the purchasing power of the coins does not depend on the honesty of
the Government: they are valuable as precious metal, and can be turned
to other purposes if the Government issues more of them than are
needed for buying and selling. But the Government can go on printing
and issuing paper money until it is worthless. Where should it stop
when the check of gold is removed? As we have seen, it should stop the
moment there is any sign of a general rise of prices, because the only
thing that can cause a general rise of prices is a fall in the value of
money. This or that article may become cheaper by the discovery of new
ways of making it, or dearer by a failure in the crops, or worthless
by a change of fashion; but all the articles do not move together from
these causes: some rise and others fall. When they all rise or fall
simultaneously, then it is not the articles that are changing in value
but the money. In a paper money country the Government should watch
carefully for such movements; and when prices all rise together they
should withdraw notes from circulation until prices all fall again.
When all prices fall simultaneously the Government should issue fresh
notes until they rise again. What is needed is just enough money to
do all the ready money selling and buying in the country. When less is
issued money gets a scarcity value; so that when you go into a grocer’s
shop he will give you more for your money (falling prices); and when
more is issued there is a glut of it and the grocer will give less
for it (rising prices). The business of an honest and understanding
Government is to keep it steady by adjusting the supply to the demand.
When Governments are either dishonest or ignorant, or both, there is no
safety save in a currency of precious metal.
Remember, by the way, that modern banking makes it possible to do an
enormous quantity of business without coinage or notes or money of any
sort. Suppose Mrs John Doe and Mrs Richard Roe are both in business.
Suppose Mrs Doe sells Mrs Roe five hundred pounds’ worth of goods,
and at the same time buys goods from her to the value of five hundred
pounds and one penny. They do business to the amount of a thousand
pounds and one penny; yet all the money they need to settle their
accounts is the odd penny. If they keep their accounts at the same
bank even the penny is not necessary. The banker transfers a penny
from Mrs Doe’s account to Mrs Roe’s; and the thing is done. When you
have to pay a business debt you do not give your creditor the money:
you give him an order on your banker for it (a cheque); and he does
not go to your bank and cash the cheque: he gives it to his own banker
to collect. Thus every bank finds every day that it has to pay a heap
of money to other banks which hold cheques on it for collection, and
at the same time to receive a heap of money for the cheques it has
received for collection from the other banks. These cheques taken
together may amount to hundreds of thousands of pounds, yet the
difference between the ones to be paid and the ones to be collected
may be only a few pounds or less. So the banks began by setting up a
Clearing House, as they call it, to add up all the cheques and find
out what each bank ought to pay or receive on balance. This saved a
great deal of money handling, as the transfer of a single pound from
one bank to another would settle transactions involving huge sums. But
it presently occurred to the banks that even this pound might be saved
if they all kept an account at the same bank. So the banks themselves
opened accounts at the Bank of England; and now their accounts with
oneanother are settled by a couple of entries in the Bank of England’s
books; and trade to the amount of millions and millions is done by pure
figures without the use of coinage or notes. If we were all well enough
off to have banking accounts money might disappear altogether, except
for small transactions between strangers whose names and addresses were
unknown to oneanother: for instance, you give an order and pay by a
cheque in a shop because you can count on finding the shopkeeper in the
same place if there is anything wrong with the goods; and he can count
on finding you similarly if there is anything wrong with your cheque;
but if you take a taxi on the way home, you can hardly expect the
driver to open an account for you; so you settle with him by handing
him his fare in coin.
This need for pocket money (change) is greatly reduced by Communism. In
the days of turnpike roads and toll bridges every traveller had to keep
a supply of money to pay tolls at every turnpike gate and bridge head.
Now that the roads and bridges are communized he can travel by road
from London to Aberdeen in his car without having to put his hand in
his pocket once to pay for the roads, because he has already paid when
taking out the communal license for his car. If he pays his hotel bills
by cheque he needs no money for his journey except for tips; and when
these fall into disuse, as the old custom of making presents to judges
has done, it is easy to conceive motoring trips, in the Communist
future, being carried out in the greatest luxury by highly prosperous
but literally penniless persons.
In this way actual money is coming to be replaced more and more by
money of account: that is, we still count our earnings and our debts
in terms of money, and value our position in the same way, earning
hundreds of pounds, paying hundreds of pounds, owning hundreds of
poundsworth of furniture and clothes and motor cars, and yet never
having more than a few pounds and a handful of silver in our pockets
from one end of our lives to the other. The cost of providing coins and
notes for the nation to buy and sell with is dwindling continuously to
a smaller and smaller percentage of the value of the goods bought and
sold.
It may amuse you to realize that when coinage disappears altogether it
does not matter whether we call our debts sovereigns and pennies and
shillings or millions and billions and trillions. When the Germans were
paying millions for tram fares and postage stamps, no harm was done by
the apparent magnitude of the price: poor men could still ride in trams
and send letters. If only those prices could have been depended on to
stay put, so that the poor man (or the rich one for that matter) could
have felt sure that his million mark note would buy as much tomorrow
as today, and as much next year as this year, it would not have
inconvenienced him in the least that the million mark note used to be
a bronze coin. Germany has now stabilized her currency at the old rate
of twenty marks to the English pound. Austria stabilized hers at first
at the startling rate of 300,000 tenpences to the English pound but had
to alter this to 34½ sevenpenny schillings later on. Except for the
look of the thing the change made no great difference to the marketing
housekeeper. When prices are in millions she soon gets into the habit
of dropping the six noughts in conversation across the counter. Such
prices seem silly to us because we are not accustomed to millionaire
scavengers and beef at billions a pound. We are accustomed to pounds
worth 160 ounces of butter; but pounds worth half a grain of butter
or ten tons of butter will do as long as they are stabilized at that,
and as long as the money is either money of account, existing only as
ink marks in ledgers, or paper notes of no intrinsic value. If a tram
ticket costs a million pounds it can be paid more cheaply than by a
penny, provided the million pounds be only a scrap of paper costing
less than a disk of bronze.
To sum up, the most important thing about money is to maintain its
stability, so that a pound will buy as much a year hence or ten years
hence or fifty years hence as today, and no more. With paper money this
stability has to be maintained by the Government. With a gold currency
it tends to maintain itself even when the natural supply of gold is
increased by discoveries of new deposits, because of the curious fact
that the demand for gold in the world is practically infinite. You have
to choose (as a voter) between trusting to the natural stability of
gold and the natural stability of the honesty and intelligence of the
members of the Government. And, with due respect for these gentlemen, I
advise you, as long as the Capitalist system lasts, to vote for gold.
56
NATIONALIZATION OF BANKING
You now know enough about banking and the manufacture of money to
understand that they are necessities of civilization. They are in some
respects quite peculiar businesses. Banking heaps up huge masses of
capital in the banker’s hands for absolutely nothing but the provision
of a till to put it in, and clerks to keep an account of it. Coinage is
useless without a Government guarantee of the genuineness of the coins,
and a code of laws making it a serious crime for any private person to
make counterfeit coins, besides settling the limits within which coins
that are stamped with more than their value as metal (called token
coinage) can be used for paying debts.
As it is impossible for any private person or company to fulfil these
coinage conditions satisfactorily, the manufacture of money is a
nationalized business, unlike the manufacture of boots. You do not
see a mint in every street as you see a bootmaker’s. All the money
is made in THE Mint, which is a Government factory of coins. If, in
your disgust at the disagreeable white metal shillings which have been
substituted since the war for the old silver ones, you were to set up a
private mint of your own, you would be sent to prison for coining, even
though you could prove that your nice shillings were worth more than
the nasty ones of the Government. Formerly, if you had a quantity of
gold, you could take it to the Mint, and have it made into sovereigns
for you at a small charge for the King’s image and guarantee called
seignorage; but you were not allowed to make the coins for yourself out
of your own gold. Today the Mint will not do that for you because it
is easier for you to give your gold to your banker, who will give you
credit for its worth in money. Thus the whole business is as strictly
nationalized as that of the Post Office. Perhaps you do not know that
you can be prosecuted for carrying a letter for hire instead of giving
it to the Postmaster-General to carry. But you can, just as you can
be prosecuted for making a coin, or for melting one down. And nobody
objects. The people who, when it is proposed to nationalize the coal
mines and the railways, shriek into your ears that nationalization is
robbery and ruin, are so perfectly satisfied with the nationalization
of the Mint that they never even notice that it is nationalized, poor
dears!
However, private persons can issue a currency of their own, provided it
is not an imitation of the Government currency. You may write a cheque,
or a bill of exchange, and use it as paper money as often as you
please; and no policeman can lay a finger on you for it provided (_a_)
that you have enough Government money at your bank to meet the cheque
when it is presented for payment, and (_b_) that the piece of paper on
which your cheque is printed, or your bill of exchange drawn, bears
no resemblance to a Treasury note or a bank note. An enormous volume
of business is done today by these private currencies of cheques and
bills of exchange. But they are not money: they are only title deeds to
money, just as money itself is only a title deed to goods. If you owe
money to your grocer he may refuse to take a cheque in payment; but if
you offer him Treasury notes or sovereigns, he must take them whether
he likes them or not. If you are trading with a manufacturer, and offer
him a bill of exchange pledging you to pay for his goods in six months,
he may refuse it and insist on Government money down on the nail. But
he may not refuse Government money. Your offer of it is “legal tender”.
Besides, money, as we have seen, is a measure of value; and cheques and
bills are not. The cheques and bills would have no meaning and no use
unless they were expressed in terms of money. They are all for so many
pounds, shillings, and pence; and if there were no pounds, shillings,
and pence in the background, a cheque would have to run “Pay to Emma
Wilkins or Order two pairs of secondhand stockings, slightly laddered,
my share of the family Pekingese dog, and half an egg”. No banker would
undertake to pay cheques of that sort. Both cheques and banking depend
on the existence of nationalized money.
Banking is not yet nationalized; but it will be, because the public
gain from nationalization will lead people to vote for it when they
understand it just as they will vote for nationalization of the
coal mines. Business people need capital to start and extend their
businesses just as they need coal to warm themselves. As we have seen,
when they want hundreds of thousands they get them by paying enormous
commissions to financiers, who are so spoiled by huge profits that
they will not deign to look at what they regard as small business.
Those who want tens of thousands are not catered for: and those who
want modest hundreds are often driven to borrow from money lenders at
high rates of interest because the bank manager does not think it worth
the bank’s while to let them overdraw. If you could shew these traders
a bank working not to make profits at the expense of its customers
but to distribute capital as cheaply as possible for the good of the
country to all the businesses, large or small, which needed it, they
would rush to it and snap their fingers at the profiteering financiers.
A national or municipal bank would be just that. It would bring down
the price of capital just as nationalization of the coal mines would
bring down the price of coal, by eliminating the profiteer; and all the
profiteers except the money profiteers (financiers and bankers) will
be finally converted to it by this prospect, because, though they aim
at making as much profit as possible out of you when you go shopping,
they are determined that other people shall make as little profit as
possible out of them.
Nationalization of Banking therefore needs no Socialist advocacy to
recommend it to the middle class. It is just as likely to be finally
achieved by a Conservative Government as by a Labor one. The proof is
that the first municipal bank has been established in Birmingham, which
returns twelve members to Parliament of whom eleven are Conservatives,
and strong ones at that. Only one is Labor. The Birmingham municipal
bank has been so easily and brilliantly successful that unless it be
deliberately sabotaged in the interests of the financiers by a press
campaign against it, which is practically impossible in a city of
manufacturers, it will lead to a development of municipal banking all
over the manufacturing districts. Already there are several others.
Meanwhile the bankers and financiers continue to assure us that their
business is such a mysteriously difficult one that no Government or
municipal department could deal with it successfully. They are right
about the mystery, which is due to the fact that they only half
understand their own business, and their customers do not understand
it at all. By this time I hope you understand it much better than an
average banker. But the difficulty is all nonsense. Let us see again
what a bank has to do.
By simply offering to keep people’s money safe for them, and to make
payments out of it for them to anyone they choose to name (by cheque),
and to keep a simple cash account of these payments for them, it gets
into its hands a mass of spare money which it professes to keep at
its customers’ call, but which it finds by experience it can hire
out to the extent of about sixteen shillings in the pound because
each customer keeps a balance to his credit all the time. There is
no mystery or difficulty about this. It can be done by government or
municipal banks as easily as petty banking, with its currency of postal
notes and stamps, is done by our national post offices and savings
banks. The only part of it that is not automatically successful is
the hiring out of the money when it is paid in. A bank manager whose
judgment was bad would very soon get his bank into difficulties by
hiring out the spare money to traders who are in a bad way, either
because their businesses were being superseded by new businesses, or
because they were too honest, or not honest enough, or extravagant, or
drunken, or lazy, or not good men of business, or poetically unfitted
to succeed. But a manager who was too cautious to lend any money at all
would be still more disastrous; for we must continually remember that
the things represented by the spare money in the bank will not keep,
and that if fifty billions’ worth of food were saved out of the year’s
harvest and lodged in a State bank (or any other bank) it would be a
dead loss and waste if it were not eaten pretty promptly by workers
building up facilities for producing future harvests. The bank manager
can choose the person to whom he lends the bank’s spare money; but he
cannot choose not to lend it at all; just as a baker, when he has sold
all the bread he can for ready money, must either give credit for the
rest to somebody or else throw the loaves into the dustbin.
Only, there is this difference between the baker and the banker. The
baker can refrain from baking more loaves than he can reasonably expect
to sell; but the banker may find himself heaped up with far more spare
money than he can find safe hirers for; and then he has not only to
take chances himself, but to tempt tradesmen by low rates of hire to
take them (“the banks are granting credit freely” the city articles
in the papers will say), whereas at other times his spare money will
be so short that he will pick and choose and charge high interest
(“the bankers are restricting credit”); and this is why it takes more
knowledge and critical judgment to manage a bank than to run a baker’s
shop.
No wonder the bankers, who make enormous profits, and consequently have
the greatest dread of having these cut off by the nationalization of
banking, declare that no Government could possibly do this difficult
work of hiring out money, and that it must be left to them, as they
alone understand it! Now, to begin with, they neither understand it nor
do it themselves. Their bad advice produced widespread ruin in Europe
after the war, simply because they did not understand the rudiments of
their business, and persisted in reasoning on the assumption that spent
capital still exists, and that credit is something solid that can be
eaten and drunk and worn and lived in. The people who do the really
successful work of hiring out the heaps of spare money in the bank for
use in business are not the bankers but the bank managers, who are only
employees. Their position as such is not more eligible either in money
or social standing than that of an upper division civil servant, and
is in many respects much less eligible. They would be only too glad
to be civil servants instead of private employees. As to the superior
direction which deals with what may be called the wholesale investment
of the banked spare money as distinguished from its retail hirings to
ordinary tradesmen and men of business, the pretence that this could
not be done by the Treasury or any modern public finance department is
a tale for the marines. The Bank of England is as glad to have a former
Treasury official on its staff as the London Midland and Scottish
Railway to have a former civil servant for its Chairman.
57
COMPENSATION FOR NATIONALIZATION
By the way, when demonstrating the need for the nationalization of
banking to you I did not forget that you may be a bank shareholder,
and that your attention may have been distracted by your wonder as to
what will become of your shares when the banks are nationalized. I have
had to consider this question rather closely myself, because, as it
happens, my wife is a bank shareholder. We might have to cut down our
household expenses if everyone went to a national or municipal bank
instead of to her bank. In fact, when banking is nationalized, private
banking will probably be made a crime, like private coining or letter
carrying. So we shall certainly insist on the Government buying her
shares when it nationalizes banking.
The Government will buy them willingly enough, for the excellent reason
that it will get the money by taxing all capitalists’ incomes; so that
if my wife were the only capitalist in the country the transaction
would be as broad as it was long: the Government would take from her
with one hand what it gave her with the other. Fortunately for her
there are plenty of other capitalists to be taxed along with her; so
that instead of having to provide all the money to buy herself out,
she will have to provide only a little bit of it; and all the little
bits that the other capitalists will have to provide will go into her
pocket. This transaction is called Compensation.
It is very important that you should grasp this quaint process which
seems so perfectly fair and ordinary. It explains how Governments
compensate without really compensating, and how such compensation
costs the nation nothing, being really a method of expropriation. Just
consider. If the Government purchases a piece of land or a railway or
a bank or a coal mine, and pays for it out of the taxes, it is evident
that the Government gets it for nothing: it is the taxpayers who pay.
And if the tax is a tax like the income tax, from which the bulk of
the nation is wholly or partially exempt, or the supertax and estate
duties, which fall on the capitalist classes only, then the Government
has compelled the capitalist class to buy out one of themselves and
present her property to the nation without any compensation whatever.
The so-called compensation is only an adjustment by which the loss is
shared by the whole capitalist class instead of being borne wholly by
the particular member of it whose piece of land or bank shares or other
property the Government happens to want. Even that member pays her
share of the tax without compensation.
Some ladies may find this clearer if an imaginary case is put before
them in figures. Suppose the Government wants a piece of land of the
market value of £1000! Suppose it raises that sum, not by taxing
the nation, but by taxing the incomes of a hundred rich landlords,
including the owner of the piece of land, making each of them
contribute £10! The Government then takes the piece of land, and
solemnly hands £1000 to its former owner, telling him that he has
nothing to complain of, as he has been paid the full market value of
his land instead of having had it wrested from him violently in a
revolutionary manner, as the Bolshevists took the land from the Russian
landlords in 1917. Nothing can be more reasonable and constitutional
and customary; the most Conservative Government might do it; in fact
(except for the substitution of all the landlords for a hundred
selected ones) Conservative Governments have done it over and over
again. None the less, at the end of the transaction a piece of land
has passed from private property into national property; and a hundred
landlords have had their incomes reduced by ten shillings a year each
(the interest on £10 at 5 per cent). It is quite clear that if such a
transaction is repeated often enough the nation will have all the land,
and the incomes of the landlords will be reduced to nothing, although
every acre has been bought from its owner at full market price. The
process can be applied to bank shares or any other shares as easily as
to acres.
Let me repeat that this is not something that may be done: it is
something that has been done and is being done. It has gone so far
already that a huge quantity of property formerly owned by private
persons is now owned by the Government and the municipalities: that
is, by the nation; whilst taxation has risen to such a point that the
rich have to remind themselves continually that their pounds are only
thirteen-and-fourpences or less, because the Government will take the
other six and eightpence or more as income tax and supertax, and that
even out of the thirteen and fourpence the municipalities of the places
where their houses are (rich men keep from two to five houses) will
take a considerable dollop in rates for pure Communism. At present
they are selling their houses in all directions to speculators and
contractors who have made large fortunes out of inflation and War; but
these New Rich will in their turn be forced to buy oneanother out just
as the Old Rich, now called the New Poor, were.
In this way you get the constitutional rule for nationalization of
private property, which is, always to pay the full market price or
more to the proprietors for every scrap of property nationalized. Pay
for it by taxing incomes derived from property (there is, of course, no
compensation for taxation). Your own rule as a voter should be never to
vote for a candidate who advocates expropriation without compensation,
whether he calls himself a Socialist or Communist, in which case he
does not understand his own political business, or a Liberal. The
Liberal impulse is almost always to give a dog a bad name and hang him:
that is, to denounce the menaced proprietors as enemies of mankind, and
ruin them in a transport of virtuous indignation. But Liberals are not,
as such, hostile to capitalists, nor indeed to anybody but publicans
and imaginary feudal landlords. Conservatives are practically always
for compensation to property owners; and they are right; but they do
not see through the trick of it as you now do.
Anyhow, always vote against the no-compensation candidate unless you
are opposed to nationalization, and are subtle enough to see that
the surest way to defeat it is to advocate its being carried out
vindictively without a farthing of compensation.