PLAIN THOUGHTS ON CURRENCY, CREDIT, AND GOLD II.
WHAT does Credit mean to the ordinary citizen ? The belief—(Credo, I believe)—that a promise to pay him in yellow metal, if he should insist on it, is so sure to be kept that practically everyone will say that the promise to pay gold is as good as gold. Credit in most currency transactions does three-fourths of the work. Gold, in fact, under our modern system is only brought in to act as chaperon to the rather rash and impulsive maid Credit. The Chaperon, however, nowadays looks after three or even four girls at a time !
What is the case for gold ? In the first place, it is a valuator. It is scarce and cannot be produced as required by any synthetic process. It is also universally demanded. It is supposed to be stable, though as a matter of fact it is very unstable, for it cannot be made to expand on demand. Population and Exchanges and Barters grow at a swifter rate than the rate of increase in gold. All the same, it does not on the surface seem easy to find a substitute for gold as the universal valuator. You could, no doubt, count up values in pounds of wheat. "The price of this lovely material, madam, is 100 pounds of wheat a yard." But you might have all your calculations upset by a bumper harvest. Gold, however, as most men know it, or think of it, is not one of the things consumed by man and is conveniently scarce. Men primarily regard it as the particular yellow metal on which the world has agreed to record its acts of barter—the exchanges made between Jones and Robinson. But this Barter Memorandum was invented before writing or banking. Therefore Jones could not write on it " Pay Jones or Bearer so many sheep, or hides, or apples." He got over the difficulty by saying, " This yellow ticket is so universally respected that it will buy you something wherever and to whomever you offer it. If the ticket is too big you can cut a bit off, for it is the same all through. Again, if it is too small, put it by till you have got another bit of gold to which you can add it. In any case, the extent of the bargain can be estimated by the weight of the ticket."
Who can -refuse to take off his hat to Primitive Man for an invention so ingenious ? Now, however, gold is not handed about or sub-divided like this. All that is quite out of date. A promise to pay gold has taken the place of the gold. Next, these promises to pay gold are bartered against each other at a Clearing House, and largely cancel each other—just as when Jones says to Robinson at the Bridge table, " I see I owe you ten pounds; while you owe me a couple of fivers on yesterday's games, so we can call it square, and no money need pass."
Yet, all the same, there is not at present enough pur- chasing credit in the world to perform fully the functions of the truck, and give that sufficiency of rolling-stock which is necessary to prevent the curse of unemployment. " Why stand ye all the day idle ? " " Because no man has hired us." Push the question suggested in the parable, one of the most poignant in the Gospel, a little further. " Why is it that no man has hired you to work in his field ? " " Because even if we gathered the crop, there would be none to buy." " But fifty miles hence they are almost dying from want of food ! " " That may be ; but there arc no carts left in which to carry the corn to them."
" Well, then, we will make carts at once and set you to work " is surely the answer. In other words, we will create credits which will supplement our rolling-stock and make up the deficiency.
But just as we arc about to do so an " Economic Sage " or " Experienced Politician " rises up and says in blood-curdling tones, " Beware ! There was once a country called Germany which went mad over the manufacture of Financial Rolling-Stock. It made truckS by the million—far more trucks than could be used, and yet it went on and made more. The end was National Bankruptcy and far-flung ruin."
The answer to the Expert is not difficult. " In all human action we must observe proportion. We must, no doubt, place and observe a limit to the growth of the truck industry—to the expansion of Credit—but the need to observe this rule of prudence is no reason for maintaining au artificial scarcity and thereby con demning men to idleness and destitution."
The limit to the expansion of Credit in order to get the goods made and then taken to those who need them is —Unemployment. As soon as those unemployed persons who are work-able, i.e., capable of industrial energy, are absorbed into industry and at work we must stop making credit trucks. They will not be required, and therefore to make more would be to deflect human en- deavour from things in demand to things out of demand—. an obvious abuse of production.
Here, then, is a perfect safeguard against the " over- production " of rolling-stock. .
But is this not making money out of nothing ? Is it not inflation ? No. We must not confuse inflation with dilution. It is the dilution in quality of the existing purchasing medium which must be avoided. In dilution there is no corresponding increase in the volume of production, such as takes place when there is an addition to commercial credits in order to augment the supply of goods. No sane person proposes to expand the credit-system indiscriminately. What is proposed is to provide facilities for lending money to those who wish to establish or develop industrial under- takings. There arc several ways of doing this. If the Bank Rate is reduced, Credit is automatically extended. But if this is not enough, why should not the State guar- antee loans at low rates of interest to persons who would undertake to use the loans in the production of necessaries in urgent demand ? I do not assert that this would be a wise thing to do in practice ; but I do say that it is a matter well worth inquiring into. That there is nothing unnatural or dangerous in expanding credit in order to produce will easily be seen by anyone who thinks the matter out. The credit will not have a metallic basis, but it will have the prospective security of the goods that are to be created. The tickets which will he honoured in, let us say, beetroot sugar, will be issued, in advance ; but they will not be in the air like tickets printed without an industrial background. The amount of goods in the world is increased by a commercial credit created to set people on work.
Once more, the mere use of the printing press provides no increase of material, i.e., goods, but only a dilution of money. The unbacked operation means a rise in prices. The other operation means either no change in prices, or else a lowering of prices owing to the aug- mentation of supply. And here let us note that this distinction between inflation and dilution of the media of exchange is vital. Expansion—a sounder word than Inflation—is harmless if both the medium of exchange and the product of goods are expanded.
But it would not at present be necessary for the State to lend money or to guarantee loans for development, i.e., to give commercial credits. All it need do is not to reduce the floating debt so rapidly as it is being reduced now. To stop deflating is to accomplish a relative expansion of the medium of Exchange.
It remains to be said that America in effect, though not in name, pursued this policy when she was faced with a situation such as that in which Britain now finds itself. The result was an immediate absorption of her unemployed. It is true that at the same time she laid down gold in her cellars, much as the rich man lays down port ; but that had nothing to do with her expansion of credit. Her gold buying was and is simply a piece of commercial magnificence, or, if you will, a caprice de femme in the region of finance. American business- men apparently think gold hoards " so very becoming " that they must indulge their fancy. We are not rich enough for such luxuries. They have a right to dine off gold plate, but their doing so does not make it wise for us to abandon useful services of earthenware or china.
Let me add a word by way of postscript. If the grand inquest into the problems connected with the media of exchange and the nature of legal tender for which I am pleading is set up, the question of dear gold versus cheap gold must surely be closely considered and discussed. It is in my opinion to the interest of this country that gold should be cheap. The cheaper it is the less the burden of our debt to America, for we can pay it in gold. But if you want to buy a commodity cheap you do not take risks and make sacrifices to " support " the market. Your tendency, I should imagine, would be the other way. But if we arc to tell the world that we are always buyers of gold—i.e., establish a free market in gold here--up must go the value of gold. We ought to teach the world, as indeed we have up till now been doing, by example if not by precept, that you can get on quite nicely without gold. Then gold will cease to be over-valued as a necessity to commerce, and its price will fall. America as the great holder of gold may be surprised, but that is her business, not ours. She is, at any rate, in no need of our help. Her pecUniary burdens are relatively so light that she can afford to use gold ornaments. In a word, we don't want to be the unloading ground for America's over- speculations in gold, as is now proposed by our devotees of gold and parity.
Is all this plea for not raising the price of gold against ourselves " pure ignorance " ? Possibly it is. But if so the 'hest way is to correct, smash and pulverize it in a report after inquiry by a Commission or a Com- mittee of the kind I ask for. Let us turn up the lights, not grope in the dark. In the course of that enlighten- ment I trust that the new Egyptian system of currency management will not be forgotten. It may be that once more the new thing is to come out of Africa.
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