funds 
belonging to clients— they would have gone to 
prison ! But our legal code is so curious and so 
discriminating, that the vices of one class become 
the virtues of another. According to our financial 
experts, what is considered weakness in com- 
mercial affairs may be " strength " in banking 
matters. And the condition known as " bank- 
ruptcy " outside of the charmed circle of banking, 
is called " overw^heltning strength " within 
that circle. Finding themselves in such " over- 
whelming strength," the bankers had to close 
their doors and beg the Government for help. 
They were compelled to acknowledge their in- 
ability to meet their obligations, and in order to 
save the nation from the perils into which the 
bankers' system of overtrading had landed them, 
the Chancellor was compelled to offer the imme- 
diate use of the National Credit which he provided 
in the shape of Treasury notes and at the same 
time declared a Moratorium. But this was not 
all. Under PeeFs Bank Charter Act, for sums 
over two pounds, legal tender was compulsorily 
payable in gold. The public had deposited with 
the banks in round figures about £1,000,000,000 — 
all of which was payable on demand in gold 
according to law. The banks, obligations were 
impossible of fulfilment, and the bankers have 
known this from the time the}^ first accepted these 
obligations ! No provision was made b\' Peel's 
Act for Wars, or panics — except evasion of 
contract ! The Government was therefore 

F.S. D 


compelled to allow the banks to evade their 
obligations by paying out paper money instead 
of the gold which according to the law they should 
have possessed. Imagine the Government coming 
to the rescue of the steel, iron, coal, engineering or 
building trades, or any branch of industry under 
similar circumstances, and offering the members 
similar support ! Not that such support would 
be foolish or injurious. On the contrary, if our 
Governments had always shown equal zeal in 
assisting British trade and commerce in times of 
depression which they have readily offered to the 
banking profession, much social misery and 
unhappiness would have been avoided. 

The point to be observed is this : for their 
own selfish interests — for the sole purpose of 
making profits — our financiers are permitted to 
risk the public's money to any extent, with the 
certain knowledge that if they " over-trade " and 
get into deep water, the Government is bound 
to save them ! In fact, our joint stock banks 
are now so powerful they are in the position of 
demanding the Government support whenever 
they need it ! So that whilst the public is com- 
pelled to take all the risks, the banks are permitted 
to take all the profits ! Is it any wonder that 
English banking is the envy of the money-lenders 
of all nations ? 

Again, the Treasury notes represent the National 
Credit, i.e., the combined credit of the British 
tax-payers. That credit belongs to the people 
— not to the banks ! But our democratic 
Chancellor offers it to the bankers to loan to the 


public on their own terms to whom it already 
belongs ! Surely never was generosity so 
lavishly displayed ! And this credit which saves 
the banks and the nation, which functions as 
currency just as well as gold, facilitating exchange 
and commerce, is only permitted to function 
during National crises — when the banks are 
practically insolvent ! But, as we have seen, 
the law regards banking from an entirely privileged 
standpoint. The facts as disclosed by the 
great crisis of 1914, as well as by former 
crises, prove conclusively that our banking 
methods are inherently weak and unstable, 
and quite unable to withstand any extra- 
ordinary strain which a war involves. No- 
thing short of the National Credit is strong 
enough to carry the nation safely through 
such a crisis. 

Now let us see how nearly the predictions and 
warnings of various " alarmists '■" have been 
fulfilled. In an Open Letter to Mr. Lloyd George, 
then Chancellor of the Exchequer, published in 
191 1 (Dent & Sons), I wrote as follows (page 

" Under the fatal ban of our Legal Tender and Bank 
Charter Acts, all banking enterprise of an original char- 
acter has been suppressed, and our joint stock banks have 
had to erect tlieir vast edifices upon the narrow and un- 
stable foundations provided by these laws ! To one who 
has given the subject any careful thought, the marvel is 
that we have so long escaped the inevitable debacle, which 
sooner or later must overtake us ! . . . 

" Our banking s\'stem is built upon a margin of bank- 
ruptcy ! No provision whatever is made for any extra- 
ordinary event, such as a war or panic ! Take any of our 


great joint stock banks. How many of them can show at 
any time — even for window-dressing purposes — lo per 
cent, of cash available against their liabiHties ? . . . And 
one shudders to contemplate what would happen in the 
event of a great crisis, such as a war with Germany ! . . . 
No bank is to-day solvent on the basis prescribed by law. 
Not one could begin to fulfil its obligations in the precious 
metals. So long as we compel the Bank of England to pay 
out gold on demand, so long as we maintain our free gold 
market (chiefly for the benefit of foreigners), so long shall 
we be liable to a very fluctuating bank rate, and to have 
our gold taken abroad. ... It is as certain as that the 
sun will rise to-morrow that in a great crisis we shall be 
compelled to suspend our Bank Charter Act and accommo- 
date ourselves to paper money." 

Again, in a pamphlet entitled Is a Money 
Crisis Imminent ? published in November, 1910 
(being the substance of a lecture delivered under 
the auspices of the Banking and Currency Reform 
League at the New Reform Club, London), the 
writer also said : — 

" The pending invasion of this country by Germany, 
and the general Armageddon that is to follow, have occu- 
pied the attention of the public for the past few years. 
Whether the prophets who have foretold of these calami- 
ties be true or false, it docs not require any profoundly 
prophetic gifts to foretell of the great financial crisis which 
sooner or later must overtake us. I cannot understand 
the complacency of those gentlemen who talk of war so 
glibly, but show no concern regarding the perils to which 
our commerce and trade are exposed by a system which is 
of our own creation, and which is maintained for the benefit 
of a comparatively few individuals. Certainly if war were 
to arise, as predicted, a very large number of our mercan- 
tile businesses would be utterly ruined ! We should have 
a banking crisis that would eclipse an3'thing the world 
has ever known, and the financial system which has been 
praised so often by our bankers, and those who profit by 


its continuance, would be found utterly unsound and un- 
able to stand even a fraction of the strain which such a 
crisis would put upon it ! It would tumble like a house 
of cards ! . . . 

" In the event of a war with Germany or a panic lead- 
ing to a very considerable withdrawal of deposits, our 
banks would have to close their doors, for they could not 
pay their obligations to the extent of even ten per cent. ! 
. . . But apart from the danger of the withdrawal of 
deposits a still greater danger lies in the possibihty of a 
sudden demand for gold abroad. It is well known that 
foreign banks and finance houses employ large credits 
in the London money-markets — credits which can be 
withdrawn very suddenly— and if at a time of war-panic 
an attempt were made to withdraw these credits in the 
form of gold, it is difficult to see how the Bank of Eng- 
land could avoid the suspension of specie payments. It 
should also be remembered that in a war, the enemy 
would be interested in damaging our credit to his fullest 

So great an authority as Lord Goschen also 
commented on these dangers. In 1892, when as 
Chancellor of the Exchequer he addressed the 
Leeds Chamber of Commerce, he said, " No fertile 
imagination could exaggerate the gravity of the 
position ! " Years prior to this, Walter Bagehot 
had similarly and eloquently called attention to 
the supreme weakness of our financial system. 
And in ver}' recent times our ablest and greatest 
banker, Sir Edward Holden, has repeatedly 
sounded notes of warning to his fellow- bankers 
and to the country generally. But the Bank of 
England backed by Lombard Street, has been 
strong enough to defeat every attempted alteration 
or reform. The advice and warnings have hitherto 
fallen on deaf cars. Bank di\idends have been 


regarded as of far greater importance than national 
safety and welfare. 

If the reader has any doubt regarding the 
pohtical supremacy of our financiers, let him read 
the various speeches on finance delivered in the 
House by the various Chancellors since the war 
started. He will then realize how completely 
the Bank of England — a privately owned joint 
stock bank — with its affiliations dominates the 
Government's financial policy. Our Chancellors, 
whether Radical like Mr. Lloyd George, Liberal 
like Mr. McKenna, or Conservative like Mr. Bonar 
Law, are merely the mouthpieces of the all-power- 
ful money-lending interests of Threadnecdle and 
Lombard Streets. Possessing no special or con- 
siderable knowledge of monetary science them- 
selves, our politicians are compelled to listen to 
and accept the advice of those whose interests 
lead them to regard the public as their rightful 
prey, to be plucked whenever the opportunity 
arises. Hence when these champions of vested 
interests insisted that the War Loan must under 
no consideration compete with or depreciate 
their own securities, our obedient Chancellors 
acted as instructed, and the rate of interest on 
these loans was fixed accordingly. 

Notwithstanding the obvious lessons of the past 
as to the inadecjuacy of our banking methods, 
taught us by the events both preceding and 
since the war, so little impression have they 
made upon the minds of the majority of our bankers, 
that thev have refused to consider an\' change in 
their m(^tliods for assisting British enterprise in 


its endeavours to capture the trade of the enemy ! 
Now let us see what happened to our gold 
market just prior to the war, and how far these 
warnings and prophecies were justified. I cannot 
do better than quote from Mr. Moreton Frewen's 
lucid article in Overseas for February, 1917. 

" In the fateful days of August, 1914, the cosmopolitan 
finance, so fashionable in the City of London, had ex- 
posed England to a danger of the most formidable kind. 
Already eager pens are at work counselhng that after 
Peace we shah return to the ancient ways, and it is there- 
fore important to submit the case of that cosmopolitan 
hnance, without any delay at all, and ask the verdict of 
the Empire. Is there to be, here in London, ever and 
ahvavs, danger of the most imminent and sinister and 
concealed kind, or ' Never again ' ? Confronted witli 
these alternatives, can we question which is the reply the 
lunpire wih give ? 

" Very briefly the situation was this. During the two 
\'ears before the war it had been matter for general com- 
ment on all the Bourses of Europe that Germany had been 
buying immense sums of gold at a premium. I mean, 
that Berhn was paying for the gold bullion she bought 
here. '>no}'e than the price indicated by her own exchange 
quotations. That very fact, had it stood alone, should 
have convinced our financiers that German}/ intended 
war, and that she was draining London, the only ' free 
market ' in the world for gold, of that metal which, since 
1873, is the real sinew of war. But I pass over these 
great gold purchases by Germans, because in that the 
question of ' exchange ' is involved, and the exchange 
question few people so much as desire to understand. 

" But what was it that happened, and in what may be 
called the War Stores Market, between January and 
August, 1914 ? \Mien that is properly investigated, as 
it will be, that investigation will, I am certain, sound the 
death-knell of all this cosmopolitan credit-mongering 
built up in the Citv of London, and synchronizing with 
and growing out of our ' Free Trade ' experiment. How 


then did Germany mobilize her finances of war during 
those six months ? I hope I may be able to explain this 
in language that your varied readers — the ranchman, 
the fislierman, the trapper, tlie lumberjack, the miner, 
the farmer of the Empire from John o'Groats toVancouver, 
from Vancouver via Sydney Heads to Cape Town- — may be 
able to follow, for it discloses the most wonderful tale 
of financial grand larceny in all the world's history 
— a tale too, which is certain to attract imitators. 
Now this is what actually occurred. Germany, of course, 
needed for her impending war immense supplies of lead 
and spelter, copper and nickel — these are the products 
of Canada, Australia, Africa ; also cotton from Egypt, 
and wool from Australia, a score of half-finished war- 
manufactures, too, from Great Britain. These are 
bought, not for cash, but with promises to pay cash three 
and six months after delivery, in Berlin. Such is the 
method of the Great International Credit System. Now 
mark the sequel ! Germany had as against these ' scraps 
of paper ' (politely called ' bills ' in the jargon of the 
' City ') war munitions supplied by our Empire of a value 
of two hundred million sterling (the amount of the indem- 
nity paid by Erance to Germany in 1871) ! (Germany, as 
1 say, has had this huge war sustentation fund from Eng- 
land, and had it before ever a shot was fired at all ! But 
I can hear the seller of lead from Broken Hill say, ' That 
was not the way my lead, at least, was paid for ! ' No ! 
but the actual method was this. Berlin had branches of 
three of the greatest of her banks in London. As fast 
as Berlin's banks gave: these promissory notes to our 
colonial sellers, they were sent to the London branches of 
the Berlin banks. These branch banks next passed on 
these ' bills ' to the amount (jf two hundred millions ster- 
ling to the dozen great London discount houses, the whole 
length of Lombard Street. Of course, if the Berlin banks 
failed to meet these bills when due, all Lombard vStreet, 
the Bank of England included, must stop payments. 
The Gemian Government relied chiefly on this pretty 
conspiracy of their financial experts in London and 
Berlin, to keep lingland out of the war altogether. The 
(iermans said of us ' that is a nation of shopkee]xn-s.' If 
the first note of the war should involve the wreck of the 


Bank of England, then rely on it, her honour notwith- 
standmg, England is going to ' stay out.' Greatly to our 
honour, these terrible responsibilities did not suffice to 
dominate a splendid ebullition of public opinion, and 
though the temptation was horrible, England was kicked 
into the war by every responsible element in her body 
pohtic, and particularl}^ by that vast proletariat which we 
were told had commenced to doubt its own sense of 
patriotism ! 

" We are destined in these days at hand to hear such 
subsidized applause to the great national virtue of Eng- 
land's ' free gold market,' and of the profitable nature of 
British bill-broking with German bills, but I beheve that 
the public opinion of to-morrow will challenge all these 
statements. Such profits go to the ' profiteers,' while the 
losses are saddled on the taxpayer. But think of the 
frightful peril of it all ! — which indeed is the peril of every 
section of the British Empire itself ! It is inconceivable 
that we shall, after the conclusion of peace, permit this 
traitorous cosmopolitan bill system to be again built up, 
so that once more we may be fined two hundred millions 
by the enemy before ever a shot is fired ! It is quite 
true that the taxpayer will not ultimately be called upon 
to find an}' two hundred millions. The Bank of England, 
guaranteed by the Government (that is by the taxpayer), 
has succeeded in salvaging at least three-quarters of the 
whole amount in the last two years, but that fact in no 
wise reduces the impact of the frightful and almost mortal 
blow struck at the heart of the Empire in August, 1914, 
by the mechanism of the German banks so insolently 
established in London for this very purpose." 

Such is Mr. Frewen's scathing indictment of a 
financial system which one could hardly believe 
to have originated outside of a lunatic asylum ! 

But who is really to blame ? If the British 
people are fools enough to allow their statesmen 
to legislate for the benefit of a special class and 
of every country but their own, the\' must not 
complain if a cunning and unscrupulous Govern- 


ment like Germany's, seizes the opportunity 
offered to enrich herself at their expense. The 
great trouble is that our governing class has 
hitherto consisted of the idle rich and titled 
youths in search of something to do to escape 
boredom; barristers, solicitors, dilettantes, novel- 
ists, arm-chair philosophers, schoolmasters and 
theorists — specialists in almost everything except 
the affairs of government. And when questions 
regarding trade and finance have arisen necessitat- 
ing legislation, they have sought and received 
advice from those whose vested interests are 
opposed to the public interests. Hence we get 
our monetary and banking laws through the 
influence of cosmopolitan money-lenders, our 
foreign trade policy from paid professors, im- 
porters, and foreign traders, and our tangled web- 
like legal system from those who batten on it. 

Commenting on our British law practice, an 
eminent Austrian lawyer once remarked to the 
writer, " Your legal system is the wonder and 
amusement of the whole world ! A successful 
English barrister must be a legal artist ! In every 
other country he is compelled to be a legal scien- 

Turn now to our foreign trade policy. How far 
are we prepared with a well thought-out plan for 
countering the enemy's intention of seizing our 
markets when peace is declared ? Here and there 
certain attempts are being made to formulate a 
polic}-. Our Chambers of Commerce have sug- 
gested certain half-hearted measures. The Paris 
]£conomic Conference resulted in the appointment 


of a committee which has issued a report. And 
there apparently the matter rests. ^ In the 
meantime certain organizations, such as the Cobden 
Club, whose members have learnt nothing from 
the revelations of the past three years, are actively 
engaged in disseminating misinformation for the 
purpose of allaying the public fears, in the hope 
of inducing us to resume trade relations with the 
enemy of God and man as soon as the war is over ! 
Certain writers are either knowingly or ignorantly 
deceiving their readers by denying Germany's 
politically aggressive intentions in her trade opera- 
tions.2 Blinded by their free-import prejudices 
to the economic dangers confronting us, they seek 
to lull the public into a false security. These 
writers and their organizations are as serious a 
menace to Britain's future economic welfare and 
safety, as the Czar's recent Court Camarilla was 
to the military success of Russia. 

Let me say at once that not only are we at 
present totally unprepared to wage a successful 
trade war with the enemy, but, judging from the 
writings of certain economists and financiers, 
the nature of the coming contest is not even 
understood. The preparation necessarily involves 
our getting rid of numerous systems and methods 
which are barriers to our economic progress, and 
for which the greed of certain privileged classes 
coupled with the ignorance and superstition of the 

1 This was written in March, 191 7. 

^ See J. A. Hobson's New Protectionism, containing a brazen 
and impiulcnt denial of C'.ennany's pohtical aggressiveness in her 
trade methods ! 


people are responsible. It means the repeal of 
certain legislative acts and possibly the enactment 
of fresh laws. The lead must be given by the 
Government. In fact at present a sufficiently 
strong economic organization to meet the enemy 
can only proceed from the Government. Many 
suppose that the coming trade war is entirely an 
affair for the individual manufacturers, merchants 
and bankers to deal with. They see neither 
occasion nor scope for Governmental action. 
Certain free importers maintain that since inter- 
national trade is solely an exchange between the 
individuals of one country and those of another, 
Government interference cannot help, but can 
and will, if invoked, hamper our trade and ought 
therefore to be shunned. These writers ridicule 
the possibility of a trade war ! " How can there 
be warfare," they naively inquire, " over trans- 
actions which are mutually profitable and bene- 
ficial ? " " What can Germany do beyond send- 
ing us her surplus goods in exchange for ours ? 
And why object to enrich ourselves from the more 
efficient productive methods of the enemy ? 
But these people either forget or ignore the fact 
that Germany's industries are all organized for 
co-operative action and collective warfare. And 
just as the great Am.crican financial and industrial 
trusts and combines have been able to destroy 
such individual effort and competition as they 
have objected to, so a nation organized as Germany 
is, and backed by the solid strength of all her 
banking and financial institutions with the addi- 
tional supi)ort of their Government, will sweep 


our unorganized independent manufacturers out 
of the running in any industry tliey decide to 
control, unless some satisfactory measures of 
defence are provided. The notion that inter- 
national trade is nothing more than simple barter 
between the individuals of one country and those 
of another is no longer tenable. Trade is not 
to-day the peaceful, civilizing system as pictured 
by those who are for the most part wholly ignorant 
of it. It is a competitive struggle — often a very 
demoralizing struggle — for the control of the 
factors of wealth production and distribution. 
Trade competition usually arouses the meanest 
and most malignant qualities in the human breast. 
There is nothing ennobling or civilizing in such a 
contest. The industrial and trade magnate seeks 
to control men and markets— not things merely. 
When Germany sends us her dyes, chemicals, 
electrical apparatus, machinery and other goods, 
it is not for the mere purpose of securing our 
cloth, our wool and other products, nor for any 
mutual advantages. It is for the purpose of 
controlling our markets, of preventing us 
from engaging in the manufacture of similar 
goods to those she produces, and of making 
this country eventually subservient to and 
economically dependent upon herself. Now, 
economic power is the very foundation of political 
power, especially in democratic countries. The 
man who controls industries can readily control 
those employed in such industries. If his wealth 
is considerable, he can secure the election of 
municipal and parliamentary candidates of his 


own. Look at tlie political power wielded by the 
liquor trade in this country ! Look again at that 
enjoyed by our bankers, landlords, lawyers, rail- 
way directors, shipowners, etc. Contrast this 
with the studied neglect by our legislators of our 
inventors as a class who, by reason of their 
comparative poverty are unable to assert any 
influence on the Government, whatever may be 
its complexion. Look at the position of the 
United States where certain financial magnates 
wield a power greater than that of the President 
himself ! Look at Italy, how near she came to 
strangulation at the hands of the Hun bankers 
and commercial trusts ! Look, too, at Russia, 
still wrestling in the toils of the " peaceful pene- 
trators ! " The very end and aim of Germany's 
" peaceful penetration " has been the political 
control of the world ! And how nearly she came 
to gaining her end, only those who have studied 
this question are fully able to realize. Those 
who have read Professor Hauser's book, entitled 
Germany's Commercial Grip on the World, know 
something of the subtle, subterranean methods 
she practises, and how wonderfully successful they 
have been. Trench warfare has long been our 
enemy's favourite method of conducting his trade 
rivalry. One of the questions future historians 
will ponder over will be, " What hallucination led 
the German people deliberately to convert the 
world's admiration and appreciation of their 
industrial and organizing ability, into a fierce 
passion of hatred and abhorrence by their foul 
and fiendish conduct in the present war, just when 


their peaceful methods were bringing them within 
sight of the object the}- had so patiently and 
persistently pursued ? " Be that as it may, the 
problem for us is, '' How are we to cope success- 
fully with our foe after the war ? " 

One interesting question obtrudes itself at this 
point. Although the moral standard prevailing in 
trade and commerce is nowhere particularly high 
or noble, it is a fact acknowledged universally, 
that nowhere else is the standard for honesty in 
business transactions as high as in Great Britain. 
Germany has openly and avowedly thrown over 
all pretence to the recognition of any moral code. 
Her one aim is success. As in diplomac}^ so in 
trade, her people will observe no scruples when 
competing with their opponents. Will our present 
moral standards be successful against the ruthless 
and unscrupulous dealings, the bribery and corrup- 
tion of the foe ? And those free importers who 
are pleading for a resumption of our former 
business relations with the enemy after the war, 
should ask themselves, whether it is wise, safe or 
even decent, to deal with a nation of self-confessed 
bribe-givers, spies, forgerers, cheats, murderers and 
thieves, who show no signs of penitence, but rather 
glory in their infamies ? 

It is difficult for one familiar with Germany's 
trade organizations and methods to contemplate 
this country's lack of preparation for the approach- 
ing economic struggle, without becoming an 
alarmist ! And how unprepared we are will be 
seen in the following pages. At present we are 
handicapped by our own trade methods and 


banking laws, and our political leaders, or many 
of them, are entirely ignorant of the fact. A group 
of influential members of Parliament have indi- 
cated their intention of opposing any measures 
which ma\' place a barrier against the enemy's 
free use of our markets, after peace is declared ! 

In view of our present knowledge of our enemy, 
and of his plans and purposes, is our pre-war 
policy a safe one ? Most readers will admit that 
tariffs are trade barriers, and they tend to limit 
the total wealth which the world might enjoy if 
a free trade s\'stem could be safel}' and univer- 
sally established. But this is not the point. We 
are confronted w^ith a danger, not a theory ! 
The point is, under what system can the 
British Empire become free from the menace 
of German intrigue and political aggression ? 

We may readily concede to the Free-traders-at- 
an\--price that their panacea is effective — under 
certain conditions. If there were no Ger- 
many, if the world was one great federation of 
all civilized nations, then free trade would be the 
ideal S3'stem. If, on the other hand, our object 
is to protect and support our country and its 
colonies in a world of hostile races, to build up 
a great British Empire strong enough to repel 
all the attacks of Hunnish or other uncivilized 
iKjrdes, whether white, yellow or black, then 
we must aim at becoming self-contained, and self- 
supporting, and we must refuse the freedom of 
our markets to all, save our own kinsmen and 
friends. If there is one message conveyed to us 
by the events of the past three years which is of 


more importance than all others, it is that which 
warns us to make ourselves and our Empire 
strong and independent militarily, economically, 
and politically. No one can look back over these 
eventful years and review its pictures portraying 
the horrors, treachery and barbarism of the 
enemy, the shameful cowardice and indifference 
of certain neutrals, and the sublime heroism of the 
Allies, without realizing that henceforth the 
burden of maintaining civilization, chivalry and 
honour rests exclusively upon the shoulders of 
the British-speaking races and their Allies. 

Our economic preparation for the future must 
therefore be first, with the view of making our- 
selves and our Allies strong and independent, and 
second, to prevent the enemy regaining his 
former strength and power until he has attained 
a very much higher stage of morality and civiliza- 

The following, which confirms much of what I 
have already written, is from an article in the 
Sunday Observer of December 5, 1916, by the 
city editor of that well-known journal : — 

" The German banking problem continues to attract 
attention in the City. There is a good deal of complaint 
as regards the delays, and the apparent stubbornness in 
placing obstacles in the way in some quarters, whenever 
any question is raised of drastic dealing with the German 
banking or high financial interests. Probably the real 
reason is that the influence of the German banks and 
iinanciers were so widespread, their power and interest 
so vast, and the ramifications of their business so general, 
that it is difficult to move and eradicate the evil without 
disturbances. But the evil must go. The German 
banks have done mischief enough. For the past years 

F.S. E 


their tentacles have extended over British trade and 
commerce. By their business methods and, let it be said, 
by their enterprise, and the commercial and financial docu- 
ments which came their way, as a result of the vast 
commercial business, they have had an insight for years 
into the business of individual traders, have seen their 
orders, noted their prices and discovered their markets. 
It is too much to expect that all this has been done with- 
out in many cases British business interests suffering, and 
without in many cases information of prime importance 
to the British trader and manufacturer finding its way 
to Germany." 

"It is the same trouble with financial matters. The 
truth is that it is only being realized that the German 
Government worked with many banks and the German 
manufacturer and trader, and that their national inter- 
ests were the main object all the time. It was just the 
same with commercial methods generally. Twenty 
years ago, one of the most prominent of our German con- 
suls wrote to the present writer to the effect that he had 
good reason to believe that trading associations were 
sending subsidized men from Germany to find employ- 
ment in British houses with the sole object of capturing 
British secrets and diverting trade from this country. 
If he spoke thus privately, it is evident enough that the 
British Government must have known, and yet no ade- 
quate warning was given, and similarly several of the 
banks were allowed to work mischief in the same way. 
It is time now that all this tomfoolery ended, and that 
adequate steps were taken to sec that the evil does not exist 
after the war." 



Now that our pre-war methods of trade, indus- 
try and finance liave been found to be inadequate 
to meet the conditions witli whicli we shall be 
confronted when peace is declared, it is essential 
to examine most carefully and critically the 
foundations upon which these have been built. 

The basis of all our financial and commercial 
transactions is the monetary " pound.'' What 
is a pound ? Just now the Government is 
soliciting subscriptions to a loan of 2,000,000,000 
" pounds." And yet no satisfactory nor up-to- 
date definition of a pound has been given us. 
\Miat kind of a '' pound " does the Government 
require ? And more important still, with what 
kind of a " pound " will the nation be called 
upon to repay this gigantic loan ? 

These questions are of stupendous importance. 
The answer to the second question will determine 

1 Since this work has been in the pubhsher's hands I have seen 
a copy of Mr. Hartley Withers' book entitled Our Money and the 
State. As some of the views expressed in this chapter appear to 
be of a somewhat similar character to those published in Mr. 
Withers' book, I think it is only fair to myself to say that most 
of this work was written in March, 191 7, whilst Mr. Withers' 
book was published, I understand, some time in the following 
July. The above-mentioned similarity is therefore a mere 
coincidence. — Author. 



whether the British Nation is to be solvent or in- 
solvent, whether the wealth producers are to be 
bond or free, whether the loan can ever be repaid 
or not. 

Seventy odd years ago British business circles 
were in a ferment over the first question. The 
Prime Minister, Sir Robert Peel, had propounded 
this conundrum to the nation and then furnished 
the answer to his own riddle, an answer which 
was incorporated in our Legal Tender and Bank 
Charter Acts, both of which are still in force. 
Sir Robert Peel's definition of the pound was as 
follows : — 

" That which is impHed in the word ' pound ' is a cer- 
tain definite quantity of gold with a mark upon it to 
determine its weight and fineness, and the engagement to 
pay a ' pound ' means nothing, and can mean nothing 
else than the promise to pay the holder, when he demands, 
that definite quantity of gold." This ' definite quantity ' 
is the mass of standard gold ' Uhs fine, contained in 
our golden sovereign, viz., 123.7447 grains. This is at 
present the only legal definition of the ' pound ' extant, 
and constitutes what is called the British ' standard unit 
measure of value ' ! 

In the following chapters the utter fallacy, 
danger and absurdity of this definition will be 
demonstrated. It will be shown that the definition 
is contrary to both reason and facts, and that its 
incorporation into our laws has been the source of 
innumerable industrial disturbances, bankruptcies 
and incalculable losses. This legalized fallacy — 
the golden pound as the " measure of value " — has 
done more injury to our wealth producers, more 
U) restrict our trade and commerce, than all the 
f(;r(;ign tariffs ever raised against us ! It has made 


industry the tool, the slave of finance. It is an 
instrument which our foreign trade competitors 
have long used against us to their own advantage. 

At the risk of anticipating a portion of the dis- 
cussion in the succeeding chapters, it may be 
pointed out that the legal " pound " as enacted 
by Peel (and which hereafter is called the " Peel- 
pound '') makes the present War Loan an im- 
possibility. Two thousand million " Peel-pounds " 
represent in round numbers 20,000 tons of pure 
gold ! Such an amount would, if it could be 
collected and brought to London, exhaust the 
gold supplies of the entire world ! The gold 
in this country available as bullion does not 
amount to o,Voth part of the loan ! Evidently, 
therefore, our Government cannot expect the 
loan, or any substantial portion of it, to be sub- 
scribed in " golden pounds." 

Again, suppose we take the present one-pound 
and ten-shilling Treasury notes which are now 
legal tender. Since there are less than £150,000,000 
in existence, we are still miles away from dis- 
covering the source from whence the Government 
expects to secure the full amount of the loan. 

If we drain the banks and denude the chan- 
nels of trade of all their legal-tender pounds, we 
shall still be unable to supply more than 10 per 
cent, of the loan. Where are we to find the 
balance ? The answer is that materially the 
money does not exist. The vast loan wiH be 
subscribed by cheques consisting of orders upon 
bankers to pay the Government something which 
has, as yet, no material existence. The people 


who subscribe are giving their personal credit 
in exchange for the national credit. And as we 
shall see the national credit is merely the aggre- 
gation of the individual credit of every citizen. 

The subscribed " pounds " are therefore credit - 
pounds, and are backed by legal claims upon 
the personal wealth and the productive capacities 
of the subscribers. It is this vast mountain of 
credit which not only supports the war, but even 
in times of peace carries the great bulk of the 
nation's trade, industries and commerce. 

Since the great War Loan will consist merely 
of credit in the shape of bank-book entries, one 
is forced to ask wh}^ the Government has adopted 
so expensive, so circumgyratory a method of 
organizing it ? In the first place, the Govern- 
ment has, with the consent of Parliament, full 
control of the national credit at all times. And 
since the national credit rests upon the taxing 
power of the Government — which is unlimited — 
it follows that the national credit logically com- 
prises the credit of all British citizens, and is 
based upon the total wealth and productive 
powers of the people, lands, factories and capital 
generally. In short, the Government has had the 
right with the consent of Parliament to use all 
the credit it required since the commencement 
of the war with which to finance its vast obliga- 
tions. But apparently it has not known how 
to organize or employ it, and because of this 
lack of knowledge, the war will cost the 
taxpayers double or treble what it might 
otherwise have done ! 


Moreover, since our bankers offer to grant loans 
against the national credit (which has always 
been regarded as " gilt edged "), why in the name 
of common sense could not the Government 
have employed this credit direct ? One has 
heard of people " carrying coals to Newcastle," 
but commercial stupidity never yet descended to 
the level of exchanging Kent coal for Newcastle 
coal, and building a special double-track railway 
for the sole purpose of facilitating the exchange ! 
We are all striving to discover the straight and 
narrow path leading to national economic success ! 
But surely one could hardly conceive a more 
costly, cumbersome, inefficient method of financing 
the w^ar than that chosen by the Government's 
financial advisers ! 

Does any one doubt that the credit of the 
British Nation is greater in volume and stronger 
than that of merely its banking and credit institu- 
tions combined ? 

During the financial crisis in August, 1914, 
when the bankers' credit was tottering to its fall, 
was it not the national credit in the shape of 
Treasury notes that saved the countr}' from 
financial shipwreck ? What shall we say then 
of a system which ofters to exchange the national 
and superior credit for the bankers' inferior credit ? 
Not only so, but the superior credit is actualh^ 
sold at a discount, plus an annuity of 5 per 
cent. I 

One has heard of a practical joker oftering to 
sell golden sovereigns at ten shillings each, and 
finding no bu^^rs. But no one ever heard of this 


being suggested as a regular and serious business. 
And yet, such is the force of custom and the Cim- 
merian darkness in which all questions of public 
finance are purposely enveloped, that the a^^erage 
man regards the flotation of an interest-bearing 
Government loan as a perfectly natural and 
proper performance ! 

Again, most people evidently overlook the fact 
that the repayment of the loan with all its 
interest charges must be made by them- 
selves and their descendants, otherwise they 
could not but regard the Government's terms with 
considerable amazement, if not amusement. All 
these tempting offers — a hundred pound bond 
at £95 with interest at 5 per cent. — every penny 
must be paid by themselves and their descen- 
dants. It follows that if the entire loan were sub- 
scribed within the country, and every inhabitant 
contributed and was taxed in proportion to his 
or her income, it would be cheaper for both the 
subscribers individually and the nation collect- 
ively to have the issue of the loan without 
interest. And if the loan had to be repaid 
within the lifetime of the present generation, 
it would be far more economical for the 
public to donate the amount of the loan 
entirely and gratuitously ! 

Let us suppose a nation consisting of one million 
citizens, where perfect equality of wealth and 
income existed. And suppose the Government 
of that nation needed £5,000,000. Let us further 
suppose that the Government adopted the regula- 
tion plan of inviting subscribers to the loan by 


offering an annuity and that each citizen sub- 
scribed tliesumof £5. Suppose also that the loan 
is to be repaid within five years. Then every sub- 
scriber pays first ;^5, and receives 5s. per annum 
for five years and then gets his £5 returned. He 
has thus received in all £6 5s. But as this comes 
from taxation, he has had to first pay the £6 5s. 
to the Government in taxes. Hence he has had 
to pa}^ in subscriptions and taxation a total of 
£11 5s. in order to get back £6 5s. ! But this 
is not all. The costs of advertising and collecting 
subscriptions, together with the salaries of innum- 
erable clerks and officials, all have to be paid out 
of taxation. So that in the end, the amount each 
citizen has had to pay to the Government will be 
found to be far more than his subscription plus 
the amount paid him by the Government in 
principal and interest ! In short, he would find 
eventually he had much better have donated his 
£5 to the Government in the very beginning. 

Since in the above example the repayment 
must com.e solely from taxation, and since each 
subscriber would have to pay the sam.e tax, it 
follows that the loan is merely a gift in disguise 
by the citizens to the Government, and it would 
be far simpler and cheaper for the citizens to give 
the £5,000,000 outright than to go through all 
this tortuous, expensive rigmarole. It would 
save all the bank charges together with the costs 
mentioned and general interference with trade. 

Where, then, is the advantage of making the 
]:)rcsent War Loan interest-bearing ? 

From the national standpoint I can see no 


advantage whatsoever. But from the standpoint 
of the large investors — and particularly the bank- 
ing and credit companies, the advantages are only 
too evident. The loan has created an enormous 
demand for bank credit, and one may expect to 
see the already large bank dividends augmented 
very considerably, especially if — as whispered — 
the banks are to be allowed to evade the excess 
profits tax. 

The loan also furnishes the great insurance 
and credit companies with a safe and profitable 
investment for their surplus funds, and since the 
loan is not likely to be paid off for generations, 
these investments may be regarded as perpetual. 
It is evident, therefore, that whilst the method 
of issuing the loan can be of no benefit to prob- 
ably 99 per cent, of the population, to the vast 
masses who have little or nothing to invest, nor 
even to the small investors, whilst it is ruinoush' 
expensive to the nation as a whole, it is extremely 
advantageous to the few — to the wealth}^ and 
especially to our professional money and credit 
dealers. Indeed the whole policy upon which 
the loan is issued may be expressed in the Scrip- 
tural saying, " To him that hath shall be given, 
but to him that hath not shall be taken away 
even that which he hath," which ma}- be taken 
as the text for usur\' ! 

But let it be said at once, that although in the 
years to come future generations will regard this 
War Loan with its ruinous interest-bearing charges, 
the stupidly circumgyratory method of obtain- 
ing what the Government alread}' controlled, as 


the crowning act of financial folly, the present 
Government is not entirely to blame. " Needs 
must, when the devil drives," and just now the 
devil incarnate, in the shape of the Hun Kaiser, 
is driving very hard and fast. There has been no 
time in which to educate financially either the 
people or Parliament since the war started. The 
blame falls first upon the Government's financial 
advisers, and secondly upon our orthodox econo- 
mists, our financial writers and others for con- 
tinuing to propagate ancient fallacies— some of 
which are dealt with in succeeding chapters of 
this book. Economic science is a plant of very 
slow growth, and the branch known as finance 
is one of much slower growth : the reason being 
that both are mixed up with private interests, 
the policy of which has always been to keep these 
subjects shrouded in mystery. When we find 
economic professors teaching the same fallacies 
that were taught one, two, or even three centuries 
ago, what can we expect from their disciples and 
the public generally ? 

And this brings us to the most important 
question of all. 

In what kind of " pound " shall the debt be 
paid ? In the first place, let us not forget that the 
present rate of interest — 5 per cent. — means 
doubling the debt every twenty years. The 
British public will have paid £2,000,000,000 
in interest charges alone on the present 
War Loan (if fully subscribed) by the year 
1937, vs^ithout reducing the original debt 
by one penny ! Our people have already paid 


in interest charges the entire original cost of the 
Napoleonic wars ten times over, and the debt 
is not 3'et extinguished ! . . . But this is not by 
any means the worst. Taxes are compulsorily 
payable in legal tender, or orders on bankers to 
pay legal tender. Now the only way by which 
the farmer, merchant, manufacturer, workman, 
etc., are able to procure legal tender is by selling 
their services or commodities. In other words, 
taxpayers must first buy money with their 
services in order to pay their taxes. It follows 
that the exchange relations of money to commodi- 
ties and services are of the most vital importance. 
The present purchasing power of money is very 
low, lower than it has been for very many years. 
The subscribers to the great War Loan are 
loaning very " cheap " pounds, i.e., cheap in 
relation to all the necessities of life. A taxpayer 
can pa}' his taxes to-day without very serious 
difficulty, because he can buy money with little 
labour and few commodities. The £2,000,000,000 
loan will represent in labour and general wealth 
not more than £1,000,000,000 represented ten 
years ago ! With what kind of pounds will the 
Government repay the subscribers their 
interest and principal ? With cheap or dear 
ones ? \M11 they be the credit and paper pounds 
subscribed, or golden pounds which may ultim- 
ately change to pounds of human flesh and blood ? 
How much labour will the highly skilled mechanic, 
how many pounds of potatoes, how much butter, 
how many pairs of boots, how much wheat, etc., 
must our wealth producers offer in the years to 


come to obtain the " pounds " with which to pay 
their taxes ? 

It is one of the conditions inherent in our 
variable monetary standard system, that 
the very creation of such vast amounts of 
credit cheapens purchasing power, and raises 
prices, whilst the redemption of the loan will 
have the very opposite result. Remember 
what happened to the United States soon after 
the conclusion of their Civil War. The American 
bonds that cost so many cheap dollars grew to be 
worth 100 dollars in gold because of the destruc- 
tion of the people's money. The prices of commo- 
dities fell and money again became scarce. And 
the moneylenders and bondholders doubled and 
even quadrupled their wealth. Hence the Ameri- 
can National Debt became twice and in some 
cases four times its original dimensions, so that 
the American manufacturers, farmers, and work- 
ing classes generally, were forced to pay the cost 
of the Civil War, principal and interest, many times 
over, reckoned in terms of the money originally 
subscribed and in terms of their own labour 
products. This will be the great danger to the 
British nation when the present war terminates. 
Watch the bankers ! Watch the Govern- 
ment ! The trick of doubling the National 
Debt can be done almost without publicity ! 
It will be attempted as sure as the sun rises ! 
We shall first be told that the present high prices 
are ruinous, especially to the poor. Some of our 
half-baked Parliamentary economists will be in- 
duced to start this cry. Then we shall read that 


the cause is entirely owing to " inflation/' to our 
great credit issues and our " cheap paper mone}^" 
The banks will begin to call in loans, to reduce 
banking facilities, whilst the Government will be 
requested to retire the Treasury notes and revert 
to our former " good, sound, honest gold cur- 
rency " ! And down will go prices, and up will go 
the purchasing power of money. Meanwhile 
trade will be depressed, factories will close, and un- 
employment become general. Every modern cur- 
rency swindle has been heralded in as a " good, 
sound, honest s^'stem/' It will simply mean a 
doubling of all debts or a reduction of the means for 
paying the debts, by 50 per cent. ! The first man, 
whether statesman, banker, moneylender or labour 
leader, who attempts to destro}' the people's 
money — the one pound Treasury notes — should 
be publicly hanged as a salutary lesson: "pour 
cncourager les autres " ! Every time a Govern- 
ment has attempted to lower prices by increasing 
the value of its currency, the people have had to 
pay for it b}^ experiencing all the horrors of an 
industrial crisis. 

During the past century, money has become as 
essential as food and clothing — thanks to our 
legal- tender laws — because it is with money that 
one must pay for e\'ery commodity necessary for 
preserving life, happiness and well-being. Our 
Eree Import economists grow highly indignant at 
the mere suggesticjn of protective tariffs because 
these, they declare, tend to raise the price of food. 
But they have never shown the slightest concern 
with measures calculated to enhance the cost of 


money. Cobden himself commended Peel's 
restrictive monetary system, which compelled the 
poor to giv far more of their labour to secure a 
golden pound than would have been required to 
earn a bank-note pound had the national credit 
been properly employed for the nation's currency. 
And the sufferings of the poor during the so-called 
" hungry 'forties " were due as much to financial 
causes — an unduly restricted currency system — as 
to the Corn Laws. 

What is the use of having cheap food if one is 
unable to procure the money with which to buy 
the food ? Suppose, for example, that the new road 
from Trafalgar Square to Buckingham Palace 
were provided with two toll-gates, so that every 
passenger and vehicle using the road was bound 
to pass through both gates. And suppose that 
the toll charge at each gate is 6d. per head. Along 
comes a " free-roader " who demands the abolition 
of one of the two gates. Public agitation is 
aroused, and the toll-gate proprietors bend to the 
storm, agreeing to get rid of one of the offending 
obstructions. But they manage to preserve the 
other, and immediately raise the tariff from 6d. to 
IS. 6d. per head ! Is not the last state of that 
public worse than the first ? What shall it profit 
the British people to have cheaper food if money 
becomes much dearer in proportion ? Are not 
our working classes, generally speaking, better off 
to-day than they have been for the past quarter 
of a century, in spite of food and other commodi- 
ties being twice the price they were formerly ? 
Is it not better to earn £3 or £4 per week under 


the present regime of high prices than it was to 
receive only 25s. to 28s. four years ago when 
prices were much lower ? 

Improving the currency means curtailing 
the supply of inoney and credit, reducing 
the mechanism of trade, lessening the demand 
for commodities, depressing trade, ending 
in unemployment and starvation ! 

I have selected the War Loan as an object 
lesson for illustrating the supreme importance of 
establishing an invariable monetar}^ unit, because 
it shows up most glaringly the evils of our present 
system. A debt can be halved, doubled, trebled, 
or quadrupled without altering the iigures by which 
the debt is represented by a single number ! 



One of the most elementary and important 
duties of civilized governments is the legal 
establishment of just methods of physical measure- 
ments. In the establishment of such methods 
and the selection of standard units, the chief 
consideration is how to obtain uniformity and 
invariability. For example, the British standard 
unit of length called the yard is the distance 
between two parallel lines on gold studs sunk in 
a bar of bronze, at the temperature of 62 degrees 
Fahrenheit. The temperature is necessarily speci- 
fied because of the expansiveness of metals under 
heat and their contraction under cold. 

Atmospheric pressure is also provided for, 
since it is found that a difference of one inch on 
the barometer causes an appreciable variation in 
the length of the standard bar. 

Similarly with regard to weight. The imperial 
standard of weight is called the pound, and is the 
earth's attraction on a certain mass of platinum 
placed in a vacuum at sea-level in London. vSca- 
level is adopted for convenience to hx the 
altitude, since the weights of bodies vary with 
their distance from the earth's centre. More- 
over, since the condition of the atmosphere varies 

F.6, (55 F 


in time and place, causing also apparent varia- 
tions in weight, a vacuum is chosen as the safest 
plan for obtaining invariability. The enormous 
importance of establishing uniformity in these 
matters is obvious to any one possessing the faint- 
est knowledge of applied science and the manu- 
facturing arts. 

Without these safeguards, our modern economic 
life and methods would be impossible. To take 
two extreme cases by way of illustration. One 
has only to imagine the results of employing a 
tube of mercury, without any regard to tempera- 
ture, for measuring distance, or a mass of wood 
without regard to quality, density, or altitude, 
for measuring weight, to realize the confusion- — 
to say nothing of the dishonesty — which would 

Next in importance to our physical units of 
measurements, ranks our monetary system in 
terms of which the values of commodities are 
indicated, exchanges are effectcxl, debts are made 
and paid, and j^roperty and wealth of every descrip- 
tion is estimated. During the past century, 
money has assumc^l an economic and social 
importance and power greater than it has ever 
possessed in tin; world's history. It is by means 
of money that the annual wealth production of all 
industrial countries is distributed, and any serious 
variation in the general purchasing power of the 
monetary unit necessarily indicts injustice and 
hardship upon nearly all classes- the producing 
classes more especially. The monetary unit, 
ihcrr^fore, should be established in such a way as 


to prevent its being subjected to sudden variations 
in supply and demand which would affect its 
purchasing power. 

A monetary system may be regarded as a scale 
upon which variations in the values of commodi- 
ties are registered, and the first requisite for 
such a scale is invariability. When choosing 
a material for a thermometer or barometer scale, 
scientists were governed by the necessity for pro- 
viding a scale that would be unaffected by ordinary 
temperatures and atmospheric conditions, other- 
wise the registration of atmospheric temperature 
and moisture by mercury would have been 
extremely unreliable. The same applies to the 
subject of money and values. Now our mone- 
tary unit- — the pound — is also termed the " stan- 
dard of value," a term which is scientifically 
misleading, as I shall presently show. This 
" standard " as established by British law is the 
golden pound (or sovereign) containing 113 grains 
of pure gold. But no provision has ever been 
made by any Government for the purpose of 
furnishing its citizens with a sufficiency of gold 
in order that the supply should be always propor- 
tional to the demand. 

The sole conditions which determine the cc;m- 
mercial value of the standard, viz., supply and 
demand, were seldom — if ever — discussed. 

It will be seen, therefore, that in establishing 
our monetar\' unit bv which exchange and com- 
mercial dealings are regulated, our legislators 
failed to be guided b}' the same rules whicli have 
.ijoverned the world's scientists univv rsallv in their 


work of establishing the standard units of weight, 
length and capacity. Invariability apparently 
was not even considered. B\ selecting a 
commodity as the monetary unit, or " standard 
of value," our law makers established a system 
by which speculators and financiers have been 
permitted to rob the industrial and trading classes 
to an incredible degree, whilst our entire industrial 
and commercial system has been placed upon a 
speculative and unstable basis resulting in innum- 
erable economic evils and losses. 

Any intelligent discussion regarding the " stan- 
dard of value," however, necessitates some know- 
ledge of the science of \'alue. What is " value " 
in the sense in which it is used ? Our modern 
economic schools have di\ided the subject into 
several classes, such as use-value, exchange- 
value, esteem-value, cost-value, etc. But the 
particular kind of value which is referred to in 
discussing the " standard," is exchange-value. 
Now all economists practically agree in regarding 
exchange-value as a relation. Jevons was parti- 
cularly careful in defining this term. He says : — 

" Value in exchange expresses nothing but a ratio, and 
the term shoukl not be used in any other sense. . . . 
Every act of exchange thus presents itself to us in the 
form of a ratio between two numbers. The word ' value ' 
is commonly used, and if at the current rates, one ton of 
copper exchanges for ten tons of bar iron, it is usual to 
say that the value of copper is ten times that of iron, 
weight for weight" {The Mechanism of Exchange). 

Macleod in his Theory of Credit also defines 
exchange-value as a ratio. In anc^ther place 
Jevons says : — 


" Value, like utility, ii no intrinsic quality of a thing, 
it is an extrinsic accident or relation." " Bearing in mind 
that value is only the ratio of quantities exchanged, 
it is certain that no substance permanently bears exactly 
the same value relatively to another commodity " 

which should have been sufficient to warn states- 
men against choosing a " substance " as a " stan- 
dard measure of value." He continues : — ■ 

" A student of Economics has no hope of ever being 
clear and correct in his ideas of the science if he thinks 
of value as at all a thing or an object, or even as anything 
which lies in a thing or an object. People are thus led 
to speak of such a nonentity as ' intrinsic value.' ..." 

Here we have a definite statement from one who 
was, and is still, universally recognized among 
the greatest authorities on this subject, to the 
effect that value is not intrinsic, and the 
term " intrinsic value " is nonsense. And yet 
our monetary standard, the legal " measure of 
value " established by Parliament, was deliber- 
ately chosen because of its "intrinsic value." 
Sir Robert Peel in his speech of Ma}^ 6, 1844, 
quoted approvingly and authoritatively from a 
pamphlet written by a Mr. Harris, an officer of 
the Mint, as follow^s : — 

" All payments abroad are regulated by the course of 
excliangc, and that is founded upon the intrinsic value 
and not on the mere names of coins." 

In spite of the clear defmitions already quoted, 
both Jevons and iMacleod apparenth' forgot all 
about them as soon as they attempted to deal 
with the subject of a standard. 


\Mth regard to the latter Je\'ons wrote : — 

" Since money has to be exchanged for valuable goods, 
it should itself possess value, and it must therefore have 
utility as the basis of value. . . . It is essential in the 
first place to decide clearly what we mean by a standard 
unit of value. This must consist of a fixed quantity 
of some concrete substance defined by reference to the 
units of weight or space. ..." 

But if value is an " accident/' a " relation," a 
" ratio," or, as definecl by Macleod, " an affection 
of the mind," what sense is there in the term 
" standard of value," or in attempting to establish 
a " standard unit " of an '' accident " or a " rela- 
tion," or a " ratio " by " some concrete substance 
defined by reference to the units of weight and 
space " ? Surely there is something radically 
wrong with these definitions of value or with the 
term " standard " as applied to value ! To 
write of a standard of "ratio," or a standard of 
" accident," or a standard " affection of the 
mind " is to write nonsense. 

The cause of this confusion has been due to 
economists failing to distinguish between differ- 
ent kinds of value. This confusion has been 
clearly exposed by Mr. C. Moylan Walsh in his 
able work entitled T/ie Fundamental Problem 
in Monetary Science. When discussing one 
phase of the subject, writers refer to one aspect 
of \'alue, such as esteem-value, and when dis- 
cussing another phase they sometimes refer to 
another kind, such as cost-value, the result being 
that they often fail to arrive at any satisfactory 
r)r scientific conclusions. A further cause may be 
traced to t'lc eviflent desire of certain economists 


to invent theories which shall agree with and 
justify existing institutions. This has been par- 
ticularly the case with regard to the subject of 
interest on loans, to justify which, hundreds of 
volumes have been written and published during 
the past three centuries. 

So far as our subject is concerned, it is generally 
agreed that the particular form of value with 
which money as the mechanism of exchange 
has to deal is exchange-value. Now exchange- 
values are merely the quantitative relations 
established among commodities by their buyers 
and sellers during the process of exchange, and 
they are known and expressed by numbers repre- 
senting the quantities in which the}^ are regarded 
as exchange equivalents. 

For example, supposing i oz. gold to be ex- 
changeable for 12 gallons wine, this can be 
stated as follows : i oz. gold = 12 gallons wine. 

The sign of equality used to express exchange 
relations means " will exchange for." It also 
implies that each part}'^ to the transaction obtains 
equal economic satisfaction. There is nothing 
physically equal in these commodities. But 
there is a means by which variations in exchange 
can be expressed, and it is something common to 
all commodities. What is it ? Certainly not 
substance. There is nothing materially common 
between gold and wine. But these are dealt in 
and exchanged in definite quantities, and quan- 
tity is the only thing common to all. Common 
to both commodities are quantities repre- 
sented by numbers, and the values are and 


can only be expressed by these numbers 

1 and 12. The exchange relations of gold in 
ounces to wine in gallons are i : I2. Now, sup- 
posing that later this relation changes so that 
I oz. gold = i6 gallons wine, and another time 
becomes 2 ozs. gold = i6 gallons wine. It is 
obvious that the variations in exchange values 
are indicated by corresponding variations 
in quantities and quantities only. No other 
changes in the expressions occur, save in the num- 
bers indicating quantities. 

Gold and silver coins function as the expres- 
sions of values merely as counters, by the numbers 
of such coins in use, and so long as the number is 
preserved it matters not whether these counters 
are made of silver, gold, ivory, paper or card- 
board. In short exchange-values are quan- 
titative, and therefore their expression is the 
expression of quantities. 

There is no common physical standard of 
measurement applicable to a penknife and a cubic 
foot of illuminating gas. There is no single 
standard for measuring a horse and a musical 
performance. And yet we can say that i pen- 
knife = 1,000 cubic feet of City gas, and i 
horse = 50 stall seats at an Albert Hall concert. 

Now the first part of our problem in attempt- 
ing to find a method of expressing values is 
to discover a common denominator for all 
exchange-values. Suppose we collect all these 
commodities and exchangeable things and divide 
them into equal exchange proportions. 

A clue to the solution of our problem may be 


found in the obvious truth that all commodi- 
ties are of equal exchange-value in certain 
quantities at certain times and places. 

It would be possible to tabulate all commodi- 
ties on a scale of equal exchange power by adjust- 
ing them quantitatively. Thus i horse = 50 
concert stalls = 6 ozs. gold = 72 gallons wine 
= 150 penknives = 150,000 cubic feet gas and 
so on at a given time and place. It is evident 
that the only thing common to all this odd assort- 
ment of exchangeable articles is quantity, and 
the only thing that varies in obedience to the 
change in their values is their quantities. 



Hitherto we have dealt merely with the 
methods of expressing or registering the exchange 
values of commodities without inquiring into 
the cause of these values. It may be asked why 
a certain quantity of one commodity should be 
regarded as the exact exchange equivalent of so 
much of another, and why these relative quantities 
vary from time to time ? What determines the 
values of commodities ? Although properly speak- 
ing this is not wdthin the scope of this inquiry, a 
few observations may serve to throw some light 
upon what is probably the most complicated 
problem in the sphere of economics. Between 
what should be and what is, a great gulf has 
hitherto been fixed, consisting of laws, privileges, 
customs, superstition and ignorance. The basis 
of every economic system should be justice, the 
reign of which has not yet commenced, and the 
meaning of which is little understood in spite of 
our much vaunted civilization. 

It may be well to understand, however, that 
without justice, without fair exchange, no satisfac- 
tory system of economics can exist. 

Dealing principally with human actions, econo- 



mics is necessarily related to and should be con- 
sidered a branch of the science of ethics. 

But what constitutes a fair exchange ? This 
problem has afforded a mental diversion to 
economists for ages, but the only serious attempt 
to solve it on a strictly ethical basis was when 
Socialism offered as the true measure of exchange 
values of commodities, the " socially-necessar}^ 
labour-time " required to produce them. This 
solution, however, has one serious flaw — it offers 
a premium for slackness instead of industry, 
for the minimum rather than the maximum 
output. The smaller the product in a given time 
the higher the value per unit, reckoned by the 
labour standard. Competition in slackness is not 
a desirable condition to offer as an incentive to 

To be valuable, a commodity must first be useful 
or desirable, and secondly it must be relatively 
scarce. We do not pay for things which are 
useless, nor for things we do not desire, nor for 
things which are so abundant the}^ may be had 
for the asking or for the trouble of picking up. 
If bread were rained daily like manna from 
heaven, it would cease to be valuable in the 
economic sense. 

When a patent medicine firm desire to make 
some speciality valuable, they first protect it 
either by making the ingredients a secret or by 
patenting the formula or registering a trade-mark. 
The object of this is to enable them to control 
the supply, i.e., make it relatively scarce. The 
se(X)nd step is to advertise it extensively and 


create a public demand for it, i.e., get the public 
to believe in its utility and desirability. The 
greater the relative supply (relative to the demand) 
of any article the less its value and vice versa. 
Conversely, the greater the relative demand (rela- 
tive to the supply) the greater the value and vice 

Hence values are said to be the result of the 
operations of the two forces of supply and demand. 
\Miere both var}- simultaneously and in exactly 
the same proportion, values remain unchanged. 
If demand grows more than the supply, values 
increase ; and if supply grows faster than the 
demand, values fall. 

Demand is sometimes called the parent of 
supplv. Certainly no one would undertake to 
produce or manufacture an article without 
knowing or believing there would be a demand 
(i.e., a sale) for it. 

But demand in our economic system does not 
mean the natural demand. It refers solely to 
the effective demand, viz., demand backed by 
purchasing power, i.e., money or credit. Thousands 
of hungry people may be clamouring for food, 
but the demand, serious enough in all conscience, 
does not raise the market value of the loaf one 
farthing, unless the starving multitude can offer 
money in exchange. 

We may, therefore, consider these two 
forces in the following interesting light. 
Supply, which is the product of all the neces- 
sary factors of production, the land, labour, 
machinery in short, the whole industrial 


world— Operates in the direction of reducing 
and destroying scarcity, which is the enemy 
of mankind ; whilst demand, represented by 
money and credit, works in the direction of 
maintaining scarcity. 

This contrast throws a flood of light upon 
the relation of finance to industry and ex- 
plains the true cause of the eternal conflict 
between labour and capital. Finance, which 
controls capital, is essentially the opponent 
of labour, since each is working to destroy 
the object which the other desires. Labour 
desires such an abundance of wealth that all 
may enjoy the good things of life "without 
money and without price." Finance desires 
relative scarcity so that money shall be all- 
powerful in controlling both wealth and 

The manufacturer and the general business man, 
who are compelled by conditions to stand between 
the interests of labour on the one hand and those 
of the financier on the other, are thus between 
" the Devil and the deep sea,'' and are made to 
suffer accordingly. 

Neither employers nor employees have hitherto 
been able to see that their interests, although 
fundamentally mutual, are made antagonistic by 
the sinister influence of finance which acts as an 
" agent provocateur." 

In my youthful days there was a certain kind 
of pyrotechnics highly appreciated by schoolboys 
called " the Devil among the tailors." Its 
appellation is said to have been received from the 


following legend. In his journey ings up and 
down the world, the Devil once chanced upon a 
merry company of tailors intent upon their daily 
tasks. Determining to put an end to their 
sociability, he boxed the ears of one, tweaked the 
nose of another, pulled the hair of a third, pinched 
the leg of a fourth, and so on, with the result that 
within a few seconds the tailors were flying at 
each other's throats, and their merriment soon 
ended in a riot. The moral of this legend will be 
found in a comparison of the industrial conditions 
existing in all countries during the past century 
with those which prevailed prior to the birth of 
what is now known as " cosmopolitan finance " 
and its colleague the gold standard. 

Although the causes of labour unrest are 
apparently numerous and varied, the fundamental 
cause can invariably be traced to disputes regard- 
ing money. 

The industrial world is engaged in the creation 
of VALUES, whilst the financial world occupies 
itself with the control of the instrument which 
determines prices, and between the two we have 
a perpetual conflict. 

To this cause may also be traced what is known 
as " trade warfare." 

To this cause chiefl\- the refusal of most nations 
to embark upon the policy of Free Trade may also 
be ascribed. 

A scarcity of money means a scarcity of demand 
for goods and labour, lience we find trade and 
business depression side by side with all the 
essential factois loi- iiichisfrial ])r()sp(rit\', viz., an 


abundance of available labour, land and capital, 
together with a vast and unsatisfied public 
demand. But the dearth of currency, an insuffi- 
ciency of monetary tokens, will suffice to convert 
prosperous into hard times, industr}^ into idleness, 
a condition of plenty into one of poverty. 

The increased volume of credit and legal tender 
now in circulation, which the financiers denounce 
as " inflation," coupled with the general increase 
in wages, has resulted in an era of prosperity which 
the working classes have never before experienced 
in this country. And if the nation were only 
employed in producing the munitions of life 
instead of the instruments of destruction, this 
prosperity might continue indefinitely (provided 
the bankers and moneylenders were prevented 
from contracting the currency), and the nation 
would be growing in wealth at a rate hitherto 
undreamt of. If instead of raining explosive 
shells for the purpose of destroying towns, villages 
and trenches in France, our armies were engaged 
in tearing down and rebuilding our own dirty, 
slovenly towns like certain parts of I^ondon, 
Birmingham, Sheffield, Leeds, Glasgow, and all 
our unsightly industrial centres, if they were 
building new railways to connect our towns more 
directly with each other, replacing the disgraceful 
cattle-sheds and barns which we politely call 
" railway stations," opening up and improving 
our canals, constructing a decent system of 
underground telegraph and telephone wires, open- 
ing up new ports and widening and improving 
our present ones, building larger and better 


railwa}' cars, carriages and locomotives, in fact 
doing the very opposite to what they are now 
doing, in place of a National Debt we should soon 
see a vast mine of National Wealth ; instead of 
burdening our citizens with taxes, the Government 
would soon be able to free us of them entirely, and 
our industries, our trade and commerce would 
grow by leaps and bounds ! Will our states- 
men have the intelligence to see this, and 
exercise the same zeal and courage in em- 
ploying all the national resources towards 
creating wealth and enriching the Empire 
when the war is over which they have shown 
in the vast work of destruction ? 

To return to the subject of values, cost of pro- 
duction is necessarily one of the prime factors in 
determining these. Here again the question of 
money and credit figure in the result. The rate 
of interest on money has a marked result on the 
cost of production. A nation enjoying the advan- 
tages of a cheap credit-currency system — other 
things being equal — will have no difficulty in 
competing in neutral markets with a nation like 
ourselves, whose variable and high bank rate is 
a serious hindrance to industrial success. Mono- 
poly has also a serious effect upon values. The 
high prices iixed for diamonds are entirely the 
result of a rigid monopoly. Had the mines of 
Kimberley been worked competiti\'ely, the output 
of these precious stones would have reduced their 
values to a fraction of what they have been 
hitherto. The same is true of jx'troleum and its 
products. Indeed there are lew commodities 


to-day that may be said to be the product of free 

Again, values may be greatly affected by law. 
The Defence of the Realm Act, forbidding the 
lighting of public thoroughfares and the exposure 
of household lights, created a huge demand for 
electric hand-torches, heavy window-blinds and 
lamp-shades. Similarly, as already pointed out, 
the present value of gold is due first to nature's 
limited supply and secondly to the legal tender 
laws of all nations, which have created an un- 
limited market for coinage purposes. These 
legislative acts not only affect the public demand 
for such commodities, but they direct the industrial 
activities of a portion of the producing classes 
into economically unprofitable channels, causing 
the production of goods which, in the absence of 
such laws, would probably never be manufactured, 
or to a much smaller extent. 

Such measures sometimes seriously affect the 
whole of our industrial life. 

Freedom of contract is supposed to be one of 
the necessary conditions under which production 
is maintained in all industrial and civilized coun- 
tries. But it would be difficult to point out 
where such freedom really exists, save to a limited 
degree. Our modern social and economic condi- 
tions give the average wage- earner and salaried 
employee about the same economic freedom that 
the chain gives to the chained house-dog. It is 
the sort of freedom enjoyed by the Belgian and 
French enslaved populations under the Huns, 
\\-lio offer their victims the choice between making 

F.S. G 


munitions to destroy their Allies and starvation ! 
" You work for us on our terms or you starve" 
has been the condition of the average " free 
citizen " in all industrial countries to a greater 
or less degree for generations. With the State- 
accorded privileges, private land ownership, mono- 
polies, special banking Acts, such as the Bank of 
England Charter and legal tender laws, all the 
conditions which arc necessary to enable the 
industrial classes to freely contract for their 
labour and products are to-day mainly non- 
existent. Hence exchange-values are not the re- 
sult of either free or fair conditions. They are 
the result of economic necessities under unjust 



Commodity values vary both in time and place. 
The purchasing power of gold, like that of all 
other commodities, is affected by supply and 
demand. The discovery of a new gold mine 
could reduce the purchasing power of the sove- 
reign very considerably, whilst the sudden demand 
for gold for some new purpose would greath' 
enhance it. 

It is also affected by the supply of and demand 
for substitutes, such as credit notes, bills, bank- 
notes, etc. Just as the price of beef is affected 
by that of its substitutes, so gold ma}- rise and 
fall in purchasing power merely by the manipula- 
tion of bank or national credit. The results — 
which are painfully apparent to those who have had 
experience in financing industries and have given 
consideration to this important subject — may 
be seen in the innumerable financial troubles 
and disturbances with which trade and industry 
have been so constantly and universally afllictecl 
for the past century. The economic, social, 
and political supremacy of the financial classes 
universall}', may be traced very largcl\' to their 
ability both to create as well as to employ lluctua- 



tions in the monetary unit to their own advantage 
and enrichment. 

Let us take an analogy. Supposing our yard- 
sticks consisted of certain pieces of elastic rubber, 
which unscrupulous dealers were permitted to 
use as the}^ saw fit, so that when purchasing goods 
they w^re allowed to stretch their yard measure 
to cover forty-eight inches, and when selling, to 
reduce it to thirty inches. Naturally such methods 
would, whilst ensuring the enrichment of the 
dealers, cause endless losses, confusion and dis- 
content in the trade. 

Now the gold standard is a very elastic one, 
particularly since the great bullion dealers and 
financial speculators of the world have the power 
to control the gold supplies to a very great extent. 
In addition to this we have large volumes of 
credit in circulation performing all the functions 
of money and aft'ecting the monetary unit to an 
incredible degree. And very much of this credit 
is, as previously stated, controlled by a few men 
who can manipulate it in their own particular 

Witness, for example, the United States panic 
known as " Black Friday,'' which a clique of New- 
York gamblers engineered by the simple act of 
cornering the gold supplies of New York for a few 
days^ — a performance which broke no State law 
and was therefore legally permissible. 

A similar trick was practised on the American 
])ublic in 1893 by a number of bankers who, by 
presenting national bank-notes for redemption, 
were permitted to raid the Treasury at Washing- 





V \n 




\^/ ^ ^ 


\ / 


1 he heavy line indicates variation i m the value of gold as measured by 
commodities generally. 

(Computed from the Index Figures of Sauerbeck and " The Statist. 
Figure for 1917 is for 5 months only : the final calculation will show a smaller 
result, since prices are still rising.) 

Taking average wholesale prices (Sauerbecks) for 1867-77 to equal 100, 
the figures on the left indicate the relative amounts of commodities required 
to purchase a given quantity of gold in any year from 1850 to 1917. E.g. 
gold (i.e. money or credit in gold standard countries) borrowed in 1873 
and repaid in 1896 would represent in goods 90 in the former year, but 164 
in the latter. 

The War Loans of 1915-6-7 represent a small quantity of commodities 
(" cheap money ") but when they come to be repaid they may rei^resent 
several times that quantity, if the gold standard is maintained and the present 
"" inllated " currency is withdrawn, as bankers and financiers will wish. 
That IS, producers will probably have to produce, m order that the Loans 
may be repaid, several times the quantity of goods represented by the same 
Loans at the present moment. 





J ( J^^<3 

X. Curve showing variations in the value of gold — part of curve given 
in Iig. A. Units marked on left side. 

Y. Hand-drafted curve (four-yearly averages) showing variation in the 
number of liankruptcies : figures on right from Annual Reports (Bankruptcy) 
of Board of 1 rade. 


ton and withdraw stocks of gold ; and by withdraw- 
ing a large volume of legal tender notes from 
circulation and curtailing bank credit, brought on 
the great panic of that year. 

Again, in 1907 a similar conspiracy resulted in 
the currency panic w^hich affected the markets 
and industries of the whole civilized world. 

In each case the purchasing power of money 
rose enormously. 

Jevons also tells us that the value of gold fell 
46 per cent, between 1789 and 1809 (a period of 
only twenty years), that from 1809 to 1849 it 
appreciated 145 per cent., whilst between 1849 and 
1874 it fell over 20 per cent. 

During the past ten years it has fallen nearly 
50 per cent. ! 

The accompanying diagrams, drafted by Mr. 
Harold A. Grimshaw, of the London School of 
h^conomics, graphically illustrate how violent have 
been the fluctuations of gold during the past sixty- 
seven years, that is from 1850 up to the fifth 
month of this year. The second diagram shows 
how these fluctuations correspond with the varia- 
tions in the number of bankruptcies. 

To talk of a standard subject to such violent 
changes is the height of absurdity. " So palpable 
is this objection," says Francis A. \\'alker, the 
well-known American authority, " that some 
writers who still cling to the term " measure " 
of value abandon that of a " standard of value.'' 

Professor Irving Fisher, of Yale, U.S.A., has 
suggested a method of overcoming the difficulty 
of variability by changing the weight of gold in 


the standard unit from time to time. He proposes 
to vary the weight in order to maintain a " fixed 

The suggestion is ingenious, but more feasible 
in thcor}- than in practice. It would be analogous 
to the legal establishment of a mercury-tube as 
our yard-stick, exposed to atmospheric influences 
which would involve an alteration in every yard 
measure and every foot-rule in the Kingdom 
whenever there was a change of temperature ! 

In spite of more than a century's experience in 
which panics and disasters have demonstrated 
the utter unscientific character and fraudulent 
nature of our legal monetary standard, and during 
which private fortunes have been dishonestly 
amassed — stolen from the producing classes by 
the instigators of such panics — no statesman in 
any country has yet appeared with a proposal 
for establishing a really scientific system which 
would be immune from private manipulation and 
free from fluctuations ! Why is this ? Certainly 
no greater public service could be rendered and 
no wiser legislative Act could be proposed for the 
public welfare. 

Is such a system possible ? 

Before answering this question let us see how 
the present one came to be legalized, and the 
reasons gi\'en by its principal author. 



Sir Robert Peel, to whom we owe our present 
banking laws, attempted to deal with the whole 
subjeet of a standard of value in his speeeh 
delivered in the House of Commons, May 6, 1844, 
prior to his introduction of the famous Bank 
Charter Act. 

" My first question," said Sir Robert Peel, " is, what 
constitutes this measure of value ? What is the signifi- 
cance of the word ' pound ' ? Unless we arc agreed on tlie 
answer to these questions, it is in vain we attempt to 
legislate on the subject. If a ' pound ' is a mere visionary 
abstraction, a something which does not exist either in 
law or practice, in that case one class of measures relating 
to paper currency may be adopted, but if the word 
' pound,' the common denomination of value, signifies 
something more than mere fiction — if a ' pound ' means a 
quantity of the precious metals of certain weight and 
certain fineness — if that be the definition of a ' pound,' 
in that case another class of measures relating to 
paper currency will be requisite. Xow, the whole 
foundation of the proposal I am about to make, rests 
upon the assumption that according to practice, accord- 
ing to law, according to the ancient monetary polic}- of 
this country, that which is implied by the word ' pound ' 
is a certain definite quantity of gold with a mark upon it 
to determine its weight and fineness, and that the engage- 
ment to pay a ' pound ' means nothing, and can mean 
nothing else, than the promise to pay the holder, when he 
demands, that definite quantity of gold. What is the 
meaning of the ' pound ' according to the ancient mone- 
tary policy of this country ? 



" The origin of the term was this : In the reign of 
Wilham the Conqueror a pound weight of silver was also 
the pound of account. The ' pound ' represented both 
the weight of metal and the denomination of money. 

" By subsequent debasement of the currency a great 
alteration was made, not in the name, but in the intrinsic 
value of the pound sterhng, and it was not until a later 
period of the reign of Queen Elizabeth that silver, being 
then the standard of value, received that determinate 
weight which is retained without variation, with constant 
refusals to debase the standard of silver, until the year 
1816, when gold became the exclusive standard of value." 

By this definition of the monetary pound, 
which forms the basis of our Legal Tender and 
Bank Charter Acts, Sir Robert Peel forged a 
chain which has hampered our trade and industries 
and has shackled the feet of labour and capital 
for the past seventy years. Moreover the 
definition is one of the greatest fallacies ever 
uttered ! It will be observed that Peel claimed 
that his definition agreed with " practice," " law '' 
and "histor\^" Here we get a glimpse of the 
official mind of the average British statesman. 
Neither reason nor lessons from experience are 
permitted to interfere wdth tradition. Sir Robert 
Peel treated the pound, not as an invention — 
the mechanism of exchange — which like all inven- 
tions is capable of improvement from time to 
time, — but as though it were some subject of 
natural history. The barbarism and ignorance 
of mediaeval times must be handed dow-n century 
after century, and perpetuated by Acts of 
Parliament in order to conform to tradition ! 

One has only to put the defmition of a " pound " 
to a practical test to see how absurd it is. Accord- 


ing to Peel, the promise to pay a pound in Englisli 
money means " the promise to pay a definite 
weiglit of gold with a mark upon it to determine 
its weight and fineness." Is this true ? Put it 
to the test. Ask any tradesman, manufacturer, 
wage-earner or professional man — in fact an\' 
person outside of the banking, bullion or money- 
lending profession — the weight of gold in a 
sovereign, and there is not one in a thousand, 
probably not one in ten thousand, who could 
answer without referring to a text-book or a 
banker. Peel actually led himself to believe that 
when a mechanic or tradesman offered his services 
or goods for the sum of £3 17s. lo^ci., he was not 
stipulating for so much purchasing power witli 
which to purchase so much food, clothing and 
comforts, but one troy ounce of gold ! Nobody 
outside of a bullionist's or money changer's office 
ever thinks of or employs money in terms of its 
weight. To tell the average man that a Dread- 
nouglit costs between twenty and thirty tons of 
gold would convey no intelligible idea. He 
would have first to convert tons into grains and 
grains into sovereigns to grasp the meaning of such 
an equation. Peel's definition is untrue on 
the face of it. It has never been true since 
coinage was generally adopted. It was no 
truer in Peel's time that it is to-day. This is 
proven by the fact that in the ver}' Act which 
he later introduced and foreshadowed in his 
speech from which I have quoted, he provided 
that the Bank of England could issue 
£11,000,000 in notes against the National 


Debt without keeping an ounce of gold in 
reserve for their redemption ! 

If Peel's definition and statements were 
correct, the issue of these notes was nothing 
less than a legalized fraud ! Within two 
years after the Bank Charter Act became 
law the complete refutation of Peel's finan- 
cial theories was demonstrated by the panic 
of 1847, which was stopped by suspend- 
ing gold payments and permitting the 
Bank to issue inconvertible notes ! The same 
thing occurred in 1857, and again in 1866. So 
long as the pubhc could draw bank-notes with 
which to pay their private debts and taxes they 
cared little or nothing for gold. The notes did 
their v/ork as the medium of exchange and saved 
the nation on each and evcr\' occasion. More- 
over, since August, 1914, every inhabi- 
tant of Great Britain has witnessed the 
daily refutation of Peel's definition of the 
" pound." 

What was the cause of Peel's failure to grasp 
the true meaning of mone}' ? Apparenth' lie had 
been greatly influenced by Lord Overstone, the 
chairman of Lloyds Bank, and by various foreign 
traders. vSir Robert confined his attentions ex- 
clusively to the value of the pound in the 
foreign exchanges, where trade is barter pure 
and simple and money, properly speaking, 
does not function. 

Unintentionally, no doubt, his legislation was 
solelv for the bench t of the bankers and foreign 
traders. Sir Robert's chief (jbject a])pcars to 


ha\e been to make the British pound valuable 
abroad where its legal tender functions disappear, 
and the commodity alone counts. 

By doing this, he not only robbed his country 
of the use of its credit (associated with legal 
tender) but exposed British industry and trade 
to the ravages of foreign merchants who could 
exercise adverse influence upon our markets. They 
could send their commodities and take our gold 
in exchange, reducing our currency and credit 
facilities and thereby crippling our home trade, 
whilst increasing the credit facilities in their own 

The fundamental error into which our statesmen 
fell was through confounding gold with its legal 
tender powers — in failing to distinguish between 
the metal and the functions legally conferred upon 
it. It is too often forgotten that gold owes 
its universal economic supremacy entirely to 
the laws and customs of nations which have 
made it compulsorily the debt-paying in- 
strument. Any other metal would acquire 
the same power and value by similar legal- 
ization provided its supply could always be 
controlled within similar bounds. 

Legal tender is as much an invention — a mere 
contrivance for effecting certain ends — as the 
telephone or the sewing machine. If we take a 
sovereign and examine it we find it consists of a 
certain mass of gold alloyed with copper, shaped 
as a circular disk with milled edges, and bearing 
certain images and inscriptions. Now, in what 
part of the coin docs the moncv rosirie ? 


Suppose we take a hammer and carefully deface 
the inscriptions, or suppose we melt it and reduce 
it to a mere mass of alloy. Evidently we have 
destroyed the money ! No one would take it 
as a piece of money. Its monetary functions 
have vanished, and they can only be restored 
at the Government Mint by recoinage. 
Although the commodity remains as before so 
far as weight and quality of metal are concerned, 
the legal tender functions conferred originally 
bv the State having been destroyed, can only 
be reconferred similarh^ by the State. And if 
after melting the sovereign the coinage laws 
should be repealed and the Mint closed to the 
free coinage of gold, we should find the legal 
tender functions of the defaced sovereign had been 
destroyed for ever. Examples of this were given 
during the great silver agitation in the United 
States twenty years ago, after the silver coinage 
laws were repealed. Silver dollars were worth 
the same as paper dollars, and five silver dollars 
were exchangeable for a five-dollar gold coin. 
But when a silver dollar was melted, its value as 
money was entirely destroyed, whilst the silver 
of which it was composed was worth only its 
commodity price, viz., one half of the dollar. 
In short, the doctrine which certain British 
and American economists had hitherto 
preached, viz. that " money is a com- 
modity, and its value depends entirely upon 
the material of which it is made," was de- 
monstrated to be utterly false ! 

In spite of these object lessons, there are still 


many writers who have the temerity to propound 
the same stupid theory. 

Legal tender functions conferred by the Govern- 
ment upon the precious metals can and do add 
to the commodity-values of these metals by 
increasing the demand for them. But the value 
of these metals in the arts can never increase 
their legal tender value. If, for example, gold is 
worth more as a commodity than as money, it 
would immediately be withdrawn from circulation. 
Consequently gold coins owe their purchasing 
power wholly to their legal tender privileges. 

It has been claimed by certain Socialist writers 
that the gold standard is virtually a labour stan- 
dard. They assert that the high esteem in which 
the so-called precious metals are held, is really due 
to the labour expended in producing them, and 
consequently gold represents " frozen labour.'' 
There is, of course, no truth in the assertion, as a 
moment's consideration will show. The gold 
nuggets found by accident, requiring practically 
no labour, have the same purchasing power as that 
produced after years of search and toil. There 
is no difference in the value of the gold produced 
by the cheap cyanide process and that from the 
more expensive roasting treatment of arsenical 
pyrites. A considerable amount of the gold in 
use was produced by cheap Chinese and even slave 
and convict labour. Is this the sort of labour 
sucli writers would wish to establish as a " stan- 
dard " ? To get over this difficulty, some writers 
claim that we must take the average labour 
expended. But what is the a\'erage between 


free and slave labour ? And how is one to avereige 
the cost and productiveness of labour expended 
1,000 years ago and that of to-day ? 

The world's supplies, we must remember, are the 
accumulations of many centuries. Some authori- 
ties have tried to prove that the real cost of our 
gold supplies is far in excess of its present value. 
If we include the oppression, the suffering and 
misery the use of this metal has inflicted upon 
humanit}' as part of the costs, there can be no 
doubt as to the truth of this claim. 

Evidently, therefore, labour cannot be either the 
cause or the " measure " of the value of the 
precious metals. 

It must be evident to any one who gives the 
subject the slightest consideration that the 
monetary " pound " cannot possibly be a certain 
weight or mass of a certain metal. To reduce 
the definition to common sense, one must 
regard the " pound " merely as the purchasing 
power of the legal tender unit. It would be 
just as rational to define the standard of length 
as the weight of the bronze bar and gold studs 
which fixes the British yard measure, as to define 
the monetary pound in terms of so many grains 
of gold. Let us take another illustration. 

According to Peel's definition, it w(juld be 
utterly impossible to express or calculate the 
wealth of nations or communities in mone- 
tary terms with any approximation to truth. 
Take the wealth of Great Britain, which 
is variously estimated at from ;{i5,0()(),(;oo,ooo 
to £20,000,000,000. What is the meaning of 


these figures ? According to Peel, the\' mean 
15,000,000,000 to 20,000,000,000 golden sove- 
reigns — or more correctly, somewhere between 
150,000 and 200,000 tons of pure gold ! This 
amount is probably from four to five times more 
than all the gold that has ever been produced ! 
Moreover, if it were suddenly produced, it would 
be w^orth less than the gold already existing, 
w^hich is one of the many paradoxes with which 
this science abounds ! For such a vast augmenta- 
tion of the supply would be likely to create panic 
and lead to its demonetization. Evidently old 
Euclid had not studied the laws of value when 
lie wrote his famous axiom that " the whole is 
greater than a part/' In short, Peel's definition 
makes all financial calculations and expressions 
of large sums meaningless. What every one means 
by these figures is not so much weight of gold, 
but 15,000,000,000 times the present pur^ 
chasing power of one pound ! 

Between these definitions, viz., a certain weight 
of gold and the purchasing power of that gold 
when coined, there is all the difference in the 
world. A monetary system based on the former 
definition involves an exclusively gold currency. 
If a pound is what Sir Robert Peel defined it, then 
it must be regarded as fraudulent for the Govern- 
ment to authorize the use of any currency other 
than gold. 

Peel's definition makes the tender of Bank of 
England notes and Government notes issued 
against the national credit, a fraud on the public, 
unless every single note representing a pound is 


backed by its legal weight in gold ! On the other 
hand, if the pound is merely the purchasing 
power of so much gold, it can be expressed and 
issued in any convenient form — paper, or an}^ 
other method — so long as it enables the holder to 
purchase the equivalent of so much gold. Further, 
the pound is only the purchasing power 
of so much gold, so long as the mints 
remain open to its coinage at the present 
ratio. If the mints were c\'er closed, if the 
governments of the world were to treat gold as 
they treated sih'cr, it would soon be discovered 
that the present purchasing power of gold is due 
to the legal privilege granted it as the debt-paying 
instrument. These laws prevent the metal from 
falling below the purchasing power of the gold 
coins dehned as monetary units. 

The \'ariability of the purchasing power of gold, 
vv'hich must have been known to Sir Robert Peel 
and his associates, ought to have suggested to our 
legislators the necessity of defining the standard 
unit, not with reference merely to a certain weight 
or mass of gold, but to its purchasing power 
at a given time and place. If one promises to 
pa\' a given number of pounds at any future time, 
both debtor and creditor ought to be assured that 
the pound is not going to vary in relation to 
the whole realm of commodities generally, by the 
lime tlie ])aymrnt is due, because money is 
accepted in settlement of debts n(jt for obtaining 
possession of gold or silver c(jins, but for obtaining 
the; means of ])urcliasing such goods as are needed 
and desirable. 


If Sir Robert Peel had defined the " standard 
of value" as the purchasing power of 113 
grains of pure gold, he would have been nearer 
to truth and common sense than when he 
defined it by weight of metal. But this 
definition alone would not establish invaria- 
bility, which is the very essence of a standard. 
Just as the standard of length and weight are 
fixed in relation to temperature and pressure, so 
any commodity employed in connection with a 
unit of purchasing power, should be similarly 
fixed in relation to time and place. Thus, 
supposing Peel had announced that the purchasing 
power of the pound at noon, January 1, 1845, 
would thereafter constitute the standard monetary 
unit throughout Great Britain, he might have 
established a scientific system which would have 
ushered in a new era for trade and production. 
The pound would then have represented a certain 
fraction of the total national wealth as it existed 
at that date. 

Of course such a system would have necessitated 
a properly regulated currency, i.e., where the 
currency supply would have been arranged to 
keep pace with the demand, which would have 
maintained its general purchasing power at a 
constant level. Neither gold nor any other 
commodity- currency, would have functioned 
under such conditions. Paper money — which is 
the money of civilization — would have proved 
the only rational system. 

The relation of money to commodities has often 
been likened to a balance, one scale of which 

F.S. H 


contains all the money in circulation, and the 
other scale the commodities sold for money. 
Now at any given instant of time, the money scale 
must balance the commodity scale. And if Peel's 
theories were practicable and rigidly enforced, 
the money scale would always contain gold and 
nothing else. But gold is conspicuous by its 
absence in the vast majority of exchanges. Its 
place is taken by credit consisting of promises to 
pay gold, which performs the same exchange 
functions as gold, and is in fact its most active 
partner. Gold may be regarded as the silent 
partner of credit. If these promises are bor- 
rowed from our banks and credit dealers, they 
cost the borrower just as much as gold itself. 

Now the great trouble is this. In the money 
side of the scale, these credits — these promises to 
do the impossible, viz., redeem debts in gold on 
demand — balance just as many commodities, and 
therefore weigh as much as the gold they promise 
to pay. And as such promises are quickl}^ and 
inexpensively created, and may be as quickly 
cancelled, they necessarily produce rapid and 
sometimes violent oscillations of the balance. 
And owing to the legal tender Act which makes 
gold the basis of debt-settlement, all this credit, 
this mountain of paper, gives to its owners the 
same power of purchasing goods, of booming and 
depressing trade, as if thc\' owned a similar quan- 
tity of gold. The scale is therefore fraudulent. 
It gives the public tlie impression, that for all the 
goods they send to market, there exists some- 
where — in those mvsterious bank vaults or in the 


safes and tills of the money merchants, or some 
other hiding places — untold millions of bullion or 
golden sovereigns, the right to which is transferred 
to them by cheques and bills and other credit 
instruments. Only in the realms of Finance and 
Christian Science does confidence work miracles. 
There alone is the mere promise of a thing regarded 
as equivalent to the possession of the thing itself. 

Peel's law made the banker and financier so 
powerful, that they could say to trade, to com- 
merce, and industry, " Except ye believe in us 
and in our ability to perform our promises, ye shall 
all perish " ! And it is this ability of credit to 
function as gold, that causes such enormous 
fluctuations in prices and in the conditions of 
trade and industry. 

This illustration of the balance shows why a 
general rise and fall in prices is possible. It is 
merely a movement of the balance in one or other 
direction. It means that whatever one side loses 
in value, the other side must gain. 

Any change in the purchasing power of money 
eventually affects all commodities. Although the 
pound may have increased in value, the number of 
legal tender pounds in circulation are so dispro- 
portionate to the goods they exchange, that this 
increase in the value of the money is a mere 
fraction of the decrease created in all other goods. 
In an exchange of £3,000,000,000, it has been 
estimated that the total sums of money employed 
did not exceed £75,000,000. For this reason 
a nation can increase its material wealth, whilst 
apparently becoming financially poorer ! 


If for every sale of goods, Peel's pounds were 
used, if all commodities exchanged were exactly 
balanced by an equivalent in gold, this paradox 
of an increase of wealth being represented by a 
decrease in the money value of such wealth, could 
not occur. For the reason that whatever commo- 
dities lost, the money material (gold) would gain 
in value and vice versa, and the balance would 
then be maintained. 

Now by getting rid of commodity money, by 
employing credit money merely as the representa- 
tive of wealth, instead of falsely assuming that 
money per se is a part of wealth, we get rid of our 
price scale as a thing apart and distinct from the 
scale of values, and money would then constitute 
the common denominator of the values of all 
commodities, including gold and silver, in the 
truest sense. Values and prices would thus 
become synonymous terms. The logical con- 
clusion to which we are inevitably driven is 
one that will no doubt arouse considerable 
astonishment. In order that it may satis- 
factorily perform its necessary functions — 
particularly that of a value denominator and 
accurately register the variations in the 
exchange values of commodities — money 
must be essentially a valueless token, similar 
to a railway or theatre ticket. The one pound 
Treasury note, of course, meets this defini- 
tion, provided its issue is not restricted by 
such absurdities as gold -redemption, and so 
long as the supply is sufficient to meet all the 
demands of trade, industry and commerce. 



It is evident that before we can outline a scien- 
tific monetary system we must first determine 
what are the essential functions which money 
must perform. As necessity is the mother of 
invention, and as money is purely an invention, we 
must first ascertain what necessity led to its 

In tracing the origin and evolution of money, 
most treatises go back to primitive times and 
people and show how trade commenced with 
simple barter. Fish was exchanged for game, 
skins for feathers, corn for cattle and so on. The 
system naturally involved many difficulties, one 
of which was the lack of divisibility of certain 
goods offered and desired. A cattle raiser who 
wanted a few apples or fish and had only cattle 
to barter with found difficulty in getting change. 
Sometimes it would happen that a trader who 
wanted corn had nothing which the corn grower 
desired as an equivalent. In such cases the corn 
grower might be willing to trust the trader until 
at some future time he could pay for the corn in 
some commodity the corn grower desired. But 
he required some guarantee or at least some 



evidence of the debt to reassure him that such 
payment would be made. Now, according to 
certain writers, some one, or perhaps many people, 
hit upon the idea of employing a commodity 
which was valuable, imperishable, and capable of 
being subdivided into the smallest possible parts. 
The commodities best answering to these require- 
ments were gold, silver, and copper. 

This is the usual explanation of how these 
metals came to be so universally employed as the 
money metals. 

Arguing from this data, economists came to 
define the necessar}- functions of money as follows. 
The}' said money is (i) a standard measure of 
values, (2) a standard of deferred payments, and 
(3) a store of value. And although this invention 
is probably older than the art of writing, no 
substantial improvement or alteration in the 
functions or character of what they term " good " 
money has been recognized by the orthodox 
schools of economics since it was first established. 
Whilst in practically every department and 
branch of individual, social and national life, 
invention and discovery have raised humanity 
from a condition little above that of the animal 
kingdom to its present condition of comparative 
health, welfare and comfort, we are still bound 
to the old barbaric method of having to barter all 
our products for gold or its representatives. 

Let us carefully investigate these so-called 
essential functions of mone}'. 

(i) As to the measure or expression of 
values. We have already seen in a previous 


chapter in what manner the exchange values of 
goods are expressed, viz., by numbers representing 
(quantitative exchange equivalents. 

Some S3'Stem of estimating and expressing 
values must have existed among all races even 
where barter was practised. So much or so many 
fish would be exchanged for so much corn or for 
so many skins. Hence the values would be 
registered b}^ the quantities, weights, volumes, etc., 
in which the goods were exchanged. These values 
would naturally vary from time to time and from 
place to place according to variations in conditions, 
such as weather, scarcity or abundance of products, 
amount of effort expended in securing the product, 

But the mere use of numbers for registering 
exchange equivalents would not suffice without 
their association with some unit or common 
denominator of exchange-values or of purchasing 
power. In using a certain commodity like gold, 
this difficulty was thought to be solved. Commo- 
dities were then appraised in terms of so many 
grains, ounces, or pieces of gold. The gold 
became merely the common denominator, and the 
numbers indicating the numbers of gold units 
were the expression of commodity values. 

But experience has taught us that the unit need 
not be associated with any particular commodity. 
On the contrary, the fluctuations in the values of 
all commodities show us that no just or satisfactory 
system of measuring or expressing values generally, 
can possibly be established by employing a com- 
modity unit. 


A just monetary system ought merely to express 
the exchange-vahies of goods as it finds them 
without intruding upon the scale any special 
value of its own. It must therefore be strictly 
neutral, passive and not active. It ought to be 
merely the neutral and invariable scale upon 
which commodity values are registered. If it is 
more than this, if we select a kind of money like 
one of the precious metals which compels it to 
obtrude its own varying values from time, 
and thus fraudulently interfere in the equations 
of commodity exchange, it must necessarily work 

The adoption of a unit or denominator, should 
be dictated with the main object of securing 
something or some system which will result in 
invariability in the unit chosen. And here we 
come to the so-called second function. (2) A 
standard of deferred payments. It is evident 
that when a debt is incurred, justice demands that 
payment must be made in something or in some 
manner which shall be a just equivalent. Here 
we come to the root of the money problem. For 
ages a war has been waged over this question. 
In recent years attempts have been made to deal 
with it in a scientific manner instead of from the 
standpoint of personal or class interests. Here 
also we find the inevitable conflict of the two 
opposing interests, labour and capital, production 
and finance. Whilst finance desires a unit w^hich 
will expand with the growth and development of 
invention and industrial progress, so that debts 
shall expand proportionally, labour and industry 


are anxious to escape the bondage of debt, and are 
interested in the estabhshment of a unit which cor- 
responds merely to the original amount of the debt. 

As to the claim of the champions of financial 
interests for a progressive unit, little need be said. 
The claim is not based upon any just or valid 
argument. It is said that industrial progress is 
the result of financial assistance given to industry, 
and hence money is one of the essential factors of 
production, and therefore its dealers are entitled 
to share in any increase in productive methods 
during the period of the loan. 

The reply to this is that since loans are made 
interest-bearing, such interest payments are ample 
compensation for the use of such loans. Moreover 
since moneylenders would refuse to share in any 
losses which the industrial borrower might suffer 
during the same period, there is no just reason 
why they should be allowed to share the gains. 

But, as we shall see later, the controlling influence 
of money in the field of production is due wholly 
to special laws which, if abolished, would enable 
producers speedily to establish a currency system 
of their own which would be non-interest bearing 
and would enable them to escape the present 
tyranny of the money power. In short, the present 
position of finance as a necessary factor in pro- 
duction, is an artificial one imposed by Parlia- 
mentary laws. 

Now the producers' side of this controversy is 
as follows. 

When one incurs a debt by borrowing or buying 
on credit, he buys or borrows commodities or 


labour services or something which holds a certain 
value relation to all other goods at the time the 
debt was made. If we take the whole realm of 
commodities and wealth in the community to be 
represented b}' x units, any debt must be repre- 
sented bv y X units, y beingj the number of 

units of goods or wealth bought or borrowed. 
For example, if one borrows from a bank £1,000 
to-day, what is the real amount of his debt ? Let 
us suppose our total national wealth to be repre- 
sented by £15,000,000,000. Then the amount of 

the debt is ^°^° th = ^ th part 

15,000,000,000 15,000,000 

of the national wealth at the time the money was 


The practical application of this method to a 
monetary system will be shown later. It affords 
a means of establishing a fixed and invariable 
unit corresponding to a definite fraction of the 
total wealth of a community or nation at a given 
instant of time. 

(3; It is also claimed that money is a store of 

No doubt in times and countries where society 
and law were scarcely established, and where such 
a thing as credit and security were unknown, all 
exchanges had to be made on a barter basis of 
value for value at the time the exchange was 
made. But this system was still a system of 
barter even where gold was used. In short, gold 
was then used not as money as we understand it, 
but as a commodity pure and sim})le. 


The " store of value " function, belongs to an 
age of barbarism and semi-civilization and was 
considered essential for safety. But in our modern 
and highly organized social system, credit has 
superseded the gold barter method almost entirely. 
As little as still exists, is due to our legal tender 
laws — to compulsion ! 

In place of a " store of value," all one requires 
of money nowadays, is an assurance that one 
will be able to pay one's debts with it or exchange 
it for what one needs, at any future time at its 
face value, which value should represent a certain 
fraction of all exchangeable wealth at the time 
the money is paid. 

The American greenbacks up until the time 
they were dishonoured by their own Government, 
and our present Treasury notes, would represent 
such units provided their supply was made 
contingent upon the legitimate trade demand. 

Those who have been taught to regard value 
as something material and tangible, may have 
some difficulty in understanding how an imma- 
terial and intangible unit can function as the 
basis of a monetary system. Such units would be 
ideal. It is not necessary that these units should 
correspond to any fixed amount of any given 
commodity. On the contrary since they must 
express the values of all other commodities, they 
must be free from such association. 

Ideal units of value are not a recent discover}^ 

vSome years ago the chief of an American tribe 
of Indians was invited to address a society of 
which I was a member, on the economic system 


of the aboriginal Indians. He stated that units of 
value were known among his race, and a currency 
system was in use long prior to the advent of the 
white settlers. This currency consisted of small 
pieces of tree branches which were notched with 
a knife in certain ways to designate the amounts 
of personal debts incurred by members of the 
tribe. Each debtor cut his own sticks and 
notched and handed them to his creditors, each 
notch representing an ideal unit of value. These 
constituted a sort of I O U and circulated among 
the members of the various tribes, and were 
finally redeemed by the debtors in game, fish, 
skins, feathers, etc., as required. 

As showing that honesty is an essential basis 
for any sound currency system, this Indian chief 
explained that whilst this aboriginal system 
worked satisfactorily among his people in early 
times, he doubted whether it would succeed now 
since the intercourse between the white and 
coloured races was so intimate. 

He added quite seriously, " You see, you Chris- 
tians have taught us many things we never knew. 
And unlike us barbarians, you Christians cannot 
trust each other.'' 

John Stuart Mill also records the fact, that 
certain African tribes were known to employ a 
method of expressing these exchange relations in 
terms of an ideal unit called the "macute." 
They say this is worth so many macutes, and 
that so many, and in this way they estimate the 
respective values of all exchangeable goods in 
terms of the macute. He adds that " there is 


no such thing as a macule." It is merely an 
ideal unit created for this special purpose. Such 
a unit would when properly issued, entirely fulfil 
the functions of money in expressing the values of 
commodities, without intruding any commodity 
value of its own. 

Now the world's monetary systems, established 
by law under the advice and influence of money 
dealers, are founded upon a different theory. 

Money created by law is a commodity and is 
generally regarded as the king of all other commo- 
dities. It is held to be valuable not merely for 
its utility as the medium of exchange, but chiefly 
because of the material of which it is made. In- 
stead of merely expressing the values of other 
things and functioning as their servant, it obtrudes 
its own value and insists upon vaunting its brazen 
qualities in the face of its infinitely more useful 

Gold money is the Hun among commodities. 
It is the barbarian that has broken all its treaties 
and promises, and undertaken the conquest of the 
world by force and fraud. 

Instead of exchanging desirable commodities 
directly for each other as in primitive times, we 
are compelled, under this barbaric system, to 
exchange our useful commodities for the com- 
paratively useless metal, gold itself, or its sup- 
posed representative. 

It is much as though the Cabinet had been 
entrusted to provide our King with a private 
secretary, and had selected a man of such inordinate 
ambition and self-importance, that soon after 


his appointment, he had, with the approval of 
the Cabinet, dethroned the King and placed 
the crown upon his own head ! And most of 
our economists and financial experts, have been 
engaged ever since in the impudent task of trying 
to make the people believe that this usurper is 
their rightful king ! 

The association of a commodity with the cur- 
rency, prevents it from honestly functioning as 
the language of values. One might as well 
employ as an interpreter for people of various 
nationalities, a man who can speak but one 
language. Gold, whether as a coin or as a 
commodity, may function as a measure of other 
pieces of gold. But it cannot safely nor justly 
express the values of other commodities. It 
knows no language but its own. And since it 
could not continue to function as currency solely 
on its own merits, it has been forced upon the 
world by legal tender laws. The public use of 
a desirable commodity does not require the force 
of law. No government has enacted laws com- 
pelling its people to eat cheese, or drink beer, or 
smoke tobacco. 

Money is said to be "a measure and a store of 
value ! " And it is this " store of value" which, 
functioning as a commodity, prevents money from 
honestly representing the exchange values of other 
commodities. Hence commodities must change 
their native tongue ! (Again how like the Hun!) 
Originally, commodities were socially related by 
their exchange-values, a relation expressed by 
numbers, and it was these and these only that 


the invention of money should express. But 
the boorish Prussian commodity- money, insisted 
upon their ah speaking his barbarous tongue ! 
Hence the language of commodities became no 
longer numbers expressing values, but weights of 
gold representing prices — which is a very different 
story ! 

In his well-known work entitled The Funda- 
mental Problem in Monetary Science, Mr. C. 
Moylan Walsh commences his first chapter with 
the following remarks : — " In monetary science 
at the present stage of its development, the 
fundamental problem is to determine what is in 
good money the quality that constitutes its 
goodness, etc." Further on he says, ''We are 
obliged therefore to seek further below the surface 
and to inquire, what kind of value is it that money 
measures and stores and should possess in a stable 
manner ? This is the fundamental problem in 
monetary science." He then devotes the bulk 
of his work to a critical historical survey of all the 
theories which have been advanced by economists 
for the past three centuries. The conclusion of 
this writer, which is the general opinion prevailing 
among economists, is that money must be a 
commodity, and in order to " measure " the 
values of other commodities it must itself possess 
'' a store of value," i.e., those qualities which 
give value to the goods it ''measures." 

It would thus appear that since some commo- 
dities, like paintings, owe their worth to the high 
esteem in which they are publicly held, and others 
are valued according to their labour cost of pro- 


duction, and others again for their utiHty and 
comparative scarcity, money must possess every 
kind of value in order to function as a '* standard." 

Now it would be utterly impossible for a single 
commodity to be endowed with such a varied 
assortment of values. Moreover, even if such a 
phenomenon were possible, it would not solve the 
difficulty which presents itself, of discovering some 
just and simple method of expressing the exchange 
relations of commodities in terms of some common 

Most economists imagine that it is necessary 
to select as a standard of value a commodity 
possessing all those qualities which make commo- 
dities valuable. This would be analogous to 
selecting one steam boiler as a standard for 
measuring the steam pressures of all other boilers, 
or of trying to measure the electric currents of 
a dozen or more dynamos by taking one of their 
number as a standard. 

What would be the use of such attempts, when 
the steam power of the standard boiler and the 
current of the standard dynamo are themselves 
both unknown ? 

You cannot measure either the use-value, 
cost-value, esteem-value, or even the exchange- 
value of one commodity by placing another — not 
even a piece of gold — beside it, any more than you 
can measure the steam pressure of a boiler by 
coupling it up to another boiler and raising steam 
in both. 

To measure steam pressure, the pressure gauge 
was invented, in which the force of the steam is 


made to balance the tension of a spring or raise a 
weight of known dimensions on a graduated scale. 

Similarly with the electric current. 

Now the main problem in monetary science 
is not the selection of a suitable commodity 
possessing value, stability, ductility, divisi- 
bility and other physical qualities w^hich 
economists assert are essential in a standard. 
The fundamental problem is to discover — not 
a commodity, but — a method w^hich will en- 
able us to (1) accurately express at all times 
the exchange -values of commodities in terms 
of some common denominator regardless of 
why such values exist or how they have arisen, 
and (2) to issue tokens as evidences of debt and 
credit, in terms of some invariable unit repre- 
senting some proportional part of the general 
wealth of the community at a given time. 

Now the exchange-values of commodities, 
whether gold or pig-iron, are determined, not by 
their physical qualities, but by their quantities 
available in relation to the public demand for 
them. We are dealing now exclusively with 
objective exchange- value, and all the other kinds 
of value pertaining to cost-value, labour-value, 
use- value, monopoly-value, esteem-value, etc., 
have no more to do with the problem than the ques- 
tion of the particular fuel has to do with the meas- 
urement of steam pressure or electro-motive force. 

\Miat we want is a simple method analogous 
to a steam gauge, in which the resultant of the 
opposing forces of supply and demand which 
control exchange-values, can be registered. 

F.S. I 


Taking the steam boiler once more as our 
analog}', if the problem were merely to compare 
a given number and range them in the order of 
their steam pressures, we might take a number of 
similar pressure gauges all similarly graduated, 
and place one on each boiler, and range them 
according to the numbers corresponding to the 
pointers on their dials. In this case we should 
not even require to know the meaning of each 
graduation in terms of any known force. Each 
graduation might equal a pound weight, a hun- 
dredweight, a horse-power or X. As the pro- 
blem is merely to determine the relative steam 
pressures of the boilers in question, we should 
simply read the numbers and take these as indi- 
cating the relative pressures. Thus if boiler A 
registered lo, boiler B 20, boiler C 30, and 
boiler D 40, we should know that the steam 
pressure in D was four times that in A, twice 
that in B, and ij times that in C. 

Now this is precisely what we require, and all 
that is involved in the so-called problem of 
" measuring " values. It is a comparison of 
commodities one with another in order to 
ascertain their relative importance in the 
estimation of the public under the condi- 
tions prevailing. 

A further illustration of the confusion arising 
in the minds of most writers on this subject, is the 
contradiction between the commodity and quality 
theory of money, and what is known as the quan- 
titative theory. 

The latter theory has been definitely established 


and accepted by every up-to-date economist. 
In general terms, the theory is, that the value of 
money, other things remaining the same, varies 
inversely with the quantity in circulation. That 
qualif3dng phrase " other things remaining the 
same " includes velocity of currency circulation, 
quantity of goods offered for sale, etc. 

Now if the value of the mone}^ commodity 
depends merely on its physical qualities, its non- 
corrosiveness, divisibility and all the other attrac- 
tive features enumerated by the gold standard 
theorists, it matters not how much nor how little 
gold there is, these physical qualities are not 
affected in the slightest degree. And yet we know 
perfectly well that if chemistry should discover 
the secret of the transmutation of baser metals 
into gold at a very slight expense, or if some 
mining operations should result in making gold 
as plentiful as pig-iron, its value would fall to a 
fraction of its present value, and every government 
would immediately demonetize it. In short, its 
present position as the standard of value is due to 
circumstances : first, popular superstition and 
ignorance ; secondly, its comparative scarcity ; 
and, thirdly, legal-tender laws. 

The third is the consequence of the other two 

The value of gold, like those of all other com- 
modities, is determined by supply and demand. 
It behaves and is subject to the same laws as legal 
tender paper money. 

A century or more ago, both economists and 
merchants had a far better and more intelligent 


conception of the medium of exchange than they 
have to-day. At that time, money was defined 
as "a ticket/' ''a token/' "a counter/' "the 
evidence of debt/' etc. People accustomed to the 
currency throughout the Napoleonic wars, knew 
that the medium of exchange need not be bur- 
dened with " a store of value " to properly fulfil 
its trade functions. It is true that the paper 
money of those and other times was often issued 
on the unfortunate theory, that nothing more was 
required than the enactment of a law to confer 
upon money in any quantity, a certain fixed 
power of purchasing commodities. Those writers 
who are so fond of picturing the evils of so-called 
inconvertible paper money, by citing the deprecia- 
tion which the French and American notes suffered, 
should tell us how else Napoleon could have 
financed his wars, the American Colonies their 
War of Independence, and later their Civil War, 
and England her campaigns which ended in the 
conquest of Napoleon, save by the use of the 
national credit in the form of legal-tender notes ? 
How else could we have avoided the most 
terrible panic in British history in August, 1914, 
after London had been denuded of gold by the 
German bankers, through the combined avarice 
of our money dealers and the folly of our free gold 
market, but for the issue of our inconvertible 
Treasury notes ? I underscore " inconvertible " 
because, up to the present time, they have been 
inconvertible in spite of the efforts of certain 
bankers and statesmen to make it appear otherwise. 
The mere ear-marking of £25,(/o(j,ooo of gold 


against £150,000,000 of notes is a long, long way 
from convertibility. 

There is still another view of the functions of 
money to be considered. When goods were 
directly exchanged for goods, each party secured 
directly the goods he needed. Mutual satisfaction 
was the result. But with the introduction of 
money, one first exchanges goods for money, and 
then money for goods, so that where the trader 
obtained satisfaction under the barter system in 
one operation, it requires two transactions under 
our monetary system. Hence the exchange of 
goods for money is termed a demi-exchange or 
half-a-transaction. The trader accepts the money, 
not because money can satisfy his wants (he 
cannot eat it, or wear it, or obtain any satisfaction 
from its consumption), but because he knows 
he can exchange it for the goods which he needs. 

Now this function of money — the medium of 
exchange — is merely a utility. The power 
here required, is merely purchasing power, which 
can be conferred upon any valueless token by the 
agreement of Society and its members, or by law. 
Commodity-money advocates insist that this 
purchasing power must necessarily be associated 
with some commodity for which the demand is 
always sufficient to secure its circulation. And 
they select gold as the one commodity which 
answers this condition. But they fail to explain 
why it has required the power of the State to 
ensure this demand. One thing, however, we 
do know, and that is that the demand for legal 
tender is a constantly increasing and universal 


one, and enormously greater than the industrial 
demand for gold, for purposes such as jewellery, 
ornaments, dentistry, etc. And we also know 
from the results which the partial demonetization 
of silver had upon the value of that metal, that if 
gold were universally demonetized, every gold- 
mining operation in the world would cease within 
twenty-four hours, and the value of gold would 
fall to a fraction of its present value ! 

There is enough gold held for coinage purposes 
to supply the Arts for a century. 

It is sheer nonsense to talk of gold owing its 
present value, importance and stability, to its 
utility in the Arts. The use of gold in the jewellery 
trade, is largely due to love of ostentation, to its 
being an expensive and somewhat rare metal. 
And this is the result of its legal importance as 
the debt-paying commodity. 

Gold has the advantage of being the subject of 
legal tender laws the world over, whereas no 
paper money can be legal tender beyond the 
confines of the country or empire in which it is 
issued. Gold coins are just as much " fiat money " 
as American greenbacks ever were. To deny it 
is to deny the law of supply and demand, to deny 
that the war has affected the values of copper, 
brass, steel, cotton and other commodities ! In- 
deed, if the value of gold were due wholly or 
chiefly to its commodity uses in the Arts, it would 
long ago have gone out of circulation. It has 
had to circulate side by side with millions of 
" cheap " paper money notes, which have per- 
formed the same currency functions, and yet the 


industrial demand for it in the Arts was altogether 
insufficient to draw it out of, or seriously affect 
its circulation. In short, according to the well- 
known Gresham Law, gold is just as much " bad 
money " as cheap paper, because " bad " money 
always drives out " good " money. Ergo, any 
money not driven out by " bad " money must 
be equally " bad." 

Legal tender, which is the legal debt-paying 
instrument, is included in the term money, 
although money should comprise whatever per- 
forms the money functions. . . . 

Is the legal settlement of debt an essential 
function of mone}' ? Under our vast and highly 
specialized industrial and commercial system, no 
doubt some uniform method of settling or trans- 
ferring debts is necessary. 

Legal tender notes are as simple and satisfactory^ 
as any form that could possibly be devised. Their 
function should be, to transfer personal claims 
against the nation from debtors to creditors. 
Now this is precisely what golden sovereigns do. 
So long as they remain sovereigns they 
function in transferring credit from one 
person to another. 

A sovereign doesn't really settle a debt in 
the economic sense, until it is exchanged for 
some desirable commodity or service. If 
one takes it for the gold in it, he must destroy 
the money — the sovereign — by melting it, in 
order to utilize it in the Arts. But since this 
use of the sovereign is the exception, it is correct 
to say that gold sovereigns are of no greater 


utility in the settlement of debts, than the one 
pound inconvertible legal-tender notes. 

Like other branches of finance, the nature of 
debt and credit is not generally nor fully under- 
stood. The settlement of debts is usually set 
forth as one of the most important functions of 
money. The term " legal- tender " is derived from 
the laws which in all countries specify the particular 
instrument or method by which creditors can 
demand payment from their debtors. 

Now from the economic standpoint, there are 
only two ways of settling debts, and these are, 
first, by the payment of an equivalent in goods, 
and second, by the payment of an equivalent in 
services. Economically speaking, debts can only 
balance credits by equivalent satisfaction. Now 
the payment of legal tender, whether it be paper 
money or gold coins, is, as we have seen, only 
half-a-transaction, because the receiver cannot 
get economic satisfaction from the legal tender 
until he exchanges it for the goods he needs. 
Then and only then is the debt settled as 
far as he is concerned. So that the payment 
of legal tender does not finally settle a debt. 
It inerely transfers it. If I pay to my creditors 
ten pounds — in notes or sovereigns — to settle an 
account, I do two things : first, I get rid of the 
personal debt by transferring it to the nation ; 
and secondly, I transfer to my creditor my claim 
against the nation for ten pounds' worth of satis- 
faction (in goods or services). 

When persons, banks and governments issue 
respectively promissory, bank, and legal-tender 


notes, these notes may function in trade and 
exchange as transfer agents to an indefinite 
extent, transferring claims from one set of persons 
to another set, but they can only finally be 
redeemed and cancelled when they return to the 
issuers in exchange for their goods, services, or in 
payment of taxes. Our Government might, for 
example, issue £100,000,000 in notes in anticipation 
of the taxes due and collectible some time later. 
These would function as money and be finally 
redeemed as soon as they were returned to the 
Government in payment of the said taxes. Much 
nonsense has been written and taught as to the 
necessity for the convertibility of paper money. 
It is asserted that paper money is either dangerous 
or worthless unless either the Government or 
the banks agree to exchange such notes for gold 
on demand. Beyond limiting the number of 
such notes which can be issued, convertibility is 
a waste of both time and material, and it adds 
nothing whatever to the utility of a paper currency. 
How much better off is the average man after he 
has exchanged his legal-tender notes for gold ? 
What more can he obtain with the sovereigns 
than he could with the notes ? The objection to 
convertibility is first that it is based upon decep- 
tion and fraud. In no country has convertibility 
been arranged so that for every note issued a 
corresponding w^eight of gold is provided. The 
Bank of England has come nearer to an honest 
performance of this obligation than any other 
institution in the world. But even this venerable 
institution has been compelled to admit its failure 


during critical periods. " Convertibility " in 
practice, is analogous to the over-issue of tickets 
for certain performances without any regard to 
the seating capacity of the theatre. If 10,000 
tickets are sold and there are only 500 seats, either 
the majority of purchasers must be content to 
wait their turn, or miss the performance. It 
would be a case of first come, first served. Con- 
vertibility, however, means gold payment on 
demand — a possibility only so long as the public 
generally refrain from presenting their claims. 
In the case of a theatre or any similar business, 
such promises would be regarded as fraudulent. 

Convertibility may be illustrated b}- the story 
of the farmer and his horse. 

The story says, that the farmer sold his horse 
to a man who wanted to use it only one afternoon 
a week, and the man agreed to allow the farmer 
to use it for the six and a half days on condition 
that he cared for it. Soon after, another client 
called, and asked the farmer if he could sell him 
a horse, and the farmer promptly sold him the 
same one, as the new client only required the 
horse for a similar period of time, viz., one half-day 
per week. At last the farmer managed to sell 
the horse fourteen times over, so that it was 
engaged for every half-day during the week. 
The transaction was highly profitable to the 
farmer, and everything worked satisfactorily, until 
one day these fourteen men met and were discuss- 
ing the relative merits of their horses, each man 
supposing that he was the owner of a separate 
horse. At last they agreed to compare them in 


action, and the farmer was requested to bring the 
fourteen horses for trial, the result being that 
these gentlemen discovered they were all owners 
of the same horse ! This is exactly analogous to 
our gold-basis monetary and banking system. 
For every golden sovereign that exists, there are 
a hundred claimants, and business is only able 
to proceed by our remaining in blissful ignorance 
and accepting from each other and being satisfied 
with mere promises to pay sovereigns. Let me 
say at once that this position is not exactly the 
fault of the bankers. The fault lies with our 
stupid laws which have restricted banking opera- 
tions, and prohibited the issuance of bank-notes 
(except by the Bank of England), and these laws 
make it impossible for banks to maintain their 
integrity and solvency except by periodically 
destroying many industries and bankrupting 
members of the mercantile community, whenever 
trouble arises ! 

The second objection is, that convertibility 
necessarily limits paper issues to the amount of 
gold available, regardless of the needs of trade. 
No economist or philosopher, has ever yet been 
able to prove, that Nature intended to furnish 
gold proportional to the currency and exchange 
needs of mankind, in all stages of human progress. 
Are we then to regulate the world's progress by 
the accidental discoveries of gold or by the intelli- 
gence of mankind ? If by the former, an exclusive 
gold currency would be the proper method. If 
by the latter, convertibihty is about as useful to 
society as crystal-gazing ! In every trading 


community there must necessarily be at all times 
an enormous volume of floating debts and credits. 
Hence it may be said that credit and debt are 
merely two aspects of the same thing. If I buy 
a hat and promise to pay next month, I have 
incurred a debt and the hatter has given me 
credit. My debt represents his credit. If I give 
a promissory note for the value of the hat, the note 
is a credit note to the hatter, and a debit note to 
me. There is a constant demand for this floating 
credit in all trade circles, for it is by this that the 
bulk of the world's commerce is carried on. The 
credit is redeemed from time to time as required, 
but as fast as one lot is redeemed, fresh credits are 
created. And in a progressive community where 
trade and population are advancing, the volume 
of floating credit will necessarily expand year 
after year. Indeed, this growth of credit is 
essential for the growth and prosperity of a nation. 
To suggest that all this, or in fact any portion of 
such credit should be supplanted with a costly 
commodity like gold, is to suggest not merely 
unnecessary extravagance, but the ruin of thou- 
sands of businesses. Further, credit is not only 
a claim on present wealth, but upon future pro- 
duction. And this function is one which financial 
writers often overlook. They write of the dangers 
of " inflation,'' of " redundancy," etc. But they 
forget that the spur to production is effective 
demand, and demand can only be effective when 
backed b}^ purchasing power. 

A dearth of credit and currency leads to indus- 
trial stagnation. 


Industrial growth and prosperity necessitate a 
constant increase of credit. 

It should also be noticed that the terms " over- 
issue " and " inflation " are employed in banking 
circles to denote the limitations of our banking 
system. They do not mean that there is neces- 
sarily more currency than business requires, but 
that there is more money circulating than the 
bankers think good or safe for their business, 
which consists in selling credit and making 

The bank theory of trade is, that both trade and 
industry must be limited to " safe " banking 
operations. If trade conditions tend to outrun 
the bankers' facihties, the bankers say " credit 
is growing unduly." In short, it is the case of 
the " tail wagging the dog." Instead of enlarging 
their facilities to keep pace with the industrial 
growth of the nation, the bankers are compelled 
to hold conditions down to their own level and 
limitations, and thus we come to a complete 
inversion of the logical and natural order of things. 

Money and banking have become the autocrats 
of commerce, instead of fuctioning as the mechan- 
ism of trade and as the servants of industry. 

The essential functions of money are therefore 
(i) to express the exchange- values of commodities, 
(2) to facilitate the exchange of commodities, (3) 
to register debts in terms of some invariable 
denominator, and (4) to transfer private debts to 
the community, and credits from one person to 



Although the question of an invariable mone- 
tary unit or standard, has of late received the 
more serious attention of economists than for- 
merly, it is still regarded by the majority as 
practically unattainable. And yet it is self- 
evident that no honest or equitable currency 
system can be established, without the discovery 
and adoption of some such unit. So long as 
economists cling to the popular superstition 
which regards value as a physical property of 
commodities, like porosity and ductility, so long 
will they be justified in regarding the pursuit of an 
invariable unit of purchasing power, as an ignis- 

Although the problem at first sight, appears far 
more difficult than that which our earlier scientists 
were called upon to solve in discovering the 
conditions necessary to obtain invariable units of 
physical measurement, like those of length and 
weight, there are certain data which lead us to 
believe that the problem can be solved. 

We have already seen that exchange-values 
arc the relations which commodities hold to each 
other as expressed b\' the relative quantities in 
which they become exchange-equivalents. W'e 



know also that all commodities are of equal 
exchange-value when arranged in certain quanti- 
ties at any given time, and that the values of these 
commodities per unit of quantity are inversely 
proportional to the numbers representing these 

^^'c know further that the wealth of any nation 
or community must be a certain — although prob- 
ably unknown — multiple of the purchasing power 
of any single commodity composing such wealth 
at any given instant of time. It is also a mathe- 
matical fact, as stated by Mr. C. Moylan \\^alsh 
in his Fundamental Problem in Monetary Science, 
that the total exchange-values of all things in 
given quantities together are constant, and the 
general exchange- values of any one commodity 
or of money is to be estimated only by reference 
to the total of other commodities. 

We also know from the quantitative theory of 
mone}^ that exchange- values remain invariable 
so long as the two forces of supply and demand 
remain equal. 

With the above data we ought to succeed in 
solving this problem of all the ages. 

The key to this solution has already been given 
in Chapter V. 

We start with the assumption that all wealth 
consists of a certain but unknown number of parts 
of equal exchange-value at any given instant of 
time. These parts are necessarih' of different 
dimensions, weights, quantities, etc., but they 
constitute exchange-equivalents at a given instant 
of time. 


The total number of these parts we call X. 
This number depends upon the magnitude of each 

We might, for example, divide the wealth of the 
United Kingdom into ten million imaginary parts 
all of equal value at a given time and call the 
value of each division a " pound," a " rouble," a 
" King," or a " Briton," or simply y. Such a 
unit would represent a definite fraction, viz., 

th part of the national wealth at the 


time when the system started. 

Fortunately, for convenience' sake, we don't 
have to adopt anything quite so novel nor so 
revolutionary. Our national wealth is already 
expressed in terms of pounds, shillings and pence, 
so that we do not have to invent any other mone- 
tary denomination. All we have to do is to 
make the pound an invariable unit, which can be 
done b}^ attaching it permanently to the exchange 
value of the golden sovereign or one pound note 
at a given time and holding it there, so that 
whatever tricks gold may play in the future, will 
not affect the general purchasing power of the one 
pound monetary unit. We could start the system 
say at noon January ist, 1918, by representing all 
our national wealth as equivalent in value to X 
pounds. Hence the pound unit would represent 

the value of th of the national wealth at that 

particular time. Since this wealth is naturally 
changing in volume every second of time, it 


follows that the fraction ^ applies only to the 

time we commence. 

For example, suppose we start at noon, as 
stated, January i, 1918. Our wealth is then X 
pounds. Suppose by noon, January i, 191 9, our 
wealth has increased 10 per cent., then our total 

wealth = (X H X) pounds and the pound 

which equalled ^th of the national wealth, 

January i, 1918 — becomes ^ ^th of the 

X + 1 X 

national wealth in January, 1919. 

Reduced to actual figures it would appear as 

follows. Suppose our national wealth to be equal 

to ;£i2,ooo,ooo,ooo in January, 1918, and to 

increase 10 per cent, by January, 1919. Our 

pound at first is th part of 


/i2,ooo,ooo,ooo, and in loiq it is th 


part of £13,200,000,000, which shows that the 
pound remains invariable in relation to the 
national wealth when the system was started. 
So much for the theoretical side of the problem. 
But what of the practical side ? What of the 
monetary system ? How can we hold the pound 
to its original dimensions ? This depends entirely 
upon keeping the supply of currency units pro- 
portional to the demand. In other words the 
issue of money, whether credit or legal tender, 
must be maintained at all times equal to the 

F.S. K 


demand in order to preserve the invariability of 
the vahie of the pound. ... As we have seen, 
the material of which the pound is made doesn't 
affect its value unless it affects the number of 
pounds issued, and so affects the supply. 

The question of an invariable unit or standard 
therefore depends wholh' upon our banking and 
legal- tender laws as they affect the money supply. 

The next part of the problem is, by what means 
can the supply be kept proportional to the demand? 
The answer to this will be found by ascertaining 
what causes the monetary unit to vary under 
present conditions. 

Money becomes more valuable whenever wealth 
is offered in exchange for it in a greater proportion 
than that which the prevailing money prices 
represent. For example, supposing in a given 
trading community the volume of money — 
including both legal tender and credit — is repre- 
sented by £100,000,000, which at a given velocity 
of currency circulation effects an annual turn-over 
of £1,000,000,000. Supposing some financial 
syndicate to succeed in withdrawing £50,000,000 
of this currenc}', and the producing and trading 
classes continue to send the same quantity of 
goods to market as previously, it is evident that 
the amount of the turn-over (supposing, of course, 
that the \'elocity of currency circulation remains 
the samcy will now be represented by £500,000,000 
— instead of £1,000,000,000, notwithstanding that 
the quantity of goods sold is the same as the year 

By the mere act of refusing banking accommoda- 


tion and so reducing the currency by one-half, 
according to the quantitative theory prices would 
be reduced to a similar proportion, viz., 50 per 
cent., whilst the monetary unit would gain in 
purchasing power 100 per cent. Evidently, there- 
fore, the solution of this question is to be found in 
establishing a banking system which shall furnish 
sufficient currency at all times to satisfy the 
effective demands of trade and industry. This 
could be safely achieved by issuing credit against 
wealth in a safe proportion, say from 50 per cent, 
to 75 per cent, of its legally appraised value. 

It will be seen that the money unit here sug- 
gested cannot be defined in any fixed commodity 
terms like the golden pound, and it would have no 
material existence except as the representative 
of so much purchasing power, the realization of 
which would occur whenever it was exchanged 
for goods or services. Its actual purchasing power 
would be known by consulting the daily market 
reports. And whilst the values of commodities 
would vary from time to time by reason of varia- 
tions in the supply of and demand for them, the 
unit would, under the conditions above described, 
maintain a definite and invariable relation to the 
quantity of wealth which existed at the particular 
time the system was initiated. 

Although I have suggested continuing the use 
of the one pound as our denominator and monetary 
unit, it will be understood that this unit is merely 
the purchasing power of the pound taken at a 
given instant of time. The purchasing power of 
any other commodity, such as a bushel of wheat. 


a ton of pig iron, etc., might be similarly used if 
its relations to all other commodities are known 
when the system is started. 

How vast a difference there is between employ- 
ing a " commodity monetary unit " and an " ideal 
unit " as I have suggested, the following will show. 
An example of the former is Peel's pound, 
viz., the golden sovereign, whilst the present 
one pound Treasury note, which represents merely 
the purchasing power of the sovereign, may be 
cited as an example of the ideal unit. Provided 
that the supply is so regulated and maintained that 
it preserves the uniformit}^ of an invariable index 
number, the one pound Treasury note would 
approach the standard of physical measurement 
so far as reliability and honesty are concerned. 
Let us imagine a small and isolated community 
with its own free market where goods are ex- 
changed. This illustration will explain precisely 
what happens almost continually in the world's 
markets. For convenience we will imagine that 
the only goods brought to this closed exchange 
circle are the following : 10,000 oranges, 20,000 
apples, 30,000 bananas, 400 golden sovereigns. 
We will further suppose that these groups of 
commodities are all of equal exchange power 
in the respective quantities mentioned. Then 
10,000 oranges = 20,000 apples = 30,000 bananas 
=400 sovereigns. Now it follows that so long as 
exchanges occur within and are confmed to this 
circle, the wealth which consists of these combined 
groups of commodities must be represented by a 
constant number, no matter how the exchange 



relations vary within the circle. For whatever 
exchange power one group of commodities may 
lose, a corresponding gain must naturally be 
acquired by the other groups with which it is 
exchanged. Indeed this is what we mean when 
we speak of goods going up and down in price. 
If bread advances 50 per cent., money becomes 
cheaper to a similar degree in relation to bread. 
A simple analogy will make this clearer. Suppose 
we have a vessel divided into three watertight 
compartments. A, B, and C (Fig. i). And 

vUi'u aES'km S. 



Fig 1 

suppose we pour water into each compartment so 
that the level in A is X, the level in B is Y, and in 
C, Z. And suppose again that the amount of 
water in A is 3 gallons, that in B is 2 gallons 
and that in C equals i gallon. Then the total 
amount of water in the vessel equals 6 gallons. 
Now it is evident that so long as no water escapes 
from the vessel, we may alter the respective levels 
in each compartment without affecting the total 
volume. We might run a gallon from A into B, 
or into C, or we might bore holes in the partitions 
and reduce the water to the same level in all three 


compartments, but this will not alter the original 
quantity. If we take the quantities in each 
compartment respectively as a, b, and c, we can 
say that a plus b plus r — 6 gallons, no matter 
how a, b, and c may vary with each other. This 
principle must hold good regarding values for any 
closed and independent commodity exchange 
circle such as the combined markets of the world. 

To return to our imaginary exchange circle. 
Let us first use the commodity unit which I have 
termed Peel's pound. 

Then we have : — 

Example i. 

10,000 oranges = 400 (Peel-pounds) 

20,000 apples =^ 400 

30,000 bananas = 400 ,, ,, 

400 sovereigns = 400 

The total exchange- values of tliese goods, viz., 
oranges, apples, bananas, and sovereigns = £1,600 

i s. d. 

Hence 100 oranges =400 

100 apples =200 

100 bananas = 168 

I sovereign =100 

Now let us suppose, soon after establishing our 
market, an alteration occurs in the exchange 
relations of these commodities, so that 200 oranges 
= 100 apples = 400 bananas = £^ (Peel-pounds). 
Now it is evident that no matter how these 
exchanr^^e-values alter among themselves, the total 
value of all must be constant, unless the unit 


itself is fraudulent. Then our total wealth ex- 
pressed in Peel-pounds has varied as follows : — 

Example 2. 

10,000 oranges = 150 (Pocl-pounds) 
20,000 apples = 600 
30,000 bananas = 225 ,, 
400 sovereigns = 400 ,, ,, 

Total 1,375 

Our exchange circle has apparently lost £225 
by a mere variation in the exchange relations of 
the commodities with which we started ! Although 
we have lost not one solitary portion of our 
material wealth, not a single sovereign, not an 
apple, orange or banana, that which was originally 
represented as equivalent to £1,600 has suddenly 
fallen to £1,375 ! Surely this is a palpable absurd- 
ity ! And yet it is precisely what is happening 
daily throughout the markets of the world owing 
to the use of a fraudulent monetary standard. 
If the Government or the bankers suddenly 
withdrew from circulation a large proportion of 
bank credit or legal tender, our national wealth 
might shrink in terms of money to one-half or 
less of its present amount, whilst by suddenly 
increasing the supply of money it would be 
possible to double our wealth per saltum, i.e., 
£20,000,000,000 can be made to represent 
£10,000,000,000, or £40,000,000,000 by the mere 
manipulation of the money or credit supply which 
would affect the value of the monetary unit. 

Now let us take the ideal unit, viz., the pur- 


chasing power of the sovereign at the time 
our imaginary market commenced. We start 
with the same kind and quantities of commodities 
as before, sovereigns and all. But our unit is 
now not the golden sovereign per se, but 
merely its purchasing power at the time we 
started. We have as before a total of i,6oo units 
of wealth, and this figure must be constant so long 
as the commodities remain qualitatively and 
quantitatively the same under any and all varia- 
tions within our circle. If, then, the exchange 
relations alter as before, viz., 200 oranges = 100 
apples = 400 bananas = £3, we find our commo- 
dities represented as follows :— 

Example 3. 

£ s. d. 

10,000 oranges = 174 11 o Ideal units. 
20,000 apples = 698 36-^ 

30,000 bananas = 261 16 4I ,, 
400 sovereigns = 465 91 ,, ,, 

/i,6oo o o 

Here it will be seen how seriously the general 
purchasing power of the sovereign has changed 
during the variations in the exchange relations of 
the other commodities which the sovereign is 
supposed to measure. By taking the purchasing 
power of the sovereign at a given time, i.e., the 
time our market first opened, we are thus able to 
express the variations in the value of gold 
itself, which is quite impossible where the gold 
standard is used. In the last illustration our 400 
sovereigns, which originally represented 400 units 


of purchasing power, have grown to represent 465 
I'Vth units, that is, each sovereign is worth 
nearly i6| per cent, more than when we started, 
in relation to all these other commodities ! 

The serious difference between these two results 
may be readily seen. 

With the Peel-Pound. With the Ideal Pound. 







100 oranges = i 


100 oranges 

= I 



100 apples = 3 

TOO apples 

= 3 



100 bananas = 


100 bananas 




100 gold 

^ 100 sovereigns 




sovereigns = 100 

The illustration just given is worthy of careful 
study, for it exposes the character of the fraud 
which any commodity-money standard — and 
particularly the gold standard — perpetrates upon 
the industrial and trading classes universally. 
We started our imaginary market by assuming 
that the whole of our marketable wealth consisted 
of 1,600 divisions or groups of commodities of 
equal exchange value. The number of these 
divisions is determined by the particular unit 
adopted. In this instance we adopted the gold 
sovereign. These 1,600 groups are made up as 
follows : — 

Example 4. 

400 groups of oranges of 25 each = 10,000 

400 ,, ,, apples ,, 50 ,, = 20,000 

400 ,, ,, bananas ,, 75 ,, = 30,000 

400 sovereigns ,, i ,, = 400 

Total 1,600 groups or divisions. 

^ Hence one sovereign equals /i '^s.-^\d. ideal units under the 
altered exchange relations. 


Now let us see what happens to these groups 
after their exchange- values have altered as de- 
scribed in Example 2. Here again the grouping 
and number of divisions depend upon our stan- 
dard unit. If we keep our original golden-sove- 
reign-unit after the change in values, the following 
are the results of dividing our original wealth into 
groups of equal exchange-value corresponding to 
that of the sovereign viz. : — 

Example 5. 

150 groups of oranges of 66'6 each = 10,000 

600 ,, ,, apples ,, 33'3 ,, = 20,000 

225 ,, ,, bananas ,, I33'3 ,, = 30,000 

400 ,, ,, sovereigns i ,, = 400 

Total 1,375 groups. 

Here it will be seen that although we have not 
lost a single commodity we have somehow lost 
225 groups of commodities equal to £2'2'5. And 
this is due to our using the commodity gold unit 
and assuming that it remains unchanged, although 
the values of all the other groups have varied ! 
This assumption is equivalent to the belief that 
in a vessel containing water and fitted with com- 
partments as in Fig. i, but perforated with holes 
near the bottom so that the water has a free 
passage to each compartment, it is possible to 
force down the level of the water in one compart- 
ment without raising the level in all the others ! 

Just here it should be pointed out that when we 
speak of gold or tlie golden sovereign as a unit, 
we mean its variable purchasing power as it 
varies from time to time. As we have already 


shown, neither gold nor any other commodity 
can function as a unit of value or purchasing 
power. But the purchasing power of a 
given commodity can so function, and since 
this is continually fluctuating, it creates all 
the economic evils in trade that a variable 
standard of length would create in our manu- 
facturing industries. 

Now let us examine the case where our unit is 
equivalent to the purchasing power of the sove- 
reign at the time when our market first opened. 
The invariability of this unit is shown by our 
ability to maintain the same number of groups or 
divisions into which our wealth was originally 
divided, each of which was the equivalent of the 
sovereign, in spite of any changes in the exchange 
relations of these commodities. It maintains an 
invariable value relation to the total quantity 
of goods within the circle. 

After the alteration in the exchange relations, 
we get the following grouping by maintaining the 
same number of divisions (Example 3) : — 

Example 6. 

174 io divisions of oranges at 57'25 each = 10,000 

698 -io ,, ,, apples ,,28-64 ,, =20,000 

261],; ,, ,, bananas ,, 115 ,, =30,000 

465 i', ,, ,, sovereigns ,, -86 ,, = 400 

Total 1600 divisions. 

It will of course be understood that these 
groupings are imaginary and need not be realized 
in practice. Here we find our unit remaining 
invariable with its original value after the change 


in the values of our various groups has occurred. 
That is to say it represents precisely what it did 
at first, viz., i/i6ooth part of the total wealth of 
our exchange circle. During the change in values 
the sovereign gained about i6J per cent, in pur- 
chasing power. It will be seen that this number 
of divisions is a purely arbitrary matter, and it 
would make no difference to the results whether 
we made our unit i/i6ooth part or i/8ooth part 
or i/iooth. The main thing is to preserve 
the relation of the unit to the whole of our 
marketable wealth at the given time and 
place when and where our system started. 
Invariability is what the world has been vainly 
groping after for ages. And as already stated 
this unit or standard would agree with the tabular 
standard, provided such table included all market- 
able commodities and every market transaction — 
an almost impossible task. I take it, however, 
that the result would be the same if we adopted 
our present value denominations — pounds, shillings 
and pence — and started on a given day to issue 
credit and legal-tender notes against existing 
wealth as already suggested in this chapter. 

The economic evils of the present gold standard 
can readily be seen by the illustrations given. 
vSuppose the orange merchant borrowed £100 
when the exchange relations started. At that 
time this amount represented the equivalent of 
only 2,500 oranges. And now suppose he is 
called upon to repay the loan after the changes 
in values in Examples 2 and 3. Under the gold 
standard he must sell 6,666 oranges in order to 


secure the £100, with which to repay his loan. 
But under the invariable ideal standard he has 
only to sell 5,714 ! Of course, he has already 
lost on the loan by borrowing money when oranges 
were dear. But this is due to changes in the 
market relations of commodities and not to any 
changes in the money standard. It will be seen 
then that the gold standard has robbed him of 
952 oranges on this loan transaction, apart 
from any interest charges. 

And this is what is happening in every country 
the world over. People are robbed of their wealth 
and labour by the insidious, silent, secret opera- 
tions of this fraudulent standard ! Every pro- 
ducer, other than the gold miner, every person 
in fact, is forced by law and circumstances to buy 
money with his services or produce. He must 
have money to pay his debts and taxes. And 
the all-important question is, " How much of my 
services or produce must I give for a pound ? 
Is it to be so much this year and twice as much 
next year ? " Similarly, if one is promised pay- 
ment for goods or services rendered, one wants to 
know how much general wealth, goods that one 
requires, this payment will represent. If, for 
instance, the orange merchant (in Example i) 
offered to pay one sovereign to a creditor, it would 
make a considerable difference both to the mer- 
chant and his creditor whether the sovereign 
represented i/i6ooth part of all the goods in the 
market or i /1375th part as in Example 2. Hence 
it is essential to know that money preserves a 
hxed relation to wealth in general. 


It may be objected that such a unit is impossible 
since the volume of wealth is continually changing 
from hour to hour, and also because it is impossible 
to tell at any time exactly what proportion any 
given quantity is to the whole. We have already 
seen that wealth is necessarily some multiple of 
any unit that may be adopted. If we take the 
whole of our marketable wealth at a given instant 
of time, it can be represented as equivalent to 
X times one pound. And all additions and 
subtractions from such wealth would be additions 
or subtractions of so many pounds, i.e., so many 
fractional parts of the total wealth. It is not 
essential to transform the system into numbers. 

The preservation of the ratio of the unit to the 
wealth of the community from the time the 
system started would be entirely dependent upon 
maintaining the supply of money equal to the 
demands of trade and commerce. This condition 
means simply freedom and means for the mobiliza- 
tion of all wealth as required, allowing a proper 
margin for fluctuations in values. 

It also means permanently divorcing legal 
tender from its age-long association with both 
gold and silver ! 



Whenever a proposal is made to increase the 
supply of legal tender apart from the ordinary 
gold supplies for the purpose of meeting the 
growing demands of trade, the suggestion is 
invariably met with the cry of "inflation." 

From the moneylenders' standpoint, whilst 
the issue of Treasury notes to assist the banks in 
redeeming their obligations and regaining public 
confidence is a perfectly safe and legitimate 
measure, a similar issue for the assistance of 
commerce and industry would be nothing else but 
rank and dangerous inflation. If any Government 
had attempted in times of peace to enact such a 
currency measure on behalf of our industries as 
that with which Mr. Lloyd George rescued the 
banks in August, 1914, we should have witnessed 
one of the greatest political controversies of the 
century. The financial classes would have com- 
pelled the Press to start a political campaign 
which would have ended in the Government's 
overthrow. The cries of " Debasement of the 
currency \ " " Our honest money endangered ! " 
" Dishonest inflation ! " would have been heard, 



and the public would have been told that the 
enactment of such a measure would mean the 
downfall of the nation ! 

It is, however, a notorious fact that whenever 
the shoe pinches in the other direction, when the 
public is cheated by a contraction of the currency, 
the financial classes are discreetly silent ! A 
general fall in prices is hailed by the moneylenders 
as a special dispensation of Providence since it 
means an increase in the power of money over 
production and their enrichment at the expense 
of all other classes ! 

But such is the political power of the financial 
classes, which power, legislation has placed in their 
hands, that although they are insignificant in num- 
bers, no British statesman since the days of Pitt has 
dared to run counter to their wishes ! From such a 
source the cry of inflation is somewhat suspicious, 
and should be received with caution. Money-lend- 
ing and credit-mongering are enormously profitable 
businesses owing to the legal- tender laws which 
have made money relatively a very scarce article. 
And it is somewhat amusing to find certain people 
declaiming against the sin of usury and at the 
same time defending the very laws under which 
usury flourishes. Since our legal-tender laws have 
raised this simple instrument of exchange to the 
rank and station of a commodity, it is to the 
interest of those who deal in money and credit 
to advocate a limited supply of national currency 
in order to ensure a constant market for the sale 
of their credit. 

An insufficiency of legal tender constitutes the 


usurers' opportunity. And it is such a condition 
which the legal-tender laws of all nations have 
created and fostered, the plea being that such 
insufficiency is essential in order to preserve the 
value of the monetary standard. Now variability 
in the standard is the result of variations in the 
ratio of the supply of money to the demand. 
It is therefore self-evident that the sine qua non 
for the establishment of an invariable unit or 
standard, is an ample provision for an adequate 
supply of such units in the shape of credit and 
legal tender to meet all the public needs. Would 
such a provision be liable to end in inflation ? 
This depends on what one means by the term. 
Notwithstanding the suspicious character of many 
of these cries of inflation, it must not be supposed 
that inflation is neither a possibility nor a danger. 
On the contrary, it is both. Indeed, in one sense 
it is a constant menace. What is inflation ? As 
popularly understood it signifies an over-supply of 
general purchasing power resulting in a general 
advance in prices. It means an increase in the 
money demand for commodities generally, without 
a corresponding increase in their supply. 

To the usurers, inflation means any increase in 
currency facilities which tends to lower the rate of 
interest. Under the gold standard, inflation 
occurs whenever credit increases beyond its normal 
proportion to the gold reserves. Strictly speaking, 
inflation necessarily exists in every industrial 
nation using the gold standard, i.e., there is 
necessarily far more credit circulating than could 
})ossibly be redeemed in gold on demand and 

F.S. L 


consequently the so-called " gold price scale " is 
a composite of gold and credit. Whenever the 
circulation of general purchasing power — whether 
legal tender or bank credit^ — is appreciably in- 
creased without affecting a corresponding increase 
in wealth, there must necessarily be inflation. It 
frequently happens, however, that an increase of 
currency, by stimulating demand, also stimulates 
production, so that supply soon overtakes the 
increase in demand, and hence the price level is 
restored to what it was prior to the increase of the 

Now, in speaking of the money supply, one 
necessarily refers not merely to the quantity of 
money, but also to the speed of circulation. 

If the total amount of purchasing power (i.e., 
legal tender and credit) expended in purchasing 
goods and services within a given community 
during a given year, be divided by the average 
amount of such purchasing power circulating at 
successive instants of time, separated by equal and 
very small intervals throughout the year, the 
resultant will be the average rate of turnover, 
and is called the rate of velocity of currency 

The equation is usually expressed as follows : — 


^~ = V where E represents annual expenditure, 

C the average amount of currency and V = 
velocity of circulation. Since L2 =^ CV it follows 
that the average volume of currency multiplied 

* See Irving Fisher's Purchasing Power oj Money. 


by the velocity of circulation equals the annual 

The amount of currency necessary for effecting 
the exchange of commodities and carrying on the 
business of any community, depends upon the 
rapidity with which money passes from hand to 
hand and from one person's account to another's. 
The quicker the circulation, the less the amount 
required to effect a given turnover. The rapidity 
and ease with which our cheque-currency circu- 
lates, is the reason why the annual turnover in 
Great Britain is greater per unit of legal tender 
than that of any other country in the world. A 
community with only £50,000,000 of legal cur- 
rency, can make twice the annual turnover that 
another can with £100,000,000, provided the 
velocity of circulation of the former is four times 
that of the latter. It will be understood therefore, 
that whenever we speak of the money supply, we 
mean not merely so much legal tender but legal 
tender plus credit multiplied by their velocity of 
circulation. Although the term inflation is usually 
confined to paper money issues, a currency may 
become inflated by the presence of too much gold. 

A recent pamphlet written by Professor Irving 
Fisher, of Yale University, speaks of the present 
flood of gold in America as " Our yellow peril." 

If money w^ere reduced to its natural 
position, viz., the representative of existing 
wealth merely, and its issue confined entirely 
to such representation, general inflation would 
be impossible. 

Supposing the Bank Charter Act to be repealed 


and the banks authorized to issue as much credit 
as the public's commercial and industrial needs 
demand, not exceeding, say, 50 per cent, of the 
appraised value of such productive wealth as 
might be offered in security. Such credit being 
merely the representative of wealth, would certainly 
not be a commodity any more than a mortgage- 
deed or a pawn-ticket is, although backed by 
commodities of every description. 

Would not the use of such credit for purchasing 
goods constitute merely a form of barter ? If I 
exchange the title deed of my house for so many 
railway shares, am I not for the time being barter- 
ing my house for an interest in the railway ? And 
under a general barter system, where commodity 
money does not exist, inflation is meaningless. 

Let us take the illustration of the balance where 
wealth in process of exchange is balanced by the 
money given in purchase. If the money is made 
a legal commodity, and an increase in its volume 
alters the general level of prices, we call this 
" inflation." But where the currency consists 
merely of credit issued against wealth, purchases 
really involve an exchange of wealth for wealth. 
Hence we are mereh^ balancing goods against 
goods, and since a general rise in values is impos- 
sible, the employment of credit issued as suggested, 
could not constitute inflation. 

Supposing the public were to obtain bank credit 
against such productive wealth as railways, ships, 
farms, factories, etc., and commence buying 
commodities like clothing, furniture, motor-cars, 
etc., on a very large scale. Whilst such a demand 


might raise the values of these particular goods, 
such a rise would mean a corresponding fall in the 
values of railway and ship shares, factories, etc. 
It certainly could not raise values generally. It 
will be seen that there is a vast difference between 
employing credit as the representative of any 
and all kinds of wealth and employing it solely 
as the representative of the money metal or legal 
tender made specifically redeemable in gold. 
Credit so issued affects prices the same as legal 

Applying the illustration of our balance once 
more, the use of gold-redemption credit, means 
the balancing of all commodities so exchanged 
against gold or promises to pay gold. Hence we 
get a level of prices entirely different from the 
general level of values, as demonstrated in Chapter 
VIII. On the other hand, the employment (as 
suggested) of credit tokens against wealth in a 
certain fixed proportion redeemable in services 
and commodities generally, means balancing wealth 
with wealth, and hence prices and values become 

Although gold is a commodity, too much gold, 
as we have seen, means inflation, for the reason 
that unlike all other commodities it holds a 
supreme and unique position as the sole legal 
debt paying instrument. And this function, arti- 
ficially established by law, is its chief attraction 
to which it owes its great demand. If it were 
demonetized, its over or under-supply could not 
then affect prices or values generally to the 
slightest extent. Now credit money issued against 


all kinds of wealth, prevents inflation because it 
cannot cause a general rise in values : which 
would be like a man raising himself from the 
ground by his own bootstraps. Inflation in this 
case would mean that whilst wealth was rising 
uniformly and generally in value, the legal rights 
and titles to such wealth which this credit 
currency would really give, were falling in value, 
which is absurd. Such a phenomenon would be 
similar to gold rising in value whilst bank-notes 
issued against the same gold were falling in value ! 
One could understand bank-notes falling whilst 
gold was rising in value if such notes were incon- 
vertible, or where the existence or availability of 
the gold they represented was problematical. 

The illustration of the balance clearly shows 
the enormous influence of credit on prices where 
such credit is legally redeemable in gold or legal 

Consider what it is that really balances commo- 
dities and services under the gold standard. It 
consists of what we term currency, which consists 
of a very small fraction of gold from i per cent, to 
5 per cent., and an enormous proportion of paper 
from 95 per cent, to gg per cent. Much of this 
paper functions as gold in influencing prices 
because it constitutes effective demand for goods 
and brings no corresponding supply of goods to 
market. Such of it as does represent various 
forms of wealth which is brought into the field of 
exchange, docs not affect prices generally, since 
the demand which it creates is neutralized by the 
supply of goods it represents. 


The difference between commodity money and 
representative money is this : Whilst under the 
first all goods purchased are balanced by the 
actual commodity money paid for such goods, 
with representative money the goods purchased are 
balanced not with money but with the wealth which 
this money is issued against. In short, the crea- 
tion and circulation of commodity money like gold, 
means an increase in the demand for goods with- 
out necessarily a corresponding increased supply 
of wealth. Consequently, without the latter, prices 
must advance. Similarly, if commodity money 
be taken out of circulation, it reduces the quantity 
of money without reducing the supply of goods 
or reducing the number of exchanges to be effected. 
Hence we have a fall in the level of prices. On 
the other hand, with representative money, demand 
and supply are united, and hence any variation in 
its volume does not affect the price level. 

Let us consider this branch of our subject in 
yet another light. 

The basis of a fair exchange is reciprocal satis- 
faction. When a farmer exchanges half-a-dozen 
sheep which he doesn't need for a horse which the 
horse-breeder can easily spare, both traders get 
the satisfaction they require. But when the same 
farmer sells the same sheep for, say, ;^5o, and the 
horse-breeder sells his horse also for £50, neither 
has received economic satisfaction until they have 
exchanged the money for what they need. 

Now the theory of commodity money denies 
this. Since such money possesses what is called 
a " store of value," an exchange of goods for 


money is a legal and final settlement. But it is 
evident that this is not the " store of value " the 
trading public want. They want the particular 
" stores of value " contained in commodities such 
as food, clothing, services, etc., which the money 
buys. Economic satisfaction is expressed by some 
such equation as the following : — 

I horse = 6 sheep 

100 lb. pig-iron = 25 lb. sugar 
500 eggs = 6 gallons of wine, etc. 

But the commodity-money advocates insist 
that a similar equation exists between money 
and goods thus : — 

I horse = £50. 

But what possible economic satisfaction is there 
in fifty golden sovereigns, except perhaps to a 
miser ? 

The only utility of a golden sovereign is to 
function as currency, which a cheap valueless bank- 
note performs just as well or even better. And 
so long as it remain a sovereign, the gold it con- 
tains is as useless as if it remained in the earth, 
since it cannot be employed for commodity pur- 
poses without destroying the sovereign, as we have 
already seen. 

When we come to consider the balancing of 
goods generally with money, we are also met with 
the preposterous claim that the economic satis- 
faction of all these goods that are essential to 
nourish and support life and make it enjoyable, 
is equalled by the satisfaction we obtain from 


money per se, which, as Euclid would have said, 
is absurd ! 

Money per se cannot afford any economic 
satisfaction. It is the goods it represents and 
can purchase which afford the satisfaction. We 
must remember that money is, after all, only the 
medium between commodities, the bridge over 
which commodities are exchanged. It unites the 
supply of commodities with the demand for them. 
It cannot, therefore, function as a commodity 
itself without ceasing to be the exchange medium. 
An equation of goods with money is therefore 
meaningless unless it is understood that money 
is the representative of goods and not a commodity 
per se. 

The equation i horse = £50, does not actually 
express a fair or honest exchange. It should be 
I horse = £50 worth of commodities. 

The following illustration of the triangle (Fig. 2) 



Fig. 2 


{see page 153) shows that at present all our huge 
volumes of credit are piled upon an insignificant 
amount of gold, so that every golden sovereign 
represents from twenty to one hundred sovereigns' 
worth of credit. If, therefore, a million pounds 
of bullion are exported, the banks are compelled to 
call in all the credit resting on that sum, in order 
to maintain their so-called margin of safety. 
Hence the movement of a comparatively small 
amount of gold or legal tender means the addition 
to or cancellation of a large volume of currency. 
Some years ago the Bankers' Magazine gave a most 
startling instance of the effects of gold exports 
upon the prices of our gilt-edged securities. Dur- 
ing a period of ten weeks a certain group of 
American financiers drew from the Bank of 
England sums equal in all to eleven million pounds 
in gold and shipped it to New York. Prior to 
this operation these gamblers sold British securities 
heavily and bought United States bonds and 
shares. The transfer of this gold caused a fall 
in the prices of 325 of our representative securities 
equivalent to £115,500,000, whilst the absorption 
of this gold in New York caused a corresponding 
rise in Americans. This illustration (Fig. 2) ex- 
plains why a relatively small addition of legal tender 
can sometimes seriously affect the price level. 
It is not due so much to this increase in legal 
tender but to the disproportionate amount of 
bank credit which is based upon it. This fact 
also explains the reason why the values of commo- 
dities have become so easily the sport of specu- 
lators. The sudden creation or withdrawal of 


credit, the export of gold from one country to 
another is sufficient to ensure certain profits to the 
cosmopohtan gamblers in finance. 

As a well-known financier said when commenting 
on the above American gold transaction, " These 
speculators played upon two tables at the same 
time— one in London and the other in New York 
— and won on both ! " Having sold " short " in 
London and then created a heavy fall in prices 
by exporting our gold, they bought in New York 
for a rise which they were able also to influence 
by the mere act of putting the same gold in circula- 
tion there. They were gambling on a certainty 
on both sides of the ocean ! 

The currency question, like many others, has its 
psychological aspect. The amount of legal tender 
required by a nation varies from time to time 
and is often a question of nerves. Panics are the 
result of fear — fear lest the margin of safety is 
inadequate. When knowledge is added to fear, 
panics are likely to become chronic. The amount 
of legal tender necessary varies inversely with the 
degree of public confidence. The public to-day 
know that the gold basis provides a margin, not of 
safety, but of bankruptcy whenever a national 
crisis approaches. If provision were made for 
issuing legal tender as required and as suggested, 
we should not only abolish all danger of future 
panics, but we should reduce the amount of legal 
tender needed to a minimum. The public seldom 
call for legal tender except in comparatively 
small amounts for small purchases, unless they 
scent danger. Remove all danger of an insuffi- 


cient supply, and you get rid of what is now the 
chief necessity for legal tender. 

One of the most complicated problems in finance 
is that of the foreign exchanges, in which the 
relations of the monetary units of various coun- 
tries to each other have to be determined. These 
relations are constantly changing with the move- 
ments of gold from one country to another as well 
as with the changes in the volumes of the credit 
and legal tender supplies in each. The price 
scales of all the great industrial nations are built 
upon similarly unstable conditions and are all 
equall}^ irrational, variable and fraudulent. But 
these conditions create bountiful harvests for 
speculators and gamblers, especially those belong- 
ing to the financial classes, and constitute the very 
atmosphere in which the world's stock exchanges 
"live and move and have their being.'' 

Although gold is probably the most unsuitable 
commodity which could possibly be selected for 
the world's price scale, owing to its relative 
scarcity, necessitating a vast array of paper to 
make good the deficiency, any other commodity 
would also be subjected to great fluctuations from 
time to time. Wheat, corn, silver and other 
commodities have all been suggested as suitable 
standards. Silver is the oldest and has proved 
the steadiest over a longer period than any other, 
and is still the money of the Far East. In the 
West it was dethroned because financiers feared 
its supply would be more difficult to control than 
its scarcer, more expensive and aristocratic rival, 
gold. And the economic and political supremacy 


of this class depends upon maintaining a world- 
wide scarcity of legal tender in order that there 
shall exist a perpetual market for their credit, the 
interest upon which, amounting to an annual 
return of hundreds of millions, is the chief source 
of their income. This was the real gist of the 
great struggle against bi-metallism which was 
waged so fiercely some twenty years ago. The 
bankers and moneylenders won, and the public 
paid the price for their ignorance and folly. 

The historical examples of inflation usually cited 
by the orthodox champions of our credit monopoly 
as warnings against what they call " tampering 
with the currency " have little or nothing to do 
with the suggestions and proposals contained in 
this book. The French assignats and the Ameri- 
can greenbacks are the two favourite illustrations 
of the terrible effects of " cheap " money. Now, 
both of these currencies were created in emer- 
gencies. Both were issued for the purpose of 
carrying on destructive wars, not for the develop- 
ment of industry and the growth of wealth. They 
were to assist these nations in destroying wealth. 
It is one thing for a banker to give a client an 
overdraft to enable him to develop his business 
and build up a successful and profitable industry. 
It is quite another thing to grant him the same 
facilities in order that he may get drunk, burn 
his factory, destroy all his furniture, and indulge 
in a prolonged debauch ! And yet these currency 
writers want their readers to believe the results 
are the same in both cases ! Supposing the 
Government should find it necessary after the 


war to issue £100,000,000 in notes to enable 
numbers of returned soldiers to settle on and 
cultivate the land. Assuming that the money 
was employed wisely in procuring fertilizers, 
farm buildings and implements, cattle, horses, 
and in enabling men to live until their farms were 
self-supporting, is it not evident that the money 
so advanced would ultimately be represented by 
an addition of £100,000 000 and more to the 
real national wealth in buildings, cattle, crops, 
produce, etc ? On the other hand, the Government 
is now issuing credit at the rate of £8,000,000 per 
day for munitions of destruction, so that we have 
nothing but debt as the economic result. And 
yet whilst our statesmen and legislators have 
always shown alacrity in proposing and voting 
for millions of the national wealth to an unlimited 
extent for the work of destruction, seldom or 
never have they been willing to do so for creating 
wealth or for making the nation economically 
strong and prosperous ! The German Government 
is the only one that has shown any wisdom or 
intelligence in this respect. Whilst our legislators 
have always been willing to add to the National 
Debt and to the means for perpetuating it, few 
are they who have suggested the use of the National 
Credit for productive purposes. 

Those, however, who regard the two historical 
examples cited as an evil should offer some other 
scheme by which nations are able to finance great 
wars without inflation. 

Just now we are reading a good deal about the 
dangers of present inflation. Now a moment's 


thought should convince these writers that where 
a nation is employed in making munitions as 
Europe is now doing, inflation is unavoidable 
since the bulk of our labour products are being 
destroyed. To first create munitions and supply 
them, we must have some kind of currency. But 
although these products are soon destroyed, the 
currency employed in making them remains in 
circulation. The only way to avoid inflation 
under present conditions, is to destroy a corre- 
sponding amount of currency, which would soon 
stop further production ! 

There is this to be said for " cheap " paper 
money. It is the only currency by which great 
crises can be met and which enables nations to 
survive. No great modern wars have ever been 
fought through on the gold currency basis. Francis 
Walker, the well-known American economist, 
says :— 

" Governments have frequently issued paper money 
without adequate provision for its redemption in gold and 
silver, without such redemption, in fact, taking place, and 
sometimes without redemption being promised, and yet 
that paper money has circulated as rapidly as gold or 
silver would have done, has been taken as freely in ex- 
change for commodities and services, and even in some 
instances has maintained an actual value equal to that 
of the amount of the precious metals to which it was 
nominally equivalent. The paper money of Massachu- 
setts for the greater part of the period 1690 to 1710, the 
paper money of Russia for the twenty years following 
1768, the so-called continental currency of the American 
revolution for a year and more after the first emission, 
the paper money of Prussia for no inconsiderable period of 
time, all circulated freely, even without discount in 


And again he says : — 

" The so-called greenbacks of the American Civil War 
never, from 1862 to the close of 1878, lost their currency 
in the smallest degree. At their price they were always 
taken readily, eagerly. Men never sought to avoid their 
use by taking gold at a premium, or b}^ resorting to barter 
or credit." 

This last statement is remarkable, owing to the 
fact that the United States Government dis- 
honoured its currency by the famous — or rather 
infamous — exception clause, refusing to accept it 
in payment for duties or issue it for interest on 
bonds. The real trouble the Americans suffered 
from, was not due to the use of their cheap cur- 
rency, which pulled them safely through their 
great Civil \\'ar. The industrial evils and suffering 
which followed the Civil War were the result of 
the stupid attempt to bring all this currency to a 
gold and silver basis, i.e., by providing for redemp- 
tion or conversion in specie. This piece of idiocy 
caused years of serious business depression, the 
bankruptcy of thousands, and curtailed the 
production of wealth enormously. But the bankers 
and financiers grew rich. Every dollar they had 
invested in the American War loans, grew to be 
two, three, four, five and even six dollars eventu- 
ally ! And by destroying a vast mass of the 
national paper currency the bankers compelled 
the public to borrow their paper credit at rates 
varying from 7 per cent, to 10 per cent. ! Is it 
any wonder these men have endowed universities 
and established schools of political economy and 
hnance, and hired professors to write books 


denouncing " cheap " money and warning the 
pubHc of the dangers of national paper currencies, 
wlien they know what an inexhaustible mine of 
wealth the gold standard opens to the members 
of their profession ? 



THE people's credit 

The real currenc\' of Great Britain, the medium 
of exchange, the instrument b}^ which 99 per cent, 
of all business obligations are settled, is the bank 
cheque, one of the most beneficial inventions of 
the human mind. It constitutes the simplest, 
cheapest, most efficient currency system ever 
devised. It offers the most perfect method for 
the mobilization of wealth yet known. But it has 
been made unnecessarily expensive to the borrower, 
and dangerous or fraudulent to the communit}' 
by reason of the narrow and insecure legal-tender 
redemption basis, upon which it has been built. 
Under our legal-tender laws, bank cheques are 
payable on the demand of the payees in legal 
tender. And as we have already seen, in times of 
national crises the banks are utterly unable to 
cash the cheques drawn on them for an\' large 
amounts. They are therefore compelled to either 
close their doors or secure the Government's 
consent to use the national credit as they did in 
August, 1914. But the compulsory legal tender 
Act also limits the volume of credit which a bank 
can safely issue. The limit of credit accommodation 
which a bank can offer the public, is not the amount 
of wealth offered as security, after allowing an 



ample margin for depreciation, but only such 
classes of wealth as the bankers know will com- 
mand at all times and conditions a ready and 
immediate sale for cash. Here, then, is the brake 
which our legal restrictions place upon the pro- 
duction and exchange of wealth. Production is 
limited not by its prime factors, but by our legal- 
tender laws. And this is the reason that trade 
and industry are subjected to periodical transitions 
of prosperity to depression. If banks happen 
to be in possession of unusually large supplies of 
gold and legal tender, they are able to extend to 
the business community similarly abundant credit 
facilities. Then we may have prosperous times 
and industrial progress. 

If, on the other hand, our foreign trade rivals 
draw heavily on our free gold market, thereby 
reducing our legal- tender basis, the banks are 
forced to call in loans and reduce their credit 
issues, and with this contraction of credit, all the 
trade and production dependent upon it is sus- 
pended, and then we have industrial stagnation ! 
There is no other reason for these periodical 
industrial troubles except the natural operation 
of our own foolish money laws. Further, the 
same laws are responsible not only for the frequent 
and often violent fluctuations in the bank rate, 
but for the imposition of interest charges on 
credit which in reality belongs not to the banks 
but to the public. This subject has been most 
ably discussed by Mr. Oswald vStoll in his well- 
known book cntitk^l The People's Credit. 

Amongst the vast mass of financial literature 


that has appeared during the past thirty or forty 
years, most of which is a mere monotonous repeti- 
tion of fallacies, theories and false conclusions, 
Mr. Stoll's work is conspicuous for its honesty 
and fearless exposure of our banking methods. 
The author is evidently desirous of contributing 
to the development and industrial success of 
Great Britain and the Empire, and he correctly 
points the direction in which the development 
may best be secured. In criticizing our costly 
and inadequate financial methods, he has placed 
his finger on one of the weakest and the sorest 
spots in the whole of our economic system. His 
book should be read by every one who is interested 
in trade and commerce. To most people, Mr. 
Stoll's conclusions will be a revelation. I know 
of no better endorsement of this book than the 
fact that the majority of our orthodox and finan- 
cial writers and professors — many of whom are 
the paid hirelings of the present banking monopoly 
— either ignore the book altogether or advise their 
readers to treat it with caution. 

Mr. Stoll shows that the credit which the banks 
grant to their clients — usually under the guise of 
a favour — and for the use of which they are 
permitted to charge anywhere from 5 per cent, 
to 10 per cent., belongs to the public. That this 
must be so will become apparent if we investigate 
any of these transactions. Suppose, for example, 
the reader to be the owner of £io,oco of 5 per cent. 
War Loan bonds, and desires the use of £5,000. 
He applies to his banker, who offers him the 
accommodation at i per cent, above the bank 


rate. The reader hands the bonds to his banker, 
together with a legal transfer of the bonds to the 
bank as security. Whereupon the banker places 
to the reader's credit in the bank books, the sum 
of /5,()oo, which he is at liberty to cheque out as 
he desires. No doubt by this time the reader 
would feel the banker had done him a great 
service. At any rate, the average banker endea- 
vours to impress this fact indelibly upon the 
mind of each of his clients, viz., that the granting 
of bank loans is neither obligatory on his part nor 
in the fulfilment of the right of any client. And 
the banker is undoubtedly correct. Our laws, as 
well as the whole deferential attitude of our 
successive Governments to the banking profession, 
confirm the belief that bankers belong to a select 
and legally privileged class who are under no 
obligations to render the public any services 
whatever, and if and when they choose to do so, 
the public must regard such services as " favours " 
and act accordingly. But now let us carefully 
examine the above transaction and see w^hat the 
" favour " amounts to. 

It is evident that — 

(i) The possession or ownership of the £10,000 
War bonds is what enables the banker to give 
the reader his £5,000 of credit. 

(2) This credit is not the property of the banker 
but of the reader, and was his own property 
before he asked the banker to " favour " him. 

(3) The issue of this credit has cost the bank 
nothing, since it has not parted with a single 


halfpenny of its own assets. In fact, the bank 
has loaned nothing. 

(4) The transaction has cost the reader (a) 
the temporary loss of his bonds until the " loan " 
is repaid, (b) and also the interest charges. 

(5) The bank has increased its net assets by 
the difference between the value of the bonds less 
the amount of the credit chequed out, and is 
financially stronger than before it made the loan. 

(6) The bank has gained on all points, («) by 
obtaining the use of securities belonging to their 
client as the basis for further " loans," (6) by the 
use of any credit balance not chequed out by the 
client, (c) by the interest charged for allowing the 
reader to use his own credit. 

So much for the bank " favours." 

Reader, do you wonder that bank shares are 
always at a premium ? Do you wonder that the 
banking business, classified in economics as unpro- 
ductive, is one of the most lucrative businesses in 
the world ? 

Surely never was there a better game of " heads 
I win and tails you lose " ! 

Mr. Stoirs contention is, that since the basis of 
bank credit (wealth) belongs to the people, the 
credit issued against it also belongs to them, and 
it is the duty of Parliament to secure to the public 
the free use of such credit. The contention is 
unanswerable. Unless the Government is pre- 
pared to assert that the vested interests of bank 
shareholders are of greater importance than the 
interests of all other classes — nay, of the national 
welfare itself — the\- will be bound eventuallv to 


do away with the present monstrous monopoly 
and provide the pubhc with a national banking 
system. Where is the justification for the bank 
charges upon loans since these so-called " loans " 
consist merely of the credit possessed by the bank's 
clients ? It is certainly not an insurance charge 
against risk, because the character and amount 
of the securities pledged amply provides for all 
emergencies. Nor can it be said that the banks 
are lending cash for credit. It is true that a 
borrower might draw cash, but the banker holds 
securities belonging to the borrower sufhcient to 
procure more cash than his client is at all likely to 
draw out. The fiction with which the public 
mind is sometimes '' doped,'' that the banker is 
loaning some of his own hoards of gold which is 
his capital and has therefore a right to charge 
interest, is, of course, too absurd to require more 
than a passing mention. 

Considering that the bankers are drawing in- 
terest upon far more credit than all the gold and 
legal tender in the country, it is evident that 
Mr. Stoll's contention is correct. 

The one valid reason for the bankers' position is, 
that they have the only credit organization which 
commands the public confidence, thanks to the 
stupidity and indifference of British statesmen ! 

Our banks constitute a state-supported, private 
monopoly, which has grown up under specially 
favoured laws and customs. Parliament has 
made laws compelling the public to use certain 
legalized tokens of exchange without bothering 
itself as to the supply of such tokens. This supply 


has hitherto been allowed to fall under the control 
of privately owned companies who have the right 
to tax the community to any extent it is able and 
willing to bear. The result is that the public is 
permitted to employ its own credit only by 
consent of the bankers, and only to such limits 
as they choose to allow, on condition that it 
pays them a tax on such credit — amounting to 
millions of pounds annually, and this amazing 
monopoly exists merely because no British minister 
has yet had either the courage or the statesmanship 
to provide the nation with its own credit organiza- 
tions I But the present position of affairs cannot 
continue. The force of circumstances will compel 
Parliament to destro}' this monopoly and to 
release credit from its enslavement to gold, and 
thus enable the people to vastly increase the 
amount of their annual wealth production. Our 
monetary laws and banking methods will be seen 
to have been the chief hindrance to our industrial 
progress and trade advancement. 

As to the limitations which our legal-tender 
laws have imposed upon the bankers, in their 
endeavours to provide the public with a sufficiency 
of credit, probably the clearest illustration is 
contained in an address delivered by Sir Edward 
Holden (Managing Director of the London City 
and Midland Banking Co.) before the Liverpool 
Bankers' Institute, December i8, 1907, entitled 
The Depreciation of Securities in Relation to Gold. 
Sir Edward illustrated the condition of the banks 
by a triangle, showing that credit was restricted 
b\' gold, regardless of the enormous wealth pos- 



sessed by the nation in other forms. He first 
states — what is often forgotten — that loans 
create bank credits (thereby endorsing Mr. 
Stoirs main contention), and if we regard all the 
banks in London as one, the business of banking 
becomes little more than a matter of book-keeping 
— the transfer of credit from one person to another. 
He then proceeds as follows : — 

" The right side of the triangle (Fig. 3) represents the 
loans of the whole of the banks, and the left side repre- 
sents the credits created by these loans, and the base the 
cash balance or reserve. If, then, you draw a line from 
the left of the base, and equal to the base, you get the 
cash credits in existence. If the loans and credits as re- 
presented by the two sides of the triangle were the onl}' 
tw^o elements w^liich bankers had to take into considera- 
tion, then there would be no necessity for them to restrict 
their loans at all, and traders could increase their busi- 
nesses and obtain loans ad libitum. 

Fig. 5 

" l-)Ut tliere is another element, and a most im])(H-tant 
()n(% to ho taken into consieleration, and i1 is the fact tliat 


all the credits as represented by the left-hand side of the 
triangle and the line drawn from the base, are practically 
payable on demand and in gold, assuming, of course, that 
13ank of England notes represent gold. Every banker 
must, therefore, make up his mind by what amount his 
credits are hable to be diminished, both in ordinary and 
extraordinary times, and when he has thus made up his 
mind, he ought to keep that amount of available resources 
in gold, or in a means of obtaining gold. 

" Let us consider, then, that the base of the triangle 
consists of gold, and it is the ratio of the base of the tri- 
angle to the total credits (both created and cash credits) 
which restricts bankers from, increasing unduly their 
loans. If business increases unduly, and if bankers con- 
tinue to increase the loan side of the triangle, of course 
concurrently increasing their credits, and not being able to 
increase the gold base of the triangle, then evidently they 
are getting into danger, and the only judicious course 
which they can pursue is to curtail their loans, curtaiHng 
an undue increase of business, which curtail these credits, 
and thus re-establish the ratio. 

" You see here the direct connection between trade on 
the one hand and gold on the other, and that it is not so 
much the production of gold as the amount of gold which 
can be obtained for the purpose of increasing the bankers' 
reserves. I venture to think that the above explanation 
will enable you to come to the conclusion that, if the gold 
base of the triangle cannot be increased, then the danger 
spot is the loan. 

" I want you to remember that the banking system of 
every country has its triangle, and that the principles 
enunciated above exist in ever}^ triangle of every system 
based on gold in the world ; that being so, it is clear, 
generally speaking, that the business of the world is car- 
ried on by means of loans, that loans create credits, that 
the stand-by for the protection of credits is gold, and that 
therefore, gold controls trade. 

" It may happen that the trade of one country grows by 
leaps and bounds, the loans and credits, of course, follow- 
ing, while the trade of other countries n^mains normal. 
What, then, takes place ? The gold base of the triangle 
of the former becomes too small, and it is necessary to 


enlarge it. How is the increase effected ? It is effected 
by the representative bank of the more prosperous coun- 
try attacking the gold basis of the triangles of other 
countries, and the instrument by which the attack is 
made is the rate of discount. By this means gold will be 
attracted from the bases of the triangles of other countries, 
and unless those bases are too great for the adequate 
protection of the credits, the representative banks of those 
countries will meet the attack by also putting up their 
rates. But it may happen that the trade of every coun- 
try has increased by leaps and bounds, and that all loans 
and credits have also increased. Then the fight begins 
with each country putting up its rate, first to prevent its 
base being diminished, and secondly, to increase it if 
possible. Hence we have the English rate at 7 per cent., 
the German rate at y\ per cent., the Austrian rate at 6 
per cent., the French rate at 4 per cent., the Italian rate 
at 5| per cent., the Russian rate at 7| per cent., but as 
the United States have no Central Bank, there is no 
ofiicial rate for that country." 

Here is a frank avowal on the part of the 
world's leading banker, that trade and com- 
merce are ever at the mere}/ of the manipulators 
of gold, that long-continued industrial prosperity 
is impossible because of the restrictions imposed 
upon exchange by our legal tender system, and 
that the gold basis is a brake upon the wheels of 
industry, which is continually checking the pace 
of production ! Here also is the explanation of 
the phenomenon that periods of prosperity are 
inevitably followed by periods of depression ! 

Increased trade demands increased banking 
facilities— increased loans — but the moment credit 
is increased to meet this demand, the gold reserves 
are strained, the bank rate is raised, loans are 
(\dled in, the brake is applied to the wheels of 


industry, production is checked, employees are dis- 
charged, enterprise is discouraged, and the extra 
demand for money and credit, which prosperous 
times require, is choked off. In short, our financial 
system destro3's prosperity, and reduces trade 
to the amount of gold available. So that the 
mechanism of exchange, instead of facilitating 
trade, actually checks it ! It first stimulates 
industry and then destroys it. The gold basis 
has become both the life and death of trade ! 



In the light set forth in the preceding chapters, 
it would be difficult to conceive a more fantastic 
system than the Governmental methods of finance. 
Let us put the situation in simple language. A 
vast amount of money, credit and securities are 
found necessary to buy war material, food, cloth- 
ing, munition workers' labour, and other labour 
charges, and to meet soldiers' allowances, pensions, 
etc., etc. These necessities may be divided into 
three different classes. First, something is needed 
to pay neutral countries for war material, food, 
and other commodities. This may be {a) gold, 
(6) American and other foreign securities, bonds, 
shares, etc., (c) services, such as shipping, etc., 
{d) exports, i.e., commodities, cotton and wollen 
goods, etc. Second, material assistance is needed 
by our iVllies. This assistance is mainly in muni- 
tions, coal, metal and other goods, as well as 
maritime services. 

A certain amount of general purchasing power 
is also required, which is probably paid in gold 
or orders on the Bank of England. Third, by far 
the greatest sum is required for settling home 
accounts, paying munition workers, manufacturers, 
shippers, merchants, etc., etc. 



How is all this obtained ? There are three 
methods. First, taxation ; second, the use of the 
national credit in the form of Treasury bills 
which are discounted at the bank : these are 
exchanged for bank credit and arc chequed out as 
required ; third, loans. 

Now, what resources does the Government have 
with which to finance its obligations ? The 
Government has at its disposal the whole of the 
national credit ! In other words, the pledges it 
gives in the forms of bills, bonds, certificates, in 
return for the loans it is asking, are merely dift'erent 
forms of the national credit. And this credit is 
represented by the national wealth, which prior 
to the war was estimated at somewhere between 
/15, 000,000, 000 and ;^2'o,ooo,ooq,ooo. 

It is precisely the same credit against which 
the Bank of England has been allowed to issue 
£18,000,000 in legal-tender notes for many years 
past and which have circulated on a parity with 
gold. Would not a Government cheque drawn 
on the Government bank be as good as that of 
any of our Joint Stock banks ? But it may be 
asked, '' What is at the back of such a cheque ? " 
Precisely what is at the back of the cheque of 
any subscriber to the War Loan who borrows 
credit from his bank on Government securities. 
Government bonds. Consols, Treasury bills and 
Treasury notes are nothing more than evidences of 
the national debt and credit. If our bankers 
are willing to issue their credit on such securities, 
is there any reason why the Government should 
not use its own credit direct for carrying on the 


war and save the nation ;f3oo,ooo,ooo per annum ? 
The Government is to-day using second- 
hand credit, viz., bank credit issued against 
the national credit. 

Of course, in the settlement of foreign accounts, 
we must pay in what is acceptable abroad, viz., 
gold, goods, securities, or services. But for all 
domestic accounts, we could have employed the 
national credit, which would be redeemed gradu- 
ally by taxation, just as it must be in any event. 
But we should have saved ourselves the 
enormous burden of interest charges ! 

We have already seen that the War Loan, when 
stripped of all its disguises, is in reality a contribu- 
tion donated by the British people. Both sub- 
scribers and non-subscribers will eventually be 
compelled to pay the loan and interest charges 
in taxation, they, their children, their children's 
children to the third and fourth generation, and 
possibly much longer. And until the principal is re- 
paid or reduced considerably, the nation will pay 
the amount of the loan every twenty years in 
interest charges without reducing the original debt 
by a single penny ! This would be no particular 
hardship if every taxpayer had the same income, 
was taxed at the same rate, and had contributed 
equally to the loan, and provided also that the 
loan had been entireh^ subscribed by the British 
taxpayers. If all these conditions existed, the 
interest paid to each subscriber would constitute 
merely the repayment of his special War Loan 
taxes, and, as I have shown, it would have been 
cheaper in the long run for the people to have 


subscribed to a non-interest bearing loan. But 
none of the conditions mentioned exist. Both 
here and in the U.S.A. wealth and taxation are 
the limit of inequality. Nowhere are they 
more unequal. And the Government have ac- 
cepted millions of money from foreign subscrip- 
tions. Hence the loan will constitute a very 
heavy tax upon British trade and industry, and 
the whole burden must be shouldered directly 
and indirectly by the producing classes. Our 
great insurance and credit institutions have 
subscribed enormous sums to the present loan. 
The Prudential Assurance Company is stated to 
have subscribed £25,000,000, the interest on which 
will amount to £1,250,000 per annum — probably 
for the next century — until the principal is paid. 
Now the Government's appropriation of the 
national credit would have meant the taking of a 
proportional amount of everybody's credit, or 
rather that of the collective productive capacity 
of the whole nation. So that no one firm or 
individual could possibty have said, " I subscribed 
so much, hence I am entitled to so much interest." 

But it ma}'^ be asked what other means of 
financing the war were available ? 

The war means a vast consumption of wealth, 
goods of every description which some one must 
provide. How could the Government procure 
them except by borrowing ? Let us take a 
somewhat analogous case. 

Let the reader suppose himself a constant 
creditor or shareholder in one of tlie great depart- 
mental stores where every conceivable commodity 


which he requires for his house and his family is 
kept on sale. Let us suppose that the annual sum 
due to him by the said store is £2,000, which is 
usually paid him at the end of each year. Now 
there are two methods by which his income may 
be paid to him. First, wholly in cash, and second, 
partly in commodities and the balance in cash. 
For it is unlikely he would wish to spend all his 
income in goods. Through extravagance and 
difficulties, he finds himself in the month of 
January short of money. He consults his two 
friends, one Mr. Orthodox Finance and the other 
Mr. Common Sense. Finance offers to discount 
his friend's note for twelve months to tide him 
over. " You'll have £2,000 by the end of Decem- 
ber next and can then repay me. As you only 
need £1,000, the loan will cost you a trifle — say 
£50. Give me a bill for £1,050 and you can have 
the £1,000 at once ! " 

He then consults Common Sense, who asks him 
what he needs the money for. " To buy food 
and other things for my home," is the reply. 
" Where do you deal ? " asks his friend. " At 
my own stores, where I own many shares and am 
a constant creditor." 

" And do you mean to tell me that you think 
of borrowing money to pay for goods from your 
own stores ? Why on earth don't you have an 
account opened since you are a constant creditor, 
and give receipts for all the goods you need ? At 
the end of the year your share of the profits will 
be paid you, less the amount of goods 3'ou have 
ordered. Instead of having to borrow and pay 

F.S. N 


£^() interest, you need borrow nothing and thus 
save your income ! " 

Xow the Government stands in the position of 
a constant creditor towards the people to the 
extent of whatever expenses are needed to govern 
and safeguard the country. 

I need hardly say that because Mr. Orthodox 
Finance has been the British Government's sole 
adviser since the days of Pitt, the British taxpayer 
has been compelled to pay untold millions uselessly, 
for which the nation has received no equivalent 
in return. The Bank of England has been like 
Mr. Orthodox Finance — always ready to advise 
and discount the Government's bills — for a 
consideration ! 

My illustration is, I am well aware, crude and 
faulty in certain ways, but it may serve to give 
the reader some faint idea of the costliness of our 
tortuous financial methods. Our war expenses 
are doubtless more than could be fully paid out 
of current income, necessitating a postponement 
of the settlement of a large portion. But the 
system has always been the same in times of 
peace. If the Treasury' ran short before the end 
of the fiscal year, instead of emplo}ing national 
credit direct, the Treasury has had its bills 
discounted at the Bank of England, and the bank 
sharelujldcrs have benefited at the expense of the 

This is mainh' because the (jovernment has 
never provided itself with a proper national 
banking S3-stem, and has therefore left the nation 
a i)re}' to the financial wolves. 


Supposing at the time of the great bank crisis 
in July, 1914, the Government had taken over 
the Bank of England and converted it into a 
real National Bank. It had as much right — • 
indeed, a far better right and reason^than it had 
to take possession of the railways and munitions 
works. The nation would then have had all the 
machinery and organization necessary for utilizing 
the national credit. The bank would have 
issued all the Treasury notes required for trade 
and business generally, and could have called in 
all the gold in circulation in exchange for the 
notes. It would then have been stronger in 
every way than all the Joint Stock banks through- 
out the country. The Government could have 
gone further and absorbed ever}' bank in the 
United Kingdom, bringing the entire system 
under one central control. This would have 
minimized the necessity for legal tender and 
enabled the nation to conduct all its home trade 
by cheques. 

Now I have shown that the War Loan must 
necessarily consist of bank credit, mere book 
entries, backed of course by the wealth of all 
the subscribers. But since the Government has — 
under present emergencies at any rate- — the right 
to commandeer the whole of the nation's wealth 
for the defence of the country, all it had to do 
was to open credit accounts in the banks' books 
against the whole of our national wealth. The 
entire loan would then have been created 
without spending a penny upon advertising, 
without having to pay a penny in interest 


charges, and without shaming the British 
people by such pitiful appeals as those in 
Trafalgar Square, in which the whole world 
was informed that " Germany is watching," 

one interpretation and a most obvious one being, 
that British patriotism is at such a level that we 
need watching, above all by our enemy ! 

One wonders what kind of people the Govern- 
ment advisers must be to hold the British public 
at such a low estimate ! There are doubtless 
thousands of people in the country who would 
refuse to subscribe to a national loan, even 
during the present crisis, without the offer of 
some bribe in the shape of interest. But it is 
unthinkable that a nation whose sons, brothers, 
husbands, and fathers, have offered their lives 
and fortunes by the million, would refuse to con- 
tribute their wealth, or a substantial portion, freely 
without a cent of interest had they been asked. 
It sounds incredible that a father would give his 
sons' lives for the defence of his country and 
refuse to part with a portion of his bank account ! 
The priests in the Temple of Usury cannot imagine 
any one placing his property on the same low 
level as human life, and therefore regard the 
contribution of property without the interest- 
bearing bond as unthinkable, even where the 
contribution is wholly for self-preservation. They 
are like the lady in the farce who, when held up 
by the highwaymen, cried, " Take my life, but 
spare, oh, spare my diamonds ! 

Now, by creating the loan as I have suggested, 
the counlrv would have avoided the enormous 


annual interest charges, which will probably 
exceed ;f300, 000,000 before the war is over. 
Less than one year's savings would have sufficed 
to buy out the whole of our banks and give the 
nation supreme ownership of a system worth 
more than all the gold mines of the world ! And 
the national ownership of the banks would have 
provided the people with the most effective means 
of victory for the coming economic war, they could 
possibly possess ! It would have settled the 
question of a Trade Bank, which the bankers are 
doing their best to shelve, for ever. It would have 
been a mine of wealth for this and future genera- 
tions, enabling us to repay the war costs within 
an appreciably short time. How great a mine 
the Bank of England has been to its founders and 
shareholders may be gathered from the sums 
paid it by the nation for its services and interest 
on loans. In addition it has been granted the 
privilege of issuing notes against a certain part 
of the National Debt, and has the use of the Trea- 
sury balances. One hundred years ago Mr. 
Grenfell, a member of the House, called attention 
to the enormous profits made by the Bank in 
advances to the Government and in the manage- 
ment of the public funds. In twenty years (since 
1797) he said, their profits had been not less than 
/27, 000, 000 sterling ! 



There is yet a further indictment to draw 
against the gold standard, and that is the disad- 
vantageous position in which it places our indus- 
tries in respect of foreign competition. Prior to 
the Franco- German War, Great Britain had what 
was practically a national currency — a currency 
that offered comparati\'eh' little inducement to 
foreign traders for exporting abroad. The silver 
monetary standard at that time held the pre- 
dominant position and was universally recognized, 
whilst the gold standard was practically confined 
to our own country. The result was that during 
the first Free Trade era — from 1846 to 1873- — 
our foreign trade was literally an exchange of our 
surplus products for those of other nations. It 
consisted of barter pure and simple. Its wisdom 
was shown by the marvellous growth of our 
foreign trade, amounting to over 500 per cent, 
during those years ! But with the adoption by 
our trade rivals of the gold standard, very much 
of this mutually advantageous barter system 
was replaced by trade competition. Foreign 
trade soon degenerated into a fierce scramble for 
gold. The results were very disastrous to this 
country, as shown by our tradc^ statistics. Our 



foreign trade remained almost stationary for the 
twenty-seven years following. After 1873, our 
trade rivals were able to send over their goods 
which competed with ours, and take either goods 
or gold in exchange, whichever proved the more 
profitable. This also enabled them to affect the 
level of our prices. By exporting gold abroad, 
our rivals were able from time to time to raise 
our bank rate against us, thereby crippling our 
own manufactures, our trade and commerce, 
which were penalized by our banks to the extent 
of the increased rate of interest. This in turn 
naturally enhanced the cost of production in this 
country. At the same time, by shipping gold to 
German}^ or the United States, money and credit 
were made " easier '' for the German and American 
producers. Further, since gold prices for some 
years after 1873 were mucli lower on the Continent 
than in England, there was every inducement for 
the foreign dealers to demand gold in payment of 
imports. The adoption of our monetary standard 
by Europe and by Germany especially, exposed 
our wage-earners to the direct competition of the 
ill-paid German and other Continental labour. 
The results are ably set forth in the well- reasoned 
chapters of a little book entitled The True Cause, 
by the late Major Cecil Balfour Phipson. The 
True Cause was written fifteen years ago at the 
commencement of the great Tariff Reform con- 
troversy. The author saw what apparently very 
few had previously recognized, viz., that the 
original character of our Free Trade system as 
started under Sir Robert Peel and Richard Cobden, 


was completely altered in 1873 by the adoption 
of the British gold monetary standard, first by 
Germany and later by all other industrial nations. 

Just here it may be well to explain the vast 
difference between barter (i.e., the exchange of one 
kind of labour product for another kind) and trade 
competition. If America sends us cotton and 
accepts our woollen goods in exchange, the results 
are mutually beneficial. No competition is here 
involved. Each nation benefits by getting at a 
comparatively low cost, goods it is unable other- 
wise to procure. But if Germany sends to our 
free and open markets cotton and woollen goods 
similar to those our manufacturers are already 
supplying, competition is at once set up. Our 
producers are then brought into direct rivalry 
with German producers for British gold or for 
some other commodity which both nations require. 
Both sides are usually after the same thing, viz., 
gold — because it represents general legal pur- 
chasing power in Germany as well as in Great 
Britain. Its possession enables one to buy in all 
the markets of the world. 

Major Phipson was thus able to demonstrate 
that the age-long controversy between the advo- 
cates of Free Trade and Protection, had never 
been finally settled for the reason, that both sides 
had overlooked one of the most important factors 
affecting international trade. The remedy became 
apparent as soon as the " true cause " was 
discovered. The establishment of a national 
paper currency — a money which has no circulating 
power abroad — at once suggests itself as a simple 


means of safeguarding our home markets. This 
would tend to bring our international trade back to 
simple barter, to an exchange of our surplus pro- 
ducts for those of foreign countries. If America 
sends us cotton under such conditions, she must 
accept payment in our own labour products or 
services. Our paper money would be useless 
unless spent in our own country. If gold were 
demanded under these conditions, its exportation 
could not affect our bank rate and would then 
have no injurious effects upon our own industries. 
It will be seen that under our original national 
currency system, our producing classes were 
the chief beneficiaries. But under the 
international gold-standard system, the pro- 
fiteers are chiefly the great banking houses 
and international financiers ! From 1873 
until 1903 our foreign trade showed no substantial 
increase. Since then its development recom- 
menced : the reason of this recent development 
being that during the thirty years of our arrested 
trade development, both Germany and America 
were securing their grip upon the world's trade, 
until their financial condition approached ours. 
vSince then we have merely taken such a proportion 
of trade as our financial position permits. It is 
somewhat paradoxical that the very instrument 
set up to enable us to secure foreign trade, is the 
same that gave our trade rivals their opportunity 
of successfully competing against us ! 

A national currency is a national safeguard, 
and by extending it to our colonies — by 
making our currency valid throughout the 


Empire — we at once complete the chain which 
would form a bond of commercial union 
between every British possession. Such a 
system would do more to develop our home 
and colonial trade than all the gold mines of 
the world ! 

It should be pointed out that all currency — 
legal tender— is limited in its circulation to the 
countries issuing it and to those allied thereto. 
Even gold sovereigns do not circulate on foreign 
soil as sovereigns. They have to be remelted 
and recoined into French twenty- franc pieces or 
United States five- and ten-dollar gold pieces, to 
enable them to function in these countries as legal 
tender. Money is like a monarch^ — all powerful 
in its native land, but powerless after crossing its 
frontiers. But since the metal gold is legal 
tender everywhere, when coined under each 
country's respective laws, it will be seen that 
the results of establishing it as the world's money 
standard, are to bring the producing classes of all 
countries into direct economic conflict, so that 
the tendency is for wages to fall to the level of the 
lowest paid labour in any countr}^ instead of soaring 
to the highest level. The system of trade protection 
by tariffs, owes its political strength largely to this 
fact. Protectionists assert, that tariffs are necessary 
in order to protect labour from direct competition 
with the lowest paid labour in foreign countries. 

It is undeniable that foreign trade competition 
has never been so keen or so ruthless as since 
gold became the universal money standard. 
Moreover, we may expect that after the war, 


this competition will become more ruthless than 
ever. Certainly as far as our enemy is concerned 
— knowing how treacherous, unscrupulous and 
cunning is the foe we are fighting — we cannot 
afford to offer him any ground or advantage in 
our future trade methods which may enable him 
to regain his former superiority. 

Just now the whole of the civilized world prac- 
tically, is engaged, in a struggle to rid itself of the 
Huns, their works, their ways and their influence. 
And the reason and necessity for this is the dis- 
covery of the past three years that all the activities 
of this industrious but unscrupulous race in every 
field — industrial, educational, commercial, econo- 
mic, political, financial, literar}', religious and 
social — are focussed upon one final object, viz., the 
estciblishment of a universal political and military 
despotism under the control of Prussia. Every 
nation is now fully aware, that to grant the Ger- 
man people the same freedom and privileges they 
enjoyed prior to the war, is to expose themselves 
to the dangers of economic and political subjuga- 
tion at the hands of this criminal race. 

In dealing with one phase of the subject in the 
House of Commons recently (March 27, 1917), Lord 
Robert Cecil said : — 

" 1 agree with Mr. Hewins that the investigations that 
have been made have shown the enormous extent of the 
German trade organization, and the completely different 
theory that has prevailed in Germany than that here ; 
that trade and politics must go hand in hand ; that you 
establish your commercial house in a foreign country 
partly with a view to improving the trade of German}/, 
but partly also to extending your political power." 


Lord Robert might have added to " commercial 
house " the words, " factory, bank, school, Church, 
social and business clubs," which would much 
more faithfully describe Germany's foreign policy. 

Germany's prodigious successes in all lands and 
fields have been due first to the loyalty of her 
subjects, and second, to the efficiency of the 
instruments she employed. And among these 
instruments, none has served her more faithfully 
nor proved more useful in opening up foreign 
markets than the " gold standard. " The adoption 
of the gold standard by Germany, together with 
our policy of granting her the freedom of our 
markets and ports, were most important factors 
which enabled her to raise herself to our own 
commercial level, and exposed our people to the 
direct competition of her slavish and underpaid 
producing classes. It enabled our enem}' to 
obtain in a single generation, results which it had 
taken us more than two centuries to accomplish. 
We have seen how this apparently innocent and 
harmless measure changed the whole character 
of our foreign trade, from peaceful barter to the 
fiercest trade competition. Whilst it is true that 
foreign trade is always a sale of goods for money 
or credit in the first instance- — even where such 
trade is between nations using different monetary 
standards- the character or nature of the money 
makes all the difference whether such trade is 
mutualh' beneficial to both countries or not. 
Vox example, suppose we had a limited number 
of cotton-spinning machines which could not be 
replaced without extreme difficult}', and only after 


a delay of months or years. It would surely be 
madness to allow these to be exported under 
these conditions, even if they were demanded 
as payment for other necessaries. Since our laws 
have made gold the mechanism and tool of our 
home trade, its export has often affected our 
industries as disastrously as the export of cotton 
machinery would do, in the above illustration. 

How valuable an instrument the gold standard 
has been to Germany in her conquest of our 
markets, may be readily seen from the following 
analogy. Those who have travelled from Germany 
to Russia will have noticed a different railway 
gauge employed by the two countries, as soon as 
one reaches the Russian frontier, the Russian 
gauge being several inches wider than that in 
Germany. In consequence of this difference in 
standards, it would be impossible for German}' 
to run her railway cars into Russian territor}^ 
even if each nation agreed to allow the free use 
of its rails and roadbeds to its neighbour ; this 
difference in standards would prevent either 
nation from running through cars from its own 
industrial centres to those of its neighbour and 
so competing in passenger and freight rates. 
Under these conditions we may say that the 
difference in standard gauges, constitutes a com- 
plete system of protection against foreign competi- 
tion in transportation rates. Suppose now under 
similar treaty rights regarding the free use of 
each other's railroads, Germany decided to adopt 
the standard gauge of Russia. The result would 
be a fierce war in cutting rates similar to those 


which were formerly waged between the trans- 
Atlantic steamship companies of this country 
and Germany, to determine which nation should 
acquire complete control of the traffic of both 

The latter condition is analogous to our pre-war 
trade relations with, not only Germany, but 
every other great industrial nation. And whilst 
all nations by adopting the same monetary 
standard, weakened their positions in one respect, 
these countries with but one solitary exception, 
viz., our own, erected tariff barriers to take the 
place of the natural protection which would have 
been afforded, if each had possessed its own 
national currency standard. 

Curiously enough, gold is the one commodit}' 
which is above all tariff laws. No duties are 
imposed upon the import of this favoured metal 
b}' any countr}' on earth, owing to the universal 
superstition and belief that it is the highest and 
most desirable form of wealth. 

It does not seem to have occurred to the states- 
men of any country, that this freedom of movement, 
coupled with the unlimited free coinage of gold, 
constitutes a most fraudulent system of tampering 
with the standard, just as much as though we 
were allowed to alter the standards of weight and 
length from time to time. All nations regard the 
latter operations as crimes of the highest magnitude 
punishable by imprisonment. But our cosmopo- 
litan bullionists are permitted to change the units 
of value in every country to their hearts' content, 
whenever they find it to their advantage to do so. 


There is nothing to prevent financiers flooding 
with gold the markets first of one and then of 
another country, for the purpose of first booming 
and then depressing prices and winning on both 
operations in each country. 

As we have seen, with the adoption of the gold 
standard, Germany secured many advantages 
over us. Gold prices were higher here than in 
Germany for many years, owing to the greater 
abundance of metal here. We had an almost 
exclusive gold currency, whilst Germany's currency 
was largely paper. She had no free gold market, 
whilst we have been the only country possessing 
such a philanthropic institution ready to sacri- 
fice ourselves for the benefit of foreigners. 

But the advantages the Germans gained by 
gold were many. They were able to regulate 
their own price scale and undersell us in our own 
markets. They were also able to manipulate 
our scale by withdrawing gold or supplying it to 
our markets. Their costs of production, reckoned 
on our scale, were far less than ours. And as they 
suffered no legal trade restrictions from us, our 
markets became, for all practical purposes, merely 
an extension of Germany's markets. A \\'est- 
phalian or Saxon manufacturer could send his 
wares to England and enjoy the same privileges 
in London, Manchester, and Birmingham as he 
did in Berlin, Leipzig, or Munich. He had no 
trade or financial barriers to get over. On the 
contrary, he had advantages which the British 
manufacturer had never enjoyed. He had better 
and cheaper banking and credit accommodation. 


Loans were freely made him by his own banker 
for indefinite periods until he could repay them 
out of his profits. He had little fear that his 
banker would suddenl}^ swoop down upon him 
and demand a settlement under a threat of 
bankruptc}'. If his plant was inefficient or out- 
of-date, his banker would advise scrapping it and 
buying a new one. He had the help and assistance 
of his Government in all matters of foreign trade. 
Every German Ambassador and Consul stood 
ready to help him in getting foreign orders, in 
advising him regarding foreign requirements, 
prices, costs, etc. At home he stood entrenched 
behind tariff walls that made him secure against 
all foreign encroachments. The extraordinary 
loyalty of the German people to their Government 
is \-er\' largely due to the knowledge that their 
business interests have always been one of the 
chief considerations of the Kaiser and the various 
departments of his Government. Every German 
has been taught to believe that his welfare is the 
special wish of his rulers. Contrast all this with 
the condition of the average business man of this 
country- . His Go\'ernment has no interest in or 
knowledge of his existence except at general or 
special elections of Members of Parliament, when 
it solicits his vote, or when his taxes fall due ; 
nor does it ever display the slightest solicitation 
for his well-being. Beyond voting and paying 
taxes, the Government has no use for him, and his 
British citizenship is of little or no benefit to him. 
He has no more rights, freedom or benefit, than 
any foreigner ma\- enjoy who chooses to reside 


here. British Ambassadors and Consuls hitherto, 
would never lift a finger to help him secure trade 
or extend his business in any quarter of the globe. 
Under the regime of men like Lord Lansdowne 
and Viscount Grey, our Foreign Office apparently 
considered the interests of their countrymen just 
as safe in the hands of Germans and other aliens, 
as in those of their own people. Hence we find 
that prior to the war a large proportion of our 
Consuls were Germans. 

In the matter of credit, the British business 
man, unlike his German rival, finds no banker 
welcoming him as a friend, ready and anxious to 
help him. On the contrary, he often has difficulty 
in getting accommodation at all, and when he does 
he is given to understand that such accommodation 
is a great favour and can only be granted for a 
very limited period. He is exposed to the most 
variable bank rate in the world, and is liable to 
have the loan called in whenever a flurry or crisis 
occurs. He dare not think of scrapping his old 
machines or improving his plant, lest his banker 
should suddenly pounce on him and sell him out. 
Neither his rulers nor his bankers care a rap 
whether he sinks or swims so long as he does not 
let them suffer. Whilst his Government leaves 
him unprotected by either tariffs or a national 
currency, he finds tariff walls against him the 
world over. Foreigners come and compete freely 
with him in his own markets and those of his 
Colonies, and get better credit facilities from their 
own bankers (who have been permitted to establish 
branches in London) than he could obtain. H 

F.S. O 


he were prosecuted abroad, his own courts of 
justice w^ere wilhng to recognize and enforce the 
decisions of foreign courts. On the other hand, if 
he prosecuted and obtained judgment against a 
German temporarily resicUng in this country, the 
German courts always refused to recognize such 
decisions, and he was compelled to start his suit 
from the beginning in a German court, and deposit 
sufficient security to pay all costs in the event of 
his losing his case. And yet some of our arm-chair 
professors have had the impudence to attribute the 
loss of our trade supremacy to lack of enterprise on 
the part of our own manufacturers ! The marvel 
is, not that Germany has forged ahead so tremen- 
dously and overtaken us industrially and com- 
mercially, but that we are still in the running ! 
Our Governments have all been obsessed with the 
belief that so long as London remained the world's 
money market nothing else mattered. Hence 
every protection and privilege demanded by the 
bankers has been granted, whilst the industrial 
and producing classes have been utterly ignored. 
And as often remarked, Great Britain for the past 
iifty years has been fast drifting into the position 
that Holland occupied in the seventeenth and 
eighteenth centuries. We have been sacrificing our 
producing classes on behalf of the moneylenders. 
We have been priding ourselves upon being the 
pawnshop of the world. And to-day we are 
beginning to realize the folly of such a policy. 
For the first time in a century we are painfully 
aware of our dangerous position. The submarine 
menace is doing more to destroy our insane 


economic and financial systems than all the 
warnings ever uttered ! The gold standard has 
been the ignis-fatuus that has lured the nation on 
to the brink of destruction. The people have 
been taught from infancy that it is better 
to acquire gold and buy commodities from 
abroad, than produce them at home. Statesmen 
have told us that the export of our national credit 
to foreign lands for the purpose of developing the 
trade, productions, and industries of other countries 
was a wise thing, and economically sound. Hence 
whilst British wealth was employed in building the 
railways and developing the wheat fields and 
cattle ranches of America and Argentina, whilst 
German bankers were allowed to send British 
credit to build up German industries to compete 
with ours, to acquire German colonies as a menace 
to our own and to prepare for the great war in 
which Germany intended to ruin our Empire, 
British agriculture was allowed to starve, our 
country was becoming a vast game preserve, 
our industries were neglected, our youths 
were compelled to emigrate in thousands to find 
employment, discontent was engendered and 
encouraged among the working classes, and the 
nation was showing every sign of disintegration. 
Our Parliamentary geniuses had not the intelli- 
gence to see that the export of our capital meant 
the emigration of the most valuable part of our 
population. But our statesmen were satisfied 
because the banks prospered in spite of everything. 
It mattered little what happened to British trade 
and agriculture so long as our financiers were busy 


arranging foreign loans to support foreign indus- 
tries — which paid them far better than financing 
home industries. And our financial prosperity 
was regarded by these blind, apathetic politicians, 
whom we politely called statesmen, as the barometer 
of the national welfare and industrial safety. The 
natural result of all these foreign investments was 
that our vessels came laden with tributary goods 
in the shape of meat and wheat from South 
America, cotton and metals and machines and 
manufactured goods from America, dyes, electrical 
apparatus, chemicals and innumerable manu- 
factured articles from Germany, hops from Hun- 
gary, and so on. And with the exception of 
certain raw materials like cotton, these tributary 
goods displaced our home-made articles and 
helped to destroy our native industries ! 

Let us hope the people will have learned the 
great lessons this war is teaching, so that they 
will refuse hereafter to tolerate the rule of men 
in the offices of state whose sole qualification for 
office is either a glib tongue, the accident of birth, 
or great wealth. 

The profession of the statesman, should demand 
something more efficient than these non-essentials. 



Let us now collect the various points we have 
already discussed and see at what conclusions we 
are justified in arriving. Those who have had the 
patience to read and to consider the previous 
chapters, will realize that our present financial 
system is built chiefly upon a fallacy arising out 
of a gross misconception of the true meaning of 
exchange-values, and this misconception has been 
fostered by those who have desired to reconcile 
economic theories with private and class interests. 
And how persistent this desire has been may be 
seen in every branch of the science. Take, for 
example, the numerous theories regarding interest 
(better named usury, i.e., payment for use), upon 
which innumerable treatises have been written, 
and to which reference has already been niade in 
a former chapter. Instead of recognizing the 
simple truth that interest is the price of a legally 
created scarcity which has resulted in a world-wide 
monopoly, economists have invented all sorts of 
theories, such as the " reward of abstinence," the 
" fructification theory,'' the Austrian theory that 
" present goods are worth more than future 
goods," and numerous others equally untenable. 
Interest will cease as soon as nations abolish the 
laws whi(ii have converted tlie factors of produc- 



tion and exchange — land, money and credit — into 
private monopolies, and not before ! 

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

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

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

Orthodox economic science is founded upon 
the assumption that existing property rights — no 
matter how acquired — that class privileges and 
vested interests created by the selfishness, cor- 
ruption, the ignorance and caprice of both modern 
and ancient rulers, are permanent and essential 
to the existence of society. And the main object 
of orthodox writers has been to justify these 
interests. Were we about to found a new colony 
in a far-off land uncontaminatcd and unhampered 
with tradition, juridical rights, vested interests, 
precedents and privileges, it would not be a difficult 
task to map out an economic system which woidd 
work harmoniously in all its branches for the 
equal welfare of all classes. But our laws have 
raised so many impediments to any such svstem, 
these private interests so often clash with the 


public interests, that any attempt to establish a 
science built upon our present social and economic 
inequalities can only end in failure. The present 
system reminds one of a machine which has been 
constructed from various pieces of machinery, 
built in different ages and for different purposes, 
no two parts of which can be properly fitted or 
adjusted. The result is a horribly noisy, waste- 
ful, grinding machine which goes by fits and 
starts and is continually breaking down in spite 
of the enormous amount of lubricants emplo^'ed ! 
Exchange-value has hitherto been regarded as 
the most abstruse — although admittedly the most 
important — of all the numerous branches with 
which political economy deals. And the cause 
of this abstruseness is due to the attempt of its 
professors to reconcile theories which are either 
naturally conflicting and irreconcilable or are 
wholly unrelated. We have seen that exchange 
\'alues are merely the arithmetic of trade and are 
expressed b}/ numbers. The '' measurement of 
values," as it is called, is practical!}' a system of 
numbering or counting. It is identical with the 
" measurement " of games like billiards and cards. 
Chips and counters are the money of card games, 
i.e., they are used to indicate the number of points 
won by each party, just as sovereigns and one- 
pound notes are used to indicate in numbers of 
pounds, one's winnings or earnings in trade and 
industry. These pounds merely represent certain 
fractional proportions of the whole of our national 
wealthi. That the function of money is to enu- 
merate or count is shown by the fact that in all 


financial and trade dealings where money is 
concerned the only question tliat arises is, " How 
much money ? " One never hears such a ques- 
tion as " What degree of value is your commodity 
worth ? " or " What quality of money do you 
require for such an article ? " Even where 
different kinds of money are in circulation, if there 
exists any preference for one kind over another, 
such as gold or silver over paper, or paper over 
gold coins, such choice is due to special circum- 
stances, to convenience or the requirements of 
foreign trade where paper has no legal-tender 
powers. If a difference in value exists, it is 
indicated numerically, i.e., one kind will be 
quoted at a discount compared with another. 
There is no such thing as degree or quality in 
exchange-value. Chips and counters are no better 
indicators for being made of gold and silver than 
if made of bone or ivory. Similarly money — 
legal tender — performs the same functions whether 
made of gold, silver, paper, or tin. By confining 
legal tender to gold, all we do is to make our 
counters unnecessarily scarce and costly. And 
by so doing we burden our trade, limit our output 
of wealth, and make ourselves poorer than if we 
used something less costly and less scarce. We 
have seen that the inevitable results of establishing 
a commodity standard are: (i) Variability in the 
money unit, so that prices and debts are made to 
fluctuate with the variations in the supply of and 
demand for the money commodity. (2) The 
exchange-values of all other commodities are 
falsified from time to time by the intrusion of the 

sum:\iary 201 

standard commodity's own value, which takes 
the name of prices, and the industrial and trading 
classes are continually defrauded. 

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


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

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

A somewhat similar condition exists in this 


country to-day. The Bank of England — which, 
bear in mind, is a privately owned and controlled 
Joint Stock bank — with about twelve other Joint 
Stock banks, practically control the entire currency 
and credit of Great Britain. \\'alter Bagehot 
once wrote {Lombard Street) : — 

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

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

CurrtMicy, whether legal tender or bank cheques, 
is a social instrument. No man or group of 


men, outside the halls of legislature, can create 
a nation's currency. This requires the confidence 
and consent of the trading public. It is the public, 
and not the bankers, who give currency and 
therefore value, to paper and credit. The refusal 
on the part of the industrial and commercial 
classes to accept any particular instrument in 
exchange for their commodities, would render 
any instrument useless for currency purposes. 

We have also seen that nearly 99 per cent, of 
our trade and commerce is transacted by means of 
bank credit, and most of this bank credit is issued 
against the wealth belonging to the public. As 
Sir Edward Holden says, " Loans create bank 
credit." Hence it follows that bank credit is, 
properly speaking, the property of the public, 
although our Governments have always permitted 
the banks to charge the public for its use. On the 
other hand, it has been shown how an invariable 
unit can be established without altering our 
present monetary denominations. The one-pound 
unit can be made stable by a very simple alteration 
in our banking and legal-tender laws. All that is 
required is to repeal the Bank Charter Legal 
Tender Acts which have made gold the sole legal 
debt-paying commodit}', and establish the one- 
pound Treasury note as the unit. Simultaneously 
with this, the banks should be compelled to issue 
bank credit to all those demanding it who are 
willing to pledge productive wealth to an amount 
which will allow for all possible variations in the 
values of such wealth- — say 50 per cent, of its 
appraised value, to be repayable in definite yearly 


proportions as may be agreed. There should 
be a definite Government issue of Treasury 
notes based upon the national credit, equivalent 
at least to the annual sum required by the Govern- 
ment for its support, for pension purposes, and 
interest on the National Debt. Since the Govern- 
ment must collect taxes in the form of legal 
tender, it must necessarily first provide a sufficiency 
to enable taxpayers to meet the Government 
demands. The most convenient price-level con- 
sistent with political and industrial ante-war 
conditions would have to be pre-determined. 
This level would be obtained by the issue of 
Treasury notes sufficient to reach that level. Here 
it may be pointed out that this level will of 
necessity have to be not lower than it is at present. 
The nation cannot go through an era of industrial 
stagnation and starvation in order to reach a 
lower level of prices merely for the benefit of bond- 
holders and moneylenders ! 

Much has been said of late about high prices due 
to inflation of the currency, but, as pointed out in 
the chapter on this subject, it would be difficult 
to carry on a great war in which a nation must 
devote its whole energies to producing munitions 
of destruction without inflation. If we were to 
employ slave labour as Germany is doing, inflation 
might be avoided to a certain extent, but not 
otherwise. The Government is compelled to buy 
its munitions. It cannot very well steal them. 
It buys with its credit and the proceeds of taxation. 
To pay wholly out of taxation the Government 
would have to impose an all-round tax of twenty 


shillings in the pound. In other words, we should 
all have to work without food and other necessaries 
which, as Euclid would say, is absurd ! Hence 
the Government must pay from loans and credit. 
Having acquired the goods, our armies proceed 
promptly to destroy all this wealth, but the debt 
naturally remains in the form of promises to pay, 
which are divided into floating and funded credits 
or debts. Hence our national labour merely 
creates a void which is represented by so much 
credit (or debt). H we were all similarly engaged 
in producing wealth, if we were building up 
towns and increasing and improving our agri- 
culture instead of destroying them, all this credit 
or money now being spent would be represented by 
wealth and the inflation complained of would not 

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

In his history of Europe, Sir Archibald Alison 
tells us that the " thousand-year night," com- 
mencing with the break-up of the Roman Empire 
about the sixth century, was largely due to the 
loss of the precious metals which created a dearth 
of currency. And as no other currency was 


possible at that period of European history, trade 
and industry dwindled and decayed and mankind 
sank into universal poverty and misery. With 
the discovery of America, and especially the great 
silver mines of Potosi, trade, enterprise and 
production were quickened and the great awaken- 
ing known as the " Renaissance " began. Whether 
the "Renaissance was the cause or the result 
of these discoveries need not trouble us. What 
is indisputable is the fact that the condition of 
trade does depend very largely upon the supply 
of currency. A deficiency of money invariably 
brings industrial crises, bankruptcies and depres- 
sion, whilst an abundance tends to encourage and 
stimulate both trade and production. And this 
brings us to the crux of the whole question. The 
value of the " pound " depends far more 
upon our banking mechanism and adminis- 
tration than upon the weight of gold in a 
sovereign ! And to establish an invariable mone- 
tary unit without some arrangement or general 
control of our entire banking business, would be 
equivalent to attempting to define the standard 
capacity of a railway truck or car necessary for the 
transportation of so many thousands of tons 
monthly, without considering the number of such 
cars or their speed. It appears to me, therefore, 
that it will be difficult to satisfy the legitimate 
currency needs of this country on any just basis 
unless we nationalize the whole of our banks. 
Consideration of this subject from every 
standpoint, patriotic, scientific, commercial, 
economic, points conclusively to the necessity 


for nationalizing the banks, and as speedily 
as possible. 

Its accomplishment would be far simpler and 
cheaper than the nationalization of either our 
land or our railways. Let the Government 
purchase the shares of our banks by an ex- 
change of War Loan certificates at a just 
valuation. This would involve no injustice 
to bank shareholders, whilst it would give 
the nation a vaster mine of wealth than all 
the gold mines of Africa and America com- 
bined. By taking the banks as running con- 
cerns with their present efficient staffs, the 
transfer would occasion no difficulty or inter- 
ference with trade. On the contrary, it would 
enormously improve our industrial outlook. To- 
day, the average bank manager occupies a difficult 
and often an unpleasant position. He must 
obey the instructions of his head London officers, 
and these instructions are not alwa^^s acceptable 
to his clients. Instead of catering to the public 
welfare and interests, he has to think only of the 
wishes of his directors and shareholders. His 
promotion often depends upon his ability to 
secure deposits and transfer to London as much 
money as possible. The polic}^ of the great 
London bankers is similar to that of the bankers 
of New York and Chicago — to draw as much money 
to headquarters and leave the provinces with as 
little as is consistent with the continuance of 
trade. This enables the banks to make large loans 
to those who can pay the most. How disastrous 
this policy has been in the past may be seen from 


the financial plight in which we were placed prior 
to the war. Millions of pounds belonging to 
British depositors were loaned to German bankers, 
and the money remains in their possession at the 
present time. Many of our enemy's enterprises 
which have driven British industries out of the 
running have been financed by loans of British 
credit by London bankers ! Percentage has 
hitherto ranked in the eyes of many of our money 
merchants above patriotism. If the Germans 
wanted a railway to Bagdad or elsewhere, no 
matter what their political motives might be, they 
could always come to London and get the accommo- 
dation they needed (which was often refused to 
British merchants and engineers) so long as they 
paid the rate demanded ! As to what took place 
prior to the war we have already seen in an earlier 

How man}^ of our manufacturers, farmers, 
merchants, and traders, how man\' of our former 
industries have been sacrificed in the temple of 
usury for the maintenance of our " good, sound, 
honest " banking system, i.e., to enable our banks 
to maintain their large dividends ! I do not 
altogether blame the bankers. As a class they 
are, according to their light, probably as honour- 
able as any other class of the community. 
But they are both conservative and selfish, and it 
is perhaps only fair to add that they are often quite 
innocent of the injury their system inflicts upon 
their fellow-countrymen. The banker is what 
the system has made him. And probably no one 
would derive greater benefit from the nationaliza- 

F.S. p 


tion of the banks, so far as his own mental 
development is concerned. To realize that his 
work henceforth is to be for the exclusive benefit 
of his own country, that instead of scheming to 
make profits for a comparatively small group of 
shareholders, instead of having to take part in 
" holding up " production as he is sometimes 
forced to do, he would be working hand in hand 
with the wealth creators of the British Empire, 
building up its trade and industries, surely such a 
prospect would be worth his striving for ! To-day, 
our monetary and banking Acts block the path of 
our national progress, and must be swept away 
with many other antiquated obstructions which, 
beyond a certain archaeological interest, are of no 
national benefit whatever. 

The greatest indictment against the gold stan- 
dard is its alliance with usur\' (i.e., payment for 
use) — the most destructive principle in the economy 
of any societw It is one of the amazing paradoxes 
of economic science that the instrument established 
for facilitating commerce should prove its most 
fatal enemy. Under our legal- tender laws gold is 
said to facilitate and encourage trade and industry. 
But the interest system which it fosters tends to 
burden and destroy them. It was pointed out by 
Aristotle more than two thousand years ago that 
money was unproductive. For this reason the tak- 
ing of interest was forbidden by every religion and 
by cver\- moral teacher from Moses to John Ruskin. 
It was forbidden by the Roman Catholic Church 
down to the eighteenth century. It is still for- 
bidden b\- tlie Mohammedans. Its maintenance 


here and elsewhere is due to State-granted mono- 
pohes and privileges. And yet our entire economic 
and social systems are built upon this false prin- 
ciple. The system of interest is impossible for any 
very large amount and for any long period, for the 
reason that interest charges tend to grow faster 
than surplus wealth. From the returns of industry, 
sufficient wealth must first be given to the prime 
factors, to labour, capital and land, to repair 
wastage and maintain their productive powers so 
as to ensure future production. After allowing 
for all this and for the maintenance of the State, 
for the care, nourishment and education of each 
coming generation, it will be found that the balance 
left is not sufficient to pay interest charges even 
at the rate of 5 per cent, on more than a com- 
paratively small proportion of the national capital. 
The result is that the amount of capital that can 
be employed is necessarily limited by the rate of 
interest prevailing. Some writers, with a taste for 
sensational figures, have given us examples proving 
the impossibility of satisfying the claims of interest 
by showing the results of a five per cent, investment 
at compound interest. Proudhon showed that if 
a man in the reign of St. Louis had left 1,000 
francs on interest at the rate of 5 per cent., with 
instructions that this interest should be reinvested 
at the same rate at the end of each and every year 
and the accrued amount should be divided among 
the French people in the year 1840, the total sum 
would have far exceeded the whole wealth of 
Europe ! A recent American writer has also 
figured out that if Mr. Rockefeller wiH leave his 


wealth in trust at a similar rate of interest to 
accumulate for the benefit of American posterity 
five hundred years hence, the amount accruing 
will suffice to pension off the entire population of 
the United States, allowing for its natural growth, 
with an income for each person of one million 
dollars per annum for ever ! 

Our monetary laws have eclipsed even the laws 
of nature, for they have conferred the life principle 
upon inert matter. Na}', more, they have con- 
ferred the boon of immortality upon an unpro- 
ductive metal. A chunk of gold which an ordinary 
workman can carrv on his shoulders, which takes 
no part in production nor adds one iota to the 
general wealth, comfort, or happiness of mankind, 
and which, for all the use it is, might as well have 
remained in the bowels of the earth, will buy his 
life's labour six times over, even if he managed 
to outlive Methuselah ! It is more valuable to 
its owners (thanks to these laws) than the labour 
of six men for all time — so long as the present 
system is maintained ! The gold represents the 
equivalent of this amount of economic power 
exerted so long as these infamous laws and the 
gold superstition exist. The gold produces no- 
thing, but it gives its owners the legal right to 
purchase, to pay debts, and enables them to 
exact a tribute from wealth producers year 
after year during their lives and of their descen- 
dants for ever ! The principle of usury continues 
to operate, liowever, only because it is confined 
strict!}' within limited amounts and limited periods. 
But even with these limitations it entails wide- 


spread poverty on the masses of the world's 
producing classes. Single taxers and land refor- 
mers, who see in the"monopoly of land the cause of 
all social misery, should sit down quietly and make 
a simple comparison of the total amount of our 
annual wealth production paid in rent of land 
with that extorted in the shape of interest on loans 
and capital. For the monopoly of credit not 
only determines the rate of interest on all 
capital, but it is the chief cause of such 
interest ! And since the gold standard is at 
present the one factor limiting the issue of credit 
below the needs of all industrial communities, and 
preventing the free mobilization of wealth, it 
follows that it is also the cause of interest. 

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


money as we have never yet been accustomed to. 

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

No doubt, to the average reader, this somewhat 
tedious discussion regarding values, standards, 
ratios, etc., will appear highly technical and most 
uninteresting. A cursory glance over the preceding 
chapters may raise the question, " What does it 
all signify ? " " Who cares whether exchange 
values are merely ' extrinsic relations ' or ' in- 
trinsic qualities,' and how can it affect me? 
The intelligent business man, however, will realize 
as well as the financier, the enormous importance 
of these seemingly unimportant questions. The 
answers that the world's moneylenders have been 
able to give to the above questions in the form of 
banking and legal-tender laws, have enabled them 
to gamble with the lives and fortunes of the 
industrial classes in all countries, with the certainty 
of winning. These laws made it possible for a man 
like the late W. H. Harriman, whose original 
capital consisted merely of a seat on the New 


York Stock Exchange, to secure control of thou- 
sands of miles of railwa}- which were built and paid 
for by other people ! They also gave to the late 
Pierrepont Morgan greater economic power than 
was ever previously wielded by mortal man ! 
These same laws make it possible for a few men to 
acquire fortunes overnight, to take wealth from 
those that have created it and give nothing in 
return. It makes the producing and business 
classes the pawns and playthings and their 
possessions the prizes of those who deal in money 
and credit. Neither banking nor money-lending 
creates one solitary grain of wealth, and yet the 
men in these professions invariably grow rich, and 
often fabulously so. Where does it all come 
from ? From the labour and sweat of the 
masses ! These laws have made our economic 
system topsy-turvy. They have placed non- 
producers at the top of our social scale and the 
producers at the bottom. They have made the 
most useless and least important commodity the 
most valuable, whilst the things that are indis- 
pensable have been treated as of the least impor- 
tance. The banker who has spent his whole life 
in the sole pursuit of enriching himself at the public 
expense is ennobled by being raised to the Peerage, 
whilst the farmer, the inventor, the manufacturer, 
the distributor, whose labours have benefited and 
enriched the whole nation generally, die neglected, 
unknown or forgotten. But the war is exposing 
this system of false values in a manner hitherto 
undreamt of. It is now the worker, not the idler, 
the wealth producer, not the wealth grabber, the 


fighter, not the shirker, the patriot, not the pacifist, 
who are in demand. These are the men whom the 
nation will delight to honour. 

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


against such wealth as ma}^ be required to meet 
the demands of trade and industry. 

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

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


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



Ages ago, there existed in the Pacific Ocean, a 
certain group of small islands, inhabited by a 
highly intelligent, sober and industrious people 
who were eventually cut off from intercourse 
with the rest of the world, partly through natural 
conditions but mainly from choice. These islands 
had doubtless been thrown up by some volcanic 
disturbances, and they later disappeared from 
similar causes. Although it is evident that some 
means of communication between one or other 
of the great continents was in use at one period, 
this was afterwards stopped and all communication 
strictly forbidden by the law of the islanders. 
The reason for this, forms the subject of this narra- 
tive. At some early period of these islanders' 
history, a vessel sailing from some distant port 
became stranded on one of the dangerously hidden 
rocks near their coast, and became a total wreck. 
The vessel was carrying a valuable store of the 
precious metals belonging to its owners — some 
Oriental Jews — who were on board, and who 
managed not only to escape with their lives, but 
to save their cargo of gold and silver, which, with 
the help of the natives, they brought safely to 
shore. The natives treated them so generously 



and hospitabty, that out of gratitude, the Jews 
presented to the wives of the rulers, some pieces 
of these rare metals, which were hitherto quite 
unknown to them. These gifts gave great joy 
to the natives, who desired to obtain further 
supplies, and consequently they offered in exchange 
such products as they possessed, such as food of 
all kinds, clothing, and ornaments. But the Jews 
refused to part with any more pieces. After some 
months of exploration of the islands, the Jews, 
having observed the fertility of the land, and the 
industry and intelligence of these people, decided 
to establish themselves permanently, and become 
the supreme owners of the group and thus enslave 
their inhabitants. At this time the only method 
of trading known to these people, was simple 
barter. Goods of one kind were exchanged 
directly for those of another kind, which involved 
many difficulties and inconveniences. The Jews 
therefore conceived an idea of " killing two birds 
with one stone," as the saying is. They decided 
to persuade the natives to use their gold and silver 
as the medium of exchange. By this means they 
would be able to satisfy the desires of the people 
who wished to handle these new metals, and at the 
same time accomplish their chief purpose. Per- 
mission was readily granted the strangers by the 
governing body to establish a bank, and gold and 
silver were made the sole legal tender. The 
circulation of these metals was obtained through 
loans made to the bank's clients. Traders were 
thus compelled to borrow from the bank in order 
to obtain the means of paying their debts, as the 


Jews refused to sell either gold or silver outright. 

They took as security for the loans, mortgages on 

the lands of the natives. The loans were repayable 

at the end of twelve months, at the rate of 5 per 

cent, interest. The total amount of the loans 

during the first week, was the equivalent of £300,000 

in British currency. Now at the end of the first 

year, the islanders found themselves debited 

altogether with £315,000 for principal and interest 

payable to the bank in gold and silver. They then 

realized that as £300,000 was the total amount of 

all the precious metals the Jews possessed, having 

loaned all they had, they were indebted for a sum 

which, if the Jews insisted upon fulfilment of 

their obligations, they could not possibly pay. 

The governors therefore approached the Jew^s, and 

pointed out the impossibility of the people paying 

their debts. After some discussion, the Jews agreed 

to extend the time for repayment another year, 

on condition that the first year's interest be paid 

in gold immediatel}'^ and that additional security 

be given in the shape of a mortgage covering the 

entire islands. This was agreed to, and the trade 

of the islanders resumed. 

When the second year's interest became due, it 
was found that although the total amount owing 
by the islanders was as before, viz., £315,000, 
there was only £285,000 in the hands of the people 
to pay with, as the Jews had received already 
£i5,0( o of the metals for the first year's interest. 
It soon began to dawn on the islanders that if this 
continued long enough, at the end of twenty years 
they would have repaid the Jews in interest 


charges alone, all the gold and silver they originally 
borrowed, and would then still owe the original 
amount, viz., £300,000, without having a solitary 
piece of the precious metals left, with which to pay 
even their interest, in which case the whole islands 
would be bankrupt, and the Jews would then 
become owners of all their lands and possessions. 
The Government thereupon consulted with the 
Jews once more, and pointed out to them the peril 
in which the new money system had placed them. 
Now it appears that the Jews had been buying 
food and goods of all descriptions for themselves 
and their families, not with gold and silver, but 
with written promises to pay gold or silver, and 
they represented to the people that such promises 
were better than gold itself, because it saved them 
the trouble and care of handling and guarding it. 
They then suggested to the Government that the 
difficulty might be surmounted if the}' w^ould 
enact a law making the bankers' promises to pay 
gold and silver legal tender, as well as the metals 
themselves. They also urged the people to 
deposit all the precious metals the\- still had with 
them, and use their paper instead, as a precaution 
against losing any of the scarce and precious coins. 
The result was, that as each year passed, and interest 
charges grew with the development of trade and 
production, the ])aper issues also increased, until 
the bankers a,j<ain held all the gold and silver with 
which they first started (which had been repaid 
them as interest ,, and the\' also had /i, 000, 000 of 
their notes circulating, upon which they were 
drawing the same rate of interest. In addition 


they held mortgages covering the whole islands. 
The Government also found it necessary to borrow 
from the bankers from time to time, and as they 
were unable to pay an}/ more in gold and silver, 
they had to redeem their loans in land and produce, 
until the Jews became the absolute owners of the 
islands, whilst the inhabitants fell into a state of 
absolute slavery. This condition might have 
continued indefinitely, had not the Jews grown very 
insolent, autocratic and tyrannical, until finalty the 
people, unable to bear the tyranny longer, revolted, 
and destroyed the bank and massacred the money- 
lenders ! The gold and silver was all collected and 
wrapped round the bodies of their victims, and 
thrown into the sea. From that time on, the term 
" money " was anathematized. As it was the 
symbol of slavery, and signified everything base 
and vile, the word was regarded with loathing and 
horror ! And in order that the misery which the 
use of gold and silver money had brought to the 
islands should ne\'er be forgotten, they called the 
group " No -money Islands." The old barter 
system was then revived, but with all its crudities 
it was found infinitely preferable in its operations 
to " money," since it gave no man any undue 
advantage over his neighbour. 

In course of time, however, an ingenious native 
conceived a method of facilitating exchange 
without the dangers arising from the use of gold 
and siher. The system was as follows : He 
first arranged a table of all the exchangeable goods 
brought to the markets from time to time, in terms 
of the quantities in which they were exchange 



equivalents. Although this table is far too 
voluminous to republish here, I reproduce a few 
items which will illustrate the system. 




























' 35 




The above table simply meant that the commo- 
dities mentioned, were equal in exchange in the 
above quantities. Thus ico lb. of butter = 
6o bushels of wheat = 5 suits of clothes, etc. 
After ranging all commodities in quantities of 
equal exchange power, the inventor then pro- 
ceeded to discover a common denominator of 
the numbers. He first found their least common 
multiple and divided this by each quantity. For 
example, the least common multiple of the above 
table of numbers is 5,250. Dividing this by 
each number respectiveh' he arrived at the 
following : — 

Butter ! Wheat 


in of 

Bushels. Clothes. 









' Tin 

52-5 , 87-5 1050 525 

150 5250 105 


Now the meaning of this last table was, that 
the value of butter in pounds to wheat in bushels, 
and wheat to suits of clothes, etc., were as the 


numbers mentioned. He then invented a name 
to designate the unit which corresponded some- 
what to our penny. He thus obtained a common 
language in which to express the values of all 
commodities. Taking the word penny as denoting 
the unit of purchasing power, he then tabulated 
each commodity as follows : — 

I lb. butter = 52|d. 

I bushel wheat = 87 Jd. 

I suit of clothes = i05od. and so on. 

This unit had no definite relation to any 
fixed quantity of any commodity. It merely 
served as a counter or number, in which to express 
all the exchange-values of the goods coming to 
market. For instance, if the cattle-breeder 
brought a cow to market to buy wheat, since a 
cow = 52*50 units and i bushel of wheat = 87-5 
units, it was evident that the wheat-grower had 

to give -5—— — 60 bushels in exchansje for the 
87-5. ^ ^ ^ 

cow. Of course, with the variations in the supply 
of and demand for various goods, these relations 
varied with each other, which variations were 
easily expressed in terms of the unit. But the 
unit itself was invariable in relation to the total 
wealth of the community. Having invented 
this simple method of expressing values in terms 
of an ideal and an invariable unit, the inventor 
then induced the Government to open a commer- 
cial bank for supplying tokens to represent the 
units. These were merely convenient pieces of 
paper printed in denominations of i, 2, 5,10, 20, 

F.S. Q 


50, 100, 1,000 and 10,000 units. They were 
issued by the Government in two ways. First, in 
payment of their services to all the governing 
officials and servants, and in settlement of all 
Government debts for purchases. Secondly, in 
loans against securities and mortgages. A nominal 
charge was made for such loans, to pay the cost of 
running the bank and an insurance for bad debts. 
Loans were issued to the extent of 50 per cent, of 
the assessed value of the wealth pledged as security, 
and were repayable at the rate of at least 10 per 
cent, of the amount of each loan per annum. No 
interest was charged on loans, but a tax of 
I per cent, per annum was made for insurance 
and expenses. Taxes were payable solely in these 
notes, which sufficed to give them currency. Since 
their issue was restricted entirely to all kinds of 
wealth pledged, and to the expenses of Government, 
there was neither " inflation " nor " contraction '' 
of the currency. Usury was unknown, and the 
islanders prospered exceedingly. Such phenomena 
as a general rise and fall in prices were thus made 
impossible, because prices always coincided with 
values. The bank paid its expenses, and kept a 
reserve as an insurance fund. Beyond this there 
were neither profits nor dividends, and it is 
recorded that there were none who might be called 
ver}^ wealthy, and none who were really poor. 
But all had enough and to spare. There were no 
disputes between Capital and Labour because 
every man owned capital and contributed his 
sliare of labour to the general commonwealth. 
And uiiljl the hnal disappearance of the islands, 


one day each year was set apart to commemorate 
the final redemption of the islanders from the 
galling yoke and oppression which the use of gold 
and silver money had inflicted upon them. 



African Tribes' Unit of Value, io8 
" Agent-provocateur," Finance as, 77 
Alison, Sir Archibald, 206 
America, see United States of America 
Aristotle, 210 

Bagehot, Walter, 30, 37, 203 

Bank Charter Act, 1844, 13, 33, 52, 82, 87, 88, go, 147, 204, 

Non-suspension of, in 1914, 29 
Bank of England, 174, 179, 181, 203 
Banker's Magazine, 154 
Banks : 

Credit Limitations, 162 ct seq. 

German Banking Interests in London, 32, 39, 49 

Honesty of British Banking, 203 

Monopoly of, 167 

Nationalization of, 13, 179, 208 
Barter and Trade Competition, 84 
Biddle, Nick, 23 

" Calamity " Method of Instruction, 12 

Cecil, Lord Robert, 187, 188 

" Cheap " Money, 60, 157, 159, 213 

Cobden Club, 43 

Cobdcn, Richard, 63, 182 

Commodities, determination of Value, 74 

Contract, Freedom of, 81 

Convertibility, illustration of, 122, 123 

Copper Trust, 21 

Corn Laws, 63 

Credit : 

Bank Credit issued against National Credit, 175 

Inflation of, 62, 79, 125, 143 et scq., 205 

Monopoly of, 213 

People's credit, 162 c( scq. 

Personal v. National credit, 34 


230 INDEX 

Currency, see Gold Standard — Money 
Currency Panics, 84, 85, 90 

Debts, Registration and Legal Settlement, 119 et seq. 

Defence of the Realm Act, 1915, 81 

Deferred Payments, Standard of, 104 

Demand and Supply Values, 76 

Diagrams, 84, 85, 153, 169 

" Doubling the present Value of the Pound," 2 et seq. 

Excess Profit Tax, 214 
Exchange Value : 

Definition, 68 

Expression of, 65 ct seq., 113, 126 et seq., 199 

Socialist, meaning of, 75 

Finance as " agent-provocateur " between Supply and 

Demand, 77 
Financial Education, Lack of, 14 
Financing the War, 173 et seq. 
Fisher, Professor Irving, 85, 147 
Free Trade : 

Economic Danger of, 43 

Germany's advantages, 191 et seq. 

Gold Standard, effect on, 182 et seq. 

Ideal conditions for, 48 

Policy after the War, 48 
Freedom of Contract, 81 
F^ewen, Moreton,, 39, 41 

German Banking Interests in London, 32, 39, 49 
Germany : 

Control of Markets by, 45 

Gold Standard, Germany's advantages under, 1S9 et seq. 

Industries, organization of, 44, 46, 187 et seq. 

" Peaceful Penetration " Methods, 28, 46, 187 ct seq. 

Trade War with, 42 et seq. 

Industrial Demand for, 118 

Variations in \^alue, 83 et seq. 
Gold Coin, National character of, 186 
Gold Currency : 

Ke-estnblishment of, plea against, 218 

Standard of Value, i 
Gold-redemption of Paper Money, Fallac\' of, 95 ct seq., 149 

INDEX 231 

Gold Standard : 

Credit restriction by, 162 ei seq. 

Exports, Effect on securities, 154 

Fallacy of, 52 et seq., 67, 78, 95, 96, 109, 140, 185 

Fraudulent Nature of, 85, 86 

Free Trade, Effect on, 182 et seq. 

Germany, advantages secured by, 189 et seq. 

" Labour " Standard, 93 
Goschen, Lord, 30, 37 
Grey, Viscount, 193 

Grimshaw, H. A., Diagrams on variations in Gold Value, 
84. 85 

Harriman, W. H., 214 

Hauser, Professor, 46 

Hewins, W. S., 187 

Hobson, John A., 43 note. 

Holden, Sir Edward, 30, 37, 168, 204 

Imperial Preference, 48 

Indians, Aboriginal, Economic System of, 107 

Industrial Creation of Values, 19 

Inflation of credit, 62, 79, 125 

American Civil War, Inflations after, 8, 61, 159, 160 
Money Supply and Inflation, 143 et seq., 205 

International Finance, Powers of, i et seq., 20, 24 

Invariable Monetary Unit, 202, 217 

Jackson, President, 23 
Jevons, W. S., 68, 70, 85 

" Labour " Standard of Value, 93, 94 

Lansdowne, Lord, 193 

Law, Rt. Hon. A. Bonar, 38 

Lawson, Thomas W., 21 

Legal System of Great Britain, 42 

Legal Tender : 

Legal Tender Value, 91, 93 

Money, Functions of, 10 1 et seq. 

Treasury Notes, see that Title 
Legal Tender Acts, 52, 88, 162, 216 
Lloyd George, Rt. Hon. D., 12, 38, 143 

Open Letter to, 1911, 35 
Loans, Interest Payments sufficient compensation, 105 
London City and Midland Banking Co., 168 
London the Free Gold Market, 39, 41, 194 

232 INDEX 

McKenna, Rt. Hon, Reginald, 38 

Macleod's " Theory of Credit," 68, 70 

" Macule " Unit of Value, 108 

Marx, Karl, 198 

Measurement, Standard Units of, 65 et seq. 

Mill, John Stuart, 108 . 

Money : 

" Cheap," 60, 157, 159, 213 

Functions of, 10 1 et seq. 

Inflation and Money Supply, 143 et seq., 205 

Invariable Unit, 126 ei seq., 202, 217 

Paper Money, 29, 33, 55, 62, 96, 97, 116, 132, 218 

Pounds, see that Title 

Quantitative Theory, 114 

" Store of Value," FunctiouL- as, 106, no, 116 
Money Market, control of, 16 
Moratorium, 1914, 29, 33 
Morgan, Pierpont, 22, 215 

Napoleonic Wars, 116 

National Debt, Interest charges on, 8 
National Wealth and National Debt, 80 
Nationalization of Banks, 13, 179, 208 
No-money Islands, 219 et seq. 

Paper Money, 29, 33, 55, 96, 97, 116, 132 

Retention, Plea for, 62, 218 
Paris Economic Conference, 42 

" Peaceful Penetration," German Methods, 28, 46. 187 et seq. 
Peel, Sir Robert, 52, 63, 87, 88, 89, 94, 95, 183, 201 
Phipson, Major Cecil Balfour, 183, 184 
Pitt, William, 144, 178 
Pounds as Standard of Value, 67, 87 

" Cheap " Pounds, 60 

" Credit Pounds," 54 

Doubling the present value, 2 et seq. 

Invariable Monetary Unit, 131 

" Peel Pounds," 52, 87 et seq., 132, 134 et seq., 201 
Prices, Reduction, effect of, 6 
Proudhon, 15, 211 
Prudential Assurance Co., 176 
Purchasing Power of Money, 60 et seq. 

Railways, Russian, Standard Caugc, 189 
Rockefeller, John, 211 
Ruskin, John, 210 

INDEX 233 

Silver Coinage Laws, United States, Repeal of, 92 
Stoll, Oswald, 163, 164, 166, 167, i6g 
Supply and Demand Values, 76 

Tariffs — Conditions which warrant protection, 48 
Taxes, Excess profit, 214 
Trade : 

Barter, Early forms of, 10 1 

Competition and Barter, 184 

Free Trade, see that Title 

Germany, see that Title 

Honesty, British Standard of, 47, 203 
Trade Banks, 181 
Treasury Notes : 

Issue of, 29, 33, 55, 107, 116, 132 

Retention, plea for, 62, 218 

United States of America : 
" Black Friday " and other Currency Panics, 84, 85 
Civil War, Inflation of Credit after, 8, 61, 159, 160 
New York Bankers' unlimited powers, 202 
Silver Coinage, Repeal of, 92 

Value : 

Commodities, determination of Value, 74 ei seq. 

Exchange Value, see that Title 

Monopolies, Effect of, 80 

Standard of. Sir R. Peel's Speech, 87 

Store of Value, Money as, 106, no, it6 

Variability in Gold Value, 83 et seq. 

Walker, Francis A., 85 

Walsh, C. Moylan, 70, in, 127 

War Loan : 

Bonds, Bank Credit for. Example, 164 et seq. 

Financing, 173 et seq., 175, 179 

Pounds subscribed, value of, 51 et seq. 

Repayment of, 56 
Wealth of Great Britain, 94 
Wilson, President, 22 
Withers, Hartley, 29 note, 30, 51 note 

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A Criticism of Existing Methods and Suggestions 
for a Reform towards National Prosperity. 



Author of " The Money Problem," etc., etc. 

With a Preface by FRANCIS STOPFORD 

Editor of "Land and Water." 

Times. — " This contains a series of articles which Mr. Kit- 
son, the Managing Director of the Kitson Empire Lighting 
Company, and a man of extensive commercial and engineering 
experience on both sides of the Atlantic, has contributed 
during the past two years to ' Land and Water.' . . . He 
advocates a complete reform of our system of banking, and 
the association of the State with the industry of the nation." 

Scotsman. — " Mr. Arthur Kitson has put forward a series 
of interesting suggestions for a reform of economic practice 
and theory. With regard to finance he proposes the aljolition 
of the gold standard, the reorganization of banking on national 
lines, and the supply of cheap credit facilities to manufacturers 
and traders. In respect to the organization of industry he 
advocates State control on the analogy of the controlled 
munition establishments, and the payment of higher wages to 
labour. ... He also deals with the subject of tariffs in the 
course of an indictment of tlie laissez Jaire attitude. The 
book is brightened by many apt illustrations drawn from 
contemporary conditions and from the writer's personal 
experience, as a manufacturer, of German trading methods 
and commercial laws." 

London : P. S. KING & SON, Ltd., Orchard House, 

Demy 8vo. Cloth. 10s. 6d. net. Inland postage, 5d . 




M.A., Sc.D., 

Professor of Political Economy, University of Edinburgh. 

Contents. — Rise in Prices Before the War, etc. — Abandon- 
ment of the Gold Standard — Inflation and the Rise in Prices 
— Indian Currency and Gold Exchange Standard — Statistical 
Aspects of Inflation — John Law — Friedrich List — Naumann's 
Central Europe — After the War, What? — Napoleonic War 
and Comparison, etc., etc. 

Demy 8vo. Cloth. 7s. 6d. net. Inland Postage, 6d. 






Librarian, Co-operative Reference Library ; Assistant Secretary, 
Irish Agricultural Organization Society ; and 


Sometime Parker Travelling Fellow, Harvard University. 

This volume contains the most complete and accurate his- 
tory of a co-operative movement which has come to be of the 
highest importance to Ireland. It has in it the promise of a 
more real unity among Irish people than has before seemed 

Contents. — Economic and Social Conditions— Land Legis- 
lation in Ireland — -Early History of the Co-operative Move- 
ment — Ideals of the Co-operative Movement — The I.A.O.S. : 
its Forms and Functions — -The I.A.O.S. : its Finances — The 
Creameries— Agricultural Societies — The Credit Societies — 
Miscellaneous Societies- Home Industries — Technical Instruc- 
tion — Industrial Co-operation and its relation to the Agri- 
cultural Movement — Social and Educational Results — The 
Future Developnient of the ^lovcment — Appendices. 


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A History of the Theories of Production and Distri- 
bution in English Political Economy from 1776-1848. 



Professor of Political Economy in the University of London. 

Oxford M.\gazixe.— Mr. Cannan's work is a historical 
and critical monograpli on the fundamental questions of 
economics, and as such must be judtjed. As sucli it is wholly 
admirable. Tlie l)est corrective of unsound speculation in 
economics, as in all other sciences, is a clear view of the con- 
tents and value of the works of previous writers. To neglect 
the classics of political economy would be fatal. To read 
them witli tlie l^leared eyes of idolatry would be fatal, too. 
Tlie serious student of economics has now competent guidance 
in liis attempt to estimate the contril)ution of the classical 
scliool to the content of economic doctrine. .1 ynastcr has 
produced a masterpiece. 



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