Christopher Hollis
Two Nations

Out of the continuous story of monetary experiment, which is English history, the text-books pick out one or two passing incidents and give us their account of them.  Thus, after no word has been said about the management of the currency during the Middle Ages, a paragraph or two is usually devoted to the debasement of the coinage by Henry VIII — for it is one of the few instances in history of an English King mismanaging the currency.  After Henry VIII the river of money plunges underground again.  The story of the sixteenth and seventeenth centuries is told as if their controversies were entirely political and religious.  Take, for instance, such a book as Professor Neale’s Queen Elizabeth, which has recently been praised to the skies, or the work of Professor Trevelyan.  For all that the painful student can understand there might have been no problems of money at all from Henry VIII’s day until, a volume later on, he finds that in George I’s time there was something called the South Sea Bubble.  It seems to be a working rule with writers of School Certificate text-books that one, and not more than one, monetary experiment may be referred to in each volume.

Now the South Sea Bubble, for all its prominence in the text-books, was not, philosophically speaking, of great original importance in English monetary history.  All that happened, in the last analysis, was that a number of rich men told a number of lies to induce people to buy shares from them for more than they were worth.  The politicians kept their mouths shut because they had been bribed.  It was, as Bishop Berkeley put it⁽⁴⁹⁾ with characteristic carefulness of language, an “attempt of men, easy in their fortunes and unprovoked by hardships of any sort, in cold blood to ruin their native country.”  Unfortunately such attempts are not sufficiently rare in history to deserve extended notice.

A lot of people lost money over the South Sea Bubble and a lot of people gained it.  But nobody made money — in the sense in which bankers make money — that is to say, nobody made it up.  The South Sea Bubble is only of ultimate importance for three reasons.  In the first place Walpole emerged from it, the master both of an immense fortune and of sufficient evidence to blackmail all the other leaders of the Whig party.  It was the foundation of his twenty years of power over England.  In the second place the proved dishonesty of the politicians made much easier the later task of the bankers in persuading the public to prefer their bank-notes to a direct state-fiduciary issue.  In the third place the South Sea Bubble gave the final blow to the prestige of the monarchy.

The Whigs had already made monarchy impotent.  It was their next achievement to make it ridiculous.  For such a purpose no candidate for the throne could have suited them better than George I.  Not only could he not speak English, as the text-books tell us, but he was also guilty of the more serious crime of having procured the murder of his wife’s lover and then of having had him baked in an oven.  An historian as careful and restrained as Lord Acton has written⁽⁵⁰⁾ of him, “Nobody doubted that Konigsmark had been made away with and that the author of the crime was the King of England, whose proper destination, therefore, should have been not St. James’s but Newgate, and indeed not Newgate but Tyburn.”  There was little risk of a monarchical revival under such a monarch.

Walpole was astute enough to see that the best way of making quite certain that monarchy would never again put forward a claim to the control of monetary supply was to make the royal family, in its personal capacity, a beneficiary from the system of usury.  He, therefore, saw to it that the Prince and Princess of Wales gained in pocket from the South Sea Bubble.  “One of his (Walpole’s) great arts,” writes Lady Cowper,⁽⁵¹⁾ “to please the Princess has been by making her a stock-jobber in the South Sea.  They bought in for her the very morning before the great debate.... They subscribed at a hundred and fifty — he twenty thousand, she ten.”  Walpole told them the moment to sell — when the stock stood at about 1,000 — and they thus made a large fortune out of the business.  Indeed so completely was the future George II captured by the delights of this new life that he condescended to become the Governor of one of the many fraudulent companies which sprang up in this hysterical period — the English Copper Company.  The Lords Justices had to write to him, “Their Excellencies sent a compliment to the Prince of Wales, that the Company of English Copper, of which His Royal Highness had been pleased to be chosen Governor, being illegal, they were forced to involve it in the said Order, which compliment His Royal Highness received very graciously,”⁽⁵²⁾ as well he might, as, receiving warning of the coming crash, he had already sold out with a profit of £40,000.⁽⁵³⁾

Yet there were others who were able to look upon the catastrophe of the South Sea Bubble with eyes very different from those of Walpole or George II, and to draw from it very different lessons.  In 1721, the year after the Bubble, there returned to England from the Continent a young man, as then but little known but who was destined to leave behind him one of the most remarkable names in the history of English letters.  Bishop Berkeley is to-day generally recognized as one of the few English metaphysicians of a quite first-rate importance; few would think it an extravagance to call him the greatest of English metaphysicians.  But, besides metaphysics, he turned his versatile genius and extraordinary gift for the writing of lucid prose to numerous other topics — to mathematics, to the virtues of tar-water, to the habits of the tides, to the necessity of sending Anglican missionaries to the Red Indians.  It would be hard perhaps to name any other English writer possessed of so wide a versatility of interests until we come to the time of Mr. Hilaire Belloc.  And it was not strange that the curiosity of such a man should have been aroused with desire to discover exactly why the South Sea Bubble had burst.

He, therefore, wrote in 1721 what he called an Essay Towards Preventing the Ruin of Great Britain.  The essay contains a number of reflections, true but a little trite, such as that it is better for a country’s citizens to be honest rather than dishonest and that consumption is not possible until there has first been production.  Yet, just as the calamity of 1931 aroused the interest in monetary matters of many people who had not before much attended to them, so did the South Sea Bubble arouse Berkeley’s interest.  His curiosity was not satisfied by his own essay.  Therefore in the years, 1735, 1736, and 1737, Berkeley, by then the Bishop of Cloyne, published in three parts his Queries Proposed to the Consideration of the Public, in which he put forward the monetary and economic reforms which were in his opinion necessary to prevent such catastrophes as that of the South Sea Bubble and to bring prosperity to Ireland — for it was with Ireland that he was then concerned.  Of this most remarkable work Sir James Mackintosh a hundred years ago wrote⁽⁵⁴⁾ that “Perhaps the Querist contains more hints, then original, still unapplied, in legislation and political economy than are to be found in any equal space.”  This could be said with as large a truth to-day as in Mackintosh’s time.

The arrangement of the work — consisting of a large number of unrelated questions, some on monetary, some on general social, matters — is not a happy one.  But, if one may throw the general lesson of the queries into a coherent narrative, the argument of the Querist is as follows: —

The fundamental service which a monetary system can render to a society is to provide a sufficiency of “counters” to enable such goods as the producers wish to sell and buyers to buy to change hands.  The business of the Government is to see that the general price-level remains stable.  One article, through the demand for it increasing, may go up in price and another come down.  But the price of articles in general must neither increase nor decrease.  Any such general increase or decrease, “such arbitrary changing the denomination of coin,” is, he says,⁽⁵⁵⁾ “a public cheat.”

All monetary systems are then judged by the efficiency with which they perform this function of keeping prices stable.  A metallic monetary system, for instance, is chosen not because there is a magic virtue in gold or silver but because it is thought — whether rightly or wrongly — that it is more probable that prices will remain stable when the monetary supply is kept tolerably stable by the fact that money consists of metals that cannot be created at will than when it consists of something intrinsically valueless that can be manufactured at will in unlimited quantities.

The function of a monetary system then being admitted, it remains to consider what system will best perform that function.  But first he stops to explain what system performs it worst.  The system that performs it worst is the system of double-money, which, with the privileges of the Bank of England, was then in its infancy and by which the affairs of England and of other countries have been ruled ever since Berkeley’s day — the system by which a large proportion of the nation’s business is done by one sort of money which can at demand be converted into another sort of money — by notes which can be converted into gold as in Berkeley’s day, by cheques which can be converted into notes as to-day.  Under such a system a violent alternation of slumps and booms was inevitable.  For the very conditions that create prosperity are also the conditions that infallibly kill it.

Let us understand his argument.

The bank, he says, issues its bank-notes, and it says, “You need not be afraid to accept these notes.  You are quite safe because you can at will convert them into cash.”  Now, suppose that some trivial rumour, true or false, should get abroad about the integrity of a particular bank.  If but a tenth of that bank’s depositors hear that rumour and demand their deposits out in cash, it is unable to satisfy those demands.  It may indeed stave off disaster for a time by borrowing cash from another bank.  But that other bank also has issued ten times as many bank-notes as it can convert into cash.  If it lends some of its cash to its neighbour in distress, it is dangerously, perhaps fatally, weakening its own position.  The attempt to save the one bank may easily bring the whole financial system crashing into ruin.

Even if somehow the panic is allayed and major calamity averted, the smallest increased demand for cash, he argues, cannot but have disastrous effects.  Suppose that it is only a tenth of the depositors who go to the first bank and the bank is unable to satisfy their demands.  It can only satisfy them by calling in all its outstanding loans and refusing to make any new ones.  By so doing it reduces the sum total of money in circulation in the country at large.  Therefore, since there is less money with which to purchase the same amount of goods, all prices fall.  Therefore the producer who has incurred his costs of production and his debts at the higher price-level can only sell his article at the lower price-level.  Therefore he loses money, turns off hands, ceases to produce, perhaps goes bankrupt.  Poverty, unemployment, stagnation, and all the other familiar symptoms of the slump appear.

It should clearly be the object of any sane monetary system to narrow as far as possible the area within which any loss of confidence has its effect.  The double-money system instead insanely and unnecessarily widens that area until to-day, as we know to our cost, the whole world suffers for some trifling miscalculation or act of folly in a single bank.  “Whether a few mishaps to particular persons may not throw this nation into the utmost confusion?” asks Berkeley.⁽⁵⁶⁾ Indeed, as readers of Dr. McNair Wilson’s Promise to Pay will agree, not even miscalculation nor an act of folly is necessary to throw the monetary machine out of gear.  Mere prosperity is by itself sufficient.  In order to create a boom the banks have lent up to their full capacity.  But the mere arrival of prosperity causes people in the lightness of their hearts to ask for a slightly larger proportion of their possessions in cash, just as we read every year how there is an increased demand for cash from the banks as the holiday seasons come round.  Whereas before they demanded only a tenth of their deposits, they demand in prosperity, say, an eighth.  The banks can only supply that demand for an eighth by refusing to renew some of their loans, and thus they inevitably reduce the price-level and destroy that very prosperity which created the increased demand.  The politicians are for ever telling us that there is a good time coming.  But we are like Tantalus.  Prosperity comes, but, when we put the cup of it to our lips to enjoy it, it vanishes away.

“You exaggerate,” says the objector.  “The financial system does not collapse, because the Government steps in with special measures to prevent the final calamity.”  “Exactly,” answered the Bishop, in effect, “and do you not see what that proves ?  It proves that the bank is lending money to the community not, as is pretended, on the credit of the bank but rather on the credit of the community itself.”  “Whether the opinion of men, and their industry consequent thereupon, be not the true wealth of Holland,” he asks [Query 44], “and not the silver supposed to be deposited in the bank at Amsterdam?” and “Whether there is in truth any such treasure lying dead ?  And whether it be of consequence to the public that it be real rather than notional?” [Query 45.]

What paper money is to be issued should therefore be frankly issued by public authority.  It should be inconvertible.  The check on it should be that the public authority should be forbidden to issue any new supplies of it, when it was seen that those new supplies were resulting not in an increased production of goods but merely in rising prices.  “Whether counters be not referred to other things, which, so long as they keep pace and proportion with the counters, it must be owned the counters are useful?” [Query 290.]

The only argument in favour of a metallic monetary system is that people are accustomed to it.  They think that metals have an intrinsic value equal to their monetary value.  This is certainly untrue.  The industrial demand for gold and silver is small, and, if the demand for them were merely industrial, their price would certainly be very much less than it now is.  It is the fact that Governments use the precious metals for monetary purposes that makes them precious.  Nevertheless people think that the metals have an intrinsic value, so it is not unreasonable to pay some respect to their prejudice and, if it is possible, to have all the country’s business transacted in metallic money.  But, if that is not possible, if in order to keep prices stable, it is necessary to issue paper-money, then it is madness to let any other than a public authority issue that money, or to make it convertible.  It is indeed better to have a sufficient monetary supply, even privately issued, than an insufficient supply.  He asks, “Whether without private banks what little business and industry there is would not stagnate?” [Query 290] but that does not prevent him from also asking, “Whether it be not a mighty privilege for a private person to be able to create a hundred pounds with a dash of his pen?” [Ibid.]

He considered in some detail the experiment of Law which had a little before met with failure in France.  The blunder, he insisted, was not that paper-money had been issued but that so much of it had been issued that prices had inevitably risen.  Yet, though creditors must necessarily have suffered from that rise, people could in time have adjusted themselves to this new higher price-level.  The fatal blow from which Law’s experiment could never recover was the alteration by the Regent of the metallic value of the bank-bills, “Whether, notwithstanding all the above-mentioned extraordinary measures, the bank-bills did not still pass at par with gold and silver to May, 1720, when the French king thought fit by a new act of council to make a restriction of their value, which proved a fatal blow?” [Query 98.] Had he kept the bills as inconvertible legal tender money, all would in the end have adjusted itself.

Paper-money was, argued Berkeley, the simplest and most straightforward of all forms of money, for with it all men could see, what is in any event always the truth, that the credit behind the money was the credit of the community.  “Whether all circulation be not alike a circulation of credit, whatsoever medium (metal or paper) is employed, and whether gold be any more than credit for so much power?” he had asked. [Query 426.]  Nor did he agree that a stock of gold and silver was necessary even for foreign trade.  “Whether it be not evident that we may maintain a much greater inward and outward commerce, and be five times richer than we are, nay, and our bills abroad be of far greater credit, though we had not one ounce of gold or silver in the whole island?” [Query 450.] Foreign trade — at the least the only sort of foreign trade that was desirable — was an exchange of goods either against immediate goods or at least against the hope of goods in the future.  “Whether trade,” he asked [Query 172], “be not on a right foot when foreign commodities are imported in exchange only for domestic superfluities?” and he followed up this query with a further one which showed that he understood as well as any modern monetary reformer the difference between real and effective demand.  Whether the quantities of beef, butter, wool and leather, exported from this island, can be reckoned the superfluities of a country, where there are so many natives naked and famished ? [Query 173.]  “Whether we are not in fact the only people what may be said to starve in the midst of plenty?” he asked [Query 446], anticipating, perhaps creating, a phrase now on the lips of every currency-reformer.  Now this exchange of goods, he argued, is not helped by the presence of gold or silver in the exchanging countries.  On the contrary it is, as modern experience has taught, greatly hindered if that gold is moved about in quantity from one country to another.  It is true that gold is to-day useful for adjusting short-term balances but, if all the gold and silver in the world were thrown into the sea, they could be adjusted just as well by book-entries.  So far from being possessed of an intrinsic value, gold is of all the metals, as Thomas More told us in Utopia, the one that is most nearly valueless.

In fact the best way, argued Bishop Berkeley, is the simplest way.  The convertibility of notes, the use of metallic money, every other monetary dodge — what are they but somewhat clumsy and ill-working schemes for compelling the Government to keep the price-level stable ?  Why not cut out these dodges and simply put the Government under direct obligation to keep the price-level stable ?  Give them authority to issue sufficient money to keep prices up and make it an offence for them to issue either less or more ?  It is idle to argue that politicians are corrupt.  If, he said, politicians are not honest enough to do their duty nor public opinion widely enough awake to compel them to do it, then any monetary system will collapse.  Under Berkeley’s system doubtless the politician would issue too many or too few notes, but under a metallic system he would debase the coinage; under the double-money system he would play tricks by suspending and resuming cash-payments to suit his convenience or that of his friends.  Did the fact that the high prerogative of issuing money had been wrested from the king prevent the South Sea Bubble ?  “Where,” he asks, “is it most reasonable to expect wise and punctual dealing, whether in a secret, impenetrable recess, where credit depends on secrecy, or in a public management regulated and inspected by Parliament?”⁽⁵⁷⁾

With similarly characteristic common sense he tackled the problem of poverty.  The first business of a country’s economic system is to give to its citizens the necessities of life.  Does our system do this ?  It does not.  Why not ?  Because there are not enough goods ?  No, but because the poor have not enough money.  Then give them more money.  So long as there was on the one hand the labour, the raw material, and the skill to produce the new goods, on the other hand the desire to consume them when produced, for so long would the provision of money, sufficient to make that demand effective, do good to everybody and harm to nobody.  “Whether to provide plentifully for the poor be not feeding the root, the substance whereof will shoot upwards into the branches and cause the top to flourish ?” he asked [Query 59], and “Whether a country inhabited by a people well fed, clothed, and lodged would not become every day more populous ?  And whether a numerous stock of people in such circumstances would not constitute a flourishing nation? and how far the product of our own country may suffice for compassing this end ?” [Query 62.]  What was the alternative ?  A congeries of starving nations, exporting the necessities of life and fighting against one another for the export markets.

Berkeley’s proposals failed of acceptance, in truth, not because of the openings that they gave to corruption but because of the difficulties that they put in its way.  “Whether it were just to insinuate that gentlemen would be against any proposal they could not turn into a job?” he asked.⁽⁵⁸⁾ Unfortunately it was perfectly just.  His proposal of an Irish national bank, to keep stable the Irish price-level, would have been not to the disadvantage but to the advantage of the Irish gentry.  But they were too stupid to see it so — to see that they were now but playing fly to usury’s spider and that their petty and short-sighted greed was the bait by which they were taken.  “Whether,” he asked [Query 15] sadly, “an uneducated gentry be not the greatest of national evils?”

In the seventeenth century, as has been explained, England was an importer of capital from Holland.  At the turn of the century London established itself as “all that Amsterdam was,” and England became instead an exporter of capital.  Or, to put the truth with more exact accuracy, an international gang, which had up till then operated from Amsterdam, found it more convenient to operate from London instead.  Thorold Rogers in his History of Holland [p. 223] comments on the high proportion of Dutchmen among the early directors of the Bank of England.  Among other countries to which capital had been exported was Ireland.  It was the necessity of paying rents to absentee landlords, interest on mortgages from English bankers, etc., which caused that export of “beef, butter, wool, and leather” [Query 173] from the starving island, of which Berkeley complained.  Now he did not advocate any repudiation of foreign debt, but he did advocate that it should be paid off as quickly as possible.  Nor was there any reason to doubt that under his scheme it could have been paid off within quite a short period of time.  Had it been so, one of the deepest causes of all the murder and misery of the last two hundred years of Anglo-Irish relations would have been removed at a stroke.

The English usurer however, did not want it to be paid off at all.  What he wanted was a permanent lien on Irish land.  Now, as long as the Irish were dependent upon metallic money, they never could get out of debt.  Ireland herself produced neither gold nor silver nor other metals.  Therefore, as productivity increased, she had to import them from England.  Either she must buy them with goods or else receive them on loan.  She could not buy them with goods because the export surplus in those limited articles that she was allowed to produce was already ear-marked for past debts.  Yet if she did not increase her monetary supply the effect would be deflationary, prices would fall, and her productivity be destroyed.  Therefore inevitably she had to plunge further and further into debt, compelled to accept the English metal at cheat-prices with the brutal threat, as Swift put it in the Drapier’s Letters, that “we must either take those halfpences or eat our brogues.”  Berkeley’s suggestion was that gold and silver and copper should be allowed to look after themselves and their deficiencies made up by Irish-issued inconvertible paper-money.  Along that road lay a chance of emergence from debt.

His project of a national bank was so little understood that he dropped the passages advocating it out of the edition of his collected works, “which it may be time enough to take in hand,” he wrote,⁽⁵⁹⁾ “when the public shall seem disposed to make use of such an expedient.”  So completely successful was what Cobbett would have called “the Thing” of eighteenth and nineteenth century England in suppressing this scheme of one of the greatest of English thinkers that, when in the middle of the last century Fraser was preparing his great edition of the collected works of Berkeley, he was unable for a long time to discover a single copy of the original version of the Querist.  It was only at the last moment that he struck on a copy — just in time to include it in an appendix.

It is a commonplace of history, as she appears in popular table-talk, that the Whig inheritors of the great Revolution of 1688 had a natural sympathy with the American demand for freedom and self-government, that, if they had only had their way, those demands would have been satisfied within the framework of the Empire but that the Americans were compelled into independence by the obstinacy of a stupid King.  Nothing could be more false.  The Whigs had no intention of establishing beyond the seas a land in which “Government of the people for the people and by the people should not perish from the earth.”  On the contrary Lord Shaftesbury, the Whig leader, engaged John Locke, the Whig philosopher, shortly before 1688 to draw up a constitution for the new colonies of the Carolinas.  Locke proposed that the colony be handed over to eight proprietors, Shaftesbury himself, Monk, Clarendon, and five others, these proprietors to be called palatine, admiral, chamberlain, constable, chief justice, high steward, and treasurer.  To these eight gentlemen one fifth of the land of the colonies was to be given.  The next concern should be to provide adequate estates for the resident aristocracy, whose land was to be worked by hereditary serfs bound to the soil.  What land was left over was to be sold by the proprietors to freeholders.  The grand purpose, said Locke, was to avoid “a numerous democracy.”⁽⁶⁰⁾

Locke’s scheme was not, it is true, exactly adopted, but the spirit of it was adopted.  The essential object of all Whig policy towards America was to keep the cost of labour low.  For the Whigs had invested capital in America as in Ireland, and it is an evident and important law that, where wages are low, then there is money to be divided in dividends, and the product of the low-wage country can also be used to force workers in other countries to accept wages as low or to starve.  Now it is important to understand that in the early years of the eighteenth century the Whigs succeeded in their object.  America was a low-wage country — or at least certain American industries were carried on with low wages, or rather with low labour-costs.  How was that done ?  It was done thus.  The labour-market was supplied either by African slaves or by white indentured labourers — by criminals shipped out there and compelled to work for the term of their sentence without wages, or, should the supply of criminals run short, by wretches kidnapped in the London streets by creatures of the capitalists known as “spirits,” hustled on board a ship and then compelled in America to earn their freedom by a service of from five to seven years on an estate. [Ibid., i, 104.]  Bancroft, the American historian most widely recommended at the English universities and schools during the last century, confessed to having collected “a handful of data about the sources from which the American labour market was supplied in those days” and of “having opened his little finger”⁽⁶¹⁾ and said nothing about it.

It was because of the cheapness of its labour that America was able to attract English capital.  Now a new colony in its first years cannot keep itself but must live on loans, for its members must consume and they are not yet able to produce.  But, if the country be wisely founded, after a short time they will start to produce and, a short time afterwards, they will be able to produce a surplus.  Then their first natural concern will be to get themselves out of debt.  This was the condition to which the American colonies were beginning to come by the middle of the eighteenth century.

But the Americans, like the Irish, could never get out of debt so long as they were compelled for monetary purposes to import precious metals and to regulate their currency by the strict rule that the amount of money in the country should rise and fall in exact proportion to the amount of gold and silver.  Therefore, like Bishop Berkeley in Ireland, they began to agitate for the right to make a fiduciary issue of paper-money.  The answer of the British Parliament was in 1751 to pass an Act prohibiting the issue of paper-money in New York, and this prohibition was afterwards extended to the other colonies.  “On the slight complaint of a few Virginia merchants,” said Benjamin Franklin,⁽⁶²⁾ “nine colonies had been restrained from making paper money, become absolutely necessary to their internal commerce, from the constant remittance of their gold and silver to Britain.”

There was thus no possibility for the Americans to get out of debt, and the English financiers looked forward to drawing steady and permanent dividends from their American investments.  The result, complained Franklin, was that the American “whole wealth centres finally among the merchants and inhabitants of Great Britain.”  Of the nature of the Americans these “merchants and inhabitants” knew little and cared less.

After the Seven Years’ War it was widely felt in England that it would be just that the Americans should make some contribution to Imperial taxation.  Whether that feeling was a right one or a wrong one, we need not discuss.  It was a general and national one, shared by King and people, Parliament and financiers.  The later Whig legend that it was a special project of George III’s brain is sheer fabrication.  “The shame of the darkest hour of England’s history,” writes Green⁽⁶³⁾ of poor George, “lies wholly at his door.”  It is nonsense.

The first attempt to raise revenue from America was made by the Sugar Act of 1764, putting a duty on American sugar.  But, since sugar could be produced as easily and abundantly in the West Indies as in America, that duty proved to be a protective but not a revenue duty.  Its effect was but to ruin the American sugar industry and to make the West Indies almost the sole source of England’s sugar supplies — an effect which, it is not perhaps unduly cynical to suggest, may possibly have been foreseen by the seventy-four owners of West Indian sugar plantations who sat in the Parliament which voted the Act. [Op. cit., Beard, i, 195.]  The problem was tackled again by the Stamp Act.  The Stamp Act was proposed by Grenville, a Whig, a man personally distasteful to George III.  It was supported by the whole Whig Parliament and passed both Houses of Parliament “with less opposition than a turnpike bill” — in the House of Commons by 205 votes to 49, in the House of Lords without a division.  “I well remember,” said Burke, [Ibid., i, 210] “that Mr. Townshend, in a brilliant harangue on this subject, did dazzle them by playing before their eyes the image of a large revenue to be raised in America.”  Townshend was a leading Whig.  So far indeed was the Act from being the personal policy of George III that it so happened that the poor man was insane at the time, and the royal assent was only given to it by a regency.

Grenville fell from power for reasons entirely unconnected with America and was succeeded by the Government of Rockingham, the very archetype of Whiggery.  The Government was formed in July, 1765.  For the first six months of its life it had no particular American policy.  Conway, the Secretary of State, occupied them with writing feeble letters to the American governors about the disorders.  Then at the end of the year it began to discover that the result of the Stamp Act and of the boycott of English goods was that the dividends were not coming in to the English investors.  The merchants of London, Liverpool, and Glasgow sent in a petition complaining that £4,000,000 of debts were owing to them in America and that they were unable to collect them.

It was then, and not till then, that the light of divine illumination fell upon the gentlemen of England.  At that date about one person in four hundred in England had a vote.  Yet the Whig Members of Parliament, representative of of one four-hundredth part of the people of Great Britain, found that the American cry of “No taxation without representation” was a righteous and a freedom-loving cry.  Was not the American cause their own cause of 1688 ?  The more prosaic truth was that they saw that the Americans would not pay both the Stamp Act’s dues and their private debts, just as the financiers of our own day saw that the Germans would not pay both reparations and the interest on the Dawes and Young Loans.  Therefore high Christian and Whiggish principles demanded the repeal of the Stamp Act.  Chatham, the City of London’s man, made a speech in which he said that liberty was too noble a thing for her rights to be settled by the nice precedents of the Statute Book.  Rockingham repealed the Stamp Act.  “The whole trading interest of this Empire crowded into your lobbies,” said Burke.  But it was beneath the dignity of Chathain’s great rhetoric to advert to the restraint on liberty of a prohibition on the issue of paper-money, a prohibition which had been expressly reaffirmed by the Whig Government of Grenville and which was not removed by the Whig Government of Rockingham.  The Americans accepted the repeal of the Stamp Act with gratitude but sent a petition to the House of Commons concerning their other grievances — among them that of the prohibition on paper-money.

Rockingham fell and was succeeded by Chatham who appointed Townshend as his Chancellor of the Exchequer — the hero of the “brilliant harangue” in favour of the Stamp Act.  The Whigs, as the Declaratory Act proved, had no principled objection to the taxation of America.  If possible, they wanted to get both taxes and dividends out of the Americans.  It was only in case of necessity that they were prepared to jettison the taxes in order to keep the dividends.  Therefore Townshend attempted to raise by duties on tea, glass, and paper the revenue that Grenville would have raised by the Stamp Act, thinking that the Americans would object less to external than to internal taxes.

He miscalculated.  There was indeed nothing at all novel in the principle of taxation of the Americans in one form or another.  But Rockingham’s repeal of the Stamp Act had proved to them — what they had not previously understood — that they could get out of paying their taxes if only they made sufficient fuss.  Hence the riots and acts of protest with whose story every one is conversant.  The Whig Government paid no attention to these protests, nor was it till the advent of a Tory Government under North that all the duties except that on tea were repealed.

Then the situation was complicated by an extraneous accident.  The East India Company was in financial difficulties because the shareholders had depleted its reserves by paying themselves an excessive dividend.  To save it from bankruptcy the Government had come to its rescue with a loan, and, in order to get its money back, the Government was exceedingly anxious to increase the Company’s receipts.  Most reasonably it occurred to North that, if Indian tea were sent direct to America, there was no reason why the Company’s profits should not be increased to the benefit of the American consumer but at the expense of the two sets of middlemen, the English and the American, who up till then had had the handling of it on its journey from the producer to the market.  It was the destruction of this tea, organized by the American middlemen afraid that, like Othello, their occupation would be gone, which first caused the British ministry to pay serious attention to American unrest.

Lord North made attempts to compose the quarrel, which, as is known, failed.  It came to the arbitrament of war and the Americans in their Declaration of Independence saw fit to ascribe all their grievances to the personal malignity of George III, hoping thus to gain for themselves the support of English Whigs.  But the pretence, though perhaps an astute political manoeuvre, had no truth behind it.  Nor did the manoeuvre succeed.  In spite of the efforts of Whig historians in the last century, such as May, or Sir George Trevelyan, to collect evidence of the unpopularity of the war with the English people and governing classes, there is no doubt that every section of English society was solidly behind the Government in its ambition to coerce the Americans.  It may be convenient politics to pretend that it was not so but it is not good history.  “All the worst measures of American coercion that preceded the Declaration,” writes Lecky,⁽⁶⁴⁾ “were carried by enormous majorities in Parliament.”  And indeed, so far was George from being the architect of repression, obtaining for his odious policy formal approval from a bribed and servile Parliament, that, where he did bring personal pressure to bear on Members, during North’s régime, he did so, in 1775 in order to overcome their strong opposition to the Prime Minister’s conciliatory resolutions.

The General Election of 1774, fought, in so far as elections in those days were fought on any issue, on the American issue, gave to Lord North’s Government a strong majority and on divisions it could usually muster about 260 votes against 90.  In 1776, when after the capture of New York it looked for the moment as though the British cause might be victorious, the opposition sank to 47.  The mercantile classes were also, according to Burke, for the war.  “The mercantile interest,” he said,⁽⁶⁵⁾ “which ought to have supported with efficacy and power the opposition to the fatal cause of all this mischief, was pleaded against us, and we were obliged to stoop under the accumulated weight of all the interests of this kingdom.”  “The merchants,” he said again, “are gone from us and from themselves.  The leading men among them are kept full fed with contracts and remittances and jobs of all descriptions and are indefatigable in their endeavours to keep the others quiet.... They all, or the greatest number of them, begin to sniff the cadaverous haut gout of lucrative war.”  The generality of the people of England were also, according to Burke, on the same side.  Violent measures, said Rockingham, received the support of a majority of the population “of all ranks, professions or occupations in the country.”⁽⁶⁶⁾ Sir George Saville, an opponent of the war, estimated in a confidential letter to Rockingham, that “ninety-nine in one hundred”⁽⁶⁷⁾ were in favour of it.  When the war broke out, “the majority both in and out of Parliament,” recorded the Duke of Grafton, “continued in a blind support of the measures of administration.”⁽⁶⁸⁾

Burke’s voice, it is true, was of course raised on the other side, but it was well understood at the time — and has not perhaps been so well understood since — that Burke was a poor man and that since 1771 he had been the salaried English agent of the province of New York.⁽⁶⁹⁾ It is not suggested that his advocacy was therefore merely hired advocacy.  Human nature does not work so crudely as that.  But there is no absolute measure to tell us the relative strength of contending arguments, and there are few of us therefore who do not come honestly but easily to believe that in a quarrel the side that butters our bread has a better case than the side that offers us nothing.

It was not until after the surrender of Saratoga and the French intervention that a vigorous pro-American party began to make its appearance, and it was then that the Whigs took advantage of the King’s obstinacy to pretend, for party purposes, that they from the first had been against the coercion of the Americans and he alone in favour of it.  The truth of the matter was that the City interests would, as has been said, have preferred to have extracted both dividends and taxes from the Americans.  But, after the French intervention, as the City saw the American debts to French and Dutch financiers mounting and mounting, it realized that there was no longer any possibility of extracting taxes, and a prolongation of the war, by ruining the dollar, would very likely rob it of its dividends.  Therefore they threw the King overboard, turned against North, on his fall gave their support to Rockingham and made a deal with the Americans by which they agreed to recognize the independence of the United States on condition that the new American Government placed no impediment in the way of the collection of English debts in America.  In practice the collection of those debts was to prove no easy matter — but that is another story.

But the war had not been without its compensations.  For, while in favour of the war, the money interests had not of course been in favour of paying for it.  They had played on George III just the same trick that their predecessors had played on William III nearly a hundred years before.  They had let him have his war, provided that he borrowed the money for it from them.  The war cost £97,599,496.  Of that Parliament voted in taxation £3,039,427.  The other £94,560,069 was raised by loan.⁽⁷⁰⁾ The National Debt was doubled.  The American War completed what had been begun in William III’s time — the definitive establishment of a considerable class of moneyed men as the permanent pensioners of the State.

It is not argued for one moment that George III was not in favour of coercing the Americans, and, if such coercion was a blunder or a crime, then he was guilty of that blunder or that crime.  But it is argued that he was not especially guilty.  Every interest in the country shared the guilt with him — the moneyed interest neither more nor less than the rest.  Well, it may be asked, what of it ?  This of it.  The money power did not take its share of the blame when that policy failed.  There still lingers among men a vague tradition that the financial world has managed and still manages its affairs with an almost superhuman competence.  The whole record of history stands open in refutation of that tradition.  But it persists because there is one particular trick that they have learnt how to play with a skill that is almost uncanny.  It is the trick, when things go wrong, of leaving somebody else to hold the baby.  We have already seen how in 1672 they left the impression that it was Charles II who was entirely to blame for the country’s financial breakdown.  So now again the monarch was easily degraded into the whipping boy of the nation.  And we shall see in the coming chapters the financial system breaking down again and again and the breakdowns ascribed to every cause except that inherent defect in the system which Berkeley had pointed out.  We shall see all working up to the final catastrophe of 1931, when the whole of Christian civilization was brought to the very verge of collapse by the financiers’ obstinate refusal to understand the laws by which their own system worked and when, after our escape from calamity, those who had led us to the precipice’s brink were allowed to pose before us as our saviours in the hour of peril.

The last sentences of the previous chapter will, I am sensible, seem strange and strained to the reader.  Just as one unfamiliar with the certain conclusions of Thorold Rogers’s research must have been tempted to dismiss the earlier chapters as perversely paradoxical, so, too, many readers will be inclined to say of Bishop Berkeley’s warnings concerning double-money that they are unreal and alarmist.  “After all,” they will object, “the system perhaps was not theoretically the best.  Perhaps it might have collapsed, but at least it did not collapse.  We muddled through.”

The system, let us clearly understand, did collapse.  It collapsed again and again and again.  There is not a single record of any considerable strain being put upon it and it being found equal to that strain.  And, when we boast that we muddled through, let us bear Thorold Rogers’s statistics in mind and ponder on the meaning of the phrase.  It means that in some way or other the succession of sovereign to sovereign and of Government to Government was indeed maintained, but it means also that every single sovereign from Henry VIII to Victoria died, leaving the poor more miserable, more degraded, more hopeless than he had found them at his accession, that in every single year of all those years between the dissolution of the monasteries and Thorold Rogers’s expulsion from Oxford University men and women and children were dying for the lack of food of which there was in truth an abundance.

Let us see the working of this double-money system, the supporters of which prided themselves on their common sense, the critics of which were dismissed as airy triflers.  The year 1797 was one of the darkest in the whole history of this country.  We were at desperate war with the resurgent French Republic.  Our allies, one after the other, were turning wearily to peace.  Between Great Britain and destruction there stood only the navy, and in the navy were heard ominous mutterings, soon to break out into open mutiny.  There were rumours about of French invasion.  In such a national crisis, on Sunday, the 18th of February, some farmers went into Newcastle to the market.  For some reason or other — nobody to this day knows what — a rumour of panic got abroad among them.  They therefore sold the cattle for knock-down prices and rushed off in a body to the local banks with the notes that they had received, demanding cash.  The banks of course were unable to satisfy the demand and on Monday, 20th February, by agreement they all stopped payment.

It was not then popularly understood, it is not even to-day universally understood, that, when banks lend their Promises to Pay, they lend promises which they know themselves unable to perform — that their promises greatly exceed their cash-holdings.  Although of course those who understood the system were well aware that a bank always, automatically and inevitably fails whenever it is asked on any serious scale to make good its promises, yet to the general public the failure of the Newcastle banks was a shock.  Other provincial bankers foresaw that holders of their paper would grow nervous and that there would be demands on them for cash.  Now these bankers themselves banked, directly or indirectly, with the Bank of England.  Therefore, to guard their position, their natural policy was to draw out all their deposits from the Bank of England.  Throughout all that next week the Bank was receiving demands for cash at the rate of about £100,000 a day.

But the Bank of England had of course in its turn made Promises to Pay far beyond its capacity to perform.  There were about £10 million of its notes in circulation; there were about £5 million deposited with it.  To meet these demands it had not even the banker’s normal tenth part.  In 1795 the French Government determined to return to the gold standard.  In order to accumulate sufficient gold to do so, it was willing to pay a price for the metal which made it more profitably useable in France than in Great Britain.  The two countries were at war and the transference of gold from one to the other was illegal, but the owners of the metal found little difficulty in circumventing such regulations.  In face of the temptation of a profitable use of gold in France the Bank of England virtually abandoned any attempt to keep a cash reserve in England, trusting to luck that it would not be found out.  In February, 1794, it had held £7 million in cash; by February, 1795, this £7 million had sunk to £6 million, by February, 1796, to £2½ million, to £2 million by August, to £1 million by February, 1797.⁽⁷¹⁾ Clearly in the face of any considerable demand for cash its survival was only a matter of days.  As Sir Francis Baring put it,⁽⁷²⁾ “the Bank had been drained for foreign services” — a pleasant neutral phrase which meant not merely that loans had been made to the country’s allies but also that Sir Francis and his friends had been lending money, hand over fist, to the country’s enemies in time of war.

On 18th February, then, for reasons unknown a few farmers in Newcastle lost their heads.  By 25th February the whole country was on the verge of collapse.  On that very day news reached London that 1,200 French troops had landed on the coast of Wales.  In calmer and sillier times it was all very well to gull the public with the pretence that the double-money system worked, but it is to the credit of Pitt, City of London’s man as he was, that he understood that with an invading army on British soil the time for mere foolery had passed.  Without hesitation he suppressed the system and saved the country.  He suspended cash payments.  The Times issued a leading article, calling on the people to show the spirit of their ancestors of Queen Elizabeth’s time — and not to embarrass the bankers by asking for their money back.  A committee then issued a statement of the Bank’s financial position.  It had, it claimed, liabilities of £13,770,390 and against them assets of £17,597,280 private loans and £11,686,800 loans to the Government.

As is always the case with bank-statements, there was room for dispute about the accuracy of the figures.  But their accuracy or inaccuracy was of little importance.  The purpose of them was to persuade the simple holder of bank-notes that, since the Bank’s assets exceeded its liabilities, he had, if only he could restrain his impatience a little, no cause for anxiety and would soon be easily able to cash his notes into gold or silver.  Its purpose was, as far as possible, to conceal from the public that the Bank had made up money.  Now, suppose that I possess £1 of gold and give authority to A to demand that £1 but A, instead of doing so, writes a cheque for £1 to B, who deposits the cheque with me.  It is clear enough that if, at the end of this, I, being in possession of £1 of gold and of A’s cheque on me to B, yet pretend that, since I have £1 in gold and £1 in deposits, I therefore possess £2, I have created the £1 of those £2 myself.  I tell C that I possess £1 in gold and that A owes me £1, which he will soon repay, and therefore I can safely afford to lend C £2 — and the books can be made to balance.  But it is all a trick.  It is clear enough also — and indeed it had at this time just been proved in practice — that, if this manufacture has gone on to any important extent, then it is simply untrue to say that any considerable number of B’s can get their paper money changed into gold or draw out their deposits in gold, even if the gold should happen to be lying in the vaults of the bank.  For suppose that the Bank of England could have collected £14 million of its £17 million of assets in gold and with them paid off £14 million of notes.  The effect would have been to have reduced the sum total of money in circulation by £14 million.  For the Bank would not have dared to put the repaid notes out again into circulation in fresh loans, because that would have created fresh claimants on its gold and all its gold was already required to satisfy the present claimants.  There would therefore have been a drastic deflation.  The mere attempt to work the double-money system would certainly have lost us the war.

It is not possible to argue that the system was elastic and was modified in the face of a crisis.  It was not modified; it was abolished.  The essence of the double-money system is that all paper-money only acquires its value by virtue of its convertibility on demand into so-called “real” money.  A suspension of cash payments is therefore no more a modification of the double-money system than traveling from Stockton to Darlington is a modified way of travelling from Darlington to Stockton.

It is quite true that, even throughout the rest of the war, the country did live in one sense under a double-money system.  The Bank of England notes were not convertible into anything, but the notes of other banks were convertible into Bank of England notes.  But between gold and silver as an ultimate medium and any form of paper there is clearly this great difference — the paper-money can be multiplied at will.  Since it is the public who in fact pay for it through the effect that it has on the price-level, what conceivable argument, you may ask, is there to be urged against the issue of that paper by public rather than by private authority ?  And echo can only answer “What?” Even the Bullion Committee, while recommending a return to gold and to what it considered an automatic currency, recognized that, if the currency was to be managed, there were no arguments for allowing it to be managed for private profit.  “The addition,” they wrote,⁽⁷³⁾ “of between four and five millions sterling to the paper circulation of this country, has doubtless been made at a very small expense to the parties issuing it, only about £100,000 having been paid thereupon in stamps to the Revenue, and probably for the reasons already stated, no corresponding deposits of gold or Bank of England notes being deemed by the country banks necessary to support their additional issues.  These parties therefore, it may be fairly stated, have been enabled under the protection of the law, which virtually secures them against such demand, to create within the last year or fifteen months at a very trifling expense and in a manner almost free from all present risk to their respective credit as dealers in paper money, issues of that article to the amount of several millions, operating in the first instance and in their hands as capital for their own benefit and, when used as such by them, falling into and in succession mixing itself with the mass of circulation of which the value in exchange for all other commodities is gradually lowered as that mass is augmented.  If your committee could be of opinion that the wisdom of Parliament would not be directed to apply a proper remedy to a state of things so prejudicial to the public welfare, they would not hesitate to declare an opinion that some mode ought to be devised of enabling the State to participate much more largely in the profits accruing from the present system.”

But the sad truth is that whoever had managed the currency at that date would have mismanaged it.  For between that world and an understanding of Berkeley’s theories or of medieval practice stood the gigantic barrier of Townshend’s education.  Neither among our bankers nor among our politicians was there any understanding of the importance of the price-level.  The metallic monetary system before 1797 was a foolish one and brought the country to the verge of a catastrophe.  Less foolish, but only less foolish, was the unregulated paper system after 1797.  According to that system every banker was free to issue all the notes that he cared to and to take his chance on it whether he went bankrupt.  Now the story of 1797 had made clear one brutal and not very edifying truth.  It was this.  If you were a forger and forged a £1 note, you got hanged.  But to make a Promise to Pay which you know to be mathematically impossible of fulfilment and to take advantage of the fact that the public has not got that knowledge is, ethically, forgery.  Yet, if you in this way in time of war forged ten million £1 notes, not only did you not get hanged, but, owing to the effect that discovery would have on prices and consequently on productivity, the Government could not afford to let the public discover that you had forged.  So far from prosecuting you they would co-operate with you in preventing public comprehension of your conduct.  Therefore throughout the rest of the war all banks issued notes freely, understanding well that, if they only issued them on a moderate scale, the Government might allow them to fail; if they issued them immoderately they were safe.  If only they were sufficiently largely in debt they would never have to pay.

It was a grand time for bankers, and, as a result, the number of country banks between 1797 and 1810 increased from 80 to over 700.  The money in circulation naturally increased too and prices rose.  By 1799 they were up to 114 to 1797’s 100.  There they stayed for about ten years until in the boom of 1809 they took a further jump up to about 140.⁽⁷⁴⁾ It was this second rise which so aroused public opinion that the famous Bullion Committee, of which Huskisson was the most important member, was appointed to inquire into the cause of the instability and to suggest a remedy.  Historians have indulged in most extravagant language about the expert nature of this Committee’s judgments.  “With the exception of Sir Francis Baring,” we are told by Mr. Feavearyear⁽⁷⁵⁾ who has given his study to it in recent years, “the Bullion Committee called no witnesses who had made any particular study of currency theory.... It is not too much to say that the leading members of the Bullion Committee had made up their minds before upon the theoretical question.”  Like most of the essays of British Government at that date, it was a very amateur affair.

The Committee reported — as was indeed plainly the truth — that prices had risen owing to the excessive issue of notes by the Bank of England and the country banks.  The remedy that they proposed was that of a return to cash payments.  It is always the most recent grievance that bulks largest in the mind, and it was therefore natural that people were conscious of the grievance of a rise in prices, which to us of the twentieth century seems comparatively trifling.  They had forgotten that black day in 1797 with the French in Wales, the awful calamity to the brink of which the folly of double-money had brought the country and in which the immediate return to cash payments would certainly once more involve it.  In June, 1810, when the recommendations of the Committee came before the House, there were in circulation £32 million’s worth of Bank of England notes.  Against them the Bank had cash holdings of £3,200,000.  It was clear then that a return to a metallic coinage would only be possible either by a large devaluation of the pound — which the Committee did not recommend — or by a deflation so drastic that it would certainly lose the country the war.  The Committee had had little difficulty in exposing the ignorance of many of those, such as the directors of the Bank of England, whom they had examined.  Canning had as little difficulty in showing the folly of resumption during the continuance of the war, and the motion for resumption was lost by 45 votes to 180.  Indeed so strongly convinced were the Government that deflation could not be risked in face of the enemy, that, when in 1811 some bankers in Glasgow and Lancashire failed, the Government instead of allowing the failure of those banks’ notes to have its normal and automatic deflationary effect, stopped the gap themselves with Exchequer bills of their own so as to prevent a fall in prices.  As a result not only was the fall prevented, but prices rose, to reach in 1814 their peak-level of 143 to 1797’s 100.

Once the war was over there was no longer any pressing necessity — as the governing classes saw it — to keep production at a maximum.  There was no longer any objection to deflation, provided only that it was so tempered as to preserve society from complete collapse into anarchy.  Now it is clear enough that, from any except a monetary point of view, the standard of living of a country in peace ought to be higher than its standard in war-time.  In war-time, clearly enough, a large proportion of its labour is engaged on the unproductive work of fighting.  A further large proportion is engaged upon the production of munitions of war, to which again a large proportion of its goods are diverted.  Yet for all that it has generally happened that a return to peace brings not a rise but a fall in the standard of living.  In any particular case — as indeed in this case of the years after 1815 — there may of course be particular complicating causes, such as failures of harvests and so on.  But there are also certain general causes by which this almost general phenomenon is explained.

We are told that the cessation of war causes a sudden drop in Government expenditure, and that the demobilization of the troops throws an unassimilable horde on to the labour market.  It is the obvious comment that neither of these causes in any way lessons the country’s productive capacity.  On the contrary they both increase it.  The man who has been shooting Frenchmen or Germans can, at any rate ideally, be turned to producing goods instead.  The money that has been used for producing munitions, can, at any rate ideally, be used for the purchasing of these goods.  All that these causes lessen is the country’s effective demand.  Men no longer have the purchasing power to buy goods.

Nor, less there be a deflation in process, do they lessen even that effective demand as drastically as at first sight appears.  The demobilized soldiers, it is true, have, if no provision be made for them, less money in their pockets; so have those who formerly sold munitions.  But the taxpayers have more.  It is clearly then the business of society to transfer the labour that had previously been used for war to productive purposes of peace and, during the interval of transference, to see to it that the would-be labourers do not suffer from want.  Such a problem has doubtless always presented difficulties of detail.  But such difficulties in no way justify the statesmen through the ages who have indulged in talk about the inevitability of post-war slumps.  Yet it is just this invocation of an inevitable fate in which they always have indulged.  “The war had ceased,” said Hudson Gurney [18th May, 1818] at this period in the House of Commons, “leaving England, glutted with merchandise, with abundance of all things.”  From this strange calamity there was but one conclusion for the practical politician to draw.  “Managed as best it might be, there must have been a great revulsion.”  The troubles of the country, bluntly said Lord Liverpool, the Prime Minister, were due to “over-production.”

The truth is that such talk has been permitted and has been indulged in because language of inevitability has been very convenient for disguising the real cause of post-war slumps.  “Met with a farmer,” as he rode away from Weyhill fair on 11th October, 1822, records Cobbett,⁽⁷⁶⁾ “who said he must be ruined unless another good war should come.”  To the masters of the machine nothing is more convenient than this false ascription of cause to effect.  For these slumps have been caused not by the comparatively trivial problems of the transfer of labour but by the deliberate action of deflation.

Clearly a fall in prices is to the advantage of anyone who has money on loan, for debts are repayable in money.  Therefore, if he lent when prices were high and can so manage it that he can be repaid when they are low, he is clearly repaid (quite apart from interest) more in terms of goods than he originally lent.  Naturally this would not be so if debts were scaled down in proportion as prices fell, and for such a scaling down Cobbett at this time persistently clamoured in the Political Register and the Paper Against Gold, but, needless to say, he was not attended to.  Clearly also, immediately after a war, many people, who do not think very deeply, will easily be persuaded that the price-level that existed before the war, just like everything else that existed before the war, was a “normal,” as it were God-ordained, price-level, that the higher prices of the war were “abnormal” and that a natural consequence of peace should be a return to the pre-war price-level.  Therefore it is not very difficult for creditors to represent their demand for deflation as a mere demand for a return to sanity and thus to obtain the support of those who do not understand that falling prices will inevitably drag down with them their own wages or salaries or profits.

Thus it was that the years after Waterloo were years of steady deflation, of falling prices, of consequent distress.  From 1814’s 143 index prices came down until in 1816 they were a trifle below the 1797 level.  As its total decreased, the country’s monetary supply approached that figure at which it would be once more possible to reinstate metallic money.  In 1817, the banks tried to put out some gold coins, but the people would not have them, preferring the paper with which they were familiar.  With the issue of the new paper prices rose again.  In 1819 a Committee was appointed under the Chairmanship of Peel and including Castlereagh, Canning, Tierney, Huskisson, and Vansittart, to advise on the possibility of the resumption of cash payments.  It issued its report on 6th May, 1819, advising a gradual resumption over the course of the next few years.  Peel, not then a member of the Government, submitted the recommendation of the Committee to the House of Commons in a series of resolutions.  The note-issue, he argued, must be contracted until it could be safely covered by gold pounds in the possession of the issuing authority.  And to the question, what is a pound ?  he answered, “It is a piece of gold of a certain weight and fineness” — to wit, 123.274 troy grains of 22 ct. fineness — 123.274, because the pre-1797 guinea weighed 129.4 and 123.274 is 20/21 of 129.4.  If £1 is 123.274 grains troy, then 1 oz. troy (480 grains) is £480/123.274, which is as near as may be £3 17s. 10½d.  Therefore the Bank of England was put under obligation to buy for £3 17s. 10½d. an ounce any gold that was presented to it.

The resolutions were passed without a division.  Prices were driven drastically down to well below the 1797 level, and it proved possible to return to convertibility in two years instead of the stipulated four.

The purpose of the previous chapters has not been to provide an essay on the follies and stupidities of our ancestors, but to demonstrate two propositions of the highest importance, without which an understanding of such a man as Peel or of almost any other of the statesmen of the nineteenth century is quite impossible, without which indeed our own understanding of ourselves is quite impossible.  Its purpose has been to show that it was quite unnecessary for anyone in nineteenth century England to have suffered poverty and to show how it was that thousands of perfectly honest men, the victims of a false education and of a question-begging political economy, nevertheless thought that the poverty of vast masses of their fellow countrymen was not only necessary but permanently inevitable.

Not the least among the services rendered to modern thought by the supporters of Major Douglas has been to familiarize the public with the notion that poverty is unnecessary.  In doing so they have rightly insisted on the immense increase of productivity which the modern machine has made possible.  But some of them have been less happy when they have spoken of the paradox of starvation in the midst of plenty as a paradox but recently arisen and contrasted our age of abundance with previous ages of supposed scarcity.  Englishmen have been starving in the midst of plenty for four hundred years.  A hundred years ago Cobbett found⁽⁷⁷⁾ in his England “starving in the midst of abundance ... the Law Church parsons putting up in all the churches thanksgiving for a plenteous harvest, and the main mass of the labouring people fed and clothed worse than the felons in the gaols.”  A hundred years before Cobbett the very phrase, as we found, was on the lips of Bishop Berkeley. [Query 446.]  Two hundred years before Berkeley, Sir Thomas More was writing of the same phenomenon in his Utopia.

“Though the number of sheep increase never so fast, yet the price falleth not one mite, because there be so few sellers.  For they be almost all comen into a few rich men’s hands, whom no need forceth to sell before they lust.... Thus the unreasonable covetousness of a few hath turned that thing to the utter undoing of your island, in the which thing the chief felicity of your realm did consist.... To this wretched beggary is joined great wantonness, importunate superfluity and excessive riot.... Suffer not these rich men to buy up all, to engross and forestall, and with their monopoly to keep the market alone as they please.”  We must go back behind Sir Thomas More to find an age where a man could not starve save when there was not enough food to feed him.

By the nineteenth century improvement of communications had quite banished that possibility of occasional famine, which was the one real weakness of the medieval economic system.  But for evil communications had been substituted a much more potent enemy of human happiness — an evil educational system.  Nothing but an educational system which deliberately kept from him such writings as those of Bishop Berkeley could possibly have induced Peel to imagine that in a return to the double-money system the country could find stability, nor could anything but a deliberate blocking of the mind to all understanding of the middle ages have led a man to neglect the discovery of the medieval kings that prices can be kept stable by altering from time to time the metallic content of the coinage.

It is said that the younger Pitt once greeted Adam Smith with the remark, “We are all your pupils here.”  It was the tragic truth.  No one who reads the strong pages of the Wealth of Nations can fail to be captured with delight at their powerful reasoning.  The faults of that book are not in its reasoning, but in its premises — in its unproved assumption that a society must necessarily consist of a few capitalists and the propertyless proletariat, who can only get a living by working for the capitalists for a subsistence wage.  To St. Thomas Aquinas property existed to promote the well-being of society, but to Adam Smith society existed to defend the rights of the owners of property.  Cupiditas, to St. Paul and to all Christian tradition radix malorum omnium, to Adam Smith and the Benthamjtes was radix bonorum omnium.

It is no part of the business of this book to draw out a general indictment of the Universities or of the public schools.  They have made their contribution both to happiness and to culture, keeping alive the love of scholarship of a sort and of those poets whose theories were not inconvenient to their masters.  They have been a bulwark against the cram-shops and the state-schools and the trickeries of vocational education.  Yet even the most fervent of their lovers must in fairness admit that in the dark age of the great betrayal, when the poor of England were lashed back to their unnecessary poverty, the strange handful of ill-assorted men who at all understood what had happened to England and who raised their voices in protest, were almost without exception people who by accident had escaped the influence of the educational system.  There was Lingard, the Winchester carpenter’s son, driven by the happy accident of a Penal Law to learn English history over the seas beyond the reach of Whig bribery.  There was Cobbett, the farmer’s son, who went to no school and who learnt no history of the past until in middle age, when he had already learnt the history of the present and knew from experience how much truth to expect upon the lips of governors — Sadler, picking up learning’s crumbs at his own whim in his father’s library — Disraeli, the strange alien exotic, like an orchid in an English green-house, who saw so clearly simply because he saw from outside — later, a Carlyle or a Ruskin.

Meanwhile, Dr. Arnold, the founder of the public-school system, when appointed Regius Professor of History at Oxford, was telling⁽⁷⁸⁾ his biographer, Stanley, that he “could not bear to plunge (himself) into the very depths of that noisome cavern,” the Middle Ages, “and to have to toil through centuries of dirt and darkness” — centuries in which, as Thorold Rogers was to show, the poor were materially some six times better off than they were in Dr. Arnold’s England.  In preference to such a painful theme the doctor would prefer to dwell on “the deep calm of the first seventy years of the eighteenth century as containing within itself the seeds of our future destiny.” [Ibid., p. 300.]  There stands irrefutable the stinging gibe that the battle of Waterloo was won on the playing-fields of Eton — that battle that laid finally in the dust the great hope of the world’s freedom from the empire of usury.  But the battle against Waterloo, the battle for the overthrow of the monstrous “Thing,” erected on the ruins of Napoleon, was fought by strange and gallant men from nowhere in particular.  There came no help from Eton nor from Oxford for that battle.  From Harrow there came only Shaftesbury and Byron.

Let us then bear in mind, while studying the history of the nineteenth century, this first point — that its poverty was unnecessary.  Whether it was better for the country to produce as much as possible of her own food or to produce a surplus of manufactured goods and exchange them against the food of other countries was a secondary detail.  The important truth was that there was no difficulty at all in procuring a sufficiency of food for all.  And, if you ask, how then anyone can have been in favour of preserving this unnecessary poverty, the answer is, that no one could have been in favour of it, had it not been for a system of education, carefully training them in ignorance with its question-begging phrases such as “favourable balance of trade,” “sound money,” “artificial prosperity,” “gold flowing” hither and thither and the like.

Even after the publication of Thorold Rogers’s figures, it will, I am sensible, seem to some an exaggeration to say that poverty in the nineteenth century was unnecessary.  They will perhaps admit that wealth was, and is, unfairly distributed, but there is in their minds the memory of one of those calculations, in which Dean Inge delights and which from time to time pop out in the correspondence columns of newspapers, according to which, if we divided the national income out equally, there would only be some £150 a year per family.  But it is not suggested that the problem could be solved merely by dividing out equally the goods that are at present produced.  It is clear that effects of a greatly unequal distribution of wealth are that the country produces less goods than it might produce and produces the wrong sorts of goods.  The first business of a society, Aristotle tells us, is to see to it that its members can live.  Therefore, the first business of its economic system is to produce a sufficiency of food and clothing, or of goods that can be exchanged for food and clothing, to meet the necessities of the country’s inhabitants.  The necessities satisfied, then by all means give attention to the luxuries — the problems of “living well.”  Now it is clear that the effect of an unequal distribution of an income will be that a large proportion of the country’s labour will be occupied in the production of luxury goods or the performance of luxury services, even though the necessities of the poor are not satisfied.  It is necessary for a high civilization that a proportion of its members, in the various professions from lawyer or doctor down to flunkey or advertising agent, should be occupied in the performance of services rather than in the direct production of goods.  But in an unequal society the proportion of the population engaged on such services is excessive.  Therefore the result is an insufficiency of necessities, not because the country is incapable of producing them but because, with the given distribution of purchasing power, there cannot be an effective demand for them.

Nor is it possible to hope for a remedy so long as poverty remains the penalty of unemployment.  For, with the fear of such a penalty, it is impossible to expect people to give a fair consideration whether their work is socially desirable or not.  Where purchasing power is dependent upon a job and bitter poverty the reward of unemployment, it is inevitable that every individual will be only concerned to get a job and will care little whether that job is one for serving or for exploiting the community.  It is inevitable, too, that the humane tendency in every profession will be to spin out the jobs as long as possible and to divide them between as many people as possible.  Within every profession there is competition, but every profession as a whole is a conspiracy to pilfer the community.  Lawyers want to make the law not as simple as possible, but so complicated there will necessarily be work for a lot of lawyers.  Working men fight labour-saving devices simply because they do save labour.  Every new suggestion is judged not on its merits but by the test whether it will save or will make work.  And thus in the past the abolition of torture was no doubt opposed on the ground that it created unemployment among the torturers, and certainly to-day orders for armaments from powers that are but little friendly are welcomed on the ground that even if British workmen are to be blown to pieces by those guns to-morrow, at least they are to be “employed” in the making of them to-day.

We are told that there is a great moral risk in giving people money for doing nothing.  And so there is; you have only to look at the rich to see that.  But is there no moral risk in giving them money for doing things that had much better not be done at all ?  How many men are there whom the world would have been well advised to have paid all the money that they ever earned on the sole condition that they never did any of the jobs that they were paid for doing ?  We are continually reading statistics of the large numbers of the population employed in “services.”  What proportion of those “services” are really services to the community at all ?  What proportion of the population is not in truth rather engaged in an unholy advertisers’ struggle to create discontent among its fellow-citizens and to prevent them from finding satisfaction in the simple pleasures of life ?  And yet those “services” use up not only labour but also raw materials and minerals that could much better have been otherwise employed.  What proportion again of the goods that we consume — I will not ask what proportion could we do without, for there is no reason why we should live in an utterly Spartan simplicity.  But what proportion would we much rather do without ?  What proportion make no sort of contribution to our happiness ?  We allow ourselves to be persuaded that we want them only because, if we refused to buy them, it would “create unemployment.”

It is therefore not possible to estimate the potential standard of living of a country — England in Peel’s time or any other country — by merely considering its actual productivity.  What is necessary is to put aside for the moment all monetary problems of distribution and to try to estimate its productive capacity as a purely technocractic problem.  Now Cobbett, who had been a working farmer and who knew well what he was talking about on such matters, in the course of his Rural Rides visited on the 29th August, 1826, the village of Milton, in Wiltshire.  He had the curiosity to make an estimate of the productive capacity of that village.  The village contained, according to the population returns of the time, 500 people, including women and children.  “The land of this parish,” he found,⁽⁷⁹⁾ “produces annually about 3,000 quarters of wheat, 6,000 quarters of barley, the wool of 7,000 sheep, together with the pigs and poultry ... leaving green or moist vegetables out of the question ... and saying nothing at present about milk and butter.”

He then drew up what he considered a proper dietary for a family of five.  “Such a family would want 5 lb. of bread a day; they would want a pound of mutton a day; they would want 2 lb. of bacon a day; they would want, on an average, winter and summer, a gallon and a half of beer a day.”  Such a dietary, which he considers reasonable, would cost them, he reckons, £62 6s. 8d. a year.  In fact; with a wage of 9s. a week, the labourer at that date only received £23 8s. a year.  Yet the productivity of the village of 500 was sufficient to provide food at the more generous standard of living for 2,510 people.  That is to say, the condition of agricultural science in Cobbett’s time was such that every one agricultural family, allowing for non-productive or only partially productive women and children, was able to produce food sufficient to maintain five families at a proper standard of life or fifteen families at the standard at which the poor were compelled to live.  Milton was in no way an exceptional village.  What was true of it was true of thousands of villages throughout the length and breadth of the country.

To what extent England should have continued to produce her own food, to what extent it would have been wise to obtain her food by the exchange of her surplus manufactured goods, were second and secondary controversies.  Cobbett’s figures make it quite clear that, either way round, whether under free trade or under protection, there need have been no difficulty a hundred years ago in diverting a reasonable proportion of the nation’s labour to services and distribution and to the production of non-consumable goods and in still having a quantity of food sufficient to banish all want from the land.

The truth was that the controversy of protection and free trade, like so many of the controversies of the nineteenth century, was unreal.  It was a battle, as Matthew Arnold put it, “Where ignorant armies clash by night.”⁽⁸⁰⁾ It was hotly argued whether it was a good thing or a bad thing to exchange our manufactured goods for foreign food.  But we did not, to any important extent, exchange our manufactured goods for food at all.  In the year 1720 we imported £6,090,083’s worth; we exported £6,910,899.  That is to say, we did at that date, roughly speaking, exchange goods against goods.  In 1760 we imported £9,832,802’s worth, but we exported £14,694,970’s worth.  In 1800 we imported £28,257,781’s worth and exported £34,381,617’s worth.  In 1815 we imported £32,987,396’s worth and exported £58,624,550.⁽⁸¹⁾ With every year there was a widening surplus of exports over imports.  Throughout all the years of distress we were not only giving away goods every year to foreigners for nothing, but every year we were increasing the quantity of goods that we gave away.

It will of course be said that we did not give them away.  We lent them, and our foreign investments were there, ready to be called in in time of need.  But what is a time of need, if it be not a time of need when working men starve on what they are paid for their labour and when, as Cobbett was continually proving to be the truth during Liverpool’s Government, the convict in the gaol is given a better diet than the agricultural labourer could possibly purchase with his wages ?  In the years after 1815, for instance, Mr. Slater tells us,⁽⁸²⁾ “The American markets were grievously overstocked with all sorts of British manufactures.... In Belgium riots took place to prevent the sale of British goods.  From Germany there arose an outcry that the new British tyranny that was determined to crush out German manufactures by the sale by auction of vast quantities of British goods at rubbish prices was even more dangerous and odious than the tyranny of Napoleon.  There can be no doubt that the peculiar phenomena of British export trade at this period paved the way for the subsequent building up of hostile tariffs against England on the Continent of Europe.”

At the same time Robert Owen and his son went inspecting the conditions under which the creators of this favourable balance were working.  They reported,⁽⁸³⁾ “Not in exceptional cases but as a rule, we found children of ten years old worked regularly fourteen hours a day with but half an hour’s interval for the mid-day meal, which was eaten in the factory.  In some cases we found that greed of gain had impelled the mill-owners to still greater extremes of inhumanity, utterly disgraceful indeed to a civilized nation.  Their mills were run fifteen, and in exceptional cases, sixteen, hours a day with a single set of hands, and they did not scruple to employ children of both sexes from the age of eight.  We actually found a considerable number under that age.  It need not be said that such a system could not be maintained without corporal punishment.  Most of the overseers openly carried stout leather thongs and we frequently saw even the youngest children severely beaten.  We sought out the surgeons who were in the habit of attending these children, noting their names and the facts to which they testified.  Their stories haunted my dreams.  In some large factories from one-fourth to one-fifth of the children were either cripples or otherwise deformed or permanently injured by excessive toil, sometimes by brutal abuse.  The younger children seldom held out more than three or four years without serious illness, often ending in death.  When we expressed surprise that parents should voluntarily condemn their sons and daughters to slavery so intolerable, the explanation seemed to be that many of the fathers were out of work themselves and so were in a measure driven to the sacrifice for want of bread.”

“The sons of bitches,” explained⁽⁸⁴⁾ a Manchester merchant to Francis Place, “had eaten up all the stinging nettles for ten miles round Manchester and now they had no greens to their broth.”  In the Midlands the correspondent of the Government newspaper, the Courier, was convinced that things were not so bad.  So he went to see and reported, “Some inconvenience exists but certainly not the grievous distress spoken of, unless it be in the manufacturing towns, where the effects of peace after war and imprudent speculation have undoubtedly thrown a great majority of families out of bread.”⁽⁸⁵⁾ The rugged individualism of the system !  It was not, be it noted, “the great majority of families” who speculated, nor was it because the bread was lacking that they were compelled to suffer “some inconvenience” by going without it.

Is it not a sin crying to Heaven for vengeance that anyone should have had the impudence to speak of “savings” wrung out in such a fashion and from such conditions ?  But, beyond that, once that they attained to any important volume, it became entirely untrue that the foreign investments could be called in at will, just as it was untrue that any important proportion of holders of banks’ Promises to Pay could in practice convert those Promises into cash.  Debts can only be paid in goods.  Our foreign debtors can therefore only repay us their debts in some goods or other which they produce and which we are willing to receive.  If we did not consider unemployment an evil, it might not be impossible to find such goods of repayment.  But, while we do consider unemployment an evil, it is impossible to find in our debtors’ countries goods of repayment, which we do not ourselves produce or wish to produce, on a scale sufficient to repay any important proportion of our foreign investments.

In 1931 our foreign debtors threatened to repay us our debts — for that is what “calling in our foreign investments means.”  What happened ?  We announced that there was a national crisis; we called on all parties to present a united front before this menace of catastrophe.  The Labour Government under Mr. Ramsay MacDonald fell from office and was succeeded by a National Government under Mr. Ramsay MacDonald.  We put a tariff on foreign goods to prevent our debtors from paying their debts.  We cut our wages and salaries to the bone so as to make certain that, if any foreign goods did sneak into the country, no one would be able to afford to buy them.  Not until the balance of trade had been so altered that it was certain that not a penny of foreign debt was being repaid to us, did our statesmen announce that the crisis had been surmounted.  Even then, the Chancellor of the Exchequer told us, we could not really congratulate ourselves that all was well until foreign lending had started again.

“But,” it is sometimes objected, “while it is a commonplace that the system has broken down to-day, it at any rate served us well for a long time.  For a hundred years, for two hundred years perhaps, people in England lived comfortably on their foreign dividends, regularly received.”  Such an objection, common as it is, betrays a misunderstanding of the whole economic history of the last two hundred years.  Had we had a “favourable” balance of trade for half a dozen years and then in the seventh year called in our loans and enjoyed instead an “unfavourable” balance, it would have been fair to argue that the system was working.  But that was not what happened.  Every year with but few exceptions, if you count in our invisible exports such as shipping and other services, we had a favourable balance of trade; every year we gave away more than we received.  Therefore it is evident that last year’s foreign investor, who thought that he was this year receiving his dividend from his foreign investment, was not really doing so at all.  He was really living on the savings of this year’s foreign investor, who in his turn was to live on the savings of next year’s foreign investor, and so on and so on, until the system’s final and inevitable collapse.  As Mr. Emil Davies has put it,⁽⁸⁶⁾ “The cynic who surveys the history of foreign lendings may be pardoned if he comes to the conclusion that, broad and long, the borrowing nations of the world pay interest on loans just about to the extent that their creditors advance them the wherewithal to do so.... The net result over a period of years is that as much foreign money flows in as goes out, nominally as interest.”

“It follows,” says Professor Pigou⁽⁸⁷⁾ from his description of the process of foreign lending, “that Labour must be less well off in terms of things in general than it would have been if the opening for investing capital abroad had been closed.”  Why then does it all go on ?  Because at any given moment the individual who has made a foreign investment has every interest in creating in the public mind a bias in favour of further foreign investments, since it is out of those further investments alone that he can hope to get his dividends.

Again the system which enforces the payment of debts in monetary terms while it permits alterations of the price-level compels a country to produce less than it could produce through its creation of unemployment.  Take the situation which caused the Ely riots of 1816.  With prices falling the landlords had to repay the debts which they had contracted at the higher price-level.  Therefore they could not afford to reduce their rents.  With rents high the farmers could not afford to reduce the price of corn.  On the other hand, with less money about owing to deflation, there was not sufficient purchasing power to buy corn at the price at which the farmer could produce it.  As a result, the landowner was driven into bankruptcy, good corn land was allowed to go fallow, while those who in past years had worked for the farmers as labourers starved for lack of purchasing power.  They paraded the countryside, demanding “Bread or blood,” and the Government hanged five of them and transported five for life.⁽⁸⁸⁾ But their story is only an especially striking example of a story that has been told again and again in England from their day to our own.

The productive capacity of Peel’s England was then such that there was no need for anybody in the country to be in poverty.  That is the first and capital point.  Set beside it the second — that the financial system which Peel imposed upon the country was one which decreed that, however many times that productive capacity might be multiplied, it was mathematically impossible for the poor ever to escape from poverty.  “No possible form of society,” wrote Peel’s master, Malthus,⁽⁸⁹⁾ “could prevent the almost constant action of misery upon a great part of mankind, if in a state of inequality, and upon all, if all were equal.”

Let us understand why.

Peel spoke of having put the country back upon an “automatic metallic currency” and of a return to “the ancient right standard of England.”  The traditional monetary system was one which caused all payments to be actually made in metallic money.  Had Peel wished to return to that, his policy must have been to collect all the gold on which he could lay his hands, to call in the banknotes, private and Bank of England, that were in circulation, to divide the total quantity of gold by the number of pounds that he possessed, to decree that the new sovereigns should consist of the resultant amount of gold, to coin such sovereigns and to hand them out to those who had previously possessed bank-notes.  Such a system might have been called an “automatic metallic system.”  We need not delay to consider the difficulties which the working of it would have presented, for it was a system entirely unlike that which he did establish.  At the time when cash payments were resumed the Bank of England possessed some £11 million odd in cash and bullion.  There were in circulation about £60 million of bank-created money — Bank of England notes, private bank-notes, and bank-deposits.  It was not proposed to cut down the country’s effective monetary supply to £11 million, nor yet so to devalue the pound as to make a stock of gold, which yesterday represented £11 million, represent £60 million to-day.  It was proposed to return to the double-money system, which Berkeley had condemned and which had brought the country to catastrophe in 1797 — to bid the people do their business with the £60 million of bank-money, telling them for their comfort that they could convert any one of those pounds into a pound of gold if they wanted to.  A system less automatic it would be impossible to imagine.

It is not necessary to follow through the monotonous and dreary story of the breakdown of Peel’s system every single time that it was subjected to any strain from 1821 to 1931.  That story has been often told — notably in Dr. McNair Wilson’s Monarchy or Money Power and in Mr. Feavearyear’s Pound Sterling — but it is important rather to understand why, under it, it is impossible for the vast mass to escape from the tyranny of poverty.  The amount of money in circulation, under Peel’s system, obviously depends upon the amount of gold in the country.  If the banks as a rule lend ten Promises to Pay for every pound of gold that they possess — the proportion which they soon adopted — then if £1 of gold leaves the country, £10 of Promises to Pay have to be withdrawn from circulation by the banks refusing to make new loans when old loans have been repaid.  Therefore the possessors of gold will be the dictators of the country’s economic life, and, as Dean Swift and Bishop Berkeley had understood in the previous century, gold will inevitably gravitate into the pockets of those who possess this strange privilege of making up money.

Now the proportion of their wealth that these men spend, or can spend, on their own pleasures and necessities is trivial and negligible.  They put money into circulation not by spending it but by lending it.  You may ask, what is the good of lending unless one day you intend to spend, but we are concerned with a consideration not of what a wholly balanced person would do with his money but of what the men who shaped the nineteenth century did in fact do with it.  And we must recognize that to those men there was an almost mystical value in merely saving and piling up with no intention of ever spending what had been saved — the very notion of spending one’s capital seemed to them wicked and horrible.  Such a philosophy was the price that we had to pay for allowing ourselves to be dominated by Puritanism in the seventeenth century.  These men claimed, too, the right to invest their money wherever in the world it best suited them, and it would again have seemed to them wicked and horrible not to invest it in the place whence it would earn the largest immediate interest.  “Work all you can, make all you can, give all you can,” preached the great Wesley to his disciples.  “Work all you can, make all you can, invest all you can,” taught their descendants, emancipated from dogma.  The wheel had turned full circle and Townshend’s education had launched upon the world a race, who claimed not merely that usury should be permitted but that rather there should be accorded to it something of a religious worship.

Now Peel’s Act conceded to the owner of gold the right to move his gold into or out of the country at will.  Money was to be allowed to “find its own level.”  Once that this is understood, it is easy to see how under Peel’s system it was mathematically impossible for the poor to escape from their poverty.  By Peel’s system the Government was prevented from increasing the monetary supply.  Now money could only come into circulation in the shape of loans from those who had the privilege of inventing it.  The inventors of money issued their loans to those who would pay the best interest.  Other things being equal, the less that a producer pays out in wages, the more is he able to pay in interest to the money-lender; the more that he pays in wages, the less can he pay in interest.  With money free to find its own level, the lender can place his loans in any quarter of the world that he chooses.  Thus it is obvious that any producer who tries to pay more than the lowest wages will be prevented from doing so, because, if he makes such an attempt, he will not receive the loans to pay his wages with and will therefore be driven into bankruptcy.⁽⁹⁰⁾

It is idle to say that humane feelings would prevent the working out of the system in its full ruthlessness.  We will later have occasion to consider the causes which led, to some extent, to its modification in the second half of the century.  But we must never forget that in the first half of the century it was not modified at all.  Productivity, according to the estimate of Sir Charles Morgan-Webb,⁽⁹¹⁾ was increasing by an average of 3 per cent per annum, which means that in 50 years it was multiplied by about 4½.  Population was doubled.  But not one pennyworth of advantage from the country’s increased productivity went into the pockets of the working man.  There was no general rise in wages at all in the first half of the century.  Higher wages in the new industries were balanced by lower wages in the old.  Rent increased.  The Royal Commission of 1840 gave the following figures of the wages, and food purchasable with those wages at the current prices, of hand-loom weavers.⁽⁹²⁾

.................. s.d.lb. of Food.
1797-1804 ....... 268281
1804-1818 ....... 147131
1818-1825 ....... 89108
1825-1832 ........ 6483
1832-1834 ........ 5683

The death-rate increased from 19.98 in 1806-1816 to 20.33 in 1816-1826 and 21.65 in 1826-1836.⁽⁹³⁾

Doubtless the employers had their humane feelings, but they were the victims of a system every bit as much as their workpeople.  Doubtless the money-lenders had in their private capacities humane feelings, but they were captured by an evil education which led them to think that it would be a disastrous sentimentality to be softened by those humane feelings.  They practised usury with all the awful concentration of a religious fanatic.  Talk of religious persecution! What religion has ever persecuted as the great religion of Mammon persecuted in early nineteenth century England ?  Capitalists to-day sometimes complain of the unfairness of communist abuse of them.  But there is nothing which the communist of this century says of them by way of abuse which they did not say of themselves in the last century by way of praise.

It is a most important truth that the financial system stands condemned not so much by what its enemies say against it as by what its friends say for it.  “Money,” they say, “must be allowed to find its own level.”  “You cannot expect people to extend credit facilities unless they are to be allowed to share in the resultant increased productivity.”  But there is no other profession on the face of the earth that would not be ashamed to proclaim such maxims as its guides.  Why should not soldiers desert in the middle of battle if they are not given higher pay ?  Why should not doctors put up their fees when there is an epidemic and announce that, if their patients will not pay the higher fees, they can be left to die ?  Perhaps there have been in history doctors and soldiers who have behaved in such fashions.  Certainly there have been financiers who have been much better than their professed principles.  Our objection is not that all financiers are cads, but that they all boast of being cads.  For what is a cad but a man who in principle always takes the fullest advantage that he can of his neighbour’s necessity?

People to-day are familiar with the general theories of Ricardo and Malthus, but do they actually read them ?  Have they any notion of the language in which they wrote ?  Ricardo recognizes that it is just possible that one day a new standard of subsistence may be attained but he does not explain how or by whose action.  The probability was, he thought, that wages would fall below the subsistence level rather than rise above it.  But then, he comforted the working men, wages could never remain below it for long, because, if they did, a proportion of them would die of starvation and thus the value of labour would increase through its scarcity and wages rise a little.  “After their privations have decreased their number, or the demand for labour has increased ... the market-price of labour will rise to its natural price.”⁽⁹⁴⁾ Malthus was in private life an amiable man, a sincere clergyman of the Church of England.  Yet he complacently and explicitly advocated starvation of children as a remedy for unemployment.  If children were born in excess of the requirements of the labour-market, then both parents and children, he advocated, should be left to starve.  The parent should be told that “the laws of nature had doomed him and his family to starve.”  “They had no claim on society for the smallest portion of food,” and that not because there was not a sufficiency of food but because there was not a sufficiency of work, and therefore, as he argued, no purpose to be served in keeping them alive.  Nor was there, according to this prophet of progress, the least hope of amelioration.  “No possible form of society could prevent the almost constant action of misery upon a great part of mankind, if in a state of inequality, and upon all, if all were equal.”⁽⁹⁵⁾ “The whole of that region (i.e. the East End of London)” wrote The Times⁽⁹⁶⁾ at the time of the 1866 bank-crash, “is covered with huge docks, shipyards, manufacturies and a wilderness of small houses, all full of life and happiness in brisk times but in dull times withered and lifeless, like the deserts we read of in the East.  Now their brief spring is over.  There is no one to blame for this; it is the result of Nature’s simplest laws.”  Those who did not like it, argued Cobden, could “accumulate £20 and emigrate.”  But how could anybody “accumulate £20” out of a wage of 15s. a week.

The frightful conditions of misery under the rule of Castlereagh, the savage suppression, the largely unsuccessful attempts to stir the poor into revolt by the use of agents provocateurs — all these are generally known and generally condemned.  One can read the story of them in such books as those of the Hammonds.  Their story is the most disgraceful story in the whole of English history.  After Castlereagh’s death things took a turn for the better.  In 1822 to relieve the distress, the Government with realistic statesmanship deliberately unbalanced the budget, borrowing the money required for the pensions fund scheme.  They also passed an Act permitting bank-notes for sums under £5 to continue in circulation until 5th January, 1833, instead of being withdrawn, as had previously been ordered, by 1st May, 1823.  They gave to some 530 country banks the right to issue unlimited £1 notes, convertible on demand into Bank of England notes or gold.

The increased monetary supply could easily be answered by an increase of productivity.  A boom resulted, and on the strength of it Huskisson was able to repeal the Navigation Act and to reform the tariff.  At the same time Peel, the Home Secretary, began the work of revising the barbarous criminal code.  Francis Place and Joseph Hume were also able in 1824 to obtain the repeal of the Combination Acts against Trades Unions.  It is true that, when people understood the power that they had conceded to the Trades Unions, an agitation arose against their own concession and the Act of 1824 was repealed in 1825.  It was however found impossible to withdraw the substance of the concession, and combinations of workmen for the purpose of shortening hours and raising wages remained legal, although an attempt to coerce employers was illegal.

In 1825 there befell exactly the catastrophe that had been foretold by Bishop Berkeley a century before.  The new money, which resulted from the Government’s concession to the country banks, had of course been issued in the form of loans — of investments largely in Central and South American enterprises.  The money was spent in England on the production of capital goods for export to those markets.  It was distributed in wages to the English producers of those goods.  Therefore the amount of purchasing power in English pockets was increased, unemployment was lessened, but the quantity of consumable goods in English markets was not increased.  There being more money to buy the same quantity of goods, prices rose somewhat.  But the primary industries in England were capable of a very great increase of productivity with the increase of effective demand, and with rising wages a further increase of productivity would have been possible.  The increased prosperity was in fact beginning to show its effect in slightly increased wages.

But higher wages meant increased demands for cash on the banks.  The banks had already lent to their full capacity to finance the boom.  The country banks’ note-issue, which from 1821-3 had been just over million, rose in 1824 to £6 million and in 1825 to more than £8 million.  On the other hand the very threat of higher wages in England had caused the owners of gold to withdraw their gold deposits from English banks and to lend them instead in low-wage countries where the dividends were higher.  The banks therefore could only satisfy the demands for increased cash by calling in loans and thus destroying the prosperity.  Messrs. Pole, Thornton and Co., a London central house, agent for 47 provincial banks, were unable to supply the demands for cash of their provincial clients.  On 12th December, 1825, they had to close their doors.  Catching the spirit of panic, depositors with other banks came clamouring for cash; the cash, needless to say, was not there.  Within three weeks 61 country banks and 6 London banks stopped payment.  The prosperity was dead — killed by prosperity.

The Bank of England itself fell into panic.  Its directors begged the Government either to issue exchequer bills to fill up the gap of gold or else to free the Bank from its obligation to pay its debts in gold.  The Government refused to do either the one or the other.  The situation was only saved by the chance discovery of a packet of old notes, dated 1818, which had never been issued.  With these notes the Bank was prepared to meet its obligations and to start lending again, though why the borrower should be expected to put more confidence in notes printed in 1818 than in notes printed in 1825 it might well puzzle the most curious to explain.  The fact that they did so was evidence of the complete fog into which the public mind had by now fallen.  At the same time the Bank increased its metallic reserve by purchasing gold from abroad at more than the mint-price.

Now it had been — and indeed it still is — argued that the beauty of the nineteenth century financial system was that it was quite automatic.  For the moment, it was said, the English happened not to have any goods to offer the French in exchange for their wine.  Therefore they pay in gold.  The English allow the loss of gold, the French the gain of gold, to have its full monetary effect.  So the monetary supply in England is decreased and prices fall, that in France is increased and prices rise.  As a result the English are able to sell more goods in France than the French sell in England, the gold flows back again from France to England and the balance is restored.

But in practice, as was proved in 1825 and has been proved a dozen times since, these changes in price-level cause so violent a dislocation of the nation’s life that the system has to be interfered with to prevent them.  The essence of the system was that gold has a fixed, unvarying price.  Once you start offering varying prices for gold, it is clear that the system has ceased in any sense to be automatic.  It must occur to the critic to say, “We were told that the one virtue of gold was that it had a fixed, unvarying and intrinsic value.  If we cannot always buy it for the same price, what earthly sense is there in buying it at all?” He cannot but ask, as Berkeley had asked [Query 450] a hundred years before, “Whether it be not evident that we may maintain a much greater inward and outward commerce and be five times richer than we are, nay, and our bills abroad be of far greater credit, though we had not one ounce of gold or silver in the whole island?”

It was generally felt — and indeed truly enough — that a system which permitted the privilege of issuing money to some 500 unco-ordinated authorities was a system inviting calamity.  Therefore in 1826 Lord Liverpool’s Government passed two Acts — one making illegal the issue of banknotes for sums less than £5, the second removing the restrictions by which banks, other than the Bank of England, had up till now been forbidden to have more than six partners.

The end of the 1820’s was filled with the controversy of Catholic Emancipation, and with the beginnings of the 1830’s and the fall of the Tories came the Reform Act.  There were both in Parliament and throughout the country a handful of genuine democratic reformers, but it was not they who influenced the Reform Act.  After their victory in the Election the Whigs were strong enough to be indifferent to radical support, and the Act that was passed was in no way democratic.  It only gave votes to some one in twenty-two of the population.  What it did was to register the transfer of political power from the old rich to the new rich.  Even there it rather recognized an altered balance of power than itself altered the balance of power.  As the quotations from Cobbett in previous chapters have illustrated, it was the Napoleonic Wars and their debt which in reality snatched the power out of the hands of the old landed classes.

The story of the passage of the Act was perhaps mainly interesting in the light which it threw upon the true virtue of the double-money system in the eyes of its masters.  Its virtue was not that it gave the country a stable monetary system but, on the contrary, that it put it within the power of a few determined men to plunge the country into chaos whenever they wanted to.  There was after Grey’s first resigiation a question of the Duke of Wellington forming a Tory Government.  The word went out among the reformers, “To stop the Duke, go for gold,” and before the threat of a run on the banks the Tory attempt collapsed and the Whigs returned to power.⁽⁹⁷⁾

It would be foolish, in reaction against the drab philistinism of the middle-class Victorian, to indulge in sentimental regrets over the old landed classes who ruled England from 1688 until the Napoleonic Wars.  They had a long run for their money, and on the whole they used it without scruple.  Yet it was in no sort of way to the advantage of the poor, when power passed out of their hands into that of the masters of the financial system.  Where the old masters had robbed the poor out of unashamed greed, the new masters robbed them on philosophical principle.  As far as savagery of repression goes, the difference between our unreformed and reformed masters was the difference between Peterloo and Tolpuddle — that is to say, nothing at all.  Almost the only member of the unreformed Parliament, who challenged the whole philosophy of the economists and fought wholeheartedly the battle of the poor, was Sadler, a Tory.  In the election after the Reform Act he lost his seat, being beaten at Leeds by Macaulay, the historian.  It is noteworthy that one of the first acts passed by the reformed Parliament was the renewed Bank Charter Act of 1833, by which the Bank of England was exempted from the restrictions of the Usury Law in its discounting of bills.

But the most important act of this Parliament — one of the most important acts in English history — was the Poor Law Amendment Act of 1834.  In time of war it was necessary to provide for those who were producing the nation’s food a standard of living sufficient to keep them in health.  Therefore a system was adopted, known after the magistrates who first adopted it, as the Speenhamland system, according to which, when wages were deficient, they were made up to a subsistence level out of the poor rates.  When the war was over, there was no longer the same pressing necessity to keep the poor alive.  It was considered more important to reduce the poor rate.  Therefore, instead of doling out monetary relief in an easy way, it was determined to grant relief only in absolute necessity and under conditions as harsh as could be devised, and, in particular, wherever possible, to make entrance into a workhouse the condition of reception of relief.

That the Speenhamland system was altogether too casual and needed revision has hardly ever been denied.  And there would have been a certain justice, if a harsh justice, in the new system in a society of widely distributed property, in which a man could only be in poverty if through wanton idleness he had neglected to cultivate his own land.  But the society of the 1830’s was not such a society.  The poor had no property of their own.  They could only earn a livelihood if some master employed them, and the master in his turn could only offer employment if a financier financed him.  It was a regular principle of the system to see to it that there were always fewer jobs than there were candidates for jobs, so that the threat of unemployment might prevent attempts to raise wages above subsistence level.  Under such a system it was not justice to treat unemployment as a misdemeanour.

Again, the system was defended on the tacit assumption that the society was one of scarcity — that there was barely enough food to go round.  In such a society again there would have been a certain justice, if a harsh justice, in decreeing that he who did not work should receive only as little food as possible.  But again, as we have seen, England of the 1830’s was not such a society.  Wages were low not because the country’s productive capacity was small but because the object of statesmanship was to give the country as large a “favourable” balance of trade as possible and therefore, whatever the country’s productive capacity, it was necessary to keep wages as low as possible.

A Poor Law Commission was appointed in 1832 immediately after the passage of the Reform Act to report upon the whole working of the Poor Law.  It complained of many things, but principally that the food given in the workhouses compared unpleasantly favourably with that obtainable by the half-starved agricultural labourers outside.  This contrast was said to be largely responsible for the riots among the labourers which had just taken place and had been suppressed with stern savagery by the Home Secretary, Lord Melbourne.  No relief, therefore, said the Commissioners in the first place, should be given merely on account of poverty but only on account of destitution.  “The system of poor relief was contrary to the principles of political economy, which even prohibited the exercise of private charity,” explained Lord Althorp, the leader of the Government in the House of Commons.  In the second place the lot of the recipient of relief should be made definitely less pleasant than that of the worst paid worker.

The latter maxim was more easily enunciated than applied.  For, according to the calculation of Edwin Chadwick, the Secretary to the Commissioners, the agricultural labourer at that date only received 17 oz. of bread per day and ¼lb. of bacon per week.  He and his family together received, as will be remembered from Cobbett’s calculation, ¹/₁₅th part of that which he produced.  And, when the six labourers of Tolpuddle attempted to form an organization whose object was to obtain for themselves and for their starving children ¹/₁₄th, or perhaps ¹/₁₃th part, they were treated as dangerous revolutionaries and sentenced to seven years’ transportation.  How then could you treat the paupers worse, while at the same time not treating the labourers better ?  That was the nice dilemma with which the Government was faced.  If the pauper was to be given an allowance less than that of the labourer, it would be both less troublesome and less hypocritical to leave him frankly to starve.  However it was thought a solution to give him the same quantity of food but to serve it in some less appetising fashion.  But how ?  And so, for the first time in the history of mankind, the salaried servants of a government were turned to the strange research of discovering ways in which the inadequate food of the poor could be rendered artificially more nauseous.

The poor were in fact reduced to such a condition that it was not difficult for Calhoun, the great American champion of slavery, to produce facts to prove how enormously better was the material lot of the plantation slave to that of the English pauper.  “Compare,” he said,⁽⁹⁸⁾ “his condition with the tenants of the poor houses in the more civilized portions of Europe — look at the sick, and the old and infirm slave on the one hand, in the midst of his family and friends, under the kind superintending care of his master and mistress and compare it with the forlorn and wretched condition of paupers in the poor house.”

The purpose of the Commissioners was to reduce the poor rate.  In that they succeeded.  But, succeeding in making the lot of the pauper worse than that of the agricultural labourer, they made it also far worse than that of the criminal, who after Peel’s reform of the criminal code, had on the whole a better time than the greater number of the English poor.  Therefore, as Louisa Twining discovered in her interesting researches into the life of the poor at that date, it became a regular custom among the unemployed to commit crimes in order to go to prison rather than to the workhouse.  The poor rate gained, but whether the taxpayer gained on balance was more doubtful.  It is likely that, what he gained on the poor rate, he lost on the police rate.

On the other hand it is certain that the possession in the workhouses of pauper children was a convenience to the masters of the system, as they were able to use these children as a sort of army to introduce into any industry where organized labour seemed likely to win for itself some rise above the subsistence wage-level, as, for instance, into the cotton industry in Lancashire.  If employees became too particular, they could always be brought to reason by the threat that then their jobs would be given to pauper orphans, brought by the load from some distant workhouse and made to work without wages on the excuse that they were undergoing an apprenticeship.  With the assistance of this army the masters were able to prevent throughout the 1830’s that rise in wages which had looked dangerously probable after the repeal of the Combination Acts in 1824 and to see to it that the poor received no benefit whatsoever from the Reform Acts which they had so enthusiastically supported.

By its provision for the segregation of the sexes within the workhouse the poor law marked the first overt legislative attack on the most fundamental of all human institutions — the family — the beginning of the great campaign to dehumanize the poor.

In the 1830’s there was the usual boom, in which the poor were employed in producing capital goods for export, followed in 1839 by the breaking of country banks and the usual slump.  It was felt — and again truly — that there was not sufficient public control over the private issue of money.  Therefore by the Bank Charter Act of 1844 the issue of notes was strictly regulated.  The Bank of England was only allowed to issue notes to the value of its cash holdings plus a fiduciary issue of £14 million.  Other banks, which had notes in circulation on 6th May, 1844, were permitted to continue to issue up to the average amount of their notes in circulation throughout the twelve weeks prior to 27th April, 1844.  No new bank however could acquire the right to issue notes, and, in the event of the note-issue of any bank lapsing, the Bank of England might fill the gap by adding to its fiduciary issue further notes to the value of two-thirds of those that had been previously issued by the lapsed bank.  Thus it was hoped, in the course of time, to concentrate the entire business of note-issuing in the hands of the Bank of England, as has indeed happened.

But, though a bad system of issuing money is a calamity, yet the public must have money, and, if it cannot get it in a good way, it will get it in a bad.  Berkeley had seen this.  “Whether it be not a mighty privilege for a private person to be able to create a hundred pounds with a dash of his pen?” he had asked. [Query 490.]  But he had also asked, “Whether without private banks what little business and industry there is would not stagnate ?”  The folly of the Bank Charter Act of 1844 was that it was purely negative.  It restricted the power of private banks to issue money in the form of notes; it made no provision of any other way of issuing it.  Therefore the banks got round the Act by issuing cheque-money instead of note-money.  Where previously they had printed a note and lent it out as money to their client, now instead they made a book-entry, gave him a cheque-book and authority to write cheques to those with whom he did business up to the amount of the book-entry.

Thus at the time of the passage of the Act of 1844 the private bank-note circulation was £11 million, their deposits £50 million.  By 1846 the note-circulation had been reduced by £2¼ million to £7,750,000, but the deposits had risen by £5 million to £55 million.  By 1928, when the private bank-note was finally extinguished, bank-deposits had risen to £2,231,000,000.  The public quickly developed the habit of doing its business by cheque.  It had no alternative.  The only alternative was not to do business at all.  The Bank Charter Act of 1844, so far from checking the issue of money by private bankers, entrenched their privilege more firmly as an integral part of the country’s life.

28. Life of Walpole.

29. South Sea Bubble, Erleigh, p. 82.

30. Portland MSS., vii, 377.

31. Walpole, Coxe, ii, 297, 299.

32. Reliquiae Hernianae, ii, 200; May 20, 1724.

33. The previous pages are based on an article by Professor C. H. Firth in the English Historical Review for January, 1917.

34. The Structure of Politics at the Accession of George III, Namier, p. 231.

35. Essay on Soulitey’s Colloquies.

36. See article of Professor Firth referred to above.

37. Peel, Ramsay, pp. 13, 14.

38. Quoted by Cobbett in his Rural Rides.

39. History of Agriculture and Prices, Thorold Rogers, .pp. 693, 694.

40. Essay on Southey’s Colloquies.

41. Political Register, 6th December, 1806.

42. Work and Wages, pp. 65, 66.

43. Historical Gleanings, Lecture on Cobbett.

44. Work and Wages, Thorold Rogers, p. 111.

45. Secret People.

46. Rural Rides, pp. 310-12.

47. Ed. 1853, p. 92.

48. Sic. Does he mean "The dogs rendering up the sheep"?

49. An Essay Towards Preventing the Ruin of Great Britain, Berkeley’s Works (ed. Fraser), iii, 206.

50. Lectures on Modern History, p. 267.

51. Quoted by Stirling Taylor, Walpole, p. 203.

52. South Sea Bubble, Erleigh, p. 109.

53. Ibid., p. 80.

54. Footnote to Berkeley’s Collected Works, vol. iii, p. 355.

55. Query 28.

56. Original Edition, part ii, Query 7.

57. Original Edition, part iii, Query 32.

58. Original Edition, part iii, Query 47.

59. Introduction to the Querist.

60. Rise of American Civilization, C. and M. Beard, i, 66.

61. Ibid., i, 103.

62. Rise of American Civilization, Beard, i, 195.

63. History of the English People, viii, 17.

64. History of England, Lecky, iii, 525.

65. Rise of American Civilization, Beard, i, 282.

66. Political History of England, Hunt, p. 158.

67. Life of Buchingham, Albemarle, ii, 305.

68. MS. Autobiography, quoted by Lecky, iv, 66.

69. Political History of England, Hunt, p. 136.

70. England under ehe Hanoverians, Grant Robertson, App. iv.

71. Pound Sterling, Feaveryear.

72. Observations on the Establishment of the Bank of England.

73. Section iv, quoted by Canaan, Paper Pound.

74. Figures from R. G. Hawtrey’s Currency and Credit.

75. Pound Sterling. Feaveryear, p. 204.

76. Rural Rides.

77. History of the Reformation, sec. 411.

78. Arnold, Stanley, ii, 291.

79. Rural Rides (ed. 1853), p. 371.

80. Dover Beach.

81. England under the Hanoverians, Grant Robertson, pp. 335, 336.

82. Growth of Modern England, p. 150.

83. Life of Robert Owen, G. D. H. Cole.

84. Francis Place, Graham Wallas, p. 141.

85. Ibid., p. 253.

86. Investments Abroad, pp. 20-1.

87. Economics of Welfare, pp. 660-1.

88. Growth of Modern England, Slater, p. 247.

89. Essay on Population (ed. 1926), p. 36.

90. Essay on Currency Depreciation, Huskisson.

91. Rise and Fall of The Gold Standard, Morgan-Webb, p. 110.

92. Op. cit., Slater, p. 253.