Dhananjayarao Gadgil Library

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 ,
THE UBJUR'I' OF NEW IDEAS
NO.4

MONEY versus MAN

PRonasoa F. SODDY
MONEY versus
A STATEMENT OF THE woIU..D PROBLEM
FROM THE STANDPOINT OF
THE NEW. ECONOMICS·

by.
FREDERICK SODDY .
M.A., F.R.S.
Dr. Lee's P,of.ssor 01 CIt.mist,y, Un,ve,sity 01 Oslord
Nobel UII,tIJI, in Chemisl,y, 1921

LONDON
ELKIN MATHEWS & MARROT
54 BLOOMSBURY STREET, w.e.
MDCCCClCOU
MADB AIfI) Pann"ED UI BNOI-VCD
BY PUIUOLL AIfI) IONI
PAULTOM (1OIO!.aIBT) AND LOMDON

Xb I . \.\'J)
~ , '
GI
9 Oil ,
 v

Ie CONSUMPTION absolute is the end, crown and per-

fection of production; and wise consumption is a

far more difficult art than wise production.
Capital which produces nothing but capital is
only root producing root; bulb issuing in bulb,
never in tulip; seed issuing in seed never in bread.
The Political Economy of Europe has hitherto
devoted itself to the multiplication ••• of bulbs.
It never saw nor conceived such a thing as a tulip.
This being the nature of capital it follows that
there are two kinds of true production, always going
on in an active State; one of seed and -one of food;
or production for the Ground, and for the Mouth;
both of which are by covetous persons thought to
be production only for the granary; whereas the
function of the granary is but intermediate and
conservative, fulfilled in distribution; else it ends in
nothing but ~dew and the nourishment of rats
and worms. .
The wealth of a nation is to be estimated only
by what it consumes.
As consumption is the end and aim of production,
'- so life is the end and aim of consumption.
THERE IS NO WEALTH BUT LIFE."

Unto this Lasl. John Ruskin. 1862.

 vii

CONTENTS
CHAPTER PAGB
I. THE NEW ECONOMICS 9
II. YONEY, WEALTH AND DEBT 18
m. ~T m MODERN MONEY? 29
IV. VJJlTUAL WEALTH 44-
V. HOW A NATION CAN JIB IoIADB WEALTIIY 60
VI. OTHER PROPOSALS 71
VII. INTERNATIONAL ECONOMICS. 80
VIIl. PRACTICAL MEASURES go
IX. DEMOCRACY 10 7

NAME INDEX Jl9

SUBJECT INDEX Jl9
 :TME-N-

GOODS AR! PR.ODUC[O &Y ,,,.,,,,',..T 0' WAAfS fTc

AT A "!'tD J>IS'TR"~\lTEQ ey $PEI'CDI"Cj THE PlONEy
AT'j{ BUT TME. 'TI"'£ TAu"l MTwUl1 IAltrtl"§
AT J( ""'0 :"£"'0'"(; -''T'il I" $ ..0,,1' (O",PAAfJ)
WlT" "ftc! T.II'\E. OF PRODVC'TIO" OfGOQos. f~""
TJ4e STAR,. "T'~ "to,"!. ""'!.M "T'S
DIAGIlAK OP THE ZCONOKJO CYCU
(SuI· 64J
 MONEY versus MAN

CHAPTER I

THE NEW ECONOMICS

THE AOE in which we live is scientific. Four out

of every five of the people now alive in this country
owe their existence to science and would starve if
it were to revert to its former regime. Dangers
are crowding thick and fast upon the scientific
civilisation. Its problems call for fearless and
original scientific thought if it is to survive and
triumph. It has been left too long in peril of ship-
wreck-·at the mercy of medieval and obsolete
ideas.
The harnessing of the inanimate power of fuel
and waterfalls to do the work of the world has
abolished the iron law of scarcity of Nature. Poverty
has been for long in this country a purely artificial
condition, which it is becoming increasingly dangerous
to enforce. The engine of modern production is
so powerful that, when it gets going, those in charge
become afraid of it and of what it will do. Instead
of putting in the clutch and letting it do the world's
work, of which there is, to be sure, a plentitude
crying out to be done, they get scared and turn off
9
 10

the fuel or the ignition. Absorbed in frenzied efforts

to prevent it from ,topping and to get it to. start
up again, the world is in danger of forgetting
altogether what production is for, at any rate in
peace time.
Fear of what science is going to do to the world
is, from the standpoint of those who, hitherto, have
had the direction of it, only too amply justified.
For their sort of world and science cannot co-exist.
In the past ages of economic scarcity u the law of
life, civilisation was of necessity based upon lOme
IOrt of slavery, however ameliorated or disguiKd.
In an age of plenty, if it is ever allowed to come,
that slavery would be transferred from men to
machines. To resist it is but to make men the
slaves of machines, and the world their sport.
A moment', thought is lufficient to reveal that
any condition of universal abundance must be
something quite different from what prosperom
people to-day regard as affiuence. It requirel a
good deal more than a moment's thought to form
any picture of what it would mean. But the longer
the possibility is contemplated the clearer it must
become that tUJt/zi"1 could remaiD unchanged in
such a world. In that is the key to the riddle. It
explains at once the apparently stupid and wanton
refusal of nations to use the good gifts of science
in peaceful construction and the whole-hearted and
single-minded purpose with which the clutch is let
in and the throttle opened all out fOr destruction.
In the alarming and novel sort of world we live
in now it is clearly little use trying to take it at its
 II

old valuation. One is more and more forced to

regard it as a new phenomenon. No doubt poets
and visionaries have always recognised, in a mystical
and allegorical sense, the essential unity of the life
of man and of the animal and vegetable kingdom
with that of inanimate nature,-sunshine and water-
fall, fire, tempest and the round of ceaseless change.
The fancy has come true. Life is increasingly being
bye-passed as a means of life. More and more men
reach out and consciously draw upon the abundance
of inanimate energy in Nature for the maintenance
of their lives, and are so empowered to perform
tasks formerly beyond the capacity of life in any
form.
By solving thus the problem of the satisfaction of
his needs, men are for the first time realising what
these are,-what, in fact, wealth is. How different
is the reality from the sweepings of the mouldy
ages, the pawky observations upon the interplay of
human necessity and greed, which, in these days
of artificial poverty and actual glut. still passes
as the science of wealth! This I I New Economics ..
is the science of wealth. The old is. rather. the
science of want.
Men's needs are as varied and intricate as the
network of pipes and cables, and aU the appliances
connected with them, which constitute the gas.
water and electricity systems of the modem world.
But. like them, they have a common interpretation.
Their purpose is to direct energy and materials
from where they can be obtained to where they are
required. and to transform them into the qualities
 12
and kinds capable or doing the work, performing
the services, and making the things required by the
life or the community. All the necessities or men
are, in the ultimate analysis, satisfied by the expendi-
ture or consumption or available energy. Science,
by enslaving the rorces or Nature, offers freedom
to men. The gift is being vehemently and fanatically
rerused, but the alternative is chaos.
This book is written in the belieC that economic
sufiiciency is the essential roundation or all national
greatness and progress. It is held increasingly by
those with actual experience or the effects of want.
The eugeniat, in so far as he ignore. this, neglects
one of the rundamental factors in his subject. Fre-
quently he appears to ally himselC with .uperficial
people, who. being well provided for themselves,
affect to despise wealth and fear its effect on others.
The crime being perpetrated to-day is not the mere
waste, or worse than waste, or wealth, but or the
opportunity it affords to build up a type of civili-
sation nobler and more humane than was possible
in a world held in the grip of, and limited by,
want.
No discovery in history has been fraught with
such swift fundamental alteration to the fabric or
human society and the nature of.ocial interrelation-
ships as the substitution of inanimate energy for
animal labour in production. At first light it 'Yould
seem that nothing but good could possibly result
from so great a boon. The very goal towards which.
from the earliest dawn or· civilisation men have
persistently Itriven. the lightening or the labour
 13
involved in living, was thus attained almost miracu-
lously at one bound.
Whereas the actual results so far have been in
many vital respects nothing but disastrous. A large
and increasing proportion of the workers in all
industrialised communities are being deprived of
their livelihood and with it of their right to consume
by the growth of the new scientific methods.
Avowedly and intentionally these are adopted for
the purpose of saving labour, and they save·~it.
Could any result be more natural or expected?
Yet the problem of unemployment is not usually
so directly and bluntly accounted forI In seeking
the cause the world resembles nothing so much as
an ants' nest that has been sat upon.
It used to be argued that this cause could be
but temporary, as those displaced by labour-saving
machinery quickly find employment in developing
the capital required by further new· inventions and
labour-saving processes. But as Ruskin pointed out,
the best part of a century ago, this is exactly like
re-sowing a harvest over and over again-' seed
issuing in seed never in bread,'-producing harvests
increasing at compound interest, and completely
forgetting the only purpose and object for which
the harvest is grown. Labour-saving methods create
leisure. For an initial period only can the displaced
labour find occupation in creating the capital required
to develop new enterprises, because in turn as
these come into operation they displace yet more
labour, and the effect is cumulative as events
show.
 14
It should be obvious, but baa indeed only been':
latterly appreciated, that 81 men lose their emplor-:
ment and can no longer buy the gooda which they~
arc no longer required to make. the home-marketl
must continuously Ihrink from this awc. &'
capacity to produce increasca demand ,hriob. It
is not enough that people urgently need the veryJ
things that cannot be lold. There must be what;
is conveniently termed .. effective demand ", wruch:.
means demand backed by the ability to pay. and:
those whose incoma dry up by lou of employment I
cannot pay.
In the era now closing. the titles to CODlume the,
product more and more found their way into the,
hands of those who owned the new capital organs'
of wealth-production, whose actual consumption
needs were fully supplied, who daired to defer
their titles to consume to the future.-to lend
their surplus and create debts against the com-
munity. In this way they lOught to lCCure a
permanent lien upon the future revenue or the
community without any further contribution to its
production.
For many years,. now. the problem of producing
wealth baa been essentially solved. There is no
difficulty whatever in producing wealth in accordance
with national requirements and demands, or in
exchanging it by way or barter with that more
favourably produced abroad. Everywhere there is
a glut of wealth, intense competition for markets,
and the conditions which, in times of peace, produce
congestion of the economic system and ever-growing
 15
unemployment among the workers, lead also and
will continue to lead to periodic world wars. These
wan in their origin and consequences are the exact
opposite of those waged in earlier history. Never-
theless, as science ever increases the destructive
power of men, they will, if not prevented, end in
destroying the scientific civilisation altogether.
The problem that is not solved and which must
be solved quickly, if civilisation is to be saved, is
the problem of distributing the wealth that now
by scientific knowledge can be so plentifully produced,
not for the yet further increase of productive capacity
in the future, but for consumption and the satis-
faction of the econo~c needs of the individuals
that make the community. The industrialised and
the agricultural workers in this country, as the
statistics collected by health and poor-law officials
during last century showed, have been physically
demoralised by their economic conditions. The
military statistics collected during the War but
reiterated this conclusion, and the War itself showed,
by contrast with the superior stamina and physique
of the overseas contingents, that our people suffer
to a dangerouslt prevalent degree from actual malnu-
trition and economic insufficiency!
The unemployed, but for the expropriatory taxation
levied on the well-to-do, would starve. As it is
they only half live. They consume less and less
as a right and more and more as a charity, and
insecurity of livelihood saps their independence and
morale as poverty undermines their health and that
of their children. The submerged tenth of the
 16
nineteenth century ever grOWl. Though ameliorative'
legislation may have reduced the actual intensit}
of their individual lufferings, the proportion afTectec:;
increases. This iI occurring in an age in whid.,
science has already abolished the physical necessi~r
for poverty. The penury of the masses accompanies,
as ever, and enhances the relative wealth of thil
few. Thia is not national wealth, but the revene~
It is only too clearly indicative of national decllnrl
and decay. I
It is always instructive fint to eliminate mont
altogether from an economic question as a merel'
intermediate factor, and to reconsider the problen
simply in its ultimate aspects. If we do thia to-day
we shall be forced to the conclusion that unde
idemocracy there is no effective government what
~ever. For we have on the one hand invention an.
technical skill at a high water mark, never even dream
of in any former age, an accumulation of industriz
plant and machinery equipped with the most powell
fuI and time-saving methoda of production and :
highly skilled army of worken of all t,rades, togethc
with more abundant natural resources, more efficier.'
means of transport and communication than evCi
before in the history of the world. All ii, to ~
large extent, idle and in decay, both men. anj
machinery, because of the failure of the distributor)
mechanism. Ii
To anyone who has ever penetrated even a littl.;
below appearances and can undentand the elemen-;
of the principles which underly the provision c l
economic needs, a people in which involuntar:
I
 17
unemployment, both of men and machines, co-exists
along with acute and chronic poverty and destitution
i. in no sense a nation or a community but an anarchy.
Its ostensible government is not its real government.
In the most vital affairs of its econoInic life it is leader-
11:3" impotent and doomed.

•
 18

MONEY, WEALTII AND DEBT

Wmu recognising to the full the social changes

that were bound in time to follow the mechanisation
of production, the immediate efi'ecu upon the great
mass of the workers could not have been 10 damaging
and disastrous as they have proved, but for the
complete failure of the monetary .ystem, which till
then had sufficed to deal with the old scale of
production.
The distributory mechanism of an individualistic
community is its. JIloney system. Money distributes
among individuals the revenue of wealth of the
community. No individual tc>day is capable of
producing by himself all that he consumes or wea
either in his private life or in the conduct of his
avocation. It is only in the rudest and most primitive
stage that such a condition is even conceivable.
Hence lome form of monetary system, or equivalent
distributive mechanism, is the first .tage in the
evolution of aociety from the primitive atate. The
production of wealth becomes increasingly communal,
but the consumption and use of it remain individual.
There is no other ultimate purpose but individual
consumption and use in production, and the returning
of wealth to the economic system to increase the
 19
production is only useful as an intennediate step
towards increasing still further the consumption.
The moat profound students of the subject have
been the moat acutely aware, that, indispensable. ~s
money is, it brings with it insidious dangers to the
very life of societies which may, as now, end in
defeating the object of its existence. I t is still, as
it has always been, the Achilles heel of civilisation,
ancient and modern alike. The century that has
come and gone has witnesaed a practically complete
reversal in the nature of the monetary system in
this country, from a public system with money
isaued by the supreme authority of the realm to
make possible the distribution and exchange of
wealth, to a· private system with money, or its
complete equivalent, isaued by private people and
created by them to lend at interest.
These innovations grew up sub rOS4 and without
any definite national sanction, and it is only since
the War that it has been impossible any longer to
disguise their real character or to be blind to the
open menace they throw down to all duly constituted
law and authority. The principles that govern the
present monetary system of this country are diametri-
cally opposed to the ordinary principle of justice
and equity to which every public monetary system
has conformed. They are different from the principles
of bad or counterfeit money, as commonly under-
stood, only in the enormous extent and capricious-
ness of the money privately uttered.
To-day over 97 % of the total money owned by
the individuala of the nation is privately iaaued,
 20

and by far the larger part of it has no tangible ex.iJ.

tence whatever. It represenll a debt of goodJ owed
to the individuals who own it, by the nation,
enforceable by the law, which has, without the lane·
tion of any national authority, been quietly added
to the burdens of the nation by methods that resemble
the tricb of the conjuror. During inflation, &I
occurred at the end of the War, hundred. of millions
of pound. are, by these methods, uttered at the direct
expense of the other ownen of money, to anybody
giving evidence of an ability to repay, and willing
to pay interest on the pretended loan. During
deflation, as DOW, the arteries of the nation are
sucked of their life·blood by the deliberate attempt
to destroy equally large aggregatea of money. In
light of present knowledge and experience the
system appean as high treason against the nation,
a monstrous cancer invading ill heart and turning
•to evil the good that might reasonably have been
expected to follow the IOlution of the problem of
wealth production.
This, in the author's analysis, is the immediate
cause of the economic deadlock, but, as it is artificial,
unnecessary and anti.aacial, an imposition on the
credulity of the community, it is remediable. There
are more permanent and deep-seated factors than
the monetary system. The error which interprets
the whole age is the ignorance of the real nat1;D'C of
wealth and the ruling passion to treat it as lOme-
thing to lend at interest rather than to use and
consume. This is the real antagonism between the
conception of universal wealth and relative wealth,
 21

between the wealth of nations and of individu~ls,

which opposes and may prevent the peaceful triumph
of the scientific civilisation. We are here up~against
the oldest unsolved problem in history, the cune
of riches, and the new economics make it trans-
parently clear. But human nature being what it
is, it is doubtful if it can be solved before the next
and Greater War ends the scientific civilisation.
I t is not merely the paradox of to-day that poverty
accompanies wealth, as Ruskin puts it, as the north
pole of a magnet accompanies the south. Marx
has collected a number of striking quotations from
writers of the eighteenth and early nineteenth
century, well worth study.· Ortes, the Venetian monk
of the eighteenth century, who II found in the fatal
destiny which makes misery eternal the raison d'itre
of Christian charity, celibacy, monasteries and holy
houses," said, II The great riches of a small number
are always accompanied by the absolute privation
of the necessaries of life for many others. The
wealth of a nation corresponds with its population
and its misery with its wealth. Diligence in some
compels .idleness in others. The poor and the idle
are a necessary consequence of the rich and active."
Destutt de Tracy said the same in fewer words .. In
poor nations the people are comfortable, in rich
nations they are generally poor." Others who are
quoted, considered poverty as necessary to ensure
the doing of the hardest and most brutalising tasks
so as to free others from drudgery, and, conversely,
• Capital, Karl Marx, Vol. I, p. 662-664, Wm. Glaisher Ltd ••
19 20 •
 22
that wealth unfits men Cor labour. Sismondi poig-
nantly ltated this aspect-" Thanb to the advance
of industry and .clence every labourer can produce
every day much more than biB cODIumption requirea.
But at the lame time, whilst hia labour produCei
wealth, that wealth would, were he called upon
to oomume it himself, make him lea fit for labour.
Exertion to-day u aeparated from its recompense;
it is not the lame man that fint worb and then
l'eptKIj but it u because the one woru that the
othel' rests.I f
Grant, for the lake of argument, the problem of
the distribution of wealth to be IOlved .. completely,
by a scientific money lyatem, 81 the problem of
production, 10 that there u no want of a lufficient
abunda.oce of the phyaical neceHitiei and amenitiel
of existence. Such a community would be wealthy
in the true tenSe of the word. But none would be rich
in the relative sense, which is the only one in which
people use the term to-day. The work of the world
must be done as a public and professional aervice.
For no one would be able to take advantage of the
misery of the poor to command their labour and
service, in their own aggrandisement. This, ..
Ruskin pointed out, u a consequence 81 much of
the poverty of the many .. of the ricbel of the
few. To him, as to the rest, it was wealth, but, to the
new economics, it is not wealth but debt.
Between the wealth of nationl and that of' indi-
viduals there is the clearest of antagonism. An
age of univenal plenty, therefore, foreshadows an
entirely new type of civilisation, which cannot
 13
co-ex.ist with the old. Instead of civilisation being
oompellcd to maintain itself and progress in the
teeth of the law of scarcity, poverty and scarcity
are now being prolonged to bolster up the original
type of civilisation. The whip and spur, the bit
and reins are being used to drive what, &om being
a stage coach has evolved into a motor car. If
it is to Clcapc disaster, the driving controls as well
as the motive power will have to be completely
changed.
Now it is one thing for science to make some
relatively much richer than others, and quite another,
without even a by-your-Ieave, for science 10 insid-
iously to undermine the established order of human
society as to put all beyond the persuasive influence
of want. There arc many neither unimportant nor
over-scrupulous people, if not the majority of the
most forceful and successful people in the community;
who w~uld probably quite openly side with no
civilisation at all rather than a, to them, 110 thoroughly
uninteresting and objectionable one. Some have
in fact already scented the danger. It used to be
only the genuine artists and aesthetes who railed,
quite ineffectively, at the growing mechanisation of
the age. But when the tide turns, and science
by making the poor richer makes the rich rdativdy
poorer, the movement to break up the machines
and revert to hand and serflabour is likely to receive
some very uneXpected and effective recruits.
But there is no turning back. Unless the majority
are to starve, the world haa to make a success of the
civilisation to which it is committed. Distance lends
 24-
enchantment to the put. The preaent it ugly enough,
but possibly not quite so ugly as the real put which
it tries to imitate. The future holds out hOpei, of
which, till now, only visionaries and poets have
been permitted to dream. it it can caeape from the
pattern of the put and begin to build anew. The
first step to that end it a scientific monetary system.
But there remains to be developed a true science of
natiOnal and international economy on which to
educate the world for wealth.
Less and leu does actual owncnhip of possessions
constitute riches. More and more it individual
wealth derived not from owning but from lending
or having lent. The wealthy of ~y are not
wealthy in the fashion of the ancient pastoral
patriarchs, the medieval feudal barons, or even the
old landed aristocracy. in that they do not own
wealth but debts. There it a real conflict here
between the laws of Nature and the physical
necessities, apart from the avarice and ambitions of
men. better perhaps recognised by the Hebrew
prophets than by the modern economist.
Wealth perishes, but debts, being legal claims to
future wealth. appear to afford a means of dodging
Nature. An individual could not even amaas or
accumulate the wealth required for the maintenance
of his old age, or to start his family in liCe. For it
would rot. He it practically forced to find a means
of getting repayment at a later date. He has to
let others spend his savings, in the hope that he
may later share in the harvest of what they have
sown. But there it, as people are beginning to find
 25
out, a very definite limit to the possible extent to
which this can be done.
It may comfort him to try and think that his wealth
still exists somewhere, in some form, as "capital",
but as a matter of fact it was consumed by those
to whom it was lent and who produced the capital,
and wealth, no more than food or fuel, can really
be consumed twice.
The capital exists and may continue to exist a
long time, according to the rate at which it depre-
ciates or becomes obsolete, but rarely only would
the creditor take it back in settlement of his debt,
for the sufficient reason that it would' in general
be quite useless to him. He must have fresh wealth,
not the product of consumed wealth, in order to
live, and however hungry, no man can eat a
plough.
Actual ownership and possession of wealth to
private people, beyond a certain maximum limit,
is an encumbrance and source of expense and
anxiety, and is only rarely a means of livelihood.
What they desire is not wealth, but debts that do
not rot, that are not expensive to keep up and which
bring in perennial interest. Individual wealth more
and more tends to take the character of legal instru-
ments and agreements-5uch as money, national
debt, loans to and investments in industry,-which
determine· the distribution of the national revenue
as among individuals. In studying the wealth of
nations as distinct from that of individuals, it is
necessary to start at the beginning and not at the
end.
 26
The original wealth it represented may have been
totally destroyed at the time the debt wu contracted,
as is the cue with the national debt; it may ncvel'
have existed at all, as is the cue with paper and
non-cxistent money. or. aJ is the case with industrial
capital. ic. consumption may have left behind 1ODl00
thing of purdy intermediary we in the aeatioa
of new wealth, but almost or quite \lied if the
creation it renders poesible ahould cease. either by
its wearing out, becoming obIolete, or by reason
of people not wantin~ or being able to buy the
producL
The older forms of property. such as land and
buildings, the ownenhip of which constitutes the
chief form of individual wealth in an agricultural as
distinct from an industrialised community, are by
comparison, more generally and permanently useful
products of the wealth expended in their reclamation
and construction. But even these are now lea and
less farmed by their ownen and are more and more
let or lent to tenants for reaL T'bey furnish curious
instanc:es of the confusions of this age of transition.
People who own the houses they occupy. Cor
example, are regarded by the law as lending 01' letting
them to thc:msc1ves, and are required to pay income
tax on the rent they are supposed to receive, the
same aJ it they had Jet them to a tenant. With
the growth of the National Debt and the spread of the
hire-pun:base l}'lltem,-both, by the way. admirable
instances of the raulc. of the nili.og passioo to
convert wealth info debt in order to derive an iDcome
from it-wc may confidently look forward in &be
 27
near future to the same logic being applied by the
Chancellors of the Exchequer to the furniture as is
now applied to the house, and to the owner of a
house being taxed on its rental let furnished instead
of unfurnished.
Before, however, they are reduced to such lengths
in balancing their swollen budgets, it is to be hoped
that they may be enabled, by the help of the studies
in national rather than individual economy, which
form the subject of this book, to do something more
substantial in the other direction. As shown in a
later chapter, a hundred millions a year could be
immediately knocked off the national taxation as
a start, by the correction of a slight error in accoun-
tancy, natural perhaps in the general confusion of
these transitional times, but hopefully for the future
remediable at any time.
So that it comes about that by far the great part
of what the modern world regards as wealth, and
what is a perennial source of wealth to individuals,
is not wealth but a consequence oflending or having
lent wealth, and is in fact a form of national 01'
communal debt. The inteme competition for foreign
or overseas markets in time of peace, aggravated
by the home market drying up through the loss of
purchasing power of the unemployed, is not due to
any altruistic or missionary spirit of the industrialised
nations in wishing to unload of their abundance
for the enrichment of the newer and less indus-
trialised natiom, but to the necessity of finding new
debtors, with good future prospects of being able to
pay interest, to whom to lend their wealth. The
 28
prospects and capacity of those at home in this
respect diminish steadily as the days go by.
The modern wan that break out between indus-
trialised nations have a precisely parallel explanation.
Then the belligerent nations rather than individuals
shoulder the debt. The glut of wealth, that in time
of peace cannot be profitably exchanged, is now
owed for as it is produced by the nations as such.
Along with the flower of the country's manhood,
it is destroyed as rapidly as the most powerful
modem engines of destruction allow. The dead do
not return, but the wealth destroyed discards its
corruptible body to take on an incorruptible. It
is national debt, better than wealth to individuals,
a permanent source of wealth, defying the passage
of time and the ravages of rata and worms. It
needs no very profound analysis to reach the con-
clusion that the most significant economic consequence
of modem war. the increase in the national debt.
explains its cause. AfHuence has but turned men
into misers who will lend but will not spend, and
the most humiliating spectacle of the age is that ita
best minds are devoted not to the building up of a
nobler civilisation, but to a chimera, how to convert
the wealth that perishes into debts that endure and
bear interest.
 29

CHAPTER UI

WHAT IS MODERN MONEY?

A MONETARY system should, as we have seen, distri-

bute communally produced wealth for individual
consumption and use. With our monetary system,
this, which should be the only purpose, has been
reduced to a secondary, incidental and almost acci-
dental role. The primary purpose for which money
is issued in this country is to lend so as to make
it bear interest. The ruling passion that makes
all men misers has over-reached itself here in a
theoretically highly curious way though the results
are tragic enough in practice.
The general ideas and modes of reasoning, which,
in the nineteenth century, resulted in that great
clarification of the physical sciences, by which prac-
tical engineers have been able to solve, to all intents
and purposes, the problems of production, have
been suitably applied by the author to elucidate
the nature of money. In negative form they are
expressed by the Latin motto" Ex nihilo nihil fit",
from nothing nothing comes. In positive form they
are known as the laws of conservation of matter
and energy, a general knowledge of which is now
as widely diffused as the knowledge of reading and
writing.
 30
It is true that twentieth century .cienee, since
Einstein'. Theory of Relativity, attempt. the fusion of
the two IaWl into one. It is possible that energy and
matter may be equivalent at a definite exchange ratio,
just aa Joule .howed, a century ago, waa the cue
for heat and work or any other form of energy. If
10, one law will do fOl' both.· But this it aa yet only
a view, for the actual conversion of the one into the
other haa yet neither been proved to occur, nor can
it be practically carried out. 'Whether true or not, it
does not affect the argument. There it altogether too
much transcendental mathematica about money u it it.
The common ICDIC of these laWi it that a perpetual
motion machine it not posaiblc. To produce wealtla
energy must be expended or conaumed. Conaumption
here does not, of course, JDCan total deatruction,
any more than when we .peak of the consumption
of fuel or food, but conversion into uaeless waate
products. The product of the conaumption of energy
is heat of temperature too low to be of uae. It
is not of fundamental importance, though i1 may
be practically very important, whether the work
I'equired to produce wealth CODlCI from a man, a
donkey-engine 01' any other prime-mover. We
have teen that thia age has been made poeaible bJ
the .ubstitution of inanimate energy for animal
labour in production. A tingle machine to-day
can undertake as much actual labour at a com-
munity of a million labourea working in three .hifta
of eight houn a day•
• ~. fOr aa~. 2M M;ptmttw U..... Sir J.
J-. 1930. Camb. Umvcnity PraI.
 31
To th1s common sense truism that. in the world
ruled over by physical laws. it is impossible to get
something fow nothing, modern money is an apparent
outstanding exception, the elucidation of which
throws a flood of light on the nature of money and
suffices to rob it for ever of its robe of mystery-
and let us hope, of its power of evil. Money to
moat people still conveys the idea of coins. but,
except as small change, coins arc obsolete. In so
far as modern money has any tangible physical
existence, and by far the greater part has none,
it is a paper token, which like a postage stamp,
costs next to nothing to make, and which has some
'\Ialue printed on it. I ts owner for the time being
is entitled to that amount of wealth in exchange
for it. Strictly he i. empowered by the law to make
any creditor take it as legal tender for that amount
of debt, which in practice comes to exactly the same
thing.
But most money nowadays has no existence except
as a statement of account or bank-balance upon
which the owner draws by cheque. The difference
between the amounts paid in and paid out is a
sum of 'IIImey which the owner owns, but the money
does not exist. What is paid out of one account
is paid into another, and this is done as a book-entry
without any money at all. A relatively small amount
of paper tokens suffices for the owners who need
" cash ". The cheque system is in itself a great
advance upon the use of tokens in many ways.
But its invention has resulted in the banks, not
indeed coining money as that is quite unnecessary.
 32
but of creating money. without even the issue of
printed notes. which they lend at interest to thOle
who will pay interest on the pretended .. loan ".
Coins, in reality arc tokens like paper money,
but differ in that the token itself is not entirely
valueless. If melted and 101d, the bullion or ICJ'llp
metal would fetch the whole or part of the nominal
value of the coin, if bartered for other goods. But this
is an offence, 10 that even if they are made of prec-
ious metals offull value they arc tokens merely. Since
the War, gold coins, which contained a weight of
gold equal in value to the coin, have ceased to be
current, and the quantity of .i1ver in the alloy wed
for silver coins is now but a .mall fraCtion oC their
value. They are a curious relic of a once public
currency, for they are .till issued by the State Mint,
and carry the image and .upencription oC the reign-
ing Sovereign. But under democracy the prerogative
of the issue of money baa been usurped by private
financial companies, and the State money is re-
duced to a trivial proportion of the whole.
So far as the point referred to is concerned, it
matten not at all whether the money in queation
is issued by the State, a bank or a counterfeiter.
T1u issuer of mDne.J, WM first puts it inkI cirCfllaJiMI,
cannot help getting sometJUng for tIOtJUng, IUllMlJ 1M
exc/umgl DaLu of the ""'ne.1.
So, Dot in the twentieth century to make a pretence
that there is anything really mysterious or miraculous
about the operation, or that practical economics
has a special dispensation from the laws of conserva-
tion, the problem is to find where this wealth cornea
 33
from. The quantity is not inconsiderable. In this
country it is equivalent to well over £2,000,000,000.
To answer the question, it is only necessary to
contrast a purely hypothetical community, without
a monetary system, exchanging its goods by barter,
with our present system, or, better, to presuppose
the first condition and from it evolve our own.
It might occur in some such way as this. A has
leather and B has flour. A wants flour and B,
though he does not at the moment require leather,
has more flour than he needs and is willing to supply
A in exchange for a simple IOU, a paper note
expressing the fact that" I, A, owe you, B, so much
--." The quantity owed might be either flour
or leather, if B had indicated he would later be
requiring leather. But if, more generally, the note
ran .. I, A, owe you, the owner of this note, goods
equal in barter value to so much flour", B, if he
wanted, say, nails, could exchange it with 0, who
produced nails, and thus confer upon 0 the right,
at his own convenience, of exchanging it with A,
for flour. A would then destroy the IOU he
had given. Not only A, but B, 0 • • . and the
whole business community might get into the habit
of doing business in this way.
The difference between such a system and a modern
money system is simply in the growth of the under-
standing or convention that the I of the IOU is
not anyone individual, but all the individuals, who
agree to accept such notes as .. legal tender" for
payment of debts and that, in countries on the
gold standard, the quantity owed is some definite
c
 34-
weight oC gold. Then instead oC A tearing up the
note he had given whCD he recovered it-aa it before
expressed the entirely: redundant information how
much A, as the holder of the note, owes himself-
and B, C ••• doing the aame with their note. in
similar circumstances. they do not tear them up,
but pass them on f~ ever twl trn.
We may pause to enquire at this .tage the reasons
which make the community prefer IUch notes to
goods. which are identical with those which in this
country cause people fIOI to own over £2,000,000,000
worth oC goods. but prefer claims to them, which.
as regards any individual, could instantly be
exchanged upon demand Cor goods. It is limply
that they do not know either what goods they will
want next or in what quantities. Also they do
not want to possess more than they need because
it rots. or. at any rate, costa them something to look
after. Production being communal, individualJ
have to go without part of the wealth they are entitled
to Cor money, that is they must have valid claim.
upon the goods oCthe community Cor .ale in the market
in order to obtain what they need as they need it.
[I is this wealth 1M i.ssu£r of mtmt;1 gets f~ fIOthing.
Clearly once a monetary ')'Item is got into operation
it will function indefinitely, the money circulating
Crom one individual to another without ever being
called in again, and it will create indispensable
facilities Cor the exchange and distribution of goods
and services. But Iww is it started? There must
be some central authority, bank or counterfeiter,
to issue the money and receive in exchange the
 35
wealth the citizens are compelled to give up for
nothing but the paper claim to it. So far as the
accounting goes, it is clear that the citizens are
owed for what they have given up. The interesting
point is II Who owes for it?" Clearly it is not
the issuer of the money, for it is in the nature of the
transaction that if he repaid the citizens back the
goods they give up, it puts the money out of circu-
lation and reduces the issue to an absurdity. The
citizens do not want to return to barter, but they
do want the goods back in exchange for their money
from 0111 another, those with money and no goods
wanting goods from those with goods in exchange
for money.
So that it is clear that money is a peculiar and
special form of debt, quite different from those
contracted by people who lend in return for periodic
interest payments and the ultimate repayment of the
principal. It is a form of national debt, owned by
individuals, which is legal tender in exchange for
the goods of any citizen who wishes to sell them, and
then in tum becoming legal tender for what the
new owner wishes to buy. Clearly the profits of
the issue of money should belong to the community.
A counterfeiter issuing money is punished if convicted
for treason rather than for theft. But the banks,
by the cheque system. have invented a means of
issuing money without coining it or even issuing a
bank note, and this form of money in quantity makes
the whole of the rest insignificant. They have
received in exchange for it the community's goods,
which have been consumed by the persons to whom
 36
they ulent II the money, and they are owed by these
borrowers for what the community bas been com-
pelled by the issues of money to give up. The money
10 issued passes into the handa of private individuals
and is owed to them by the banks as a current or
cheque accounL But the banks have not the money. u
it bas no physical existence. and could not repay
it iCit were demanded. They hold only the securities
deposited with them as cover by those who in turn
owe the money to them.
The nature of modem money and how it comes
into existence will be clear to the uninitiated from
the former description, 10 Car as concema a paper
note. In the case of the non-exiatent money of
bank balances. the expense of printing or forging
the noles. and of maintaining them in repair in circu-
lation. is saved. But there is another and far more
important and sinister reason why this form of
money is now the chief part of the total. The periodic
printing and destruction of hundreds of millions of
money in the form of notes in the full light of day
in the interests of industry might occasion outbunta
from the buying and selling public alternately.
rightly afraid of their money being debased in value.
or of their businesses being ruined, as the case may
be. .
The great and sinister advantage possessed by a
bank balance over any actual physical tokens is
that it may be negative instead of positive without
the public knowing what is really taking place.
by arrangement between the bank and the current
account holder. The banker allows a client, willing
 37
to deposit security and pay interest on the accommo-
dation at the bank-rate, to overdraw his account.
This is one of the common methods by which a
bank, in contradistinction to an individual, advances
a .. loan". But unfortunately for this interpretation
of the transaction, a real loan does not challenge the
law of conservation. There is no magic about it.
What the borrower receives, the creditor gives up.
But the transaction considered has just that remark-
able feature which arrested our attention as the
invariable result of the issue of new money. No
one consents to give up, or even knows that he has
given up what the borrower gets in this case. The
latter is empowered by the overdraft to go to the
market and receive goods or services from individuals,
without, as in a genuine sale or loan, the money with
which he buys having been given up by somebody
else. Before the transaction, the public owned a
certain amount of money. After the transaction
they own this plus the amount of the overdraft. It
goes to increase the current accounts of those who
sell goods to the person who receives the overdraft,
and it is not taken out of any existing account.
It should require no great effort to-day for any-
one after the experiences of the variations of money
during the War, to master the calculation involved.
Let us suppose that before receiving an overdraft
of any sum, say £A, a borrower owns £0 and the
nation £X. After the borrower spends his over-
draft-he would not borrow and pay interest on
it to keep it tied up in his stocking-he owns £01
owes £A, and the nation own £(A + X). The
 38
debt in goods which the individuals of the nation
owe among themselves instead of being divided
among lX u now divided among £(A +
X).
with the consequence that each £1 U now worth
in goods less than before as X : (A +
X). or the
price-index rises in tbe ratio (A +X) : X. That
is to say. instead of people thinking always that
their goods are dear they .hould look upon it the
other waY. that their money u being debased, but
more cunningly than WlU known to the notoriOUI
monarchs who wed to put more baso-metal into
the coins.
It u always. of course. argued that the borrower
actually does give up ICCUritie. to the bank of greater
value than the amount of the .. loan". Actually
he giVei up nothing whatever. All that happem
is that his ICCUritiei are kept in the bank'. safe
instead of his own to protect 1M bank IF he should
default. In this case the bank IhnI ael1 his ICCUrity
and thus withdraw again the money they have
issued. If the bank IOld the ICCUrity before they
advanced the money there would be no new woe
of money. But the owner can do this just as well
himself without the bank. That u the trouble,
for it means that of the three possible ways in which
this great nation can get the money to carry on
its 1ClVic:es. from the State, the banb and individual
counterfeiters. only the first now remains poSble.
The facts are well known and in no dispute
whatever. .. Every loan makeI a deposit"e is a
• 1M M .... ~ MfIIIIJ. P. lis. HartJ.er Waha-t. 1922,JoIm
Murray.
 39
sinister phrase invented by apologists for the system,
which has been repeatedly endorsed by the Rt.
Hon. R. McKenna, Chairman of the Midland
Bank. The explanation, of course, is that what is
called by the banker a .. loan" is no loan at all
but a creation of new money, if the .. loan" is an
entirely new one, or a continuation in existence of
money previously so created if the .. loan", having
been repaid, is extended to another client. If it
is not extended to someone else, then the money
issued, when the .. loan" is made, is destroyed
again when the cc loan" is repaid. Every such
new issue of money creates a deposit in somebody's
account. That is easy to understand. But the
attempt to camouflage the operation by calling it a
.. loan" seems as pitiful as the stock plea of the
defaulting embezzler when detected, which the
judge trying a recent case so sternly held up to
public obloquy.
In this way, well over £2,000,000,000 worth of
wealth has been taken from the public and is owed
to the banks by those who have borrowed it, and
by the banks to their clients. In return, the banks'
clients have their bank accounts often kept for
nothing, and, if a national money system were
adopted in place of the present private money
system, presumably people would have to pay for
having their bank accounts kept, as they have for
any other service. From the invention of the
cheque system to 1914, money was expanded by
these means to the total sum of £1,200,000,000
of which at least one thousand million pounds was
 40
of private creation. During and after the War it
was relatively suddenly multiplied to more than
double and. in 1920. was [.2.,00.000.000. The
value of the [.1 in goods fell almost in proportion.
and became worth only about 8/- pre-War value.
A few hundred millions obly of the increase were
due to national money in the form of [.1 and 10/-
Treasury notes. By the Bank Note and Currency
Act 1928 under the lut Government these were
suppressed and replaced by Bank of England Notes.
So that at the present time. out of a total of well
over two thousand million pounds. only lOme fifty-
eight millions are National or State-issued money.-
Before the War the new issue. of Dloney by the
banks were limited by the right of the public to
demand gold in exchange for paper money. Gold
to the extent of a few per cenL had to be held in
the country as a .. backing" for the money privately
issued, and if the value of money fell and prices rose
80 that it was cheaper to send abroad gold in settle-
ment of debts rather than other goods. the drain
of gold reduced the basis of" credit ". and deflation
or reduction of the total money was effected by calling
in .. loans" and not extending them. Since it is
quite impossible to issue money on such principles
without causing alternate rise of prices and consequent
deflation and industrial depression. the history of
the system has been one of boom following slump
with the periodic regularity that has earned the
special title of the .. Trade Cycle ".
- nu .Ag. qf Plmty. Appendis. A. C. ManhaD Hatknley,
M.A., LL.B., 1929. Sir wac P i _ l:I Sons, LId.
 41
It must not for a moment be supposed that by
this system the money of the country and its standard
of prosperity was increased as rapidly as it would
have been under a scientific monetary system. The
truth is that here as in many other directions the
prodigality of science is such that progress was made
in spite of antiquated laws, anti-social practices, and
the amputation of the financial from the political
government, which would have ruined any poorer
age.
During the War, the right of the public to demand
gold money was taken away, and the so-called
.. Gold-Standard Act of 1925" did not reinstate
it, so far as, the public is concerned. But persons
engaged in foreign trade were thereby empowered
to buy whole bars of gold of some 400 troy oz.
weight for paper at the full pre-War value of the
£1 sterling in relation to gold. The ostensible object
of this attempt to return to a gold standard was
to raise the value of the £1, which by the inflation
during the War had sunk in value to less than half,
back again to its pre-War amount. The many
attendant evils that were bound to follow from, and
have followed from this course, were perfectly well
known to students of the subject as soon as it was
mooted, and eight years before the public, who
are now beginning to grow alarmed at the effects,
understood what was proposed. It was known
that prolonged industrial depression and grave
increase of unemployment were bound to follow
as the night the day, and that, if the attempt suc-
ceeds, the real burden of the National Debt, the
 42
interest upon which amounts to Qver a million
pounds a day. would be magnified in the lame
ratio as the value of the £1 in goods, was increased.
It would seem almost impossible that thil nation can
be Itrong enough to lurvive the disabilitiel and
burdens that are being piled upon it. ostensibly
in the interests of .. sound finance", really in the
attempt to make two unsounds lound.
It is no answer to say that these consequences.
indefensible as they are. were the natural result
of the War. The financial measures instantly put
into operation on the outbreak of the War were,
of course, prepared to their minutest detail before.
This kind of finance, by paYing for the cost of
preparation for larger output necessitated by war,
out of the value of the existing money enables war
to be financed without the peoples' consent, and
that is no doubt one of the attractions. If the
people could be relied upon to consent to the extent
of paying honestly for the additional expenditure
incurred, there is no reason why even wan should
not be waged without debasing the unit of monetary
value.
It was hoped that the Act would conserve the
gold supplies, but on Sept. srd, r 930, they were
£220,536 less than at the passing of the Act. The
discrimination in favour of the foreign trader, when
our home industries were so depressed, was probably
incidental to the pursuit of the larger policy of
increasing the War burden, rather than purely
gratuitous. It has been submitted that the reason
why the cheap sixpenny shops flourish in this country
 43
so amazingly is that they can sell foreign goods
below any possible cost of production by changing
the paper they receive for gold and buying with
gold abroad. *
Whether this is well-founded or not, it would
seem undeniable that the present value of the £1
has not been raised in value to the home-producer,
but has to the importer. If this is not being taken
advantage of by business men, it must be for patriotic
and altruistic reasons very different from those which
make for success in their walk of life. It would be
more natural to assume that it was being taken the
fullest advantage of, and that the competition our
own workers are being subjected to is in part of this
purely artificial and crooked character.
-1M N,x, Budgel, Junius Junior, 1930, Cecil Palmer.
 44

CHAPTER IV

VIRTUAL WEALTII
IF ANY reader is interested in curiosities, he should
look at one of the privately issued bank notes that
have 80 quietly taken the place of the well-known
Treasury notes or II Bradburys II issued during the
War. He will notice that the King'. head no longer
appears upon it, and he should read, mark and
inwardly digest its legend.
.. Bank of England. I promise to pay the Bearer
on Demand the Iwn of One Pound. For the
Covr. and Compa. of the Bank of England. II
(Compa. in full is Compagna, the company being
originally Italian.) If hi. curiosity lead him further
to present it at the Bank of England and demand
One Pound for it, as the Bearer it clearly entitled
to do, the Bank in fulllegalaatisfaction ofhis demand
would presumably hand it back to him I He hal
a legal claim to one pound'. worth of wealth which
he can exercise by buying anything on we to that
extent, and handing over the note as legal tender
for the debt incurred. So what the Bank 10 glibly
promises, they leave to the public to perform.
Thus hal disappeared the last pretence that money
is a debt against the issuer of it, instead of a mutual
interindebtedness between the individuala of the
 45
nation in which it is legalised, to the very great
clarification of the whole subject. The fine cobwebs
of distinction, without any real differences whatever,
between one kind of money and another woven
by the numerous apologists for its private issue,
do not in the least affect the overruling consideration
that all are of equal effect on prices, that is to say,
on the value of the money in goods.
What has been termed in this book cheque money,
non-existent money, or money owned as bank
balances in current account, is usually loosely termed
.. bank credit". But just as a loan is genuine or
fictitious according as the lender does or does not
give up what the borrower receives, so credit may
be genuine or false, and in no true science would
the use of a well understood term in a totally new
and vitally different sense be tolerated. That is
the characteristic of charlatanry, fraud and deception,
in which the language is intended not to elucidate
but to mislead.
Some writers have honestly argued ~hat banking,
meaning the private uttering of mone}", should be
as free from government interfelence and regulation
as any other business. Others, having studied bank-
ing le(d)gerdemain, are similarly anxious to have
it extended without limits, to selling articles below
cost price and jomg for nothing all the expensive
public enterprises which we carmot afford to pay
for, and so avoid the unpleasant necessity of anyone
having to give up anything at all!
The fallacy of all this is that the value of every-
one's holdings of money is directly affected by every
 46
new issue or cancellation. Modern business is
nothing but a tangled network or mutual contracts
involving indebtedness on the one lide and claima
to be paid back in the future on the other. Every
luch contract is affected by alterationt in the value
of money in goods, or prices. The State iDiists
on just weights and measures. The pound avoir-
dupois may not weigh 16 ounces one day and 6
of the same ounces another, and then go back again
to 16, by. people tampering with their weights or
weighing machines. But during and after the
War 12/- out of everyone'. l: was taken and handed
to other people, 10 that the l: was worth only 8/-
of the former value. Now a debt of lOme
£8,000,000,000 incurred during the War, is, by
the attempt to bring back the pound to 'Jo/- pre-
War, in process of being converted to a real debt
of approximately double what it was in terms oC
the pounds in which it was borrowed.
This, if you will, is straining at a gnat and swallow-
ing a camel. It reduces to a hypocritical sham all
the enactments and machinery to secure just weights
and measures,-the IOlemn standardisation by the
National Physical Laboratory, and the little army
of inspecton going round ltamping and marking
every quart pot or other device by which things
are bought and 101d. For a variation in the value
of money is tantamount to a similar variation in
'1lt1.1 unit of weight or measure. The State is vitally
interested in maintaining an honest monetary unit
as it is the basil of all commercial and business
integrity. If variationt occur on a serious lCale, the
 47
effect is to make any long term business contract or
obligation impossible.
Nothing emerges so clearly to-day as the diametric-
ally opposed interests of two powerful classes of
people in attempting to alter the value of money,
which on a universal scale corresponds exactly to
what would happen if weights and measures were
allowed to be tampered with. Buyers would want
to make the yard, the pound or the pint larger
and sellers smaller,in their own interests and producers
ever seeking II eheap credit facilities". So we have
industrialists. What they mean is that they want
the, banks to issue new money abundantly and lend
it to them at low rates of interest. They get the
II something for nothing" on loan, merely paying

interest not the capital sum they would otherwise

have to raise. They profit twice because what they
have so got for nothing, being taken out of the
aggregate value of other peoples' money, causes all
prices on the average to rise, and, when they come
to sell the goods which the new issue has enabled
them to start producing, over and above their
ordinary profit, they get more in money for them
than they have paid as wages and services for their
manufacture. "Cheap credit facilities" is thus, in
plain English, a double theft.
On the other side, there is the powerful .. rentier "
class, whose income is derived from fixed monetary
payments, such as interest on debts, which, measured
in goods rather than in money is directly proportional
to the value of money. These demand "sound
finance"o which means they want the banks to
 48
ltop issuing ··loans "J to call in those they have
issued, in order to lower prices and raise the goods
value of the L.
In f!eneral it may be said that though variation
in the value of money in either direction is an equal
injustice morally, of the two, that done to the
creditor class by debasing the CUrTCncy is less injurious
to the community, than that done to the debtor
. class by attempting to raise the value. Bccawe
the world's work is done by the debtor class, which
embraces Labour and productive industry, who arc
in debt for the capital organs of production, and
forced to pay rent and intercat and in general to
enter into long term contracta for definite money
payments, irrespcc:tive of ita value. The creditor
class cconumica1ly speaking is a burden rather
than an asseL Under deflation, AI now, the dead
hand of the past, already heavy by reason of failure
to provide adequate sinking funds to extinguish the
growing indebtedness of the nation to individuals,
is apt to become too grievous to be borne. France,
Italy and Belgium have all stabilised their CUrTCnciea
at a fraction of their former value to lighten their
War burdens, while Germany, Austria, and Russia
debased their old CUrTCDcics to zero, 10 wiping out
their monetary indebtedness, and have started
afresh with new CUrTCDcies. We arc the only nation
heroic enough to try and double our burden.
The professional classea, who arc remUnerated for
their services on monetary acaIcs fixed largely by
custom, suffer with the creditor class, if prices rise
and the goods value of money falls. But, in the
 49
balance, more actual interference with and damage
to the life of the community results from deflation
than from inflation. Nevertheless, to most people,
low prices will seem a public benefit and high prices
a public evil. The really vital consideration is that
when prices fall below cost of production the flow
of wealth ceases, whereas it is stimulated by high
prices. For this reason in spite of the appalling
conflict in progress, and of the shortage of foodstuffs,
and in spite of grave injustice to many people, the
economic life of this country during the War was,
as a whole, ampler and healthier than it was before
or than it is now.
If money were issued in the only correct way by
the Nation, the services of the banks would be
entirely superfluous and the function of Parliament,
as in the maintenance of other standards, purely
formal. The whole interest of banking is in incorrectly
issuing money, and their skill, for what it is worth,
is in subsequently .. correcting", so far as may be
possible or desirable, the inevitable consequences of
their own action. They themselves produce the
industrial evils which they are always, as now, being
called in to prescribe for and cure, much as Rasputin
is reputed to have done with the last Cesarevitch.
It is impossible under the system for the nation
ever to have the correct quantity of money. It is
always being" corrected ". It was deluged in it
after the War and now is being subjected to the
last agonies of thirst for it. It is highly significant
that the most remarkable consequence of the system
is that banking continuously flourishes. Superficial
J)
 50-
observen and professional apologists for its methodJ
would have w believe that it ia not science, invention,
bwiness _ enterprise. technical akill and efficient
production which ia the cawe of the gro~th of
wealth, but our peculiar .ystem of II banking".
The casual observer, judging Crom the impoverished
state of the majority of the community, the mean
way in which they live and work, and the inteDIC
and increasing struggle they have had in the past
century to preserve human characteristiCi at all,
would scarcely conclude that the trouble for genera-
tiODS ia not how to produce but to distribute wealth
for consumption. He would be also quite at Cault
in concluding that the value of money ia natura1ly
a very uncertain and variable quantity.
What varies like a concertina ia the total quantity
of money, not the aggregate of gooo. thiI quantity
will buy. The gooo. value of the [, varies violently
because this aggregate ia divided up among a con-
tinually varying number of pounds, thua making
the value of each larger or smaller. The aggregate
goods value of all the money in the country ia Car
from being a capriciously varying quantity. It is,
by its nature, a very conservative quantity, changing
only gradually and regularly.
It ia convenient to have a term to represent the
aggregate of gooo. in general which all the money in
a country will buy at the price level prevailing. The
author calls this fIUlIIIi!J the I I Virtual Wealth .. •
of the country for reasons about to be explained.
• WclIA, Y""" WMlIA _ NI. F. Soddy. 1926, AlJaa aDd
Unwia,Ltd.
 51
But it is to be at once undentood that though this
measures the quantity called the virtual wealth, it
is not the virtual wealth and it does not explain
it. An arbitrarily fixed weight of gold measures,
or used to measure, the value of the £, but it does
not explain it or throw any light on the question
as to how many pounds of this value can be issued
in a country. Whereas the virtual wealth is a con-
ception that really does explain as well as measure
the value of money. The quantity is a definite
quantity of goods, viz. that which could be bought
with all the money if the prevailing price level did
not change, but it is not a positive or existing quantity
of goods at all. It is a negative or owed quantity.
The virtual wealth is all the wealth the people 0
a country voluntarily prefer to give up, though entitled
to it, in return for money claims intrinsically worth-
less. If the money is honest and of unchanging
value, they do not realise that they have given up
anything. The paper or bank money is as good
as goods to them and they appear to have just the
same whether it is in money or goods. But that
part of their possessions which is money has no
existence in fact. The value it represents was
obtained for nothing by those who issued the money,
and, except in the case of coins made of the precious
metals, it is not preserved. It is owing and not
owned. Hence the term .. virtual", meaning in
effect, not in fact.
We may put it this way. Everything in existence
that has a monetary value, including the security
or cover deposited by those who have borrowed
 52
the money which the banks have issued, haa ownen
already. The virtual wealth is the amount owed to
money ownen and there existl nothing not already
owned behind it. What is behind modem money
is not the cover or lecurities held by the private
firms who issue it. That merely lecures their financial
safety. It would be quite unnecessary in a national
monetary system. There is nothing behind the
national debt except the right of the government
to levy the taxes, and money is debt owed and
owned-both ways as between the individuals of
the nation. What is behind it is the necessity of
the people to give up wealth equal to it in value,
and this wealth-given-up is termed virtual wealth.
The gigantic interestl in the private issue of money
have always pretended it is the public that imist
on there being something behind paper and credit
money. But during the War, the change from
gold coim to paper was effected without the public
being in the least disturbed. In fact it may be
said that they welcomed the change. These interestl
are always trying to persuade the public of the
unsoundness of any kind of money they have not
the issue of. But to any impartial penon forming
a conclusion from the evidence, the present system
must appear as fundamentally the wont and most
unsound monetary Iystem the world bas ever known.
Even to those who know nothing about money.
it must seem absurd not to be allowed to make
the things we can make and do want because we
cannot make gold or find it fast enough to keep
pace with the growth of productive power. A. it
 53
IS,as soon as the gold is dug out of the earth in one
place it vanishes into the bank vaults in another.
No one now ever even sees it. It would not be
required for internal use at all under a national
money system. It could be entirely reserved for
correcting the balance of trade indebtedness as
between one country and another.
Gold is in all respects about the worst commodity
to choose as a money standard. Its value, relative
to the commodities used up in living, varies enor-
mously and capriciously by reason of the spasmodic
nature of the discovery of gold-fields, the vast altera-
tions which science is making, as in every other
industry, in the technique of gold-winning,-such
as cyaniding, dredging and the like,-which are as
spasmodic as the discovery of gold-fields, and the
totally inadequate quantity that exists for the
purpose, needing the sort of dodges we have been
examining to .. economise" the use of it. Whereas.
from a national point of view, economising in
money leads merely to the economising in production
and the artificial perpetuation of poverty. In times of
prosperity when more money is required, gold, being
an intrinsically valuable commodity, is hoarded and
used in jewellery and in times of depression the
hoards reappear and the jewellery is melted down
just when less of it is needed for the currency.
The War opened our eyes to many strange things.
It used to be thought that, for money to circulate, the
confidence of the people was necessary. Confidence
has merely relative application as between good
and bad coins or notes. Now that money is
 54
neither coins nor notes, for the most part, but an
arithmetic Bum, and all is equally legal tender, the
peoples' confidence can unfortunately be dispensed
with altogether. While the currencie. Q/ Germany,
Austria and Russia were being hourfy debased,
during the War, by the issue of new money on a
gigantic Bcale, alwaY' IOmeone had to own all
the money there was, whether they wanted to or not.
The foolish ones were left with it, and the lharp
ones instantly exchanged it for gooda and borrowed
what they required from the foolish, knowing that,
when they came to repay it, principal and interest
together would be worth less than the principal
was when they borrowed it. AIl thia is merely
relative as between one individual and another.
It has nothing to do with what gives the money ill
total value, that is the virtual wealth.
Peoples' needs are not for 10 many pounds, .hillings
and pence, but rather for such Bumi U will enable
them to buy what they need. When there is more
money and all prices rise, everyone, however much
they may object, is practically forced to keep more
ready money than before, if their lives are to go on
as before. True, the virtual wealth might .utrer
lome temporary reduction, and prices might rise
without any increase of money, if sufficient numben
had reason to believe an ihflation wu impending.
But it is hardly likely that it would be appreciable,
having regard to the immense quantity of 1IlODC')',
as worked out at the end of the chapter.
The conclusion from all this is that people have
to be made more prosperous, or become more
 55
numerous, to be able to afford to keep more money,
and for it to be possible to increase the quantity
without debasing the value. The normal condition
for people to want more money, in preference to
what money will buy, is that there should be 'goods
enough to find a market at a constant price-level,
as the demand for them is increased.
This view of money has obvious resemblances to,
and differences from the so-called" Quantity Theory
of Money",· of which it may be considered a
development. This states that .. prices must, as
a whole. vary proportionally with the quantity of
money and with the velocity of circulation, and
inversely with the quantity of goods." It is, of
course, a definition rather than an explanation of
price, which brings in a number of unnecessary and
quite indeterminable factors. Expanded, it states
that the average price multiplied by the quantity
of goods purchased in a certain time, that is, the
total money exchanged for goods, is equal to all
the money multiplied by the number of times on
the average in which it is exchanged for goods in
that time. This is two indefinite ways of saying
the same thing about two definite things, for the
quantity of money and the average price-level, or
its general goods value, are both of them more
definite than" velocity of circulation II or .. quantity
of good.".
When the enquiry is not how the wealth produced
is distributed between one individual and another,
• Irving Fisher, TIr, PurcIJasing POWI'( III Mon~, p. 18, The
Macmillan Co., New York, 1922.
 56
or between one clasa and another, but the fundamental
general question as to how production and distribu-
tion interlock, the simple exchangea of property
between one individual and another do not COunL
The. circulation of money proper and the sale of
goods may be confined to the exchange for money
of labour and services by payments of wages, salaries,
dividends and the like for production (resulting in
increase in wealth), and the exchange of the money
so earned or distributed for the new wealth produced
(resulting in its distribution). It should have been
obvious that no mere algebraic relation between
two ways of stating price, or the value of money,
will explain it apart from the physical facton, luch
as the time required to produce wealth. Thil is
a separate enquiry.
The only genuine result of the quantity theory
was the somewhat vague conclusion that .. if other
things did not change '0 prices vary proportionately
to the quantity of money. The" quantity of goods ..
in the quantity theory is really the virtual wealth,
and, if ,hal remains unchanged, prices are then
proportional to the quantity of money. This, of
coune, is also two ways of saying the same thiDg if
we mean by virtual wealth all the goods all the mODey
would buy at the price prevailing, but not if we go
behind the measure of virtual wealth and enquire
why people prifer to giN Y this quantity of goods
for money. The quantity of money can only be
increased without depreciating its value by people
wanting more money, meaning, in preference to
more goods.
 57
To issue money by fictitious loans to "stimulate
production" is to increase immediately the con-
sumption of goods, but the production only after
the interval required to produce them. With the
best will in the world, agriculturists and indus-
trialists cannot immediately increase production
when .they are granted new money as bank" credit ..
for the purpose. There is a definite interval between
initiation and achievement, which is in fact the key
of the whole problem, and it has been hitherto
completely ignored.
Consumption, during the time-lag, is increased
without any increase of production of finished wealth.
This results at once in a shortage of goods for sale,
rise of prices,-so that the new quantity of money
only buys as much as the smaller quantity did before,
-and a drain of gold to pay for additional imports
to make good the shortage. This is followed by
reduction in the quantity of money again as the gold
basis of" credit" is reduced, and a long and bitter
struggle to bring prices down again and to get
back to the level of production we started from.
This, in brief, is why it is worse than useless to allow
banks to utter money. The money is required after
production is matured, not as a stimulant, and at
that time the services of a bank are superfluous.
The function of the banks is to lend money, not by
pretending to lend it really to create it. If their
operations were confined to lending money, all the
. rest would be simple enough.
Let us suppose the country is pursuing its peaceful
avocations, every man busy with his own affairs,
 58
and nobody anxiously awaiting lome change of
financial policy. IUch 81 occurred in 1921. from a
mad inflation to a madder deftation. or IUch ..
seems in the opposite direction to be foreshadowed in
the near future by the financial medicine men to keep
the patient alive. That u to lay. we will luppose the
virtual wealth of the country to be reasonably lteady
and consider how much the quantity of money must be
abruptly varied to cause a perceptible increase in the
index number that measure. the average price ofgoods.
We take. for the purpose of illustration, the good
round lum of £2,400.000,000 . . representing the
average total money in the country since the War.
This is, conveniently. as many millions of pounds as
there are tenths of a penny in the pound.- We
can at once lay that ten million pounds more or
less will only affect average prices one penny in
the pound, a change of less than one-half per cent..
and probably quite imperceptible to the ordinary
man. To cause a variation in the index number
of 10% an issue or destruction of no less than
£240,000,000 would be required.
It u not denied that there may be some slight
periodic variation of the virtual wealth. But the
present Bystem of keeping money tight creates and
exaggerates it to an absurd degree. Free money
- I wish to expraI myacbowledgmenu to Lt. CoL D. W.
MaxwcIl for trua cxceIlent way of elucidating the CJUCltion. and
for other benefits derived from the penual of. book by him
in manUlCript bdOre publication. which he ICDt b my COIDJDCDIa
and criticimL.
[I learn that the book it thortly to be publiabed under the
title: 7M Prineipol C- " UMml~.-F ..s.]
 ~9
from private manipulation and any real residual
effect of this character could probably be easily
neutralised by intelligent collection of taxes and
their expenditure.
Once destroy the power of banks and private
financial people to issue money, and confine their
operations to legitimate transactions, and there
would not be the least di~culty in maintaining the
index number so constant that no one could detect
its variation. It is not a question of knowing the
correct amount of money to a million or even to
ten million, for such sums are insignificant in their
effects. But so long as private people can get money
created for them and destroyed again when they
have done with it, money must be capricious in
its value and business a game of chance. The hard-
working and efficient are thereby reduced to inferiority
in comparison with the lucky gamblers, and those
who do the real work of the world are at the mercy
of wreckers and ghouls. Modern money, the vitally
necessary internal na~onal debt between the indi-
vidual citizens in the community, to enable them
to exchange their goods and services, is treated as
an affair between some smart entrepreneur and a
bank manager to be issued or withdrawn according
to an agreement between them behind the closed
doors of a private office.
Democracy, no doubt, had to make many mistakes
before it learned the art of government. But surely
this elementary howler in regard to the nature of
a money system is, of itself, completely sufficient to
account for its failure.
 60

CHAPTER V

HOW A NATION CAN BE MADE WEALTHY

WB WILL assume, though it it yet far from being

the truth, that the nation does want to become rich, in
the sense of increasing the general use and consump-
tion of wealth, as well as its production, to the limits
which the state of knowledge and the industriousness
of the people allow. How is it to be done? The problem
is easier to grasp if, in the fint instance, we leave
money out and consider the physical necessities.
The first and, to most people, surprising condition
is real abstinence from consumption, and the expen-
diture of the wealth, that otherwise people would
consume on their private wants, in building or
tuning up the economic system to a higher duty.
This is by no means the lame IOrt of abstinence &I
is preached, not as a meaDl to an end, but as a
permanent virtue by the good people who have a
foggy idea that if we do 10 long enough we shall one
day all be able to live like camels on their humps,
or, by the economists, upon one another'. debts.
No accumulation of wealth, but a permanent and
abiding increase in its rate of production and c0n-
sumption is the object. Consumption must be
increased as lOOn as the new rate of production it
achieved, or the last state of the nation will be
 61
worse than the first. More money is needed to
complete, not to start the process.
The problem, though not quite the same as in
Russia, which has necessitated the "Five Year
Plan ",-because in industrialised countries there is
now a redundancy both of unemployed labour and
capital,-is nevertheless similar. Before the future
flow of revenue for consumption can be permanently
increased, there must be a permanent irrecoverable
expenditure in the manufacture of" fluid" capital,
which includes all the semi-manufactured goods in
all the intermediate stages of growth or manufacture
between the seed-time and harvest of agricultural
and industrial production. The point seems trifling,
but it is the key to the problem of how money
ought to be issued.
To every individual manufacturer or agriculturalist,
this initial expenditure .will not appear to be irre-
coverable, because he looks forward in due course,
before retiring from the business, to completing and
selling the fluid stocks as production matures, or
to recovering them in the price, if he sells his business
as a going concern. But from the community's
standpoint the reduction of the economic system to
its present poverty level is not in contemplation,
and hence they are irrecoverable. We have had
enough under private money of boom followed by
slump, the laborious effort of tuning up production
to a higher level, followed by the turning off of
workers to fend for themselves, and cessation of
further production until the excess stocks are finished
and sold off.
 62
The fact that their fictitioUi loans can 10 be repaid
is the attraction to the banker. He will not usually
create II credits .. for permanent capital expenditure.
as that is irrecoverable expenditure. He knows.
when the money is expended upon increasing the
production of consumable goods. tbat they will
mature in due counc. and what hal been put in
can be drained out. In this hiI attitude ia just the
same as the individual producer. But it ia no usc
initiating a water lupply aystem at aU unless the
guanti!1 of water necessary to fill the pipca ia per-
manently lost to use and buried underground along
with me pipca. The actual water ia alwaya in flow
through the pipca but that fJ1UlIIti!1 ia alwa)'l irre-
coverably there. No one would consider it good
sense alwa)'l to be emptying the pipca to make aure
it was still there for usc if people Ihould ever be
dying of thirst. So it is not the least usc our building
up an economic aystem to deliver a greater flow of
goods. if the fluid atacks in the aystem are to be
at me mercy of the banker draining them out again
to pay back short term fictitioUi loans, which are
then rc-Ient to another party to do the aame with
over again. People do not live by IUch fits and ltarts,
though an Irishman is reputed to have tried it on
his pig to get Itreaky bacon, but the pig died.
If, on the average, it takeJ half a year from the
time of commencement to the time of completing
production, and we wish to double permanently
the wea1~ of a country. 10 that, after half a year.
it can produce and consume just twice AI much ..
it does at the ltart, then we have irTteDrJt1t1bfJ to link
 63
half a year's production at the initial rate. We
may suppose the nation as one huge factory increasing
its staffs by taking on additional employees on a
certain day and, from that day, doubling production.
Half of this is the normal former production which
pays for itself by the selling of the product as it
ma tures. The other half has to go on for half a year
before the product becomes ready for sale, after
which time it also can ,be made to pay for itself
by the seIling of what is produced. The extra
expenditure has to be borne for half a year. Those
engaged on it have to be paid and are, all this time,
consuming finished wealth. Where is it to come from
and who is to pay for it?
Paid for it assuredly will be, if not honestly, then
dishonestly out of the virtual wealth, by a corres-
ponding reduction in the goods value of the unit of
money. If it is not honestly paid for, all hope of
maintaining an honest invariable money standard
may as well be abandoned at once. Whereas if
the expenditure is properly accounted for, this
will be the natural result, instead of being, as
now considered, an ideal impossible to realise in
practice.
The widespread ruin and deadlock resulting from
variations in the money standard should of themselves
be sufficient to condemn any system of economics
as false which depends upon such variations for
adjustments between supply and demand. The
solution of the economic tangle of the day lies in
avoiding the petty tricks which pay for part 'of the
costs of industry out of the general value of money.
 64
and in making it the fint essential to the IOlutioo
that the value of money &hall not be debased for
this end. Then we shall find that our economic
system iJ 10 stubbornly inflexible that there iI only
one answer to our problem.
Those engaged in initiating the new acale of p~
duction must be paid for by othen abstaining to
the same extent from consumption over the period
required for the new aca1e of production to mature.
Then, and continuously afterwards, every one may
consume on the average at the new and increased
rate of production. But for this to be possible. the
money in circulation must then be correspondingly
increased. If this iI not done the whole purpose of
increasing production iJ frustrated. The new aca1e
of production cannot possibly be distributed by the
old quantity of money, if ill value iI to remain
invariable. The quantity of new money required
bears a similar proportion to the amount already in
circulation as the increase of production to the former
rate of production. ThiI quantity. although a tidy
sum, even in national accountancy. iI insufficient
to pay for the expenditure in initiating the new
rate of production. It would be the same if money
took on the average as long 00 the way from earning
to spending as goods take in making. Whereas
probably it does not take a fifth as long. .
ThiI may be elucidated by the simple diagram
at the commencement of the book (p. viii). The
economic process as a continuous cycle of production
and consumption may be represented by a riog
divided into two halvCl, the left-hand half referring
 65
to consumption and the right-hand half to production.
The clock-wise circular arrow represents the really
important circulation of money. as distinct from
incidental changes of ownership among individual
consumers or producers, respectively. At the top of
the ring the passage of money from the consumer's
to the producer's side symbolises the buying of new
products for consumption and use. At the bottom,
the passage from the producer's to the consumer', side
symbolises the payment of wages, salaries, dividends
and the like, for all the services, real or imaginary,
in production,-that is for putting new wealth into
the producer's side of the system.
The professional economist, but not often the lay-
man, quite understands that, in the ultimate analysis,
such payments account for all production of wealth.
Though anyone farm or factory may have large
expenses in buying materials, these costs arise as
wage, and similar payments made in the other
factories, fields or mines, from which the materials
are derived. But what the professional economist
does not seem to have yet appreciated is that wealth
is now an artificial human product made by
scientific methods with ever-increasing certainty and
efficiency, and the older confused ideas derived from
the age of scarcity are entirely upside down. Scien-
tific men, having successfully solved the problem of
wealth production may be credited with having
contributed something to the understanding of the
real nature of wealth, and to them, as indeed to
anyone who thinks about it, the co-existence of
poverty and involuntary unemployment is a sum-
B
 66
cient indication that, for a long time past, the orthodox
economist has been somewhere vitally at fa~t.
The diagram of the economic system. simple and
crude though it be. makes clear certain features
which are often overlooked. (Consumen have to
be provided with money as much as producen for
the system to work properly. the one providing
the other in an endless circulation. Inability to
distribute goods is as much a cause of poverty as
inability to make them. Or. to put it the other
way. poverty is due to inability to produce sufficient
goods for national requirements. and this inability
may be real technical inability or it may be purely
artificial. due to the inability to distribute what
.has already been made. For many a long day now
the poverty of this country has been overwhelmingly
artificial. People who are alwflYS insisting on the
necessity of cutting down wages. economising in
consumption and increasing production, as an
economic general principle rather than a temporary
expedient, are trading on the ignorance of the public
of this vital feature of the processl If they are not
ignorant themselves. then they are merely the spok.et-
men of the creditor or rentier class. trying to reduce
the price level and increase the real burden of the
past ind~btedness of the nation) Elsewhere they
seem to ICC through these partIzan policies more
easily than in this country. where the public always
seem ready to endure any hardship and to sanction
any damage to its trade and industries in the interests
of .. sound finance" and H raising British credit to
a higher level." This is at best only one side of the
 67
difficult questions which arise if we allow the value
of the moneTary standard to vary.
Under a constant standard, the economic system,
once got going" is stable or conservative and self-
regulating. For if consumers buy more than the
usual amount they get short of money and less able
to buy, while producers having more money than
usual are the better able to make up their deficiency
of goods. The sum total, goods + money, remains
unchanged for each side of the system separately,
and consumption balances production. In initiating
the system, or what comes to the same thing,
increasing its capacity to produce, more money
has to pass from the consumption side to the produc-
tion side than through the regular channel at the
top of the ring, by a method which does not take
out goods equal in value to the money entering.
This is symbolised by the bye-pass marked invest-
ment, and the reason has already been explained.
This money going in at the bye-pass and coming
out at the bottom of the ring puts goods into the
productive system without taking them out, with
the consequence that the quantity of goods in the
production system continually increases while this
investment goes on.
After the time-lag, corresponding to the natural
period required for production to mature, the rate
of distribution of wealth at the top of the ring can
be permanently increased without any further
investment being required. We now come to the
whole crux of the operation. If, then, consumers
are not provided with the additional money to
 68
purchase the additional· flow of goods, the latter
cannot be sold. It is a glut. Industry is oventocked
with goods and perforce must reduce production.
Not .only the additional worken taken on must
be turned off again, but also some of the original
ones, until the extra stockJ of goods, put into the
system by the investment proceas, are distributed at
the old rate. Lean yean would succeed the fat
-ones, not because of any failure in production, but
because of the failure in distribution, even under
an invariable money standard, unleu new money
be issued to buy the increased harvest.
(It is transparently absurd to expect to reap a
harvest before sowing the seed, and it is as absurd
to issue new money in order to inaease production.
It is easy to see what must occur if the attempt of
the system to make good the error by rise of prices is
prevented or .. COrTected ". It COrTcsponds, on our
diagram, to the creation of more money in the
producer'. side of the system, which, being paid
out as wages and almost at once exchanged jQr
finished wealth, drains the stocks of the latter out
of the system, putting in merely unfinished inter-
mediate wealth at the first stage of manufacture.
This deficiency of finished wealth is not temporary
but permanent. The only way it can ever be made
up is by the rise of prices to consumers befor'e
wages, etc., are correspondingly raised to worken for
producing. If the attempt is made to purchase the
deficiency of goods from abroad, it drains the gold
out of the country to pay for the additional impor1l,
and, if money is on the gold basis. the amount of
 69
new money 10 issued has to be called in again.
This way of .. assisting" industry, by the double
theft of" cheap credit facilities", is thus like nothing
so much as the way of a cat with a mouse. It is an
attempt to reap before sowing, and as the law has
always recognised for the individual counterfeiter,
is not mere theft of the amount forged, but
high treason against the economic life of the
nl\tion.
(So we reach the reductio ad absurdum of the con-
fusion between national and individual wealth.
Wealth, to the nation, something for use and con-
sumption in the maintenance of life, is to the indi-
vidual wealthy person something to lend at interest
and a permanent source of income to the owner
of the debt. Money is individual wealth. It is
therefore something to lend at interest, and it would
be " wasteful .. not to take advan4lge of this source
of .. wealth" in the issue of it. The lending of
money at interest is the legitimate business of banks.
Therefore the banks are the profession to whom
naturally to entrust the issue of money, as they
know how to make use of this source of " wealth ..
so that it is not" wasted no The result is that the
community can only owe one another for the goods,
which their money is the equivalent of, on the
condition that, and as a mere after-consequence of,
certain private individuals being willing to pay the
banks their rate of interest upon the money debt the
individuals of the community owe one another.
Some private party, before any new money can be
issued, has to pay to some bank interest on the
 70
debt the individualt in general of the community
owe amongst themselves,) .
In one respect, counterfeiting, if it could not lit
detected and if it could be kept within the right
limits, would be preferable to this system.. Ilor as
is only now becoming undentood by people not
professional financien, the nation's money, iI a mere
bye-product, as it were, of money-lenden lending
what they have not got to lend and always very
jumpy in consequence about getting ,tpaid. Money
is not regarded .. a national debt at all, but a purely
private one. To satisfy those who pretend they
have lent it, it must be periodically drained out
of the productive system. and the community
instead of a live industry it left with the dead corpse.
It is most satisfactory to the banker. He creates
and destroys the nation', money as though it were
his own. He can make the yard, the pound weight
and the gallon all larger or smaller in consequence.
He makes open mock of the law and a failure of
the fine gift of science to humanity. It iI not enough!
There must be no one to challenge the new power.
The King', Head baa to be defaced from the national
money and replaced by his absurd .. Promise to
Pay". Of all forms of government to which their
ignorance baa condemned the wretched peoples,
surely democracy in its present plight iI the siIliest
and the worsL)
 CHAPTER. VI

OTHER PROPOSALS

IT IS CHARACTERISTIC of the age that it deems obvious

and uncompromising truths uninteresting-obstacles
to be circumvented and to be overcome, limitations
to the aspirations for sovereignty of the mind over
matter,-rather than the essential framework upon
which that sovereignty depends. The great advances
in the realm of positive knowledge of the last few
centuries has still to be properly interwoven into
educational curricula as its framework, and not
merely treated as a clothes horse on which to hang
literary, mathematical and philosophical embroidery.
There is apparent in science a retrogression in this
respect,-an alarming tendency to garb plain facts
with a cobweb garment of elegant fancies and
mysticism, to meet the public demand for this
sort of dressing up. Knowing more than any pre-
ceding age as to the conditions under which we
have dominion in the world, it is being made to
appear that we .. really" know nothing certainly at
alII No greater cloud of mystification and fallacy
exists than in regard to money. .. Credit" is
regarded by some of the public as a sort of magic
talisman for escaping the necessity of sowing as
 72
preparatory to reaping. This invadel even II The
New Economics".
All .. New Economists .. lubscribe to the doctrine
stated in this book in the form. in brief, that the
age of economic scarcity it past, and has already
been replaced by a potential age of plenty. It it
associated in thiJ country with the name of Major
Douglas. whose post-War writings- opened the eyes
of many to the undeniable truth that poverty to-day
resulted from lack of distribution rather than from
any physical inability to produce what was required.
Before him. for many yean. Arthur Kitson. in thiJ
country. and Silvio Gesell. in Switzerland and
Germany. had more or leu vainly attempted to
interest the general public in the vital importance
of currency questions, and the evils of the gold
standard as an arbitrary and unnecessary limitation
of the production of wealth. t
Unfortunately. the Douglas school. under the
term .. Social Credit JOt push the popular fallacies
that exist with regard to that magic talisman beyond
even the limits of human credulity.
As to the facts there can be DO .erious dispute.
All .. New Economists II are in agreement with the
diagnosis of Major Douglas. to put it more or less
in hit own words, that the consumers are becoming
increasingly less able to buy the whole potential
production of industry. and that more money in
• Eamomie D_aq and Cretlil ' - . - D_aq. Major
C. H. Douglas. Cecil Palmer. 1!)2Q.
t For • CODSidc:rable Iitenture that baa tpnUII up rouod
these qucstioJII see This Ag. qf P/mJ;1. c. M. Hattcnlq.
Appaufur It.
 73
the pockets of consumers is the remedy. But on
the reasons for this shortage of money, and the
method of correcting it, the theories of the Douglas
School seem to have no basis in fact or reality. They
argue that this is the result of a flaw in the price
system, - and that the shortage of "consumer-
credit" is the result of the piling up of" overhead"
charges for interest on, and for the initial provision
of, capital. They recommend that part of the costs
of manufacture should be met by the issue of" Social
Credit" to the seller to enable goods to be sold
below cost price. .
Of course it must be understood that, if all hope
of maintaining a stable money standard is aban-
doned, it is a possible solution to remedy the defects
of the situation by a progressive and continuous
inflation and debasement of the value of money.
These reformers deny that this would be the necessary
result of their proposals, and argue that it can be
" prevented" by suitable orders or legal enact-
ments. But this gesture will carry as much weight
to those prepared to think the matter out as King
Canute's celebrated gesture to his courtiers, when,
to show them what fools they were, he sat on
the sea-shore and commanded the rising tide to
retire.
It is impossible to emphasise too strongly, as the
neglect of this point seems to underlie most social
and political controversy, that the production of
wealth requires consumption equally whether those
• Tlw Flaw in th. PriCl Syslml. P. W. Martin. P. S. King.
192 4.
 ,.
producing are producing capital or consumable good..
In the diagram all fixed capital bas to be put into
the productive aide by bye-passing money &I
explained, but this capital never comel out again.
All the fluid capital in tbiJ lide bas to be put there
in an identical way, and though what is put
in is always coming out, a certain IJIUlIIIIfJ of it
never comes out and bas to be treated .. fixed
capital.
To expose the fallacy in the fint argument, let
us suppose, for illustration, that one-half of the
money issuing from the productive Iystem goes to
producing fixed capital, and the other half to produc-
ing "consumable" good., that is, the only sort of
goods which the public can use or consume. Of the
money going to the consumers, one-half it reinvested
and the other half buys the good. for lale. The half
of the money luffices to buy the half of the product
which is the only half buyable. There is no rile
of prices, or flaw in the price system. Or, IUppose
that, owing to the continuous piling up of over-
head charges, one-halfof the money paid to consumen
consists of wages and the other half of dividends.
This alten the distribution of the product among
individuals, certainly, but it does not alter the total
amounts claimed. It may and probably does under
present conditions lead to an over-production of
capital good. in contradistinction to consumable
goods. But the vague .tatement that the "abeorp-
tion" of the money in meeting interest and other
charges prevents consumen from buying the whole
product is not true.
 75
The true reason has been given already. If, by
genuine investment, investors have enabled the
preparatory stages in the production of consumable
goods to be carried on till the product comes on the
market for sale, the money in the pockets of the
consumers being sufficient to buy only the original
product is now insufficient to buy the increased
product, unless prices fall. The orthodox experts
seem to look upon such a fall as the natural .. correc-
tion ", whereas it entirely dislocates the whole
community. Under modem democracies, whose
finances are a mere money-lending proposition, there
is no one whatever to issue money to consumers,
when there is more to be consumed, and it is at this
precise moment, under the cat-and-mouse system
that it is withdrawn again.
The idea of defraying part of the cost of production
by the issue of .. Social Credit", or, not to be
mystical, new money issues, is clearly chimerical.
Under such a provision, the quantity of money
would increase, not as the rate of production increases,
but as the totality of goods bought and sold increases,
that is to say continuously whether production
increases or not. Once issued, and not destroyed or
withdrawn again, money goes on functioning for
ever.
The fallacy seems to have been in supposing that
.. Social Credit", like bank .. credit", when the
loan is repaid, could be cancelled when the sale
had been effected. It would be of little comfort to
the seller who had sold below cost and received a
State credit for the difference (or to whoever in the
 ']6
course of trade the credit had been passed on)
to find that, having achieved iu purpoae, it had
been cancelled. The greatest obstacle to the cause
of currency reform is the prevalence .till of
errors such u this among the rc:formen them.
selves.
The views of one of the chief Schoob on the
Continent, that associated with the name of Silvio
Gesell, • who died in the year 1930, may be
bric:fiy referred to. They advocate a currency of
continuously diminishing value, not by the aimple
method of progressive inflation, but by making it
legally necessary periodically. to affix .tampa to the
tokens, much u we have to do to inaurance cards.
to keep them currcnL They hardly acem to have
got beyond thinking of money u tokena, and teem
unaware of the existence of fictitious credit and iu
natural consequences. True, the cheque system baa
not abroad achicvc:d the dominant position it has
in this country, but everywhere it appears to be
growing rapidly.
They argue that money baa an unfair .trangle-
hold upon industry, because it is imperishable,
whereu goods for the most part deteriorate. So
that the buyer has only to bide his time and the
producer is forced to acll at the buyer'. price, even
at a loss. h a matter of fact, this could not occur
under a national monetary system of invariable
value. So long u then: was IlUfficic:nt money to
buy the whole product at a constant price levc:l, if
one set of buyers abstained from buying and waited
fOl' a fall of prices, another act would buy instead.
 77
This is the same as occun during inflation when,
as is well known, the buyer is completely unable to
resist the rise of prices. Producers are in fact given
the right to sell at a constant and invariable average
price-level. General unsaleability, in contrast to
relative unsaleability through the public preferring
other goods, could not occur. People who want
things abundant are asking impossibilities if at
the same time they want them so cheap that it
is not worth while for the producers to make
them.
So far as any open criticism of our monetary system
has been made by the official spokesmen of the poor
and exploited in this country, it has been limited to
the feature that it encourages all sorts of anti-social
gambling and activities equally with legitimate
enterprise. It has not got beyond schemes of classify-
ing "credit ", to grant it to genuine home-producers
at nominal interest, and then to others at interest
rates rising with the anti-social character of the
purpose. This seems like trying to make a mechanism
discriminate morally, and is as feasible as to try and
invent a train that would only go if its passenger and
driver were of blameless character, or a weapon
that would destroy only the originators and not the
victims of war.
A money system should be a straightforward
mechanism, like an honest weighing machine, for
keeping accounts correctly and for the swift and
unimpeded disoribution of all the community can
produce, not one that will favour anyone class at
the expense of another. The restrictions of fictitious
 78
credit to deserving objects is. at best, doing evil
in the hope that good may come. and only ill would
be the result. Money is a binding .ocial contract
and is no more to be insidiously repudiated than any
other business contract.
(The plain man will sympathise neither with the
industrialist who. to finance his production, damages
everyone except his own class by making their incomes
worth less in goods. nor with the rentier class who wish
to make their fixed monetary incomes worth more.
The simple justice is that neither should be permitted.
and that the State itself should issue genuine money
at a rate which will keep the average price of goods
or the price index, constant from one century to the
next. \
So called .. practical JJ people take the view that,
unanswerable as may be the case against private
money. the vested interests of the banb in its issue
and destruction on a colossal scale are so strong. and

l
the powers they now wield in the community 10
unchallengeable. that it is mere waste of time advocat-
ing any reform which could interfere in any way
with these illterests. The view taken in this book
is that compromise on this question is twl practical.
any more than it would be on the matter of tampering
with the standards of weights and measures. If
some people were allowed to concertina these stand-
ards to suit themselves all the others might as well
go out of business altogether. So. if lOme people are
to be allowed to issue and destroy money. all the
others may as well give up at once any idea of
economic independence or freedom, and hire them-
 79
selves out to those who have this power at the best
terms they can. There cannot be two Heads in
one State and the people have to choose between
Parliament and the Banks.
 80

CHAPTER. VU

INTERNATIONAL ECONOMICS

MOST impartial people can be got to agree that a

national monetary system on the lines indicated
might be an improvement upon the existing one,
but express the doubt whether one country could
adopt it without the othen, and argue in fact that
monetary reform must be international rather than
national. If we examine this argument it will be
very difficult to find any justification for it. Every
country has its own system now; they are all different,
and, if there is to be reform, one country must lead
the way, and would stand to profit by its initiative.
After fifteen yean' residence in Scotland, the author
left the country with the view that the admitted
good qualities of the Scot, generally ascribed to
their character and moral virtues, were at least as
much the result of the fact that a century ago they
were in advance of the rest of the world in their
banking system, and had devised a system of issuing
money by the banb in accordance with their needs.
Now they have come under the centralised inter-
national money power their former advantage has
become a present handicap, 10 that, in truth, now
on crossing the Border there is Dot much evidence of
it, nor of any peculiar economic freedom or indepen-
 81
dence in Scotland, but increasingly just the reverse.
They furnish an object lesson of the thesis justifying
this subject and this book, that the economic basis is
the foundation of all national greatness.
It is true that this country is dependent upon its
foreign trade for the greater part ofits food supply,
and any monetary system that interfered with this
supply would be condemned, however much it
might facilitate internal trade. But precisely in·
what wayan honest monetary system is going to
injure foreign trade is left to the imagination. It
is an objection used to frighten the timid. For
what other countries are concerned with about a
nation's money is not how it is issued, but what
it is worth in goods. A money invariable in
terms of goods in general is exactly the kind that
will facilitate foreign trade equally with that at
home.
What is proposed is the modern method, which the
growth of statistical economics and the use of index
figures renders possible, of doing what the old gold
standard tried to do without success. The goods
value of gold over the past century has been a
widely variable one, as Irving Fisher has been at
pains to expose, and these changes have had most
distressing social consequences.
The real argument here against reform is pre-
cisely the same as against any reform, that it will in
time destroy the basis of the old civilisations
founded essentially on poverty as the lot of the
majority. Extraordinarily difficult and confused as
are international econom.:c problems in terms of the
•
 82
mental outlook derived from the past age of IC&J'city,
they are, as a matter of fact, starkly and uncom-
promisingly clear in termI of the New Economia.
For the same general point of view that illuminates
and clarifies our domestic economic situation, is
applicable with even greater directness and definite-
ness to international afrain.
Ieit were merely a question of this country obtaining
all the goods it requires from abroad in exchange for
equivalent goods exported. there would be no diffi.
culty whatever. The monetary system that allowed
our industries to function at full power at constant
price level would stimulate equally the barter of
those goods for foreign products. To correct any
small balance of international trade. gold could be
used.-indeed that would be its only remaining usc
as money,-and simple measures could, if necessary.
be taken to keep the gold reserve of any country
within definite limits.
The difficulty is entirely different and a much more
sinister one. I t is not this sort of export trade or
barter that the political world is getting anxious
about, and in order to bolster up. is proposing to
jettison the principles of free trade and to adop~
tariff barriers against the foreigner with preferetlCCS1
within the Empire. It is the sort in which our goods
surplus can be sold abroad wiJJund goods coming
back to pay for them, to create interest bearing
debts for the future maintenance of the wealthy
classes at home.
So far as the ordinary citizen is concerned, mos~
of what passes for foreign trade the nation would bel
i
 83
far better without. A3 is well known, the money
created so easily in this country by banks is to a great
extent immediately transferred to other countries,
producing dislocation of the foreign exchanges, for
transactions which have nothing to do with goods or
bonafide trade at all-it may be to take advantage of
some panic or upheaval on a foreign stock exchange.
Put a stop to any speculator, who wants money,
having it issued to him straight out of the pockets
of the real owners, to gamble on margins with,
reduce foreign transactions to genuine barter and
bona fide dealings in investments, and the problem of
the foreign exchanges, and, of international re-
lations in general, would be much simplified. This
is precisely what a national monetary system would
naturally do.
If what may be termed the II starting mentality ..
leads to congestion and deadlock in national
economics, in international economics it is a per-
manent danger to the peace of the world. In home
affairs, the next step, after getting the economic
system to full work again, is to deal with the growing
load of capital indebtedness, and to secure for the
nation, out of revenue derived from taxation, the
capital so as to make way, as it becomes obsolescent,
for its continuous replacement by new. Applying
this to international economics we must look forward
in the future, not to a continuation of I I a favourable
balance of trade" and to continuing to export
capital, but to the repayment of the enormous
total debts contracted by the newer countries to
this and other industrialised nations.
 84
Sir Roben Kindersley in a recent addreu to the
National Savings Movement at Cambridge- gave
lOme interesting statistics, at which he had arrived
with regard to this country. We receive £300,000,000
a year in interest and sinking fund from foreign
investments. Prior to the War, importa (goods and
services) paid or nearly paid for exports, and the
whole, or by far the greater pan, of the interest and
sinking fund received in respect of past indebtedness
went back for reinvestment ·abroad. He deplored
that now only one-half is going back. The result
according to this authority, mUit be disastrous
to our expon trade .. which in the past has been
built up and SUitained by liberal investments in
those countries which are willing to take what we
produce ".
ThUi this .. export trade" is a very curious one,
as we not only export the goods, but we pay for them
also. The foreigner can only buy our goods if our
investon hand over their savings to him to buy them
with. The capital indebt.ednesa of the rest or the
world to us,-the unknown total that brings in
£300,000,000 a year as interest and linking fund,
which before the War had been growing at compound
interest, the whole of the proceeda being returned for
reinvestment,-ia still growing, but, as only half is
reinvested, our I I export trade" is already in danger.
What it will be when the tide turns, and the newer
countries themselves become industrial.iaed and
wealthy, and desire to repay, no one ever contemplates.

RcponaI in 2M T_.
A careful study or these facts will reveal to the
Sept. ao, 1930.
 85
thinking reader more about the true character of
modern wars than anything likely to be learnt from
the apparently rather ineffective people trying
ostensibly to stop them. They start from a totally
false assumption-that modern wars are due to
human pugnacity and quarrelsomeness, that sud-
denly a nation is seized with an uncontrollable
passion that leads to it attacking and attempting to
exterminate its neighbours. Whereas everyone
knows, or should know, that it is only with the greatest
difficulty and by sedulous dissemination of un true and
misleading propoganda, that nations can be worked
up to the pitch of declaring war upon one another.
When war is once s~arted, it may be relied upon to
feed the flames of hatred and revenge. But, even
so, it was remarkable during the last war what a lot
of clever people, expert in' national psychology,
had to be mobilised to invent and disseminate
false stories in order to keep the spirit of the bel-
ligerent nations up to fighting pitch.
What applies for one· industrialised nation like
ourselves, applies equally fOf others. Presumably
Germany, France and the United States are also all
out fOf a II favourable balance of trade". The
apparently floulishing export trade of industrialised
nations during last century has been built up because
the goods are not paid for, but owed fOf, just as the
wonderful economic prosperity experienced by this
country during the War was due to precisely the
same reason. It is the wealthy man's one idea of
what wealth is for, to lend to those who are in need,
at interest. surviving from the age of scarcity.
 86
Even the alackening of thiJ export trade immobiliJea
our factories and workshops. and the turning of the
tide.-which is the natural development to be antici-
pated as the rest of the world becomes industrialiJed.
and adopts scientific methods.-would II deluge UI
with a flood of foreign goods ". So that we may .
look forward under the l}'Item to being able to
employ less and less of our own worken. Indeed
we are already a long way on thiJ road to national
suicide. - Whether the foreign debts are repaid or
continue to increase. we are heading for a position
in which a rentier class at home live mainly on the
interest or repayment of foreign investments. and
a larger and larger part of the population can only:
live as their personal dependents and servants, and
less and less by genuinely productive industry.
If a debtor refusCi to pay hit debts. the creditor
can invoke the luperior power of the law to make
things even more expensive for him. But, if a debtor
nation refuses to pay its debts to a creditor nation.
there is no law about it. It iJ in the end a question
of force of arms. If the creditor nation, by tarifJJ
and the like hinden repayment and iJ unable to
compel the continued recognition and growth of
the debt by force of arms. sooner or later on a
favourable opportunity. the debt will be repudiated.
So the policy of the indUitrialised nations calls for:
an ever increasing scale of armaments at once tol
prevent debtor nationJ from either repudiating or:
attempting to repay in goods their past debtsl '
- Compare .dn InIIUitml W_', CIIiM III SoMJimI _
C~ BcmanI Shaw. Comtabl~ S Co•• Ltd.. 1918.
 87
Now as an initiatory step to develop virgin terri-
tories, and to provide them with the capital required
to produce the commodities we need, in exchange
ultimately for their products, the policy may have
once been admirable and beneficent to all parties
concerned. But for nations to expect to be able to
live upon one another by this exchange is merely
to try to put the engine where the starter ought to
be. The countries which we and other industrialised
nations have helped to develop are growing up.
They are consuming more and more of their own
produce and manufacturing more and more of their
own capital. Even before the War it was obvious
that something fundamentally was wrong with the
system that apparently forced the older countries to
neglect their domestic economy to a dangerous
degree. in order to export abroad vast amounts of
wealth on loan. That war is the only logical end
to the continuance of this system must now be
obvious even to the most short-sighted.
But those in charge of our national destiny are
not short-sighted. They are blind. as Nelson was.
in one eye, capable of seeing only what they wish
to see. Their eminence in affairs is due solely to
their single-eyed devotion to the ruling passion. the
problem of how. in these fecund days of science.
fast enough to convert the wealth that perishes into
debts that endure and bring in interest. Two-eyed
people may well tremble for the future of civilisation
. at their hands.
Thus. in international relations. the fundamental
antagonism between the demands of a scientific
 88
civiliaation and the age of plenty it would inaugurate,
on the one hand, and the older mentality and .ysteDll
or life arising out of the principle of ac:arcity, on the
other, it more uncompromising and clearer even
than it it in domestic affain. It may be put in a
nutshell. A. in an age of plenty there need be no
debton, 10 there need be DO crediton. The world,
if i~ chooses, can pay ita way .. it goes. A. wealth
it made more and. more plentiCully, the lOurce or
livelihood or the wealthy from lending and hiring
it must tend to dry up. The millennium offered
by acience it not one in which overwork. under-
feeding and overcrowding will have come to an
end, becauae of the dizzy virtues of compound
interest, by a aufficient accumulation of debt, but
rather one in which all are economically free 10 that
none are compelled either to borrow or be hired
out to labour for another'. gain.
The existing plutocracy, or aristocracy of creditoll,
can only be a transitional .tage between the old and
the new. It it far lest ICCUrCly established than the
old landed ariatocracy, which it 10 ruthleuly displaced.
For the world cannot permanently be kept in poverty
by financial restriction of production in peace time,
and allowed only fully to produce for destruction in
war. The pany economia, whether of Capital or
Labour, will have to give way to a national and
international economia that does not end by
defeating ita own purpose. Alternatively, it would
seem, the white race must destroy itself by intemecinc
Itruggles on an ever increasing aca1e or destructive-
ness and hand on the civiliaaaon they have
 89
inaugurated to whoever may then be left alive. It
would seem unlikely, now that the principles and
practice of science are so widely disseminated, that
the world could ever wholly revert to an unscientific
economy.
 go

CHAPTEJl vm
PRACTICAL MEASURES

b THE principles expounded in the preceding chap-

ters were properly undentood, the actual application
of them to meet the existing conditions of the world
should not prove a difficult task to competent legiJoo
laton and administraton. For thiJ the writer has,
of course, no brief, but it IeeDli advisable to give
a short account of the sort of measures that appear
to him advisable, more in illustration of the principles
than &I the best or only ones that would serve. It
is inevitable that the British nation, with its love
of compromise and inability to learn except by
actual advenity and costly experience, it destined
to try many deviOUI roads before being forced to
take the direct one. Whereas, to anyone with any
training in physical realities, the direct one it the
ooly one worth taking.
Q:n the first place we have to make a total end of
the system of fictiti011l crediL Let 111 be clear of
die difference between the false and the real A
real credit is put through by someone selling SOJDC-
thing of value. This does not affect the quantity
of money, for the seDer obtains money, which the
buyer gives up. When the former expends the
proceeds on the goods necessary, and in paying the
 91
wages and salaries of those engaged in production,
he is doing what, by his own action in obtaining
their money, he has prevented the original owners
of the money from doing instead of him. He gets
what he wants, and other people receive his property
in exchange.)
Now consider the existing system in periods of
inflation, as occurred during and after the War, and,
in periods of deflation, as the present. In the first
place new II credits JJ are being granted faster than
those granted are being repaid. Anyone with any
acceptable security, easy to sell and not likely
suddenly to depreciate,-and for this purpose a gilt-
edged investment, such as some National Debt
security is preferred,-by depositing it at a bank
and paying the current rate of interest, is accoDlUlO--
dated with a II loan JJ or .. advance JJ for some sum
short of the nominal value of the security. Nobody
willingly gives up anything at all, but the person
accommodated is empowered by the bank to obtain
other peoples' property up to the extent of the loan.
and the money they receive in exchange is an addi-
tion to the quantity of money in existence.
( Let us suppose that the security is some form of
the National Debt. Interest is still paid by the
nation to the owner of the security, and is passed
on by him to the bank with whom it is deposited.
in whole or in part to meet the charge of the bank
for interest upon the .. loan JJ. Hence a highly
curious and instructive situation arises.)
(The new money issued by the bank would have
had exactly the same effect on prices, whoever had
 92
issued it. The State, when it borrowed in the fint
instance from the owner of the .ecurity, waa acting
in justice to the ownera of money in general, .0
its debt to them should not be repudiated in part,
that

as it would have been if the State, instead of borrow-

ing it, had itself issued the money. Thia it preciaely
what the banb have now done, and we reach the
amazing conclusion that the State it now paying
interest on the loan to the baw for doing the very
injury to the owners of money for which interest
is being still paid to prevent being done. The
reason why the subject of money and high finance
is such an unintelligible one it because it consuts
of transactions such as thia on a gigantic acale, for
which outside of a lunatic asylum it would be difficult
in the twentieth century to find any analogy or
parallel. ) •
(When the inqease of the currency by .uch means
has gone too Car 10 that pricea rise .ufficiently, all
economic relations are upset. There it .triCe between
employer and employed and a general demand for
higher wages and .aIariea owing to the high cost
of living. There is an accumulation of new goods
coming on the market, and increasing competition
for sale, because, owing to the rise of pricea
the money can distribute DO more goods than
at first. Money has now the whip hand and can
dictate its terms. RegardIesa of the conscquencea,
deflation now takes the place of inflation. Exist-
ing credits are cancelled faster than new ones are
issued, 10 that the total amoun' of money it
reduced. )
 93
This attempt to reduce prices and wages is at first
stubbornly and actively resisted. The production
of wealth is slowed down, and less sells at the enhanced
prices, rather than the same amount at lower prices.
Poverty is now produced by glut not by scarcity.
More and more of the personnel of industry are
turned off, until economic distress and insecurity
of livelihood compels the recalcitrant workers to
accept lower wages. The nett result is to leave the
nation impoverished and itS internal relationship$
exacerbated, by virtue of the great business losses
incurred, which are on a par with those that would
occur if weights and measures could be fraudulently
manipulated, and of the strife between employers
and employed. )
Modern money is a form of internal debt enforce-
'able against the individuals of the community, and
not at all against the persons who issue it.
t...The Government responsible to a Democracy has
no more right to allow private people or firms to
appropriate the proceeds of the issue of money
than the proceeds of a State loan.· By doing so
they have betrayed their trust. The loss of the
unclaimed wealth to the nation is the least and
most insignificant of the evils that follow from allowing
a private money system. ) Before the day when money
rose to itS present power, in the early days of demo-
cratic Parliaments. such a situation as at present
• It would appear from Section 6. lubsection (I) of the 1928
Act tho principle has been recognued so far at least as concerns
the retired Treasury Notes, but the language is capable of a
number of meanings. The point stressed here is that it should
apply as a matter of course to all money.
 94
exist. would have had the support and defena: oC
no party. It would have been the target oCrighteoua
scorn and ridicule oC every individual representative
of the people.
The mistake in those da)'l was, indeed, the same
as now. (parliament has alwa)'l been afraid to issue
money sufficient Cor the nation's needs, as gold and
silver and the older methods oC distributing the
revenue became insufficient Cor modern production.
It was afraid of being deemed immoral and fraudu-
lent by the ignorant, if it got II the something for
nothing I t which it is impossible not to get by the
issue of modern money, and if it dared to pay its
way in part by this method, rather than by the
.. honest" method oC imposing taxation.J But, in
those days, it was equally particular that no private
bank or firm should do what it considered would
be regarded by the public as immoral and fraudulenL
(Then the cheque l)'ltem was invented, which
relieved the impossible situation by allowing banb,

Iwithout the public knowing it, to issue the money

the Parliament dare not itself do openly. Now
the interest. in this practice are 10 gigantic that
they can suppress, to a large extent, any public
discus$.ion oC the subject that is unfavourable to
them.)
The replac:ement by national money of the two
thousand or more million pounds sterling issued by
the banb, is an act of tardy justia: to the com-
munity, and, if this generation has not the courage
to put it through, we may rest IUIUI'CCI • more en-
lightened future generation wilL Prudence suggests
 95
the sooner the better, for the longer it is delayed,
the less there is likely to be to show for the money.
It needs a Chancellor of the Exchequer, failing a
special Minister, who will exercise his normal function
8J the trustee of the nation's finances.
( At the present time over £100,000,000 a year is
extracted from the taxpayer as interest on the
National Debt, and is being paid via the owner of
the security to the banks to which it has been handed
over as cover, as payment to the banks for doing
what the interest is the consideration for not doing.
The State borrowed the capital sum and pays
interest upon it, in the interests of common justice
to other holders of money, so that their money shall
not be depreciated in value, as it would have been
if the State, instead of borrowing, had simply issued
the money by the printing press. But the capital
sum, though not printed, has been issued by the
banks as bank .. credit" with consequences exactly
the same as if the State itself had issued the money.
So that the taxpayers are paying annually over
£100,000,000 a year for no consideration whatever,
and this absurdity should first be cleaned up. )
CThe situation is that some £2,000,000,000 more
money than exists is at present owned by people
with current accounts. Suppose, in the first place,
this money is issued by the Nation as a loan to the
banks for a short transition period, and they are
legally compelled henceforth to keep £ for £ of
national money against their liabilities to current
account holders. The newly issued money is thus
immobilised in the banks who for the first time in
 g6
their history are lolvent against even the IDOIt
ludden and violent financial panic. Naturally the
banks will not now continue to keep current accounts
for nothing, and they are i.. a position to repay anyone
who does not wish to pay their tenDI for the service;
~e situation then is that the banks owe the nation'"
!2,ooo,ooo,ooo and are owed this lum by industry
and other debtors at call or for Ihort periods. AJ
these" loans t, mature, they are not renewed but
repaid to the National Exchequer, and immediately
put back into circulation by the buying of equivalent
national securities for cancellation. Henceforth all
bank loans must be genuine, if the! for ! provision
is made effective. )
(AJ regards industry, ahort term loans are as dis-
astrous to the community as pulling up a tree by its
roots every now and again, to lee they are all right,
would be to the tree. There is no justification for
them if money is of unchanging value and the
national needs are to be catered for lmoothly and
uninterruptedly. Industry can be neither created
nor expanded without irrecoverable expenditure in
the sense already explained, which must be provided
for by genuine aedit or out of taxation. Every
business, except banking, has to have lufficient real
capital ~nd it is not provided by creating debts in
l!ers. )
for the banks, their legitimate business is to
len not create money,:) Painful to them as the author'l
criticism must nec:.esSarily be, it is possible lhey
may in lOme future age put up a tablet to his memory
for helping to deliver them from their Sisyphean
 97
task': For their legitimate business, as indeed all
legitimate business, cannot help being very greatly
expanded if the strangle-hold of money over men
were removed;> This, on the other hand, will
probably antagonise the Labour Party to the whole
proposal, for the thought of anyone making extra
profit is painful to them. As, however, science
literally threatens to destroy the world if it insists
on remaining poor, their objections must be waived.
For conscientious objectors to an age of plenty the
monasteries would still be open.
\.With regard to the whole question of lending for
investment, there is room for reforms much overdue.
Whatever may have been once the case, genuine
industry should now not have any difficulty in
securing all the capital it may require. Vast sums
in fact are now wasted for lack of proper guidance
and protection in this respect.) According to Mr.
Henry Morgan, President of the Society of Incor-
porated Accountants and Auditors, in the last six
months of 1928 the public invested £15,JJ7,OOO in
58 new companies. The estimated profits of 52
of them were given as £5,219.000 a year. Now,
two years after, he estimates that the public had
lost 95% of their money. Only one of the 58 com-
panies had so far paid any dividend, 27 were already
in liquidation (14 of them under compulsory orders),
and, of the remainder, at least 16 were in serious
difficulties. *
Surely it is time something was done. and this direc-
tion of the flow of investment should be legitimate
• Sec Report in Th, Timu. a6/9/30.
G
 98
banker'. work in which they might very much
extend their usefulness. If they are unable to. the
needs of industry can easily be met by the Govern-
ment securing the rights and interests of investon
who wish to invest their lavings under their
protection. One would have thought this to be
one of the natural functions of the law in any
case!
A. for the future provision of luch additions to
the total national money as will keep the index
number constant, as production and population
expand, it would seem that what is required is a
Bureau of Statisticians analogoUi to the National
Physical Laboratory. which ltandardisea our weights
and measures, to determine index numbers and advise
Parliament as to the rate the new issues should be
made. These issues would be made either as the
original issue. by retiring State loans. or put into
circulation in payment of part of the national expen-
ditUre that would otherwise be defrayed by taxation.
Some people leem to have an exaggerated idea of
the importance of giving the money direct to
consumers. as would be the effect of the latter
alternative. The point of fint importance is that
all should benefit, as all. in greater or less degree.
unwittingly contribute to the new issue. but there
may be secondary considerations dictating which
method may be adopted. The question is the same
as would arise under the second part of the scheme
still to be dealt with, whether to use the national
revenue for the current expenditure or to redeem past
capital indebtedness.
 99
It is always quite gratuitously assumed, by the
defenders of our devious methods of creating money,
that Parliament is as a matter of course not to be
trusted, and that the temptation to meet expenditure
by issuing new money instead of by taxation, in
peace-time as well as in war-time, would be irresist-
ible. Even if this were true, it should not be difficult
to guard against it. The Bureau of Statisticians,
instead of being merely advisory, might be given a
status similar to that of the judicature in the adminis-
tration of Parliamentary enactments, so that their
decisions were as binding upon Parliament as any
other legal decisions are, unless set aside by special
legislation. But, if it were laid down that all the
profits of the issue of money should go automatically
to national debt redemption, in the same way as
any surplus of the revenue over expenditure now
does, not only would a step be taken which would
protect this source of revenue from the rapacity of
future Chancellors of the Exchequer, but a welcome
and very necessary new provision for the cancellation
ot: this debt would be made.
(This seems to be the first step the nation will have
to take along the road, the goal of which is economic
freedom. It may be only a smaIl one, but it is the
first step that counts. It would ensure that the
regular production and consumption of wealth
should increase up to the natural limits set by the
availability of capital and labour, and the industri-
ousness of the people. There would be no involuntary
unemployment, and apart from physical or mental
defectives for whom medical or educational provision
 100

rather than indiscriminate charity ia needed, there

ahould be no undeserved destitution)
The important distinction between the system
proposed and the present one ia that, while the law
of supply and demand would operate .. before ..
betwecn one kind of commodity or acrvice and another.
there never could be general overproduction and
unsaleability for lack of money. That would be met
by greater purchasing power among consumers, 10
that the .tandard of life would gradually rise. On
the other hand, there ia nothing whatever in these
proposals to encourage waste, idleness or exorbitant
demands on the part of one act of the community,
relatively to the others. For if everyone became
demoralised by prosperity and too lazy to produce
wealth, 10 that prices tended to rise, the correction
would be applied by taxation withdrawing money
from circulation to prevent the increase in pricea.
It is, of course impossible to predict for the indefi-
nite future, but, for the present, we are .till very far
from any real .ateity of production. There is 10
much leeway to make up in under-consumption
that problems that would arise if ever real over-
,.production occurred may be left safely to the future.
~ The problem to-day is under-consumption and the
solution in general termS must precede the solution in
detail. We must act up a monetary system capable
of distributing all the wealth that can be produced
before indulging in partizan disputes as to the relative
shares of individuals or classes in the prodUCL The'
future safety of civilisation depends upon finding
an outlet for the world'. potential production by
 101

useful consumption, which shall build up and enrich

life in all its varied aspects, rather than destroy it
miserably by a succession of ever more disastrous
. economic wars. A national scientific money system
would create an enormous home market for the goods
we can so plentifully produce, as well as facilitate the
barter of these goods for others more favourably
produced in other countries:)
Hitherto the whole thoughts and energies of the
world have gone to the initiation of a new system.
Acceleration and the speeding up of production,
labour-saving, the reduction of working costs, and
the reduction of consumption to the minimum in
the interests of accumulation, are the views still
left as a legacy from that byegone era. No thought
has ever been given to the ultimate purpose of all
the wealth we have been patiently preparing for
over a century to be in a position to produce. Now
we can make it no one seelDS to know what to do
with it. Except as a purely transitory phase, the
idea of producing more and consuming less is a
contradiction in terlDS. If something is not speedily
done to increase consumption, the world will speed
up till it bursts. Already it might be satirised as
more remarkable for its revolutions per minute than
for its miles per hour.
Once the whole unemployed labour and capital
are again absorbed in industry and the production
of wealth increased to the maximum possible, tIIera
is the time to take the next step. which to those who
understand the principles involved will need little
further elaboration. From the standpoint of national
 102

economica capital expenditure, necessary and pr0-

ductive as it is, is expenditure, not accumulation, and,
in 10 far as it is not redeemed or wiped off, remains
as national debt,-jUit like any other national
debt. a source of income to lome memben of the
community at the expense of the whole. Ita owner·
ship by individuals resulta in a redistribution of the
revenue as payment for ita hire or we. But from
the national standpoint ita provision in the fint
instance is an irrecoverable expenditure precedent
to any of the modern methods of production. Unless
redeemed. the debt will accumulate indefinitely and
this civilisation. it would seem. i. bound to go the
way of other past civilisations that became wealthy.
through the growing power of the creditor class
over the debtor class. and the reduction of the latter
to the rank of their personal followen and servantl.
Whereas economic freedom lies along the opposite
road.
\..A national monetary system woUld benefit the
poor equally with the rich, and would remove the
immediate cause of the wont Iymptoma of clall
warfare in the body politic. There would result a
larger flow of money not only for individual liveli-
hood. but also a much larger total revenue to be
levied upon by the tax-gatherer. 10 that the income
from this lOurce could be increased even though
the rate of taxation were reduced. There would be
more money available for investment, and that is
all to the good. as it could not but help to lower
the rate of interest. This will increasingly tend to
prevent an over-production of capital. for people
 103

who might be tempted to "save ", when the rate is

5%, would prefer to spend if the rate were reduced.
At the same time, even though there were no interest
inducement, responsible people in an individualistic
society would be compelled to try and save, as has
already been pointed out.)
The next step is the redemption of old capital by
the allocation of a proportion of the revenue derived
from taxation. This is a perfectly sound and practical
scheme for the gradual nationalisation of capital,
for achieving gradually the original intention and
object of Socialism, as the national ownership of
the means of production, distribution and exchange.
It is as different from anything that passes for the
name politically to-day as vinegar is from milk. It has
a catch in it. It is effected not by oratory or by
violence but by paying for it, and if ever it is put into
operation it would probably not be by political
socialists at all but by the older parties.
Modern expropriatory taxation, so-called socialistic
but actually purely individualistic, merely alters the
identity of the owner of capital from A to B, C, D, ..•
It exchanges one aristocratic devil for seven plebeian
ones. It docs nothing whatever to vest the capital
in the nation as a whole. In future the nation
should "save" as well as individuals. Taxation
should be for two definite purposes, the provision
for government expenditure, which at present is
the only one, and the second for the purchase of
capital investments. The first under economic pros-
perity should be a diminishing and not an increasing
burden, as all the ameliorative payments to paupers,
 104

the unemployed and for the innumerable services

which an economically free and prosperOUI people
would naturally prefer to pay for theDlldVCI. beCOIDCl
more and more unneceJlSary. If, AI ebewhere worked
out,· a 4/- in the l'. income tax derived from invest-
ments were earmarked for the purchase of those
investments. and the lubeequent interest payments
of the investments 10 acquired by the nation were
devoted to the same purpoae. the whole of the now-
existing capital would pasa into the ownenhip of the
nation in 'about twice the time required for the
investment to return the capital in interest, that is
to lay, in 40 yean for a 5% investment, in 50 yean
for a 4% investment and 10 on. Of the capital
accumulated in the mterval from the initiation of
the scheme, the nation would abo own a proportion
increasing with the age or the capital The scheme
may be called one or compound redemption, the
interest on the capital acquired being UIed AI well
AI the revenue from tuation to effect the redemption.
Expropriation ". bloe, &I advocated by the com-
munists, would certainly be .peedier, but it would
result merely in the government being the capitalist
and the communist the governed. PllU III ,luJngt,
plus ,'"' III mhnI "'ou. The differences between one
politica1system and another are far leal fimdameDtal
than is commonly .upposed. The l}'ltem which is
usually called capitalism is in reality the .aeDtific
civilisation. Capital is the essential, and it it merely
in the ownenhip of it, and the way in which it it
provided, that capitalism difI'en from ..ooalism. J(
• WMll.\ y",.., WchA . . Dill, po -72-
 105

under the latter, the provlSlon were neglected in

any of the highly populated industrialised nations
the majority would starve. The point seerm to be
neglected by the revolutionaries that those who
produce capital are cODSuming but not actually
producing. They are merely preparing for future
production. The actual processes involved are
identical whether capital or consumable wealth is
being produced, but in the first case the product is
not consumable. Hence those who produce con-
sumable wealth must always produce more than they
consume, by the amount consumed by those pro-
ducing capital. Then, but not otherwise, all can
consume more than they could without such capital
provision, and the population can grow beyond
the limit of the former mode of life. The principle
of Malthus is offset.
The reforms here stressed, if applied, would result
in a system with the good features of both the individu-
alistic and socialist states. All the old capital would
automatically be acquired by the nation, by
applying the taxation on the revenue it provides to
its owners to its redemption, and the whole revenue
therefrom would ultimately be vested in the nation.
Whereas the starting and development of new
industries and sources of income would be left to
private initiative and enterprise, and in this it is
hardly to be questioned that individuals are better
than any government department could be. In
fact it is to be doubted whether it could be done at
all satisfactorily by governments as at present
elected.
 106
If ever science is developed to the point that there
is less and less for the human worker to do, if more
and more of the routine of production continues to
be accomplished by automatic labour-saving devices,
so that only a fraction of the human labour and
services available are required for full production,
-which is a ltate of things by no meam so remote
as at present it leems.-the lituauon will be
adequately meL ~or the nation will then be in
possession of a lource of revenue of ill own, which
is not the case nOW', out of which national dividends
in lieu of wages could be paid, as the Douglal IChool
advocate, to all, or to all who are no longer required
to carry on the economic work of the world. It will
probably come as a surprise to many people who
have not gone deeply into the question, that this
supposedly wealthy nation, and othen are the lame,
owing to the false I)'Btem of private economia
posing as national or political economy, OWDI
practically nothing at all. It is in the position of a
poor relation to iu citizens, and is dependent upon
what they may graciously be pleased to grant from
year to year to enable the national lervices to be
carried on. A rich nation to the old economia is a
poor nation to the new.
 10 7

CHAPTER IX

DEMOCRACY

(THERE is a growing body of opinion that Democracy,

in this country at any rate, has not been given a
square deal. Its political power has been useless
without real economic power. The view taken in
this book is that its fatal mistake was first in allowing
a private monetary system to grow up and then in
not putting an end to it. It is finding itself under
vague international compulsions to pursue policies
which inflict irreparable damage to its internal
economy, continuously to restrict production and
employment, to get deeper and deeper into debt,
and unable to use its strength or skill for its own
life.) After over a century's unparalleled advance
in the arts of producing wealth,lliving is becoming
for an ever-increasing proportion more difficult and
insecure. Everyone knows that there is something
fundamentally wrong, and that the solution of the
problem is not yet within the horizon of party
politics.)
(The alarming increase of unemployment and the
continued deep depression of our staple industries
is the continuous theme of all parties, but on the
money policy as the obvious, and indeed the definitely
predicted cause, there is a conspiracy of silence.)
 108
;,Parliament endorses and encourages the banker in
his belief that the nation'. money it hit .ole concern
to create or destroy as he decides) It deferred, or
appeared to· defer, to public opinion to the extent
ofappointing another Commiuion, since the notorious
Cunliffe Currency Committee that advised deflation,
to enquire into the financial system. The finding
of this, if ever published, no ordinarily intelligent
person probably would even take the trouble to
read, any more than they would of a Temperance
Commission composed of brewers. (It CODIiated of
bankers and IUch expertI and economiatl as hold
views about money. acceptable to the banken who
have taught them. J
(The public knows perfectly well that hardly any
step in knowledge or advance in thought, however
commonplace to-day, baa ever been made without
those deeming themselves authorities in the matter
being hostile and opposed to it when first made.
To regard money as made for man rather than man
as made for money would, to the money expert to-day,
be as great a heresy as it was at one time to believe
and teach that the earth went round the IUD and not
the IUD round the earth.') But if Galileo and Coper-
nicus had lived to-day, and had upset the theories
of the authorities regarding the nature of money
rather than of the universe, they would have had far
more difficulty in getting their new views impartially
d.i.sc:ussed than they had from the Medieval School-
men and the Courts of the Inquiaition.
(Freedom of thought and d..iscussion app1iea, &I yet,
only to the affain of the mind and comciencc whK:h
 log
affect directly no man's pocket. It does not yet
apply to money.) That is the Ark of the Covenant,
the Holy of Holies of the Slave Civilisation. Those in
authority know well the danger. It might have
consequences to humanity graver and more funda-
mental than freedom of belief. It might lead to
economic freedom, the tap-root of all freedom,
worth the name.
Look at it both ways. Who are the supermen to
govern such a kingdom, without the fear of hunger
to get its work done, the compelling power of misery
to bring men and women to its most disgusting and
and degrading offices? Though all may wish to
be rich, neither the rich nor the powerful wish all
to be rich. "There is that domestic servant difficulty
and the necessity of obtaining recruits for the army
which, in Ig21, made deflation appear to be the
lesser evil. So Democracy is betrayed.
But each of ~ contributes his pet King Charles's
Head. As, at the creation, the world was made with
only a limited quantity of gold, it is clear, that how-
ever rich we might be in goods, money must always
be scarce and difficult to come by. Not to have at
least a backing of gold would threaten th; whole
precarious structure built upon .. credit" .,.tWhat is
the use of giving the masses larger money incomes
than is necessary for them to exist upon and rear
the next generation of labourers? They would only
squander it to their own and other people's hurt
and become too lazy and independent to work.
Then there is the population question. Already the
world is being increasingly recruited from the
 110

.. lowest strata·· of the population. and the weU-

to-do are becoming less and less prolific. 10 that we
shall end b y - but it is difficult even for the
eugenist to say how we should end if that were 10.
The answer to aU this is that even greater changes
are already knocking at the door. Science is revolu-
tionary. though scientific men are not. nor are
revolutionaries scientific. )
To the overwhelming majority of people. democ-
racy. if it can put its house in order in time. will
appear as far preferable to any other (orm of govern-
ment. whether an autocracy. aristocracy. plutoc.-
racy. military dictatorship. 01' any combination o(
these. It is premature to condemn a system of
government which is not the real govcrnmenL The
most important change that it is possible (01' a
nation to suffer. that its monetary system should
be surrendered to and become the monopoly o( the
money-lender. has taken place in this country with-
out the public being aware of it. and without the
matter being a political issue at aU.
The way lies open for a real democracy with
opportunities for aU to live an ample and civilised
life. Judging from the rapidity with which those
whom science has already enriched have managed
to efface the sins and shortcomingJ which they con-
demn in those less fortunate than themselves. possibly
the eugenist is mistaken in his insistence on the
influence of heredity and his neglect of the importance
of economiC; environment on human character and
worthiness. ~Unless the wealth of the world is used
in the attempt. at least. to elevate the gmerallevel
 III
of humanity to something of the standards of those
whom it has already elevated beyond the fear of
want, there can be no serious question that it will
b~ used to destroy it. If we are doomed to fail
either way, the first way seems the more rational
and inspiring. If the world cannot be made safe
for Democracy it seems impossible that it can be
made safe at all. Dictatorships and autocratic rule
offer no final solution of the real problem, the wise
consumption of wealth.)
The betrayal of Democracy was originally due
to ignorance. To-day it would probably be truer to
say that fear and distrust of the people are responsible
for the real economic strangle-hold of money being
left in private hands~ Parliament would not dare
openly to do the deadly work that has been going
on since the War. It shelters itself behind the plea
of impotence. I I The grim goddess of Finance
exercises, as she always must, an inexorable
power."
So that is all it has been for I In place of the old
grim reality which science has abolished, the poli-
ti~ans have been successful to the extent of creating
a new grim deity-a counting goddess who. by
counting below the level where there is anything to
count, can hit recalcitrant humanity below the belt
in the comforting assurance that there will be little
there to hit. This algebraic paragon is supreme in
understanding the profound social significance of
the transcendental truth that minus one is plus one,
compared with minus two. It can make even sane
men believe that poverty and despair are the normal
 III

and natural consequences of over-production and

luperabundance.
(I'his is no exaggeration, but the authoritative view.
Power and responsibility seem to dull men'l witl.
No less a penon than the late Premier aaked the
celebrated question" What is the use of making goodJ
if we cannot aell them?" when an ordinary man
would have asked .. Why cannot we aell them?
What is money for? I I To the ordinary man,
if a business is incapable of doing ita job i.
is the obvious course to replace it by one that
can. But to the man in control, when money fails
to do ita job, there'l an end to it. The whole financial
system of this country is 10 rotten that it cannot face
a genuine enquiry~ At present it is costing the nation
lover a hundred Inillion pounds a year in bogus
ltaxation for not doing ita job, the distribution of
the goods the country can make and does need.
A. the .. foreman" type might well acorn any
lesser weapon than brute violence and misery to
get the roughest jobs put through, 10 the demoaatic
ruler has to have something behind him more
effective than the silvery tongue of oratory when it
comes to getting the world', work done. It is aU 10
natural. Yet lOme of the hardest and, at the same
time, most disgusting work of the community,-that
of hospital nunes, at one eumple,-is done volun-
tarily at a neceaaary and benevolent public duty
with but little financial inducement. If it did
nothing else that was good llUl'c:ly the Great War
established that the 'Pirit of Demoaacy dcaerves
better than this of ita ostensible rulerl.
 /

<.. This age of misers and misery has, perforce, had to

divorce youth from political power for the century
past. The inverted top-heavy condition of a world,
engaged in the amassing of debt, cannot safely be
entrusted to the young and rash. It requires experi-
ence, wisdom, compromise, diplomacy and very
skilful balancing. The young readily reorientate
their minds to new conditions. The old, at best,
apply forty years too late those they had arrived at
. in their youth, and these, more often than not, are
mere pitiful efforts to mould the hated new into the
pattern of the beloved old, rather than anything
adequate to and worthy of the age) It has been
wittily said by Professor de Madariaga, that so long
as there is death there is hope. But it is clearly
asking impossibilities of the world that it should stand
still and give its leaders time to catch up with it.
(So far as contemporaneous politics have any
reality or applicability to the mode of life of the
modern world, it can only be to the mode of dis-
tributing wealth. The politicians, like the economists,
lawyers and bankers, are usually tyros in the science
of creating wealth. It would seem that there are
broadly two possible methods, by no means mutually
exclusive, by which the revenue available for the
maintenance of life may be distributed. We may
follow our present tendency of trying to make dis-
tribution, like production, communal, of providing
State services for education, old-age, sickness, housing,
etc., out of taxation, in addition to the necessarily
communal services, until taxation becomes the
regular method by which the revenue is distributed.
II
 "4
We 10, at most, provide lOme people out or other
people'l pockets, not with what they want them-
. selves, but with what the good government is graci-
ously pleased to think necessary ror them, much
as a slave-owner looks after his Ilaves, or a f'armer
his cattle, and we expect individuals, &I before, to
continue to supply all the capital.)
No one seriously defends luch a method, except
as a mere temporary alleviation or evils none of
which are necessary or natural, least or all in an
age which has seen the lolution or the problem or
production. Alternatively, we may follow the
methods, outlined in the preceding chapter, or
distributing larger money incomes, leaving the
individual free to choose what he thinks belt.
The continuous struggle to maintain the decencies
or existence against the forces tending to enslave
and submerge them since the beginning of the
industrial era, has developed among the rank and
file of the industrial army a team-spirit unknown as
yet among the well-to-do as a class and with obvious
resemblances to that in the professions or law and
medicine. They also, if not their vocal champions,
naturally have more actual realisation of the nature
orthe processes by which wealth comes into existence,
and what it costs in human-being-hoUJ'l to produce,
than the mercantile, financial and professional
elements of the community to whom luch considera-
tions are but figures and symbols.
They should not long remain under the general
misconception that the expropriation or the incomes
of the well-to-do to provide their needs is socialistic.
 115
It is enslaving and demoralising rather than
liberating them, and, at most, shifts the ownership
of capital from one individual to a number of often
less-desirable masters. <fractical Socialism, as the
national ownership of the means of production,
distribution and exchange, requires national or
government saving or thrift rather than government
expenditure on the maintenance of individuals.
All that is being spent on the alleviation of poverty
and distress is taking them further from rather than
nearer to their goal. So far, Labour in power has
but followed the path of least resistance leading
nowhere. By expropriatory taxation, it obtains and
spends as revenue what in a Socialistic Common-
wealth it would have to spend on capital. In this
of course it is opposed by the older parties who, in
power, do the same to even greater extent, because
unopposed. ')
So it is with the restriction of output by the Trade
Unions, the attempt to make a day's work last a
week, the putting of sand, instead of oil, into all the
wheels of th:e industrial system. They are taking
us further from Socialism, and the goal to economic
freedom lie~ in an opposite direction. These are the
roads to national impoverishment and demoralisa-
tion, and Socialism is no more possible to an impover-
ished and demoralised nation than it was in the
age of scarcity.
If it is to come in our time, not only the money
barrier, but every other barrier to full and efficient
production must be swept aside, so that there may
be at once an ample revenue and sufficient for the
 116
provision of new as well as for the redemption or
the old capital.Ctro IUch an age, freedom might
be IOmething more than a wish or a name to the
many. The ltandard. of professional lervice, the
morale of the officen and men of a great army, the
IOlidarity and loyalty of labour, developed in the
hour of ill trial, must be the principlel the world
must rely upon, if it is ever to give up ill belief in
the efficacy of want, fear and greed. Education for
wealth is the only hope left for the race. )
Yet it is idle to attempt to appear even optimistic.
The old regime hal left behind ill heritage of deep
demoralisation and revolt. The prelCnt generation
or labour are preparing for Armageddon when they
mould be educating theIDlelVei for the Promised
Land. ~ though the forcel making for deltruction
were not already powerful enough, they increasingly
tend to be wreckel'l and look to no other way out but
a revolution. No doubt this will appear monstrous
and treasonable to those to whom the inexorable
laws of economiCi have been kind, but to the pr0-
fessional economist it must appear as the most
beautiful and convincing demonstration of the
fundamental principlel upon which he hal founded
his lubject, in directions at fint overlooked.
The greatest obstacle to all reform at prelCnt comel
not from the II True-Bluel tt and I. Die-Hard. "
but from the natural drift of Labour towards revolu-
tion. Those mOlt vocal on the Iubject of the wrong!
or the poor and exploited have velted interelll in
their continuance and growth. H Monetary reform
will rivet the chainI of wage-slavery and capitalinn
 117
on the workers for another hundred years. II Some-
thing like this would now be effectively said of every
real, as distinct from sham, reform. They seek to
end rather than mend the system, and in this they
are likely, as has been indicated, to find recruits
in very unexpected and powerful quarters.
Meanwhile those who have believed in the people
and the ultimate triumph of the democratic idea have
small cause for hope. There is little evidence of any
enthusiasm for or interest in what the future may
have in store. No one would conclude that, since the
last war, the nations have been engaged in a race
against time. Rather Democracy seems stunned,
pole-axed by the last blow and awaiting the next,
disillusioned, cynical and frankly infidel, but know-
ing no other way.
The march of events has put the world out of its
focus. The froth of wordy battle and the clap-trap
of the hustings, no more than the issue of the last
great conflict, now decide anything at all. Heroes
and their worshippers occupy the stage as fancy-
dress mummers detected by the cold eye of dawn.
The issues have been shifted from the personal and
emotional spheres in which the qualities of men
have evolved to that of the intellect and under-
standing..: Ideas are at war rather than nations
and men.~:
,Clear thinking, independence of judgment, sanity,
ability to grow up mentally and take a road that is
strange and new to history, in the teeth of all prece-
dent and authority, are the qualities of the pioneer
rather than the many, and now they are being
 118
demanded of the many. Will Democracy stand the
new test? The dangel'l that crowd in upon it come
from behind, but straight ahead the way still lies
open. Can it steer the straight COUI'IC? Nowadayt
the individual may, at most, be a lone signpost to
the many. They must blaze their own trail.
 119

NAME INDEX
Baldwin, Rt. Hon. Stanley, Kindenley, Sir Robert, 84.
II~. Kitson, Arthur, 72.
Copernicus, N., 108. McKenna, Rt. Hon. Reginald,
Cunliffe Currency Committee, 39·
108. Madariaga, Don Salvador de,
113·
Douglas, Major C. H., 7~, 73, Malthus. T. R., 105.
106. Martin. P. W., 73.
Marx, Karl, ~I.
Einstein, A., 30. Maxwell, Lt.-Col. D. W., 58.
Ortes, G., ~I.
Fisher, Irving, 55, 81.
Rasputin. 49.
Galileo, G., 108. Ruskin.lohn, v, 13, !II, 22.
Gesell, Silvio, 7~, 76.
Shaw, Bernard, 86.
Sismondi, S., 22.
Hattersley, A. C. Marshall, 40, Soddy, F., 50, 104.
7~·
T/r, TImls. 84. 97.
Jeans, Sir J., 30. Tracy, Destutt de. 21.
Joule.J. P., ~o.
.. JuniusJUIl1or." 43. Withers, Hartley, 38.

SUBJECT INDEX
Abstinence. Necessity for, 60 Balance of Trade. 83. 85.
" SIIJ· Bank" Loans ", 20, 3 2 , 35, 37,
Age of Plenty, 10,112, 88, 116. 45,57,62,70,9 1 •
- Scarcity, 9, 10, 65, 82, 85. Bank Note and Currency Act
Armaments, 86. of 1928, 40, 93.
 120
Bank of England Notes, The Economia, Orthodoz. II. 65,
New, 40, 44- 74, 82. 106, 116.
Banks, !II, 35" "'1',49,57,70 , - , The New, II " ",., 65,
79, 91, 94 " "'1. 71, 82, 101, 106.
Bureau of Statiaticialll, Pro- Education, .4. 71, 116.
poeed, 98, 99. F.xport Trade, 84-
Expropriation, IS, 104. 114-
Capital, vJ 13, 14. IS, '4, 104- Eugeru.... II, 110.
-, Fluid, 61, 74-
- Redemption, gO, 101, 1°4,
116. Five Year Plan In Ruuia, 61.
Capitalism, 104, 117. Fluid Capital. 61,74-
Cat and MoUIC Finance, 69, Fcnigu CUl1'CDCin,..s, u...
- Goods Disaiminatl';D in
75· favour ;;C, 43.
Chancellor of the Exchequer,
17,95,99· - InvClIment, 84-
" Cheap Ctcdit Facilities," 47, • - Trade, 43, 82.
Free Trade and TariRi, 82.
69· Freedom, Economic, 78, 88.
Cheap GoodI, 43, 49, ". 99, un, log, 116.
Cheque System, 31, 35,39, ,6, Freedom of Thought, loS.
9t._ tion,
Civ...... . The S· .!I'. 9
acoWlJO,
" "'1., II, 13, 41, 88, 1 0 40 GeseU School, The, '16.
106, III. Goddnl of Finance, The, III.
Coins, 31, 31, 38. Gold, 33,40, !II, 53, 57,68,81.
Commissions 00 Currency, Gold SlADdard Act of 1925,
108, III. The,4 1•
Conservation, LaM or, 19, 30 , Government, Dj"orcc or PoJj.
31 • tical from Financial. 16, 41,
Ctcdit, ,I, ", go, 95, g6 79,93,110.
Deflation (u. Inflation).
Demand, Effective, 14- Hire Purcbale System, 16.
HoIpital NunCI, III.
~,16,3I,59,93,107
., S''1.
Diagram of the ECOIlOIJIic loBation and Deflation, 10,
Cycle, viii, 64-
Dictatorships, I 10.
36, 40, 4 1 ,
"u'l., log.
..s,
58, 73, 9 1 ,
Distribution, Probkm or, IS, Industry, N«ds of, g6.
. 18, Ill, 64, 68, 113. Inla'Dational Economn. 80
Douglas School, The, 71. 106. ., Uf·, 107.
Invariable Money StaDdard,
EcoIlOlDial. Iola'Dational, 80 59, 63. 6?, 73, 78, 81. g6
"SIf., 1 0 7. Investment, 67.750 a.., 97, lOS·
 121

£, for £, ProviJion, The Pro- Profits of the Inue of Money

posed,95· 35,93·
Labour, IS, 114, 116. Public Service, !I!I, 112, 116.
Labour Party, The, 97, liS,
116. Quantity Theory ofMoner, 55.
Legal Tender, 31, 33, 35, 44·
Rentier Class, The, 47, 66, 86,
Machine, Output of a Single, 88,IO!l.
30 • Russia, Five Year Plan in, 61.
Money, Gold and Silver, 32,
82. Scotland, 80.
- . Invariable Standard of. .. Social Credit," 72, 75.
59, 63, 67, 73, 78, 81, 96• Socialism, 103, 115.
-, Non-Existent (SII Bank Standards of Weights and
U
.. Loans ). Meaaures, 46, 78, 93.
, Private Issue of, 19,
3iZ, 45, 52, 83, 93, 110. Taxation, 15, !l7, 94, 96, 98,
-, Quantity of, 33, 34, 39, 100, 103. 105.
49,5 8,94. Time Lag in Production, viii,
-, - Th~ory of, 55. 57,61.67·
-, State, Proportion of, 40. Trade Cyde. The. 40, 68.
- System, The, 18 " S'f., Trade Union Restrictions, 115.
34,II!I.
Underconsumption, IS, 66,
National Physical Laboratory, 93, 100.
46,98• Unemployment, 13. 15.41,58,
59,65,86,93, 99, 101, 107.
Overdrafu, Bank, 37.
Overhead Charges, 73. Virtual Wealth, 50 " sef·, 54,
56,58•
Paradox of Riches, !II.
Peryetual Motion, 30. War Finance, 42.
Politics, 77, 100, 113. Wars, Economic, 10, 15. 118,
Population Question, The, 42,85,87.
105, 109. Wealth, Real Nature of, v, II,
Pover'ty, 15, 17, lU, 23, 66, 81. !II, !Z4, 65, 69, 82, 85, 88.
Practical Measures, 90 " Sfq. Weights and Measures, Stan-
.. Practical " People, So-ca11ed, dards of, 46, 78, 93.
78•
Price Systems, Flaw in the, 73. Youth in Politics, liS.
 TO INTRODUCE
THE LIBRARY OF NEW IDEAS
Pocket ,ge. Clolll. 3" 64. ucla.

PROVOCATIVB thought, 10 long .. it it not merely the

vapouring of intellectual poeeura it always IUI'fI of wide
attention. Through the medium of boob our spiritual
and material life it enriched and given the impetul
which comes from the leaden of thought and experi-
ment.

Although, in this century, the diatribution of boob

has become 10 wide that readina it available to every
one, the ownership of boob upon vital topic:a baa been
difficult by reason of the high cost at which they have
been issued.

THE LIBRARY OF NEW IDEAS will be IOld at

three shillings and sixpence and ita volumes wiD be
bought to be read and re-read. They will be the
hub of vigorous diac::uaaion upon topica of vital coo-
temporary importance, and will be to the active
mind a constant urge to individual thought and
expression.
 NUMBER I

V:NEWWARS: NEW WEAPONS

by
LT.-COMMANDER THE
HON. J. M. KENWORTHY, R.N., M.P.
COMMANDER KENwORTHY, who has made a long study
of disarmament and of air warfare, has written a
challenging book upon our imperfect defence. He
asserts that we spend £uz,ooo,ooo a year on arma-
ments and are not getting value in security i he
believes that a saving of £40,000,000 a year could be
effected by developing our Air Force and thus securing
economy with greater efficiency.
Our present neglect of the air leaves London open
to destruction in a few hours by a swift aerial attack
with machines armed with gas and chemical bombs.
Commander Kenworthy produces overwhelming
evidence that naval and militsry armaments are
helpless before concentrated aerial attack, and he
believes that a drastic cutting-down of battleships,
combined with an enlargement of the Air Force, and
the establishment of one Ministry of Defence should
be our policy.
H. G. WELLS:";,"Altogether admirable."
BERNARD SHAW: itA good I8-in. hit between
wind and water."
CAPT. LIDDELL HART: "This coolly reasoned
exposure."
('ADMIRAL MURRAY SUETER: "This book
appeals with great force."
 NUM • • • a

TENDENCIES
OF MODERN SCIENCE
hy
PROPl!SSOR A. M. LOW

1M tbia book Pro£esaor A. M. Low, the lCientiat

and inventor, .bows how ICience affecta the liCe of
modern men and women from wakin, to .leepin,.
Science and clothes, lCience and morala, lCience and
politica, and ICience and marriage, are a few of the
topica c:liIc:uued. ProfeHOl' Low hal written in
. popular language a book u ac:iting u any H thriller,"
.. absorbing u • romance, and one that will be
c:liIc:uued on aU .idee for • long time to come.
TM Scotmum: "A little book which COVeJ'l with
experienced eye and .tep, wide and deep 6elda of
human lmowledge."
Eoening Standard: .. Charming writer and IOUDd
IICbolar."
Guwenl Literature: .. Low hal great practical geniua
and also the gift of explaininc difficult thiop euily
to the layman."
 NUMBER 3
,/
"'THE AIR AND THE PLAIN MAN
by

COLONEL THE MASTER OF SEMPILL

FLYlNO is no longer the toy of the very rich or a means

of excitement to the adventurous. It has become an
integral part of commerce, and is fast growing to
be as much a part of the ordinary man's life as motoring.
The Master of Sempill, probably the most well-known
figure in civil aviation, has here thoroughly explained
all that fiying is doing and can do for the ordinary
citizen. Flying has gripped the imagination of every-
one, and here is a book which will interest readers of
all ages from cover to cover, for it is a ~ecord of
achievement and a challenge to further endeavour by
one who pioneered the early hazards of the air.
 NUMB •• S

V THE MYSTERY OF LIFE

by
PROFESSOR BUTLER BURKE

01' ALL the problems which have enpged the

powel'll of philOlOphel'll and lcientiatl, the riddle
of the genesis of life itself upon this planet baa
not only been the moat controvel'llial, but also
the one concerning which the beliefa and counter
beliefs have never been set out in language for
the layman to comprehend. Professor Butler
Burke, whose work upon this lubject it every-
• where regarded .. among the moat important
contribqtionl of our time, baa written a faa.
cinating book upon this great lubject, and there
will be few readel'll who will not want to read
it many times.
 TWO IMPORTANT BOOKS
Published at 2s. 6d. net

INDIA: A WARNING
by
LT.-COM. THB HON. J. M. KENWORTHY
R.N., M.P.
A VALUABLB contribution to a thorough understanding
or Indian affairs by one who has an intimate knowledge
or the country. It deals with the probable results
or the Round Table Conference and is the most
up-to-date book published on this subject•
.0-

J"RATIONALIZE
OUR FOREIGN TRADE
by
E. F. WISE, M.P.
THB first and only authoritative pronouncement
on the policy or the Labour Party concerning Foreign
Trade. Cobdenism, Free Trade, Protection, Safe-
guarding, Empire Free Trade and Import Boards
are all discussed at length and the result is a book
or national political importance.
 ; ,.
W:0RLD'OUR NEIGllBOUR
.by
VERNON BARTLETT
61. _,.
MB. BAllTLIrI"l' hu been the London Representative
of the League of Nationa ainee 1922. After &erving
in the European War he turned to journalism, fint
in the reportera' room of the Daily Mail, then with
Reuter'a Agency (at· the Paria Peace Conference),
then u Paria Correspondent of the Daily Herald,
and lastly, for three yean, u Special Correspondent
of the London Tima in Switzerland and Rome, with
intervening perioda u c:orreepondent with the Poliah
anny during the war against the BoI.heviata in 1920, .
in Gennany during the Kapp Putsch, etc. etc.
Since January 19z8 he hu given a weekJy radio
talk from all British atationa on international affaira
under the title of" The Way of the World". These
taIka have, according to the official pampbJeta of
the British Broadcasting Corporation, .. made him
one of the moat popular microphone peraonalitiea
in the country". He hu lectured a good deal in the
British Isles and, during 1930, in Sweden. Denmark,
and the United States.
MR. BABTLE1T's name and atanding are a aufficient
'guarantee of the interest and importance of thia
book•. " Ita object," he 18ye. cc it to make the reader
',realize 'that foreign a1faira c:an be intereating and
, important to him in hit everyday life." The reader
.will find that the alJtbor hu aucceeded in the moat
~vincin, manner.. ,