SOME PSYCHOLOGICAL PHENOMENA
It has been said, and said truly, that the law can exercise much
restraint upon the freedom of the individual. It is powerless, however,
to restrain madness. Yet it is precisely by artificial methods that we
would attempt to restrain madness, to keep individuals and nations in
a state of sanity. This cannot be done. If the problem we are dealing
with is psychological, we must find a psychological solution. We cannot
cure a spiritual disease by a material remedy. If we can grasp the
potency of fear growing into that species of madness called panic, we
shall be able to grasp the tremendous task of allaying that fear during
its earliest symptoms. We should also grasp the immensity of the task
when we conceive how the healers of the disease would themselves be
afflicted by the disease, and that their fears would confuse their
minds and paralyse their actions.
Long before the greatest war in history broke out, we were assured by
financial and economic prophets that when it did break out this country
would be in the throes of the most serious panic it has ever known,
and thousands of our business men would go down to ruin in it. These
prophecies were based upon the inadequacy of our gold reserves, and
upon the top-heaviness of our credit superstructure.
These prophecies have not been fulfilled. We have had no panic, not
even when the Bank of England reserve fell to the lowest point for
many a year, not even when the rate rose swiftly to ten per cent.
Thousands of our great business men have not been ruined. These are
facts, not theories. They are realizations, not predictions. So far
from there having been a panic, it has been very difficult at times,
as all acute observers will testify, to realize that this country was
at last engaged in a life and death struggle. It was prophesied, too,
and with no doubts or hesitation, that the numbers of men thrown out
of employment would be so great, that drastic martial law would have
to be resorted to. These predictions also have not been justified.
The percentage of employment has steadily risen, and this nation has
pursued its affairs and avocations calmly under normal police law.
If we are to learn deep and lasting lessons from experience, this
experience is of vastly greater value than theory. In Germany and in
France also we see vast accumulations of gold, in comparison with which
our own gold reserves are puny. Yet we not only raised immense war
loans at a high price, but have helped other countries with loans,
while our burdens were increased with the heavier taxes imposed upon us.
True it is that but for our navy, circumstances might have been greatly
different. But had our navy been sunk, had Germany acquired undisputed
mastery of the sea, had she been able to starve us, then no gold
reserves, even though mountains high, would have saved us. The country
could not live on gold alone. It would have perished, and its banking
system with it. We cannot wage a life and death struggle with gold
alone, nor with credit alone.
But when the former prophecies were made, no account was made of the
navy. The panic was to come independently of the navy’s power. The
public, the moment war was declared, would realize that the gold
reserves were inadequate, they would clamour for gold, the banks would
close, and in a day or two the money market would be a deserted, silent
place, stricken and devastated like some of the cities of Belgium.
Why did not this come to pass? Why were the prophets not trusty seers?
It is said that the bankers met in conference to consider and exchange
opinions upon the position. They knew well enough that they were no
magicians, nor even ordinary conjurors. They knew they could not
make gold out of nothing. What, then, could they do? Whether or not
their consciences smote them I know not. Whether or not they bitterly
repented and lamented the poverty of their gold reserves I know not.
Whether or not they said to each other, in a hopeless, perplexed way:
“I told you so,” I know not. All I do know is that a saviour came, a
_deux ex machina_, that he was received with open arms, welcomed with
fervid gratitude, perhaps with tears, that he was venerated, and that
some to-day, in their profound gratitude, would make him a duke.
Well, this saviour came and calmed that assembly; in a magical way,
subdued all fear, removed all perplexities, daring to do, so some say,
what some bankers themselves dared not even hint. Greatness of mind
saved them and the nation and not the greatness of our gold reserves,
and this greatness of mind has been acknowledged by all, not with
the reluctance of envy, but in the spirit of sincere thankfulness.
Greatness of mind, then, saved the nation from the consequences of that
psychological evil, fear and madness. It was the right mental solution
to a mental disease. The spirit saved the spirit.
So it has been throughout the ages. Greatness of mind has led nations
on. Littleness of mind has brought them down. And who will deny that it
is littleness of mind that has brought Germany down? A nation derives
its greatness from the greatness of its greatest souls.
The nation was saved, then, in the hour of destiny by obedience to
wisdom. We cannot imagine in the future a vaster crisis than the
nation--yea, the world--faced in that dark hour in August. It was
not alone the magnitude of it, it was the suddenness of it. We were
unprepared for it, and if wisdom could save us in this hour, what can
we hope from wisdom in the hour of less peril?
Had wisdom not prevailed, had we abandoned ourselves to divided
counsels and to folly, we might not have saved ourselves from the
consequences had our gold reserves been much higher. They might quickly
have disappeared. Theoretic lines of safety would not then have averted
the wreck. They would not, with magic power, have kept the public back.
In that hour some would have cried hysterically: “Lend, lend, lend!”
Others, “Save, save, save!” and only confusion and perplexity would
come of it. But the public were told, by the representative of the
Government, by the authoritative voice of the nation itself: “Be calm!
All your wants will be supplied! The Government will supply them.”
When a hungry multitude is clamouring for food, mad with hunger, and
when the barns are filled, they are not appeased if told there is only
sufficient food for a few. Tell them there is enough food to go round,
even though it must be given sparingly, then the clamour dies down and
the multitude becomes calm and patient.
We saw no multitude clamouring for gold. The clamour was merely
anticipated. There may have been no clamour, but it was wise to
anticipate and prepare for its possibility. At the right moment,
therefore, the public were assured that money, not gold, would be
forthcoming in any amount. It was money, not gold, that allayed the
first symptoms of fear. With this money, no matter though it were
paper, the public were content. The notes were instruments of law that
placed them in an impregnable position, and in an impregnable position
they knew they were safe.
The faith the public put in gold is probably greatly magnified. The
public are not deeply versed enough in monetary and currency problems
to understand the importance of gold as distinct from other money,
especially legal tender paper. The ordinary man in possession of twenty
£5 notes feels that he is equally as safe and as strong as the man in
possession of one hundred sovereigns. We must not ignore this fact,
nor minimize it, when we argue about high and low gold reserves. He
knows that with notes he can be just as solvent as the man with gold,
though he may think the notes a greater nuisance than gold. And this
belief and trust of his, this calmness, are all essential elements of
the psychological problem that confronts the currency theorist and the
banker. They are not to be considered as mental phenomena independent
of that problem. They go to make up its complexity.
London being a free market for gold it was feared in a crisis such as
we have experienced, that the gold would quickly be withdrawn from the
Bank of England and shipped abroad, and that in a short time we should
find ourselves with no gold reserves. This did not happen. Granted
that a great deal of gold was withdrawn from the Bank, this was only
temporary, and since those days the Bank has secured gold at a pace no
prophet ever calculated. Two predictions here have also been falsified.
Neither the gold withdrawals, nor the gold arrivals and accumulations
were on a scale forecasted by the theorist. Their pre-calculations went
ludicrously astray.