Promise to Pay

by Robert McNair Wilson

  ‘‘I’m bound to say,’’ he cried, ‘‘that I agree with you. I have spent my whole life contending against the spirit of Nationalism and its horrible accompaniment of War. It seems to me that anything which breaks down the barriers between peoples must be for humanity’s benefit.

  Internationalism means disarmament, it means intercourse between men, it means world-friendship.’’

  The Chief Minister spoke with an ease which made sharp contrast with his diffidence in discussing finance. He was back again in his element. He breathed freely.

  ‘‘The truth, of course, is,’’ the Home Minister said, ‘‘that it is financial internationalism which breeds war. Look at the facts. International Bankers lend their IOUs in such a way that gold is not, normally, asked for. In other words the borrowers are not normally in the position of wishing to convert the promises to pay money into money itself - into gold. But if the balance of trade gets badly upset, if outgoings greatly exceed incomings or incomings outgoings, then a condition of affairs arise in which gold is likely to be asked for.

  ‘‘In the case where a country is not exporting enough to pay for its imports, gold will be shipped abroad to pay for the difference and square the bill - for if that is not done the money of the country with a deficiency of exports must fall in value relatively to the money of the country with which it is in a business relationship.

  ‘‘In other words the Exchange will move against the country with a deficiency of exports because more people will be using its money to buy foreign money than will be using foreign money to buy its money. The export of gold prevents this fall in the Exchange. But, since International Bankers, like Home Bankers, are lending promises to pay ten times the quantity of money which they actually possess, it is obvious that strict limits are set to the export of gold. If the ‘drain of gold’, as it is called, goes on for any considerable length of time all the International Bankers will be compelled to close their doors.

  ‘‘In fact, as we have just seen,’’ the Home Minister continued, ‘‘the International Bankers protect themselves by refusing to lend and trying to call up as many as possible of their existing loans - just as, in similar circumstances, the Home Bankers do. The result is that foreign trade stops and huge masses of goods designed for export are thrown on the home market. Prices crash and panic occurs. The Home Market, therefore, lives in great fear of a falling off of exports and is even anxious that this should be prevented by some device which will have the effect of preventing a rise of prices at home. The Home Market, in fact, is ready to submit its buying power to the good pleasure of International Bankers... ’’

  ‘‘How little you understand this matter,’’ the International Banker exclaimed. ‘‘What we propose is not a dictatorship over the price-level here at home, but a co-ordination of that level with the world price-level.’’

  ‘‘Of course. So that nowhere on earth may anyone pay you less for your IOUs that the largest rate of interest anyone on earth is willing to pay. If a country is paying high wages and so becoming possessed of buying power in the home market... ’’

  ‘‘Why do you always speak as if wages and buying power were the same thing?’’

  ‘‘Because they are the same thing. It is the wages paid out to the work people which buy the products of industry. If big wages are paid the home market has a big buying power and can absorb large quantities of goods. When wages are reduced many of these goods cannot any longer be sold at home and must therefore be hurried into foreign markets. Low wages in other words mean beg exports and so a ‘favourable’ balance of trade - as you call an excess of exports over imports. Consequently when wages begin to rise International Finance begins to act. It takes money out of the home market and so makes both the existing level of prices and the existing level of wages impossible. Long before there is any substantial loss of export trade - at the very whisper of rising wages - all the devices so well known to you and your colleagues are brought into operation. You clamour to have the Bank Rate raised, so that producers at home may be discouraged from further borrowing. The effect is a fall of prices and a sudden flow of goods towards the ports. What with your own IOUs and the IOUs of the Home Bankers, who can no longer find borrowers at their doors, you are ready to finance any quantity of exports.

  ‘‘In other words you have snatched away buying power from the home market to give that buying power to foreign markets. The home workers lose part of, or the whole of, their wages; what they lose comes at once to you to be lent by you outside of the country. I spoke a short time ago about the danger to you of fixed prices. In fact fixed prices imply fixed costs, that is to say fixed wages. The truth is that stabilization of the foreign exchanges - of the value of money - must necessarily be threatened by any attempt to stabilize wages - even by so small an attempt as the payment of ‘doles’. If, under your system, wages in one country are reduced wages in all other countries must be reduced also. For if any country does not, in such circumstances, reduce its wages it will fail to export. If it fails to export you, the International Bankers operating in that country, will be asked to make good your promises to pay. You will be asked for gold. You will resist that demand by bringing foreign trade to an end in the way we have been discussing. If these measures, which are bound to bring about a fall of prices, fail to bring about a fall of wages also, then you will have to ask for a Moratorium - in other words the country with the high wages will be compelled to come off the gold standard. For you possess little gold and many people will have claims for gold against you and through you against the National Bank. The gold standard is a method of keeping money in any one country pegged to the monies of all other countries. It is the most efficient peg for this purpose which has ever been found. When prices are fixed, or when wages are fixed, the gold standard must break down sooner or later... ’’

  The Chief Minister made an impatient gesture.

  ‘‘What has that to do with international co-operation?’’ he asked.

  ‘‘Everything. The people whom International Finance is playing off against each other are not merely the merchants and industrialists of the world. The wage-earners in every country are being pitted against the wage-earners in every other country. The attack on wages is everlasting and it is conducted by means of the wage-earners themselves who have nothing to hope for unless they can produce cheaply, that is to say unless they will accept lower wages than all their competitors. ‘Tighten your belts, my boys, and we shall take their trade away from them,’ is, necessarily, the cry of every industrial leader. What else can he say? If his men refuse to ‘fight’ - and the parallel with a battle is a close one - he will soon be out of business himself. In such circumstances a country with highly organized Trade Unions or with a satisfactory scale of unemployment-pay is bound to be left behind while the gold standard remains in operation. Its people will not cease to feel the foreign knife at their throats. Hatred and fear will make real soldiers of such people.’’

  The Home Minister raised his arm and pointed at the International Banker.

  ‘‘What are you doing just now?’’ he demanded. ‘‘Everywhere I hear nothing but demands for lower wages so that we may ‘regain’ our position as an exporting nation. There are strikes and lockouts. The men, naturally, blame their masters; the masters blame their men. Both are helpless in your hands, since it is you who control the quantity of money in their markets. As things stand half the population will soon be unemployed unless wages are cut. If wages are not cut half the businesses will be bankrupt. And when wages have been cut the whole hideous cycle will begin once more. Do you wonder that, in such circumstances, Communism and Socialism, both of them will-o’-the-wisps, flourish? Do you wonder that class is set against class? Master against man? Nation against nation? Nobody suspects the true enemy. Nobody sees that your worthless IOUs are the real cause of his troubles or that, if what you were lending was honest money, there would be neither need nor wish for this fixing of Exchanges and for all the frantic eff
orts you make to prevent a demand for gold on the part of those to whom you have lent promises to pay that metal. You are breaking up the structure not of homes only but of nations. You are setting nation against nation and people against people. Your internationalism is another name for a dreadful scramble for food and shelter by all the races of mankind against all the races of mankind. It is, as I sincerely believe, the most evil system ever devised.’’

  VII International Finance

  A few days later the public was informed that the Home Minister had resigned his office. The following letters were published:

  From the Home Minister to the Chief Minister.

  ‘‘My dear Chief Minister,

  ‘‘I think you will agree that our inability to take the same view about the measures necessary for dealing with the present crisis makes it essential that I should place my resignation in your hands. As you know, I am in favour of nationalization of credit and the use of some system of price control. This would entail the abandonment of any attempt to stabilize the foreign exchange. You, for your part, look to stabilization of the exchanges to afford those happier conditions of life which both of us are so anxious to secure.

  ‘‘I am, etc.’’

  From the Chief Minister to the Home Minister.

  ‘‘My dear Colleague,

  ‘‘While I regret your decision, I cannot say that I am surprised by it. For, as you justly observe, the methods that you favour are incompatible with those which, in common with all my present colleagues, I feel to be necessary in our difficult and anxious circumstances. A fixed and stabilized exchange offers to our merchants and traders the indispensable foundation of business. It secures the food of the People. It guarantees the supply of those raw materials without which our industry must come to a standstill.

  ‘‘Advantages so great, it seems to me, ought not to be sacrificed to such hopes as may be entertained that an attempt to control prices would raise the standard of living of our people. A standard of living which cannot be maintained is little better, I fear, than a piece of political window-dressing. It is likely to inflict cruel disappointment; it cannot afford a true basis of progress.

  ‘‘Moreover, since no nation today can hope to live to itself, any policy which tends towards isolation stands, it seems to me, self-condemned. We must march with humanity towards the unification of the world.

  ‘‘I am, etc.’’

  The Chief Minister’s letter had an excellent reception in the Press.

  ‘‘His fellow countrymen,’’ said one important newspaper, ‘‘have reason to be grateful to him for his clear understanding of the issues involved. This is not solely a financial question. The recent crisis cannot be ascribed wholly to monetary causes. The truth is that a system the success of which depends on its elasticity has grown rigid.. If lenders were rash, borrowers were not less so. Those producers who expected the community to guarantee in perpetuity what was in fact a speculative bubble, an orgy of inflation, displayed not only ignorance about the bases of sound finance but also an astonishing disregard of the necessities of foreign trade. It is proper, therefore, to repeat, as the Chief Minister repeats, that a stable exchange guarantees the food of the People and the supply of raw materials. There is no advantage of class or section which ought, for a moment, to be preferred to this national advantage. How, if we do not export, can we pay for our imports? An inflated standard of living, in face of rising food prices, is just as impossible today as it has ever been in the past.

  ‘‘Honest and patriotic men, therefore, will rejoice that the leadership of the nation rests in the hands of a statesman possessed of real courage. The acid test of democracy, after all, is its readiness to face unpleasant truths and to take such action as will supply the remedy for situations which have become impossible. We have lived beyond our means; we must make ready, at once, to live within them. We have allowed ourselves to spend what, in fact, we had not earned; we must economise; we must tighten our belts. If wages are unjustifiably high they must fall. If costs are too great to enable us to compete successfully in foreign markets, costs must be reduced.’’

  Another newspaper, of a more commercial complexion, deplored the levity of the Home Minister’s suggestions.

  ‘‘Does he fail to understand,’’ this journal asked, ‘‘that the interest which we receive from foreign investments and from the financing of foreign trade helps to pay for the food supply of our People? Happily for our beloved country the Chief Minister sees that attempts to buy abroad with unsound money are foredoomed to failure. In declaring, as in effect he has done, for a speedy return to the gold standard and to the principles of sound finance, he has declared for honesty and for the sanctity of contracts, and City men, at any rate, will thank him.

  ‘‘For it cannot be too widely that the obligation to give gold in exchange for credit instruments, that is to say to honour one’s promise to pay gold upon demand, is the indispensable safeguard of all monetary contracts. It is because he knows that his clients are entitled to ask him to make good in gold the promises which he has offered them, that a banker is forced, at all times, to keep his position liquid and so to avoid speculation. This applies to International as well as to Home Bankers. The moment gold begins to leave the country we have positive proof that our exports are falling below the limits of safety. From that moment investment in the home market is speculation, because it constitutes a refusal to face the fact that we are consuming more than we produce.’’

  The former Home Minister ventured to reply to this last newspaper.

  ‘‘It boils down to this,’’ he wrote, ‘‘that since our markets are glutted with goods we must tighten our belts and economise. And if we consume what we have produced we are living beyond our means. It is perfectly true, as you say, that the gold standard prevents our money from losing value in terms of foreign currencies. But this is only another way of saying that the gold standard prevents wages in this country from rising above wages anywhere else or from remaining high when wages anywhere else have fallen. We are not allowed to consume more of out goods than the lowest paid workers in the world are consuming of their goods. Consequently we must export what may not be consumed. If foreign markets cannot absorb the mass of products pouring into them then further cuts in prices and wages will be necessary - or failing that the destruction of the products till a point is reached at which scarcity will begin to make its influence felt.

  ‘‘From every point of view, except that of money-lending, the system is crazy. It would be crazy, even from the money-lender’s standpoint if money-lending was, in fact, taking place. For a man who had lent money, and not merely promises to pay it, would have nothing to fear from an expansion of production. The root of our troubles is the lending of IOUs by men who do not possess the money necessary to make good these promises to pay. Our bankers, whether home or international, are all in the same position. All have lent promises to pay ten times the quantity of legal tender money in their possession. All are terrified that demands may be made upon them for the redemption of their promises in such quantity as to exhaust their small holdings of actual money, and so bring them to ruin.

  The gold standard and all the other devices for keeping the Foreign Exchanges fixed and stable are, in fact, safeguards against ‘runs’ on banks which, all the time, are in a condition of insolvency. So long as exports, whether ‘visible’ or ‘invisible’ balance and pay for imports there will be no demands for actual money. This is the true explanation of the passionate interest which the export trade arouses and this is the real reason why it is asserted that a country which is surrendering its goods in exchange, often, for nothing more substantial than paper receipts, is richer and in better case than a country which is consuming its goods. That the system is enormously profitable to the world’s usurers is, of course, true. But they are a handful of men; the mass of mankind is being sold into slavery.

  ‘‘I fully admit that a country cannot without resort to dumping possess a ‘favourab
le’ balance of trade and a wage level higher than that of its neighbours. If we are to export more than we import we must hold our wages down and keep them down. Rigid exchanges and rigid wages are impossible side by side. Of the two I prefer the rigid wages, or rather wages high enough to buy all our products except the super-abundance which we cannot consume because we do not want it. This super-abundance is ample, as things now stand, to pay for all the food and raw materials that we require.

  ‘‘It is obvious, however, that there is no place for the existing financial system inside the scheme I am advocating. For, under my scheme, exports would be left to take care of themselves and exchanges would be allowed to fluctuate freely. The emptying of the home market of buying power would not be tolerated. In such circumstances the best of the producers would soon get out of debt and cease to need to borrow; and usury, in consequence, would fall on evil days. The existing system, indeed, has only two objects - namely, to secure to usury a continuous supply of credit-worthy borrowers and to make it possible for usurers to lend promises to pay (IOUs) far in excess of their actual holdings of money. These two objects, being served, make our bankers our masters and place them in unchallenged control, and even ownership, of the whole of the real wealth of the world. You may call this by any name you choose - Internationalism or World Trade or human co-operation. Its real character is slavery.

  ‘‘Finance has conquered the universe quite as effectually as the hordes of Ghengis Khan or of Timur the Lame conquered the nations which opposed them. Not only so, we have developed and are developing the slave-mind. We glory in our shame and extol the gods of our enemies. Religion, morality, even the processes of thought, are changing. The great, basal lie that a society may be founded on false promises is permeating all minds with the corruption of magic. Our god dwells not in the Heavens but in the counting house, where, with a pen in his hand, any clerk can perform the miracle of trans-substantiation which changes ink into land and houses and food.’’