Promise to Pay

by Robert McNair Wilson

‘‘Need we keep returning to that?’’

  ‘‘We must never for a moment depart from it. What I am submitting is that you have accomplished a confidence trick by which you have convinced the public that you have money to lend.’’

  ‘‘The public, as I have told you, knows exactly what we lend.’’

  ‘‘I say that it knows nothing of the kind. Do you really suggest that the public is aware that your so-called deposits are in fact nothing but loans made by you?’’

  ‘‘How can I tell you that?’’

  ‘‘You will agree that it is the public which makes your IOUs valuable?’’ ‘‘It is always the consumer who makes goods valuable, is it not?’’ ‘‘Bogus goods?’’

  ‘‘Any goods. People soon cease to buy what they find to be bogus.’’

  ‘‘Why, if that is so, do they go on buying your IOUs after you have all gone bankrupt? How can the promises-to-pay of a body of men who have had to be given a Moratorium, as the alternative to the repudiation of their debts, be worth anything the next morning?’’

  ‘‘The public is the judge of that, surely?’’

  ‘‘No, sir. The public is simply deceived. You have so bewildered and befogged the public mind that your statements are accepted as gospel. Thus you are able to lend people their own credit and charge them interest for so doing. The Moratorium was a gift to you from the Government. It allowed you to buy Government notes, that is to say Government IOUs with your IOUs. The Government, in other words, used the nation’s credit to support your promises-to-pay. It actually allowed you to buy National Credit with your IOUs - for nothing, that is to say.’’

  ‘‘But that was only one, conspicuous, example,’’ the Home Minister continued, ‘‘of what is going on all the time inconspicuously. You are always, every day, engaged in seizing national credit for nothing.

  That is what every coiner and utterer of false notes does. Money, remember, is a debt of the community to the holder of that money. When you create your IOUs you are putting the nation in your debt. You can go out with these IOUs and demand payment in goods and services - and get it too. During the Moratorium you bought National Notes, at other times you buy directly in the shops, or lend directly to borrowers - in both cases you are drawing on the national wealth by the mere process of signing your names. You are thus establishing claims to other people’s goods without having earned these claims. Worse still, you are demanding interest on the unearned claims. Having secured the booty you are lending it out to its real owners.’’

  The Home Minister’s face was red. The International Banker flicked the ash from his cigar.

  ‘‘I’ve heard this before,’’ he declared in a tired voice.

  ‘‘And will hear it again, I hope. The point I am making is that the only backing money can have in this or any other country is goods and services, delivery of which must necessarily depend on the character and resources of the people - the national credit. When you tell me that my IOUs would not be borrowed or accepted in payment for anything, you are saying only that I am a less expert burglar of the national resources than yourself.

  Your IOUs buy goods. Therefore they are money. You are consequently creating money no matter how you may try to cover up that fact by pretending that you are giving value... ’’

  ‘‘Has our name no value?’’

  ‘‘Only in so far as you possess real goods or genuinely earned money. In any other circumstances, such value as people may choose to attach to your name is a false value, based on lack of knowledge. In other words the fact that people can be induced to buy or borrow bogus IOUs or bogus shares does not make these IOUs or these shares genuine.’’

  Silence fell in the room. The Chief Minister moved uneasily in his chair. But the Home Minister remained full of fight.

  ‘‘You admit, I take it,’’ he demanded of the International Banker, ‘‘that what you call your ‘deposits’ are in fact loans to your customers?’’

  ‘‘A loan creates a deposit.’’

  ‘‘Why do you call them ‘deposits’, then? The public understands by a ‘deposit’, money placed in a bank for safe keeping.’’

  ‘‘We have our own technical expressions, you know.’’

  ‘‘In fact every credit account in your ledgers is balanced by overdraft?’’ ‘‘That is one way of putting it.’’

  ‘‘So that if you called up all the overdrafts all the credit accounts would necessarily disappear?? I mean over the system as a whole?’’

  ‘‘Possibly.’’

  ‘‘One man’s savings are another man’s debts?’’ ‘‘Well?’’

  ‘‘And all the debts are, finally, debts to you. All the savings therefore exist solely at your good pleasure. You have only to stop lending and allow your debtors to pay you back in order to become possessed of the entire wealth of the country, all the savings and consequently all the claims to property of all kinds.’’

  ‘‘We do not stop lending.’’

  ‘‘Of course not. If you did that on any great scale people would find you out. Prices would fall to nothing and there would be Commissions of Inquiry.’’ The Home Minister leaned forward.

  ‘‘If we, the Government, choose to stabilise prices,’’ he declared, ‘‘you will be compelled to go on lending on pain of having the lending done for you by the Government? Is that so?’’

  ‘‘We always go on lending.’’

  ‘‘Then why object to a stabilization of prices?’’

  ‘‘Who told you that we object? On the contrary stability of the price-level is our chief concern. After all, we are the guardians of the nation’s savings.’’

  ‘‘The savings which are balanced by loans? The savings which are held in the form of your IOUs?’’

  ‘‘Why not?’’

  ‘‘Don’t you see that the man who pays money into his bank thinks that it is real, genuine money which he is paying in? He has no idea that what he is paying in is merely a handful of your promises to pay money. Still less does he realize that this handful of promises was created by you in favour of somebody else who still owes it and who must, some day, pay it back.

  How can that unknown debtor pay back his debt unless he first of all recovers it from its present owner or owners?’’

  The Home Minister’s eyes flashed.

  ‘‘In other words,’’ he cried, ‘‘no matter what happens, these IOUs, which we have allowed to become nine-tenths of the money of this country, always belong to you. No matter who may acquire them temporarily you can always get them back again by refusing to lend and calling up your outstanding loans. Mr Smith may think he has £100 in the bank but he will soon find, when you are taking in sail, and calling up your loans, that his £100, like everybody else’s money, has been furnished by you, its creators, with most serviceable wings. As your IOUs grow scarcer and scarcer prices will fall and as prices fall Mr Smith’s business will cease to pay. He will then have to ‘draw out’ his little nest egg. Even if he is living on investments it will be the same. Dividends will fall. Taxes upon the incomes of those who have any money left will increase. So long as everybody uses your IOUs instead of money and so long as you continue to issue your IOUs only in the form of loans every soul in the land, rich or poor, creditor or debtor, must remain, forever, in your power. The fact that in a great community there are millions of debtors and creditors and that, in consequence, your activities are well hidden, does not alter the truth by a jot. You issue all the money in the country. You issue it all as loans, repayable with interest. Therefore you can, in theory at least, possess yourself of all the wealth in the country - the whole national credit. The claims against you, those ‘hard earned savings’ about which we hear so much, are balanced in every case by your claims against the community.’’

  ‘‘My dear sir,’’ the International Banker interrupted, ‘‘don’t you see that you are giving away your own case? If our claims on the community are balanced by the community’s claims on us, we can possess nothing at all
.’’

  ‘‘Do you give security for your loans?’’

  ‘‘Security? Why should we give security when we are the lenders?’’

  ‘‘I thought you told me a few days ago that every loan from a bank was an exchange of debts?’’

  ‘‘Quite. We take the house, or whatever the security may be; we owe that to its owner. He takes our credit, our promises-to-pay if you like. He owes that sum of money to us.’’

  ‘‘Don’t you see that what have been exchanged are promises - your promise to pay him; his promise to repay you. He gives security in the shape of his house. Why should not you give security also? Is your word so much better than his?’’ The Home Minister held up his hand as he spoke. He added, ‘‘Before you answer please remember the Moratorium.’’

  ‘‘We are lending money. Money is its own security.’’

  ‘‘Remember the Moratorium. And remember also that what you are lending are promises to pay money and not money itself.’’

  There was no reply. The Home Minister bit his lip.

  ‘‘In fact your promises are not backed by collateral security. (I mention the Moratorium once more.) Consequently the community’s claims on you are worthless unless you choose to keep your promises to the community.

  And we know from experience that you cannot do that in any time of crisis. You are a ship guaranteed not to sink in fine weather. Your debtors’ promises, on the contrary, are anything but worthless, for they are supported by houses, land, cargoes, all the wealth of the nation. In other words the community has no enforcible claims on you whereas you have supplied yourselves with overwhelming claims on it. Any attempt by your creditors to enforce their so-called claims instantly reveals the fact that you are without substance. If your creditors become pressing they are punished by losing all their savings. You shut your doors and so acknowledge that your promises-to-pay are false promises - unless indeed the Government comes to your rescue with the Nation’s credit.’’

  ‘‘Do you suggest that we could call in all our loans?’’ the International Banker asked.

  ‘‘In theory certainly. If you did you could not, of course, be paid in money. But you would be able, legally, to seize all the security left in your hands. My point is that your creditors, the people who have entrusted their savings to you, have no security - nothing but your promises. A broken promise has no market value, whereas a house can be lived in.’’

  ‘‘We possess gold.’’

  ‘‘Six shillings and eightpence worth against £10 of IOUs. Thirty IOUs for every golden pound. In the game of musical chairs only one person fails to secure a seat; in your game the number of the dispossessed, supposing each has a claim for one golden pound and all present their claims on the same day, with be twenty nine. Talk about lotteries! Let me tell you, therefore, that the Government is now thinking about a scheme to stabilize the price-level so that for the future there will be neither booms nor slumps, neither sharp rises nor severe falls.’’

  The Home Minister’s voice carried a note of triumph, which proclaimed the fact that it was he who had persuaded his colleagues in the Cabinet to agree to the reform. But the International Banker was no longer looking at the Home Minister. He had turned to the Chief Minister.

  ‘‘Is this true?’’ he asked, ‘‘That you propose to fix prices?’’

  ‘‘We had some idea of doing something of the sort. I think, though, that you had better ask the Treasurer. As a matter of fact, I have no expert knowledge about finance.’’

  ‘‘Evidently not.’’

  ‘‘The Treasurer,’’ the Home Secretary interpolated, ‘‘has consented to try stabilizing prices.’’

  ‘‘Really?’’

  The International Banker no longer looked like a man who had come to argue. He looked like the President of a Court Martial making ready to promulgate sentence. He addressed himself once more to the Chief Minister.

  ‘‘Surely,’’ he asked, ‘‘you know something about finance now - after all that we have just heard?’’

  His tones were polite but crisp. The Chief Minister flapped his hands.

  ‘‘Believe me, no. My brain is political, not financial. These are questions of currency and credit. It often seems to me that anybody may be right. Mind you, though, I still think it would be a good thing if we could fix prices - or at any rate steady them a bit - for the sake of the whole country.’’

  The International Banker drew near.

  ‘‘You have considered the effect of your proposal, I take it, on our export trade?’’ he demanded.

  ‘‘Oh, we had no idea of trying to fix the price of exports.’’ ‘‘How can you fix prices without fixing the price of exports?’’ The Chief Minister turned to the Home Minister.

  ‘‘You said there was some way of doing that, didn’t you?’’ he asked.

  ‘‘I said we ought to leave exports to take care of themselves. If we don’t export enough to pay for our imports the value of our money, as compared with foreign monies, will fall; that will prevent us from buying so much abroad and so restore the balance between exports and imports.’’

  ‘‘There’s just one little snag in that pretty picture,’’ the International Banker told the Chief Minister.

  ‘‘Well?’’

  ‘‘Prices at home will rise.’’

  The Chief Minister looked anxious. ‘‘Why so?’’ he asked.

  ‘‘Because imports will have been cut down and exports increased. There will be less goods in the markets at home.’’

  ‘‘Then we shall produce more goods.’’

  ‘‘At higher prices, seeing that you must buy your raw materials abroad.’’ The Home Minister shook his head.

  ‘‘We are exporting much more than we import at the present moment,’’ he declared.

  ‘‘Quite so, because your money is sound. Because your money can look other people’s money in the face and you are able, therefore, to buy food and raw materials at world prices. A country with a debased money cannot do these things. The very best it can hope to do is to supply its own domestic needs.’’

  ‘‘Which is the important thing. What does it matter how much we export if our people are happy and prosperous?’’

  ‘‘You will have to accept a lower standard of living.’’

  ‘‘Why?’’

  ‘‘Why? Because you will be getting less for your debased money.’’ The Home Minister bit his lip.

  ‘‘Look here, sir, if I wanted to argue as if a nation lived only to ship its wealth out of the country to foreigners, I would say that our debased money, as you call it, ought to help us to export. If 10s (50 pence - ed) in foreign money is worth £1 here then obviously we can afford to sell cheaper than foreigners. But I don’t want to argue on these lines at all because I do not believe that a nation exists solely to make goods for foreign markets. What I want to see is a home market capable of buying home products. We shall have a surplus of certain goods and that superabundance we can properly exchange for the foreign goods we want. I know that such a system means getting out of step, as you call it, with the rest of the world. It means making and buying as many of our own goods as we can make and as we can use at home. It means a big home market, the industrialists buying from the farmers and the farmers buying from the industrialists. It means the restoration of agriculture to the position of the most important of our industries... ’’

  ‘‘Agriculture is still our biggest industry.’’

  ‘‘I was not thinking about bigness. I was thinking about the association of men with their native soil, about the life of villages, about the breed to which we belong. I have no hostility to the towns, but towns without a setting of tilled fields are trees without roots.’’

  The International Banker turned again towards the Chief Minister. ‘‘Are these your views, sir?’’ he asked.

  ‘‘I’m not sure. I dislike the idea of living to ourselves, within narrow limits. The world, it seems to me, must be treated as a single unit
.’’

  ‘‘I agree with you.’’

  ‘‘After all,’’ the Chief Minister went on, ‘‘we are a commonwealth. The tribes have been merged in the kingdoms; the kingdoms have disappeared within the frontiers of empires. We think now in terms of races and peoples. We are beginning to think in terms of the human race, the universal people. All are partners in our world-state, our great commonwealth. It is for the good of all men that the statesmen of the future must work.’’

  ‘‘A mutual benefit society.’’

  ‘‘Precisely. One law, one peace, one inheritance.’’

  ‘‘Only finance,’’ the International Banker said, ‘‘can give the world these blessings. Money is the guarantor of a just and free distribution of wealth.’’ The International Banker approached nearer to the Chief Minister. ‘‘If the world were one,’’ he said, ‘‘we should grow wheat where wheat may most easily and cheaply be grown. We should grow cotton where the climate and the soil invite to the cultivation of that crop. Where the coal fields lie, there we should place our heavy industries. And so on. Surely there would be benefit for all in this arrangement, this co-operation? It would break down the walls of nationalism, of Parochialism, of racial jealousies and class antagonism. We should recognise our brotherhood. We should respect each other’s rights as men, the children and offspring of the same earth-mother. What a vision! The whole earth developed and cultivated in the best possible way for the benefit of each one of us. Each of us a partner, a shareholder in the World Ltd. [now it would be termed the World PLC - ed], concerned only to see that each of us receives his or her share. How can nationalism be mentioned in the same breath with this vision?

  What is Nationalism? A narrow, greedy living for self. Disregard of the interests of others. Contempt of foreigners. Hostility to the people of the next parish, even. Men, I think, ought to pray to be delivered from such a fate. If Finance really deserved all the Home Minister has spoken against it and yet was able to defeat the nationalist spirit in the gate, Finance would remain the greatest benefactor of us all.’’

  He had flushed with the wine of his oratory. The Chief Minister’s cheeks, too, were glowing. His eyes were bright.