THE fall of Napoleon marks the triumph, throughout Europe, of the Money System. Every financial house in 1815 held large quantities of paper, acquired at low rates. Every financier was concerned to get back as quickly as possible to gold, was concerned, that is to say, to secure that what he had bought for little should be made worth much.(1) He was concerned, in addition, to establish the Money System on its sure foundations of freedom of investment and convertibility.
Money, in other words, claimed the right to exercise powers which, until now, had been vested solely in the Sovereign. It demanded the repeal of the laws against exporting gold and silver; it demanded that notes should be convertible into gold. Thus, it demanded power to change at its discretion the value of the King's money as measured in goods and services. Even the King himself had not exercised such a power without long and grave consideration. Money's claims, which have not changed, may be thus recapitulated : (I) Money must be free to find its own level—namely, those investments, whether at home or abroad, where the highest profits are obtainable with a reasonable degree of safety (The trade mechanism by which this claim is asserted is explained below.) (2) The export of gold, when it occurs, must not be compensated by any increase of the supplies available in the home market, but must, on the contrary, be allowed to exert its effect on the home market—namely, the production of an insufficiency of money.
Such insufficiency of money causes, as will be shown, a fall in prices and so compels employers to reduce wages in order to earn profit. Convertibility of paper into gold secures that exported gold cannot be replaced by paper since gold cannot be printed.
The basis of this system, of course, is starvation. The home producer is held, all the time, in a vice. He cannot earn profits unless he can produce as cheaply as his competitors in foreign markets. He must therefore cut wages or close down. But he cannot hope to dispose of all of his goods in a market starved of purchasing power by reason of the low wages. He must therefore produce, as far as possible, for export. Thus a system the object of which in its beginning was to supply the needs of Englishmen (or Frenchmen or Germans) is bent now to a different objectnamely, the supply of goods cheap enough to compete successfully in foreign markets. No country is allowed to live to itself; on the contrary, every country is played off against every other country, so that the rewards accruing to Money may everywhere be as high as can possibly be obtained short of provoking violence among the wretched victims of the system. This end is achieved by means of the gold standard.
It is necessary that a clear understanding should be arrived at about the nature of the gold standard, about the claims which are made on its behalf, and about the purpose which, in fact, it serves. It is claimed for the gold standard that it keeps the prices of goods throughout the world uniform and steady. This, if it were true, would be a great service, because, as everyone knows, a large number of contracts are made on the assumption that the price of goods will be uniform throughout the world and will remain more or less steady from day to day. A sheep farmer, for example, finding that the price of wool 1S 2d. a lb., can form some idea of how much rent he can afford to pay, what scale of wages he can offer to pay his shepherds, and what state of life he can maintain himself. But if, as has happened in this year 1932, the price of wool falls to 2d. a lb., these calculations will be upset. It will now require many more pounds of wool to obtain the money necessary to pay rent and wages than were required when the price was 1S. 2d. a lb. In consequence the farmer will be compelled either to lose his capital and then go out of business, or to go out of business at once, or to persuade his landlord and his shepherds to take less. This persuasion will be easier in the case of his shepherds than in the case of his landlord, for wage-earners do not possess long contracts and have, usually, no savings to fall back on if they lose their jobs. In fact, therefore, a fall in prices entails, as a rule, either a fall in wages or unemployment. It has this further effect, that the farmer, because he ceases to earn an income, ceases also to pay income tax. The Government's budget, therefore, becomes upset by the fall in prices just as the farmer's budget was upset.
But a farmer is not solely a producer. Like everyone else he consumes goods and materialsfor example, food, clothes, railings, sheep-dip, motor-cars, wireless sets, and so on. When he loses his income he cannot afford to buy, and consequently the people from whom he was accustomed to buy find themselves in the same position as he is in. They have to reduce their prices in order to sell their goods at all and must, in consequence, reduce their wages also. If their employees refuse to accept smaller wages, then they have no option but to close down, with a resulting increase of unemployment and lowering of the yield of the income tax at the very moment when the Government is being urged to make provision for the out-of-work.
Now it is claimed for the gold standard that it prevents such a fall in prices as has occurred in the price of wool. On the face of it, this claim would seem to be unjustified, seeing that the whole world was upon the gold standard when the price of wool began to fall. But it is argued, against this view, that gold standard cannot properly blamed because it was not being worked in accordance with what are called the rule of the game of the gold standard.
In these circumstances a clear idea of the game of the gold standard is necessary. The game is based on the exchange of goods between one country and another. Each country, like each individual, is both a producer and a consumer in its relations to other countries. It exports its own goods and it imports other people's goods, and, generally speaking, exports pay for imports.
Thus, England may send a quantity of coal to France and may at the same time take a quantity of wine from France. The coal will pay for the wine and the account will be squared. Obviously, however, this balance of trade may not always work out so exactly. England, for example, may send more coal-value then she takes wine-value, and in that event France at the end of the year will find herself on the wrong side of the ledger. How is France to square her account? She could square her account, of course, by sending to England more wine or some other product of her farms or of her factories. But Englishmen may not be disposed to buy her products, because, for instance, they can get similar products at a cheaper price elsewhere. In that case it will be open to the French to reduce their prices or, if they do not wish to do that, to buy less coal from England in the future until the accounts square themselves.
The gold standard, however, offers a third method out of the difficulty. France can send gold to England to square her account, because gold is accepted readily all over the world as a means of payment. (Every currency is convertible into gold at a fixed rate and the owner of gold can buy any currency at a fixed rate.)
Now this payment by means of gold would be no more than a simple squaring of accounts were it not that the money of every nation is based upon gold. All that would happen, if monies were not based on gold, would be that when the account was squared England would have more gold and France less. There would be no effect on French prices and there would be no effect on English prices.
The effect on prices of both French goods and English goods, which would, in actual fact, follow the squaring of the account by means of a payment of gold, depends on the rule that when gold leaves a country an amount of the money of that country equal to the amount of the departing gold must be removed from circulation.
This rule, as will be shown later, was imposed in England by Act of Parliament in the year 1844. Under the Bank Act of 1844, the Bank of England must, if and when gold leaves the country, withdraw from circulation at once pounds, shillings and pence equal in value to the departing gold. The truth of this statement is not affected by the fact that the Bank has the right to issue a certain amount of pounds, shillings and pence against which it does not hold gold. For this so-called FIDUCIARY ISSUE is much too small to meet the needs of the country. The Fiduciary Issue is like a belt which will not nearly encircle a man's waist. In these circumstances the exact size of the belt is of small importance, for it is useless in any case until substantial additions have been made to it. If the quantity of money in use in England were limited to the amount of the Fiduciary Issue the entire trade and commerce of the country would come to a standstill. In other words the size of the Fiduciary Issue was fixed, deliberately so that it would have to be exceeded in actual practice. For every £1 issued in excess of the Fiduciary Issue, a piece of gold to the value of £1 must be kept in the vaults of the Bank of England.
The same rule obtains in France, in America, and every country where the gold standard exists. So that when gold is used by any country to square its trading account (that is to say, to pay for an excess of imports over export) a shrinkage of the amount of money in that country equal to the quantity of gold lost at once takes place. The effect may be indicated by quoting the comment of the man in the street: There's less money about.
How much less money there may be cannot, however, be understood unless and until the methods by which the Bank of England (for example) distributes money to the public are understood. Money reaches the public in three ways: as wages, as salaries, and as profits or dividends. Wages, salaries, and profits therefore make up, together, the whole buying-power of the country. They are demand. Beyond them no other effective demand for goods exists. Consequently, by the law of supply and demand, the quantity of wages, salaries, and dividends or profits determines the prices of goods. The larger the demand (as may be seen at any auction sale) the higher the price so long as no more goods become available; conversely the smaller the demand the lower the price.
Now the great bulk of wages, salaries, and dividends or profits are paid by (earned by) producers of goods or services of one kind or another out of loans of money from banks. The reason is that production is usually a slow process. A farmer must plough before he can sow and sow before the can reap. Meanwhile he has rent and wages to pay. Consequently the size of the sum of money distributed as wages, salaries, and dividends or profits depends on the number and size of the loans made by banks to agriculture and industry. In other words, demand, or buying power, depends on the number and size of the loans made by banks to agriculture and industry.
But the loans made by banks are loans of money, and the amount of money in a country, as has been said, depends on the amount of gold in that country. Consequently demand or buying power is made to depend on the amount of gold in the vaults of the Central Bank—for example, the Bank of England. If gold leaves a country to pay for an excess of imports over exports, money will be reduced in amount; loans by banks will be reduced in amount; production will be reduced in amount; wages, salaries, and dividends or profits will be reduced in amount; buying-power or demand will be reduced in amount; and prices of goods will fall. As has been seen already, a fall in the prices of goods soon leads to further falls in wages and so to further loss of buying power.
In other words, it has been so contrived that when gold leaves a country prices of goods are reduced and wages fall. But this reduction in their price makes the goods of the country more attractive by reason of their cheapness. Consequently people in foreign countries buy them in larger amounts and the volume of exports increases. The exporting country now obtains what it could not obtain before, when the prices of its goods were higher—namely, a squaring of its account without any loss of gold—or better still, finds itself on the right side of the ledger and becomes, in its turn, entitled to receive gold.
The process, if left to itself, works of course both ways. When gold comes into a country the amount of money in circulation is increased; loans by banks to industry are increased; production is increased; wages, salaries, and dividends or profits are increased; buying power or demand is increased; and prices rise. That rise sooner or later necessitates a further rise of wages until a point is reached at which goods become too dear to compete in foreign markets .
And so, it is claimed, prices are kept uniform and stable throughout the World. But this, as can easily be shown, is not justified even when the game of gold standard is being played with all the matchless skills which was shown by the City of London during the latter part of the Nineteenth Century, when, in fact, the bulk of the world's gold was under the direct control of England. England, in these days, had every year a big credit balance of exports over imports and continued, from year to year, to lend her balances, so that gold was spread over the world as widely as possible, and yet the value of gold in terms of goods in these years varied by as much as thirty per cent. In other words, there were times when owners of gold chose to withdraw it from use and so create a world-wide scarcity, and there were other times when fresh discoveries of gold gave rise to a world-wide abundance. The game of the gold standard does not provide against these contingencies. Further, it can be shown that, apart from these contingencies, gold itself is not necessary to the process of keeping prices uniform and stable. The Bank of England possesses the means, at any time, if it chooses, to increase or reduce the quantity of pounds, shillings and pence in this country, irrespective of the quantity of gold in its cellars. This has been made abundantly clear since England was forced off the gold standard. English prices have remained remarkably stable; in other words, the English currency has been managed with complete success. The same is true of the Swedish currency and indeed of most of the currencies which are at present off the gold standard. Meanwhile the currencies on the gold standard, the American and the French, have shown an inferior degree of stability. In the words of the British Reply to America on War Debts: "Sterling has remained more stable in terms of goods than the gold currencies."
It is evident, then, that the present anxiety of the world's bankers to restore the gold standard must be due to some reason other than a wish to obtain uniformity and stability of the prices of goods. Since no other reason has been disclosed, it is necessary to scrutinize the working of the gold standard with very great care. When this is done the important fact emerges that, though the standard appears, at a first glance, to work automatically as a regulator of prices, it is by no means automatic in actual practice, seeing that any large body of owners of gold can upset, and that most large bodies of owners of gold do when it suits them upset, its working. In other words, what are economic laws for the producers of goods (the borrowers) are matters of choice where the owners of gold (the leaders) are concerned.
These lenders of gold, as has been said, pretend that the gold standard acts as a kind of balance between them and their debtors so that a borrower will not have to pay back more than he has borrowed. If eggs fetch 1S. a dozen when the shilling is borrowed, for example, they will, according to the advocates of the gold standard, fetch no less when the debt is repaida point of great importance to the egg farmer.
Those who argue in this way overlook the power of Central Banks to control prices without reference to gold, while the gold standard is, apparently, functioning normally. Suppose, for instance, that the Central Bank sells on the Stock Exchange a large quantity of Government securities which it happens to hold. These will be bought by the public and paid for by cheque drawn by the buyers upon their ordinary banks. The ordinary banks will therefore have to transfer money to the Central Bank and so will be compelled to call in loans from the public. This will reduce buying power and prices will fall. The egg farmer will consequently get less than a shilling for his dozen of eggs.
And all the time the amount of gold in the vaults of the Central Bank will have remained unchanged. The Central Bank, in other words, will have managed the price level that is to say, it will have tipped a balance which is constantly being advertised as immovable except under the influence of exports or imports of gold. This means, of course, that, as has been said, prices can be regulated perfectly without gold. But the owners of gold are not willing that such an idea should reach the public.
It follows that being off the gold standard means nothing so long as the Central Bank retains its power of managing the currency and so fixing the level of prices. If it can keep prices at any figure it chooses by its own methodsand it canthen producers are as much in its power when gold is not being used as when gold is being used. It is not inability to raise prices but reluctance, compounded of greed and fear, to separate finally from gold which is maintaining the present crisis. Thanks to hoarding by New York and Paris the gold-backing available for currencies has shrunk to one-quarter of its former amount. Consequently, from the point of view of Money, prices are much too high. If the relationship with gold is to be maintained, wages must fall and governments must reduce their expenses. This view takes no account of the fact that producers are all ruined. If they will only consent to further ruin the correct relationship between currency and gold may be restored.
Gold is wholly unnecessary to price stabilization; but its use by the world is very necessary to its owners, who would suffer if nobody wished, any longer, to borrow it. The gold standard, in other words, exists primarily to ensure that people shall wish to borrow gold and that, having borrowed it, they shall pay the highest possible rates of interest upon it. The gold standard is a money lender's lure.
For it is obvious that nobody will borrow gold unless and until he is persuaded of the advantage to himself of so doing. The world must be made as uncomfortable as possible for any country which abandons gold or shows in any way an inclination to impede the operations of the gold standard. So long, for example, as the paper money of the French Revolution (the Assignat) maintained its value it constituted a deadly threat to the owners of gold. What nation was going to borrow money at high rates of interest when it could print it? The French had financed fourteen armies on that paper money; why should not other nations do the same? Consequently, as has been seen, the Money power in every country of Europe exerted its utmost efforts to discredit the French paper money. Success was achieved by frightening the producers of food so that they refused to part with their bread and meat in exchange for Assignats, which consequently lost all their value. This is the method invariably made use of to crash a paper currency.
There are various ways of frightening the producers of food; by far the easiest is these days is to grant loans—and to go on granting loans—to industrialists who wish to build factories or instal new plant, for by this means buying power in the shape of wages is increased more rapidly than supplies of food can be increased. The day must inevitably arrive—if the loans are made in large enough amount—when supply will not be adequate to an ever-growing demand brought about by an ever-increasing volume of wages. When that day comes, if more and still more loans are made to manufacturers, the prices of food will begin to rise—that is to say, the value of money will begin to fall. All that is now necessary is to keep on lending. The paper money is bound to lose the whole of is value if only you lend enough.
But who is it who does this lending? The Money power. The banks. The lending, as will be seen, costs nothing. (It amounts merely to a series of entries in a book.) It is, on the contrary, highly profitable seeing that each borrower has to deposit actual goods (houses, land, etc.) with the bank making the loan. As money begins to lose value these actual goods become, of course, more valuable. In other words, the Money power is in complete command of the situation. So long as it is permitted to lend and to go on lending, it can effect the ruin of any paper currency it chooses. It took a Robespierre to prevent the ruin of the Assignat. As soon as Robespierre was overthrown the Assignat perished.
Any nation, therefore, which defaults—that is to say, fails to pay across the counter of its Central Bank a fixed amount of gold to anybody presenting one of its notes—exposes itself to the danger that the Money power may destroy the whole value of its money by the simple process of lending and going on lending in the manner described until buying power far exceeds supply therefore (the owners of food refusing to part with it for the "worthless paper money"), famine stalks through the land.
It is the excessive lending for the production of non-consumable goods, of course, and not the paper money, which is the cause of the inflation. A Government which was able to exert an effective control of lending would have nothing whatever to fear from the use of paper money, and would the be under no necessity of borrowing gold from the Money power. It is this simple fact which accounts for the tireless efforts which Money expends to gain and to keep a stranglehold on government in every country in the world. Democracy is the chosen means to this end. For, as Napoleon said, there is no People, there are only parties, and the party with the most money behind it wins. When a party wins it has to reward is backers the people who supply the party funds. The Money power owns most of the world's resources. By means of the Freedom of the Press and its own resources for creating wealth out of nothing it can break its enemies.
By stark fear, therefore, supported by every conceivable kind of propaganda, the Money power compels the nations of the world to borrow its commodity—gold—and chastises with the scorpions of famine such of them as dare to resist its demands. It holds, too, in reserve minor punishments for any nation which tries to obtain its loans of gold too cheaplywhich tries, that is to say, to deliver, in payment for its loans, a smaller quantity of goods than its neighbours. Gold, as has been seen, flows into a country which is producing cheaply and flows out of a country where costs (wages) are rising. Loss of gold, thanks to various Acts of Parliament, is made to entail loss of buying power and so bankruptcy and unemployment. Gold, in short, is the slave driver's whip to punish the rascal who is not earning enough for his master; it is the bread of tribulation which men may eat only by the sweat of their brows, but, lacking which, they will be starved to death. It is—in the felicitous language of the Money power itself—a food in small quantity but a poison in large.
It is of the sap and marrow of this business of usury that there is not nearly enough gold to go around. For it is the scarcity of gold which enables its owners to demand such high prices for it and which inflicts such grievous distresses on those peoples who lose even quite small amounts of it. By the scarcity of gold usury is established and maintained and production, the world over, enslaved.
As has already been stated, the owner of gold (that is to say, the owner of money in a country on the gold standard) can invest his money where, when, and how he pleases. He can put his money to British farming or British industry, or French, or German, or American industry. He can lend his money to any Government he chooses. Finally, he can hoard his money in a bank or in a stocking, not using it himself and not allowing anybody else to use it. In all these activities he is absolutely free and unfettered, and yet from all these activities proceed effects of a serious kind upon the lives and enterprises of his neighbours both at home and abroad.
Suppose for example that the owner of £1,000 chooses to invest it in the Argentine Republic, and with this end in view subscribes to an Argentine loan. He has now removed £1,000 from English buying power. But there is standing in a bank in England a credit of £1,000 in favour of the Argentine. With this credit the Argentine will usually buy goods in England, and consequently English exports may rise by £1,000. The buying power apparently, has been restored to the home market.
But that rise of exports will not help to pay for any imports. Thanks to the loan it has received the Argentine has bought and paid for the goods already. It is certainly not going to pay for them again by means of goods sent into England—not at any rate until the day arrives when the loan itself must be paid back. Why borrow otherwise? Consequently these English goods which went out to the Argentine do not in any way relieve the burden of paying for imports by exports, but, on the contrary, add to that burden to the extent of £1,000 worth of goods. English producers of goods as a whole, in other words, must increase their exports by £1,000 worth of goods if the existing balance between imports and exports is not to be upset, and a loss of gold to pay for the excess of imports over exports is not to take place.
Generally speaking, exports of goods can only be increased in amount by lowering the prices of the goods, that is to say by lowering wages. So that the effect of the loan made to the Argentine (and this although, as has been seen, the money was spent in England) is a fall in the prices of goods (accompanied by a fall in wages) or, if English prices do not fall, a loss of gold by England. Loss of gold, as has been seen, is made, under the influence of the gold standard, to cause a fall in the prices of the goods of the country which has sustained the loss.
The reason why the investment in the Argentine was made now becomes clear. Prices in England were higher than prices in the Argentine and consequently money bought more (earned a higher rate of interest) in Argentina than in this country. The investment was therefore an illustration of the first rule of the owners of gold, that is to say of the Money power, that money must find its level.
But it might very well happen that the buyer of the Argentine security wished to enlarge his house in England and, for this purpose, handed over his Argentine security to his bank in exchange for a loan of, say, £800. He has now put wages into English pockets, added to English buying-power and so brought about a rise of the prices of English goods to counteract to a large extent any fall of the prices of English goods occasioned by his Argentine investment. Has he thereby defeated the law that money must find its level where prices are lowest? Not at all. All he has done is to hinder the fall in the prices of English goods which, had it occurred, would have prevented a loss of gold. Loss of gold, therefore, takes place, money is withdrawn from circulation and loans—including possibly his own—are called up by bankers. The prices of English goods fall. Thus is the second law of the Money power—namely, that money which has been invested abroad must not be replaced—made effective. For in truth the man who lent £1,000 to the Argentine Republic was, in that capacity, a lender of gold, whereas when he deposited his security with his own bank, he became a borrower of it. As a lender of gold he was protected from loss by any conceivable action of borrowers, himself included.
And here is reached a secret of the virtue of the gold standard in the eyes of the Money power. The gold standard, while ineffective and unnecessary as a means of securing uniform and steady prices of goods throughout the world, is entirely effective as a means of preventing borrowers of gold from escaping out of the hands of lenders. The gold standard was invented by usurers. It is the Great Charter of Usury.
In order to understand this fully it is necessary to know how loans are made by banks and financial houses (including insurance companies and building societies) throughout the world. The case of the ordinary private loan from the ordinary bank will illustrate the process quite well and will, in addition, serve to show how the gold standard has been the means of depriving the borrower of any sort of defence against the demands of the lender.
The overwhelming bulk of the money in use in civilized countries today does not consist of currency (pounds, shillings and pence) but of credit (loans made by banks). Roughly speaking, every £1 of currency can be made to carry on its back £10 of loans (and even this gives but a feeble idea of the way in which loans of various kinds are built up on currency. The so-called pyramid of credit reaches to the skies).
A banker, it is true, when he gives a loan, professes himself as being ready, on demand, to supply pounds, shillings and pence to the borrower up to the full amount of the loan, and will supply them if asked to do so. A man, that is to say, who has obtained a loan of £1000 from his bank can, if he chooses, take it out in the form of 1,000 £1 notes (before the War he could get 1,000 golden sovereigns). And this, although the quantity of bank loans outstanding is often ten times greater than the quantity of pounds in existence.
How can a banker promise to pay pounds, shillings and pence which do not anywhere exist? The answer is that people who borrow from banks do not usually ask for more then one-tenth part of their loans in the form of pounds, shillings and pence. They write cheques (or draw bills) for nine-tenth of their loans. A cheque means , only, a book-entry in the ledgers of the banking system. Experience extending over centuries has shown the banks that the proportionsone-tenth currency, nine-tenth chequesare absolutely to be relied on in the case of the average borrower.
Bank loans, in other words, only pretend to be loans of pounds, shillings and pence If, by some chance, all borrowers asked for the whole of their loans in the form of pounds, shillings and pence, the pretence would instantly be made manifest. (This happened at the outbreak of the Great War; the Government had to declare a moratorium immediately.) Consequently it is true to say that what a bank really lends is money invented by itself out of nothing. On this invented money it charges interest, and against this invented money it demands and holds securities possessing real worth—for example, houses.
Now the only danger which threatens this engaging system is that lending may be carried so far as to leave the bank without enough pounds, shillings and pence to meet the demands of its customers. These demands, as has been seen, will not usually exceed one-tenth part of the total loans made by the bank. But occasions have arisen when banks have lent as much as £20 for every £1 in their possession and have, in consequence, found it very difficult to meet the needs of their customers for pounds, shillings and pence. As a bank is compelled by law to pay its customers pounds, shillings and pence if the customers ask for this kind of payment, failure to pay pounds, shillings and pence means bankruptcy.
But it will be objected that, if bankers lend even £10 for every £1 which they possess, they can never feel safe. For, although in the past only one-tenth of their loans has been asked for in the form of pounds, shillings and pence, that is not, and cannot be, an absolute guarantee that, on some future occasion, a larger proportion of clients will not ask for pounds, shillings and pence In truth bankers never ought to feel safe. It is obvious on the face of it that no bank in the world is ever in a position to pay all its clients all the pounds, shilling and pence which these clients have legal right to ask for. People who deal with banks do not always understand this. They think that their banker possesses pound, shillings and pence to the full amount of his liabilities and would, perhaps, be horrified and alarmed if they realized that, on the contrary, his total stock of pounds, shillings and pence is only equal to one-tenth of his liabilities.
In other words, the banking system practises a form of illusion on the public. It is legally bound to give pounds, shillings and pence to any client who asks for them; it declares itself ready and willing to fulfil its legal obligation; and yet, as it knows very well, it will be wholly unable to do anything of the kind if even a quarter of its clients demand the legal right. Even a mild run on a bank (that is to say, a demand by large numbers of customers for payment in pounds, shillings and pence) is bound, if it continues for any length of time, to break that bank unless the Government or the Central Bank comes to the rescue with fresh funds or with securities which the bank's clients will accept instead of funds.
The process of making money out of nothing, therefore, is carried on at the expense of the safety of the bank's clients. This is true no matter how small the actual risk may be. But the process is legal and is so exceedingly profitable that bankers feel no scruples about employing it. It enables them to produce money as they choose; he who can produce money at will by merely writing figures in a book is evidently a lord of creation.
Indeed, far from feeling scruples, bankers exert themselves to prove to their clients that their methods are safe and sound beyond all possibility of improvement. This is where the gold standard serves them so well. For there is an idea in the public mind that behind the paper money which people carry in their pockets is a reserve of solid gold, a backing, a security. Money, says the man in the street, must be backed by something. What better than gold?
Now, as has been said, the pound notes which we carry in our pockets arein part at any ratebacked by goldthe gold in the cellars of the Bank of England. But that is where gold ends. Of the money we think we have in the bank only one-tenth part has a gold backing. Because we can ask for and obtain pounds, shillings and pence (which have a partial gold backing) when we go to our banks, we are kept in the pleasant illusion that there is gold behind every cheque we write and every cheque we receive—behind, generally speaking, all the banker's liabilities. There is not of course, as has been said, enough gold in the whole world to make a backing for even a small fraction of the liabilities of the world's banks. The gold backing idea, in consequence is pure illusion. Only £10 out of every £100 of bankers' liabilities at this moment are backed by gold—indeed, when the Fiduciary Issues are taken into account, the gold backing covers only about 6s. 8d. in every £10 of liabilities.
Gold backing, in short, are like chocolates which, being skilfully arranged in a box, give the impression that the box is full of chocolates and conceal the fact that what the box is really full of is paper. They are the top-dressing, a dummy, a smoke-screen, and the security afforded by them is no security at all. But the public must not be allowed to know this. If the public knew it would, sooner or later, find out that, behind this smoke-screen of gold, the bankers are at work making money out of nothing in order to charge substantial rate of interest on it. Only so long as people think that a banker is lending them solid, glittering gold will they be willing to pay him five per cent. on his loans. The moment they know to the contrary they will realize that they could do for themselves, and very much more cheaply, all that their bankers are in fact doing for them.
The borrower, it may be argued against this, gets whet he wants—namely, the means to buy goods or pay his debts; such accommodation is clearly worth something to him. But that is not the point at issue. A man who lends £1 which he has earned or which somebody else has earned is evidently entitled to receive interest on his loan. He is lending real money. The banker, on the contrary, is lending unreal money, invented money, ghost money, money which has never been earned and which, in fact, does no exist. In other words, when a man offers his house to a bank as the security for a loan he is getting nothing from the bank and is being compelled to pay the bank a rent for his own house, this rent being disguised under the name of interest on the loan. If he does not pay his rent he will be turned out of his house. The banker, in short, has seized his house without payment.
But what, after all, does that matter if the loan made by the banker can be used to buy goods? In actual practice, surely, there is no difference between real (or earned) money and invented money? This argument is often advanced; it will not bear inspection. For in truth what is unreal is being traded for goods; the fact that goods are given in exchange for it does not and cannot affect or change its quality of unreality. Now it is forbidden to create unreal money, or indeed any money, for the power of issuing money belongs to the King. When unreal money (credit) is issued the King is mulcted and with the King all his subjects, including the borrower of the unreal money himself. The reason is that if the King had issued the loan the interest paid on it would have gone to defray national expenditure and so to reduce taxation.
A loan of real (earned) money by one private person to another inflicts no injury on the King. For this money is not a fresh creation, but merely a transfer from one hand to another of money already created, being, in that respect, on a footing with any ordinary transaction of buying or selling. It is the act of creation of money which constitutes the evil. If banks lent only money in their actual possession their operations would not be indictable on this count. The indictment rests on the fact that they do not possess the money which they lend.
The King, in short, is entitled to the interest on loans of newly created money since he alone is empowered to create money and since the creation of money, by adding to the amount of money in existence, imposes a loss, however small, on all owners of money (according to the rule that the more money there is in a country the less it will buy). Where the King takes interest on his loans he is thus restoring in some part the loss occasioned when money was created in order to make the loans. This does not apply to a private lender. For the private lender does not create money and does not therefore impose any loss on his fellows. His interest is merely a usufruct for a genuine loan of genuine money. If banks did not create credit, private lenders, in company with all the Kings's subjects, would enjoy—in form of reduced taxationthe benefit of the interest payments made to the King by the recipients of his loans (the equivalent of which interest is now going into the pockets of the bankers), and so (since interest paid to banks represents a relatively enormous sum each year) would be able to lend more cheaply. Thus the borrower would benefit twice over; in the first place as a subject of the King enjoying a remission of taxation himself, and secondly as a borrower from a subject of the King who also was enjoying a remission of taxation. The unreal money of the banks therefore costs more to borrow than true money would cost, whether that true money was created by the King or merely lent by private persons. In other words, the bankers are enabled, by reason of their creation of credit, to annex for their own advantage what belongs to the King and his people.
But this legal spoliation remains unsuspected because people think they are getting solid gold from the banker. The bankers therefore are desperately concerned to keep up the illusion of the gold backing—that is to say, to avoid being caught out, as would be apt to occur if they ran short of the indispensable tenth part, the pounds, schillings and pence which are likely to be asked for. Here is the reason for the frequent amalgamations of banks and for the tendency to concentrate the business of banking in fewer and fewer hands.
It is out of this tendency that the conception of a Central Bank or bankers' bank has grown. A chief function of a Central Bank is to prevent ordinary banks from inventing too much money (making too many loans) and so, perhaps, incurring liabilities in excess of their available pounds, shillings and pence, and so, by their default, exposing the hollowness of the gold standard sham. Ordinary banks are now compelled to keep some of their resources in the Central Bank. The power to prevent excessive lending serves, in addition, the purpose already discussed of withdrawing buying power from the country and so compelling producers to cut wages.
A Central Bank, as has been said, can perform all its functions in the absence of the gold standard. It, too, can and does invent money out of nothing by the simple process of writing cheques against itself. But it, too, is concerned to hide this operation behind a smoke-screen of gold lest nations should be tempted to adopt its methods for themselves. So long as nations believe that the loans advanced to them by Central Banks are backed by solid gold, so long will they be willing to pay interest on these loans.
Consequently it was long ago secured by various Acts of Parliament that the Central Bank, the Bank of England, shall hold the gold stock of the country and, as has been said, shall only issue pounds, shillings and pence (above the limit of the Fiduciary Issue) against gold actually held by itself. No Government can create gold. Therefore under these Acts of Parliament no Government can issue any money and therefore no Government can invent any money in the manner of a banker making a loan. The owners of money consequently are in a position to compel all borrowers the world over (and that means all farmers, all producers, and all wage-earners) to produce as cheaply as possible and so to pay the highest possible rates of interest on loans, the question of security of course being taken into consideration. As has been seen, they are in a position to terrify Governments which show a disposition to become unprofitable debtors, whether by failure to balance their Budgets or otherwise. (In these circumstances the owners of gold demand it from the Central Bank in the form of bullion, with the result that the Central Bank must call up its loans and force the ordinary banks to do the same. Prices rush down and ruin and bankruptcy march through the land.)
It is the fact, let it be repeated, that pounds, shillings and pence are based on gold and that bank loans are based (in the proportion of 10 to 1) on pounds, shillings and pence which puts these powers into the hands of the owners of gold. They can act with an effect which is rendered the more devastating in that the withdrawal of gold from a country entails the withdrawal of ten times that quantity of bankers' loans from agriculture and industry (so that the proportion of £10 loan to £1 currency may be maintained). As has been said, the engines which operate the gold process are the Central Banks. The men who conduct these banks are, of course, persons of the highest honour and distinction, and usually of an extraordinary efficiency in the discharge of their work. But the system under which they labour dominates them. It is certainly true to say that, as a class, bankers are sincere believers in their system, which seems to have hypnotized them, just as it has hypnotized Governments. It is the few, not the many, who know what is going on. The Money power does not number a very great many individuals, nor are these individuals men of the same race.
Under this system both Governments and Central Banks are compelled, usually without their knowing it, to serve the ends of the owners of gold. The Money power always appears as an angel of light. Sometimes it is International Friendship, sometimes Disarmament, sometimes Cancellation of Reparations and War Debts, sometimes the Stability of Prices. Thus Central Banks, loaded with their chains of gold, become agents of what is essentially a foreign power in occupation of a conquered territory. The refusal of the owners of gold to lend it to countries which have not adopted the gold standard and set up a Central Bank affords a clear indication of the true state of affairs.
It is evident that if a Central Bank of Central Banks were to be established, the needs of nations, even of whole continents, would inevitably be subordinated, in the same way, to the movements of gold. There would be no appeal anywhere against the law as promulgated by such an institution.
But it must never be forgotten that any Central Bank can, by buying or selling on the Stock Exchange, prevent movements of gold from exerting their ordinary effects on the price level. Central Banks have the power to prevent money from finding its level and the power to replace it once it has been taken away. They have the power, therefore, even when the gold standard is in full operation, to prevent lenders of gold from inflicting punishments on the countries in which they operate.
Why do Central Banks so very seldom exercise this power? The answer can only be that the Parliaments which these Central Banks are supposed to serve are themselves so wholly under the influence of the prevailing monetary doctrine that they do not dream of questioning the will of the Money power. Parliaments have the right to compel Central Banks to keep the price level at any point decided upon, and Central Banks can obey such an order without the slightest difficulty no matter what the owners of gold may care to do with their commodity. The criticisms, therefore, which apply to Central Banks apply also, with even greater force, to Parliaments.
This is seen clearly when the present state of the world is considered. At this hour (December 1932) most of the owners of gold in the world are hoarding it. The removal of so great a quantity of pounds, shillings and pence has profoundly affected the quantity of bank loans based, in the proportion of 10 to 1, upon these pounds, shillings and pence (If, for example, it be true that a sum of £1,500,000,000 of the world's gold—three-quarter of the total stock— is hoarded at the present time, then loans to the value of £15,000,000,000 have been called in throughout the world.) A loss of buying power in the form of wages, salaries, and dividends of this colossal size has necessarily caused a catastrophic fall in prices. Though everyone is aware that, if the buying power could be replaced, prices would rise, agriculture and industry be stimulated, employment be provided, and the suffering and despair of millions of men and women be remedied, no Parliament on earth has lifted a finger to compel its Central Bank to raise prices.
The defence would be, of course, that if, for example, England raised her prices her exchange would fall and the cost of her imports would rise. How hollow is that contention is shown by the fact that Parliament has had no hesitation in imposing import taxes. The truth is that Members of Parliament cannot distinguish between gold and real wealth. They are fully persuaded that gold is wealth and tremble when they hear that it is leaving the country. Awful visions of ruin make them incapable of taking any strong line.
This attitude of bewilderment and anxiety is clearly displayed in the British Note to America on War Debts.
"The international monetary mechanism," said the Note, "without which the modern world cannot effectively conduct its daily life, is being broken into pieces with all the manifold forms of privation and distress which this involves."
The Note went on to describe in tones of ecstasy how—
"The market loans . . . raised during the last hundred years have converted whole territories from desolate swamps or uninhabited plains to flourishing provinces teeming with human life and producing great additions to the real wealth of the world."
So complete a misunderstanding of the aims of a Money power which invented out of nothing the greater part of these market loans in order handsomely to recoup itself with the real wealth which it had done nothing to create is indication enough of what mankind has to expect from the institution of Parliamentary Government.
The gold system was in operation in England immediately after Waterloo, though England was still, nominally, off the gold standard. Robert Owen, a most enlightened manufacturer, made at this time a tour of the industrial districts, taking his son, Robert Dale Owen, with him. This young lad wrote afterwards:
"As a preliminary measure we visited all the chief factories in Great Britain. The facts we collected seemed to me terrible almost beyond belief. Not in exceptional cases, but as a rule, we found children of ten years old worked regularly fourteen hours a day, with but half an hour's interval for the midday meal, which was eaten in the factory. In the fine-yarn cotton mills they were subjected to this labour in a temperature usually exceeding seventy-five degrees, and in all the cotton factories they breathed an atmosphere more or less injurious to the lungs, because of the dust and minute cotton fibres that pervaded it. In some cases we found that greed of gain had impelled the mill-owners to still greeter extremes of inhumanity, utterly disgraceful, indeed, to a civilized nation. Their mills were run fifteen and, ln exceptional cases, sixteen hours a day, with a single set of hands; and they did not scruple to employ children of both sexes from the age of eight. We actually found a considerable number under that age. It need not be said that such a system could not be maintained without corporal punishment. Most of the overseers openly carried stout leather thongs, and we frequently saw even the youngest children severely beaten. We sought out the surgeons who were in the habit of attending these children, noting their names and the facts to which they testified. Their stories haunted my dreams. In some large factories from one-fourth to one-fifth of the children were either cripples or otherwise deformed, or permanently injured by excessive toil, sometimes by brutal abuse. The younger children seldom held out more than three or four years without serious illness, often ending in death. When we expressed surprise that parents should voluntarily condemn their sons and daughters to slavery so intolerable, the explanation seemed to be that many of the fathers were out of work themselves and so were, in a measure, driven to the sacrifice for want of bread; while others, imbruted by intemperance, saw with indifference an abuse of the infant faculties compared to which the infanticide of China may almost be termed humane."
It must be remembered, in fairness to the mill-owners, that spectacles of savage cruelty were very common a century ago, and that, in consequence, most people were hardened. Further, those mill-owners who had no independent access to capital were placed under the necessity of earning large profits if they wished to obtain credit from the bankers.
But Owen had proved, at his own mill at New Lanark, near Glasgow, that good conditions of work were not incompatible with profits. He approached the Government boldly, therefore, with demands that legislation should be introduced to prevent the horrors of which he had been witness. He got, at first, a favourable reception because the nobility was uneasy about what was going on in the new industrial towns, but the elder Sir Robert Peel, to whose care the Factory Bill, which embodied Owen's ideas, had been committed, soon began to waver. Peel was a manufacturer himself. In 1816 the House of Commons appointed a Committee to consider the Bill. In that same year Parliament decreed that gold coin should henceforth be the sole standard measure of value and should be legal tender for the payment of any amount. The sovereign made its appearance.
But the bank-notes remained side by side with the new sovereign in such quantity as to excite the lively distress of the financiers, who did not cease to agitate for the resumption of cash payments—that is to say, for a severe deflation of the currency. The Government, aware of the effect likely to be produced by a restriction of credit on the conditions of employment, hesitated to accede to these demands. Were the child-slaves to be driven yet more mercilessly? Owen expressed their feelings in his Observations on the Effect of the Manufacturing System.
" The poor," he wrote "are at present in a situation infinitely more degraded and miserable than they were before the induction of those manufactures upon the success of which their bare subsistence now depends. ... The governing principle of trade manufactures is immediate pecuniary gain, to which, on the great scale, every other is made to give way. All are sedulously trained to buy cheap and sell dear; and to succeed in this art the parties must be trained to acquire strong powers of deception; and thus a spirit is generated through every class of traders destructive of that open, honest sincerity without which man cannot make others happy nor enjoy happiness himself.
" The effects of this principle of gain unrestrained are still more lamentable on the working classes, those who are employed in the operative part of the manufactures; for most of these branches are more or less unfavourable to the health and morals of adults. Yet parents do not hesitate to sacrifice the well-being of their children by putting them to occupations by which the constitution of their minds and bodies are rendered greatly inferior to what it might and ought to be under a system of common forethought and humanity. ..
" Thirty years ago the poorest peasants thought the age of fourteen sufficiently early for their children to commence regular labour, and they judged well ... Under these circumstances the lower orders experienced not only a considerable degree of comfort, but they also had frequent opportunities for healthy, rational sports and amusements. ... Their services were willingly performed. ... Now the employer regards the employed as mere instruments of gain. ..
" Is it to be imagined that the British Government will ever put the chance of a trivial pecuniary gain of a few in competition with the solid welfare of so many millions of human beings ?"
Owen was unaware that the God-system which King George III had vainly attempted to restore had now, with the fall of Napoleon, been wholly vanquished throughout Europe and replaced by the gain-system, whose god is money and whose weapons are greed and fear. He did not know that Kings had, everywhere, been cast down from their thrones in order that the usurper, Mammon, might reign as King of Kings. The people no longer possessed a father under God, but were to become, throughout Europe, the prey of parties each bidding desperately against the other for the favour of Money. But this enlightened man saw, very clearly, that the policy of cheapness which finance was imposing upon production was of no value either to the producers themselves or to the nation.
" No evil," he cried, "ought to be more dreaded by a master manufacturer than the low wages of labour.... There, in consequence of their numbers, are the greatest consumers of all articles; and it will always be found that when wages are high the country prospers; when they are low all classes suffer from the highest to the lowest, but more particularly the manufacturing interest.... The real prosperity of any nation may be at all time accurately ascertained by the amount of wages, or the extent of the comforts which the productive classes can obtain in return for their labour."
This was a re-statement of Napoleon's system. Like Napoleon, Owen saw the evil of placing foreign trade before home production.
"They (the manufacturers) consider it to be the essence of wisdom," he wrote to the Prime Minister, Lord Liverpool, "to expend millions of' capital and years of extraordinary scientific application, as well as to sacrifice the health, morals, and comforts of the great mass of the subjects of a mighty empire, that they may uselessly improve the manufacture of, and increase the demand for, pins, needles, and threads; that they may have the singular satisfaction, after immense care, labour, and anxiety on their own parts, to destroy the real wealth and strength of their own country by gradually undermining the morals and physical vigour of its inhabitants, for the sole end of relieving other nations of their due share of this enviable process of pin, needle, and thread making. ..."
" We complain," he wrote to the manufacturers themselves "that all markets are overstocked with our manufactures, and yet we compel our little children, and millions of adults, to labour almost day and night, to urge forward perpetually increasing mechanical powers that these markets may be still more overstocked."
The explanation of the absurdity was hidden from Owen as it is hidden still from many of his fellow-countrymen. What was happening was that the masters of money were engaged in making their money more valuable in terms of goods, by refusing to lend it. Banks were restricting credit so that a larger quantity of goods had to be given in exchange for the money which remained. And this process was going on all over Europe in the countries which had been "rescued" from Napoleon's grasp. In order to pay the interests on their borrowings and earn a profit for themselves, manufacturers had to urge their workpeople to redoubled efforts, so that loss of price might be compensated for by increase of quantity. This remedy was effective only for a short time, for the restriction of credit reduced buying power throughout Europe and so also reduced the volume of sales. Sales could now be stimulated only by further reductions of price, and hence wages were mercilessly cut to the subsistence level But these cuts reduced further the power of the workers to buy their masters' products, and so threw fresh masses of goods on to the foreign markets, which, being also deflated, could not absorb them.
This process of healthy deflation achieved its purpose. By July 1816, gold had fallen in value in terms of sterling (that is to say, of pounds, shillings and pence) from £4 an ounce to £3 19s. By October the price of gold was £3 18s. 6d. Sterling was rising in value; the exchanges moved in England's favour and gold flowed into the country. In November 1816, the Directors of the Bank of England announced that they proposed to give gold in exchange for all notes of less than £5 issued before the beginning of 1812. Five months later gold was paid for small notes issued before the beginning of 1816, and again, six months later, for small notes issued before the beginning of 1817.
But the severe distresses and afflictions which attended these operations spread dismay throughout the land. A great public meeting with the Duke of York in the chair was held. The Duke of York and the Duke of Kent devoted themselves to the work of alleviating distress, and so also did the leading churchmen. Nobody seemed to know what had happened, and, as the financiers offered no enlightenment, all kinds of incorrect explanations were offered—for example, that the war had effected a huge destruction of property and so taken the bread out of the mouths of the poor (this in face of a terrifying overproduction and piles of unsaleable goods), and that overpopulation was exhausting natural resources.
The financiers knew better, devoted their attention to the relationship between sterling and gold, and continued to agitate for cash payments—that is to say, for stabilization of the note issue on gold. But their cries happily were less urgent in the ears of the authorities than those of the starving children, and some additions were made to the available quantity of paper money. The gold value of the sterling notes fell in proportion to this increase in their quantity, and gold, therefore, became dearer in terms of sterling. The price of gold rose to £4 an ounce, then to £4 os. 6d. and £4 IS. The golden sovereign, in other words, had become worth more than the paper pound outside of Great Britain. Inside of Great Britain the law recognized no difference between gold and notes. Both bought exactly the same quantity of goods. The golden sovereign, therefore, was more valuable in, say, France than in England, for in France it was not placed on a level with the "depreciated" notes. Owners of sovereigns, therefore, at once began to melt them down—in defiance of the law—and ship them across the Channel.
"Gold," says Feavearyear, "began to leave the Bank, at first slowly, and then, in February 1818, when the price touched £4 2s. 6d., much more rapidly. The reserve (i.e., the Bank's reserve of gold) fell from over 11½ millions in August 1817 to less than 6½ millions in August 1818, and to little more than 4 millions in February 1819. ... In January 1819 gold went up to £4 3s. ... A new Parliament met and was faced at once with appeals and petitions from merchants and manufacturers all over the country against the resumption of cash payments (i.e. making the depreciated pound-notes again worth a golden sovereign). The House was not disposed even yet to face the real issue and decide whether the old standard should be restored, regardless of consequences, or whether some new gold unit of lower value should be introduced. The Government was prepared weakly to drift on . . . but there were . . . dissensions in the Bank parlour. Some at least of the Directors had begun to realize that, sooner or later, the Bank would have to justify itself in its failure to carry out the declared policy of the Government and resume cash payments.
"... Upon the motion of Vansittart the House at last appointed a Committee which included Castlereagh, Canning, Tierney, Huskisson, Vansittart himself, and Peel (the younger), the last-named being chairman, to inquire into the expediency of resuming cash payments."
Peel's Committee issued its first report on April 5, 1819, and its main report on May 6, 1819. It recommended a gradual return to the old gold standard (£3 17s. 10½d. per ounce of gold) to be completed by May 1, 1823. It further recommended that it should be lawful for any person to export the gold and silver coins of the realm to places overseas, and also to melt them and to manufacture, export or otherwise dispose of the bullion thereby produced, notwithstanding any provision to the contrary in any other Act.
To their great credit the Bank of England's Directors who seem to have foreseen the probable course of events protested to Parliament against these recommendations, which, as they knew, delivered the nation over to the mercy of the International Money System. It was their business, they said, to look after the well-being of the commercial community, but the affairs of the nation were the concern of the King and his parliament. Their objection was brushed aside. Peel introduced the Bill to give effect to the report and it was passed without a division.
Thus were the financial bases of the God-system swept ruthlessly away and actions which formerly had been branded as felonies transformed into virtues. It was open now to Money to change the value of the King's currency according to its own will, to melt down that currency, to ship it out of England, and to plunge the English people into the grievous distresses of a lack of purchasing power. Money, with the unanimous consent of Parliament, had usurped one of the greatest prerogatives of the Throne. Money was seated on the throne. For he who can, at will, bestow plenty or inflict starvation holds a power that is like to God's. Until this time men had not been willing that such a power should be wielded except by Royal hands.
Here, in short, was a revolution greater by far in its scope and consequences than the French Revolution; the final break with the God-system upon which the civilization of Europe was built; the permanent enthronement of Mammon, the gain-system, in the place of Kings. Here was denial of the Christian doctrines of the fatherhood of God (and under God, of the King) and the brotherhood of men. Denial, too, of the nation and of the patriotism which binds men to their fatherland. Denial of duty, if duty should conflict with self-interest; of kindness, if kindness should add to costs; of mercy even, if mercy should entail the release of child labourers from bondage. Here was denial of faith, which is born of the service of God and men and of righteousness which exalteth a nation. "The American economic system," said a City Note of The Times of August 8, 1932 "is based on starvation" That is the system which was established by the British Parliament on May 24, 1819.
It remains to ask how the high Tory, Robert Peel, and a Parliament based largely on the land owning classes were so easily persuaded by a power which in fact threatened them, and all they stood for, with destruction.
The answer is certainly to be found in the French Revolution and in the depreciation of the Assignat. No argument is more effective today, as a warning against inflation, than the depreciation of the German mark immediately after the Great War. It was the same in 1819. The Money power had only to recall how a national currency had fallen in utter ruin in a few months in order to terrify the Commons. The Assignat had been Robespierre's money; did they want to see the pound sterling fell into similar hands and be used to serve a similar purpose? Did they want to see it crash in similar ruins? Thanks to the deflation, riots were occurring in many parts of the country and the Commons were deeply uneasy. A financial panic, with which they were threatened, seemed to carry with it the dreadful threat, even the probability, of Revolution.
The Money power, in short, which had caused the Revolution in France and which, later, had destroyed the Assignat now made use of both these calamities to inspire terror in the minds of the English Government, which was persuaded that only the Money power could save it from ruin—an interesting example of economy of means.
The origin of these distresses was the belief of governments and peoples that gold gives money its value. That, on the contrary, it is its use as money which gives gold its value, will be obvious to anyone who asks himself what the value of gold would be if its use as money was suspended. It is only because very few people ever ask this question that the Money power is able to flourish, and is allowed to create (credit) unreal money. The Money power is therefore concerned to maintain the illusion that it has a gold backing behind all its liabilities and punishes severely any banker who, by unduly expanding his loans, threatens that illusion.
1. The same thing took place at the conlusion of the American revolution, the American civil war, the first war and the second war .