MONETARY REFORM

Nelson Evening Mail, Volume LXVI, 2 May 1934, Page 7

MONETARY REFORM

WANTED JUST PLAIN FACTS (To the Editor) Sir,--First lot me welcome lon (Mackey and “G.K.T.” to the search for information. Now 1 have rearl and heard over the air that-- the Major Douglas proposals savour of something tor nothing. were inflationary, etc. Very well. “If the kings of sane finance by restricting credit—which in plain English moans cancelling money—can double or treble the value of their own money by increasing its purchasing power and within two or three years double or treble the load of the debtor who has 1 incurred obligations to them, is this not something for nothing? Tint it is called the Inevitable Trade Cycle.” bet every farmer who cannot pay his interest, whose equity has been deflated, read this over several times and ponder the fact that his deflation is debt inflation. that if his prices drop one half the debt is doubled, and join lan 'McKay, “G.E.T.” and myself in not asking but demanding the reason why from the currency reformers critics. Their objection i s that the Douglas inflation, so called, is deflation of the money power, the reverse process of my first paragraph. “G.E.T.” is quite correct; unemployment was a growing problem pre-war, so much so that I procured the standard work on the subject in 1913 to study the reason why, but neither Professor Pigou nor Beveridge could place their finger on any particular spot and say “that s the cause.” The best -exposition of the situation today that I have read is the report put out by the Southampton Chamber of Commerce working in conjunction with the London Chamber of Commerce. Mr F. Gibbs mentioned at the last meeting of the. Nelson Chamber of Commerce that in bis opinion the most promising plan of rehabilitation was that of the London Chamber of Commerce and in your issue of “The Mail” on Thursday you publish an article, from that source for Mr Atmore, not statements of an individual of bias but. the considered opinion of an able committee representing the greatest association of traders in (hr, world, men of commerce who wish to sell their goods as do the farmers and labourers. Let your readers keep this fact before them: the currency reformers did not get us where we are to-day, it was the present system. Some blame the war, but don't forget that war seems necessary to the present system. So if the critics will not answer the questions I have put forward re the creation of currency can I have permission to answer by asking you to publish another article from the “London Chamber of Commerce Journal,” January 1934. which is the best I have read on the British creation of currency.. One reviewer considers that the Pope’s Encyclical on the money power is the only statement worthy to compare with it. There is one probable reason why the critics object to the reformers altering to-day’s system of Are the people nationally and individually fit to receive real prosperity? Judging by the way the post war spurious prosperity was used they may not he, hut in my humble opinion when the people are fit for prosperity it will he even at the door and we will solve that which prevents the exchange of goods and services.— I am, etc., J.\P. PROUSE. Bclgrove, 30th April. TRADE VERSUS USURY LONDON CHAMBER OF COMMERCE STATEMENT The article from the London Chamber of Commerce Journal reads ns follows “Humanity can have goodwill and , peace, hut it cannot have usury and pence.; it must make its choice. It is quite a mistake to suppose that Shylock gave up his pound of flesh when Portia demonstrated that it would involve his drawing blood to which he was entitled neither in law nor equity. Reappearing disguised as a. kindly surgeon, intent upon the welfare of the patient, he has performed the operation of taking the flesh and the blood on numberless occasions. FIRST-CLASS MONEY LENDERS “Tn previous issues of the ‘Journal it has been shown that under the old system, which is now collapsing, each nation was anxious to have an active ‘favourable’ balance; after it had met all its liabilities to other countries, it wished still to have foreign currencies standing to its credit abroad, due to it either ris interest on previous loans or mi account of goods sold to those countries. A nation with such an active ‘favourable’ balance could compel the nations with ‘unfavourable’ balances to borrow at interest the balances due from them under threat, of having gold taken from them. Either get more hopelessly into debt to us by contracting another loan, or we will wreck von hv taking your gold from you.’ The threat to fake gold was, in fact, a form of moneylender’s blackmail, but it was also a bluff, because if the monev-lending countrv did, in fact, take gold in substantial quantities, the whole system was hound to collapse. “Before the. war England stood in an unchallengeable nosition as the world s greatest money-lender. After paying for a given volume of imports by her exports of goods and physical services—o.g., shinning—she was still in a. position fo take in payment for debts a further- large volume of imports against i which she was obliged to do no current export at all. and even then had, on an average, a further JtVIOO .000,000 due tn her from foreign nations in respect \ of debts. Had she brought tins balance , hack, as she entitled to do. in the form of gold, she onntd m four years ■ have accumulated .-P.fi00.000,000 of gold, [ ni- his approximately the amount now - held hv the United States, and so haye t wrecked the svstem. Instead, her abilit tv to take onld from them’was a most i not out factor in. ‘persuading the nn--1 thins with ‘unfavourable’ balances , t(T ■ put themselves more hopelessly into n pawn to her. “When, in the last decade, the United States and France qualified as firstclass money-lenders, instead of using , their right to take gold as a lever to compel the other nations to borrow, they actually refused lo lend and called in the gold. Tt. is one of the first qnalifica- ? tions for a successful monev-lender to he aide to estimate to a hair’s breadth j the extreme limit of squeeze which the

victim will stand : beyond tlint point the victim either cuts his own throat or that of Ids money-lender. TTis choice will depend partly noon his temperament, and partly noon his physical strength enmnared with that of his tormentor. It i.s from this point, of view that the relative strength of the nations im armaments assumes such great importance. EQUITABLE DISCHARGE OF DEBT “Under the proposals of the London Chamber of Commerce, the same princinle would he recognised internationally which is recognised nationally. an : udividnal in this country owes £5 to another, he has discharged his debt when lie pays him £5. Tho £5 is,

however, only of value as a Claim to goods and services. The debtor is under no obligation to see that his creditor exercises that claim. It is no concern of the debtor whether the creditor chooses to use his £5 to buy goods or services or, on the other Ijand, prefers to light his pipe with it: it is the giving of the claim which discharges the debt, and not its exercise. “Similarly, when a nation'exports its goods and services and is given in exchange a claim on the goods and .services of other countries, expressed in their national currencies, it has been paid. Whether it chooses to exercise that claim or not is its own affair. The individual exporter, under the Chambei s scheme, would discount his export bill, and would receive pounds. bill would be rediscounted with the national Central Bank, so that it would be the nation, through its Central Bank, which would hold the claim on the goods of foreign countries. The individual English exporter would have received pounds, which are what he wants, for his exports. Private individuals and institutions would never hold foreign currencies; these would always he held hv the nation through its Central Bank. The Central Bank, haying received pounds from the English importer, would then release its foreign currency to pay the foreign exporter. It could, through the proposed Central Bankers Clearing House, ‘swap’ a claim on one country for a claim on another, always at immutably fixed exchanges. “When a nation exports its goods and services, it does so for one of two reasons. Either it wishes to acquire in exchange the goods and services of other nations, or it wishes to make them a present. There is, in fact, no alternative, because even if the claim created by the export is allowed to accumulate at compound interest in the foreign country, ultimately that interest and that capial must he returned, if at all, in the shape of goods and services. HOW MONEY .IS ‘MADE’ “It will be found, on analysis, that the same principle by which debtors get into a position where it is physically impossible for them to escape from the toils exists in the national monetary system, as it does internationally. . It is common parlance to talk of ‘making’ money, but in actual fact the ‘making’ of money is a private monopoly of the banking system. The ordinary citizen, unless he. is a forger, cannot ‘make’ money. He can only aenuiro from some other citizen money already created. Lot any render who has doubts on this point ask himself whether he has (a) minted token coins, (b) minted paper money, or (c) made a credit entry in his own favour in his hank’s hooks. He will have no difficulty in replying in the negative to the first two questions; and as to the third he will, on reflection, realise that whenever he has paid in a cheque resulting in a credit to his account. that credit has been balanced by a debit in someone’s else’s account: no additional money has been created by him. ”It is true that if he borrows .money, at interest, from tbe bank, and that loan represents an expansion of the total amount of bank credit, and is not counterbalanced by the repayment of a loan hv somebody else, more money is, in fact, being nut into circulation. It is, however, (he bank which is creating 'monev hv lending it, although no doubt the debtor plays his humble part, since you cannot lend money unless someone will borrow it, as the hanks are now realising. WHY MONEY IS MASTER \ 1 “t.et ns now assume, for the purposes of demonstration, n society in which there is one bank, representing the banking system with the sole monopoly of creating money, and let us assume that ' the community is represented by five i citizens. Let us further assume that the bank proposes to issue £SOO as the total , money of the community. It lends each

citizen £IOO by crediting his account, gives him a cheque book, and announces its willingness to observe his instructions by cheque in the matter of ciediting and debiting his account in relation to the other four. Let us further •assume that the bank passes a self-de-nying ordinance that it will lend no more money for twelve months. However much real wealth, in the form of goods, the five citizens may create in the next twelve months, they are unable to create one single pound of money unless they are forgers, although they will be able to acquire one another’s money. “At the end of twelve months, the community will owe to the bank th° £SOO which it has issued, plus, let us j-ny, 5 per cent, interest, £25. How can the community repay the £525 to the hank when the hank has, in fact, only issued £500? “Let us further assume that three of the five citizens have acquired the £2OO originally lent to the other two. They are in a position to repay to the bank £lO5 each, and still have nearly £62 each to their credit. They are creditworthy borrowers, and no doubt the hank will be ready and willing to make them further loans. Tn this way the communitv may find itself with £BOO, £9OO, or £IOOO in issue. It will, how ever, owe the bank £B4O. £945, or £IOSO. The point is that the community always owes, in monev, to the hank more money than the hank has,, in fart, issued, because the bank never issues the interest which the community is under obligation to pay.

CREATION OF REAL WEALTH

“Let us now consider the ease of one of the two men who have paid then money to the other three. He, says to the bank. ‘I used £lO of the £IOO lent mo to buy a Piece of virgin sod. For the last twelve months l mi worked with the utmost diligence. a d have., converted what was ormmadv ftcopomicnllv worth lHtle mto a ' lnnrl cnnahlo of growing n rrot>. T h*ve used the Other £9O to Wr> ™ _ "J ** whilst, doing this work ■ o“ bank isin liberty to sav to that man. He aie not !n the least interested to hear how yon have been passing vonr time during ■ last twelve, months- von °we nc flos whe’’P is ’t 5 ” On bis h“'n«r u’whle to . ,’ +W wnnlrl 1- Mde *o take from r'm the veal .-reMth be bad nveated. Alternatively. +bev might, lend him another £IOO with ivbinh to grow a crop. ?<■ to repJv tlm W rather jnore than £215. "”•+- therefore acdnire this amount from one of the othei e ;- zens and if he w successful in dome this one 'of the. other citizens must neccssarilv he unable to meet his obhe-tioos. “It will he further appreciated that monev is really a tokgn representing real Wealth, and that the. new money created by the hank represents; nothing at the moment of being put into circulation bv a bank loan, since the coi munitv has not then had time to produce the real wealth which this mone, should later represent. If the nitv fails to produce new wealth, the new money merely waters down j money already in circulation, and piake each unit of'it worth less in terms of commodities —i.e., produces inflation. “Under such a system, so long as Jie bank is creating and lending new monev. the community will he able, out of the new capital sums, being lent, to repay tlie interest on-previous loans: this is what is known as a period of boom. Immediately, however, the hank ceases to expand its loan? and begins to contract them. the. essential vice of the svstem becomes apparent. It is. true thn if lie community were to sell 'their goods abroad, the bank would, accept from them the foreign currencies sc acquired, bv way of interest, in lieu o! the national currency. U, however, the community were to import foreign goons to' the same value as their exports, th" two would cancel out. and therp would be no foreign currencies available with which to pay interest to the hank. Here,

then, is another very compelling reason why every nation is anxious to export and not import, although it is evident that if one nation has a ‘favourable balance another must necessarily have an ‘unfavourable’, one. Instead of an exchange of goods and services between nations, to their mutual advantage, the system compels a .tooth and claw struggle to acquire .the means of satisfying the monev-lender. That system definitely conflicts with the conception of good will and international co-operation, and all attempts to reconcile the two must fail.”