The Kingdom of Shylock-3 (BOOK)

The Kingdom of Shylock-3

PART II

Historic Note Currencies

“The days are long past when notes were anything more then the fractional part of the paper currency of a state.”

Paul Warburg, Monetary Commission, USA.

The evolution in the mechanism of exchange is as great as the evolution in the methods of aerial flight and submarine navigation.

There was a time when notes were the only proper currency, but the banks have evolved a currency of their own in the shape of cheques.

At the period of the most of the much quoted note currencies, cheques were unknown. They did not come into much use in the United States until after the civil war.

Notes are more used on the continent of Europe than in England, simply because they are more popular.

The Governor of the Bank of England told the Monetary Commission that the reason so few notes were used in England as compared with the continental countries was because cheques were more widely used.

Notes in the past were the entire paper currency.

To-day they are only a fractional part of the currency.

If all arguments against past note issues were sound and correct, they would have no application to present day conditions. Civilisation is the reflex of the triumph of progress over past errors.

PRE-REVOLUTIONARY CURRENCY

Amongst the quoted examples of currency failure is the case of the early colonists of America. Those people led a very primitive existence. They had to struggle against warlike tribes. Banking methods were crude. They were crude everywhere. Gold was scarce. A medium of circulation had to be secured. The system varied in different colonies. In some colonies there was failure – in others, unqualified success.

The colonies of New York, New Jersey and Pennsylvania were on a paper currency. Their credit stood undiminished. Pennsylvania currency was based on deeds, bills and warehouse receipts. It enjoyed the highest degree of prosperity on a paper currency.

In 1773 the British Government prohibited a paper currency in the colonies. This suppression was one of the causes of the revolution that broke out in 1775.

CURRENCY OF THE AMERICAN WAR OF INDEPENDENCE.

Fought under the greatest difficulties. The so-called Congress was not a Government. It had no Constitution, no assets, no taxing power. It issued a currency to carry on the fight. The ultimate redemption of that currency depended on-the issues of war. The currency served the purpose. It fed and clothed and armed the soldiery. The struggle for independent was successful. Every penny of the paper currency was honored by the American Government.

EARLY UNITED STATES CURRENCY.

Some States established State-owned banks. Some were failures, some were successful. The State Bank of South Carolina, established in 1812 lasted 58 years, and went out of existence because of the Federal note tax of 10 per cent.

For the most part banking was conducted by private corporations, with right of unlimited issue of their own notes. Many of them had no capital, and repeatedly went insolvent. There were 1700 private banking companies, and the notes were poor in make up and easily counterfeited. The money of these banks got known as “Wild Cat,” “Red Dog,” and “Stump Tail” money.

It was against the unrestrained paper issues of these banks that Daniel Webster (1837) made his much quoted statement about the evils of paper money.

It was in September of that year (1837) when J. C. Calhoun and Webster were raising in Congress the question of the United States Bank Charter vetoed by President Andrew Jackson—that Calhoun made the following statement in the presence of men conversant with contemporaneous facts:

Never in normal times, never when received for all debts, dues and obligations to the Government; never when associated with a bank kept free from the manipulators of institutions hostile to its existence has a paper currency depreciated. That statement went uncontradicted.

In that same debate Daniel Webster said:

I have ever been the enemy of those banks that force their own paper money into circulation.

John C. Calhoun described the system in existence thus:

The right of making money, an attribute of sovereign power, a sacred and important right, is exercised by private banks, not responsible to any power whatever for their issue of paper. Yet this chaotic private system is quoted nearly a hundred years as a proof of the failure of a nationalised currency.

THE ASSIGNATS OF THE FRENCH REVOLUTION.

When France rose against monarchy and proclaimed her First Republic, the nations of Europe fell upon her like wolves. Gold disappeared—a paper currency had to be created. The notes were based upon the forfeited estates of the nobility and of the religious houses. Those notes bought food and clothes and arms for the soldiery of France, sustained them in

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helped them to defend the Republic and defy the world. With that money the soldiers brought land from the Government, bought material for home making, and laid the foundations of the power of France.

The Assignats were first issued in 1790. England kept factories turning out counterfeits, as she did during the American revolt. In 1796, when the Assignats were replaced by Mandats, there was a counterfeit circula tion to the extent of £600,000,000. Yet the industries of France expanded, her soldiers conquered, her mothers gave birth to children more rapidly than the battlefield could devour them. Every paper note was redeemed in land or products. The long Napoleonic war did not add one penny to the interest burden of the people of France.

ENGLAND AND PAPER MONEY.

1694. — Bank of England started.

1696. — Bank failed.

1697. — Bank re-started.

1698. — Co-operative Banks started.

1708. — Co-operative Banks suppressed.

1715. — John Coleman Bank issued notes on security at 3 per cent.—principal

  repayable at 5 per cent, per annum.

1741. — John Coleman Bank suppressed.

1793. — War against French Republic commenced.

1797.— Bank of England suspended gold payments. Bank of England

  notes increased under Government guarantee from 9 to 27 millions.

Doubleday, in his “Financial History of England” (page 137), says that the Pitt Government lent several millions of this paper currency on goods or personal security, the whole of which was faithfully repaid.

There being no law against private note issues, the private banks in creased their notes from 7 to 50 millions.

These notes depreciated—Government guaranteed notes did not.

Allison, in his “History of Europe,” says that the non-interest bearing irredeemable notes issued under Government guarantee, receivable in Government revenues, remained at par with gold, and that the purchasing power the Government guaranteed notes was twice that of notes issued from the joint stock and proprietary banks.

England was on a paper money basis for 24 years (1797-1821), and on this basis she conducted 18 years of war.

GREENBACKS (AMERICAN CIVIL WAR.)

War declared April, 1861. Federal Government unable to borrow either in America or Europe

December, 1861, private banks suspended gold payments but enormously increased their note issues.

December, 1861, Government issues ₤12,000,000 “Demand Notes.” They were receivable for all debts due and obligations due to or from the Government. These notes remained at par value during the whole period of their existence.

First issue of United States Notes (Greenbacks), March 1862 Banking opposition in the Senate refused to permit Bill to pass unless interest pre-war loans was made payable in gold. To meet this the Government had to collect import duties in gold. Merchants with greenbacks had to deliver to bank at depreciated value to get gold to pay the Government for duties. The Government gave it back to the banks as interest. On third issue further restrictions imposed on paying power of greenbacks. Value further declined. Depreciation was the result of a conspiracy on the part of the financiers. Yet greenbacks kept the armies of the North in the field, fed, clothed and armed the soldiery. When the war was over the Government accepted greenbacks as full payment for all debts, dues and obligations, and they at once went to a parity with gold. The total issue of greenbacks amounted to ₤90,000,000, of which ₤70,000,000 are yet in circulation. They are no more legally redeemable in gold to-day than when first authorised. The original Act has never been cancelled or amended. The United States used a paper money base for 17 years (1862 to 1879), and on that base conducted years of war.

FRENCH PAPER CURRENCY OF 1871.

This issue was so successful that it is never mentioned by the critics of a national currency. Their objection is not to a paper currency. It is an objection to a paper currency nationally controlled. It is a defence of the existing private control of currency.

Details of this issue are given on page 66.

AUSTRIA-HUNGARY.

Since 1866 Austria-Hungary has had a legal tender paper which does not profess to be redeemable in any particular commodity. It carries a promise on its face that the Government will receive the paper for all taxes and debts due to it, and as such it circulates. It has not fallen in value. (See Mulhall’s “Dictionary of Prices.”)

PRIVATE NOTE ISSUES.

“Age,” Aug. 10, 1910: “Times have been known in this State when bank notes were being sold at 12/6 in the pound.” One member said that he had seen them sold at a shilling apiece. We know that the English banks, in the early part of the last century, caused great loss to the public through the depreciation of their notes. In America, in 1837, almost all the banks in the country closed, causing enormous loss through their notes. Again in 1857, just 20 years later, the same thing occurred. The American Congress then stepped in to protect the public against this ruinous private note is the banks.”

COMMONWEALTH NOTES.

Commonwealth notes are not redeemable at any bank, private or public: nor are they, since the war, even redeemable at the Commonwealth Treasury. The notes now in existence are in excess of the total gold supply of the country, and, relative to population, are three times in excess of the greenback issues of the American Civil War.

War Values

In times of war private property that is liable to be destroyed by the enemy, and public securities resting for redemption on the existence of a Government liable to be swept away, will both diminish in value in ‘portion to the proximity of the danger, and will recover value in proportion as the danger retreats.

As the enemy takes on the role of invader, so all fixed irremovable forms of wealth, public or private, begin to depreciate, while gold, jewellery and other easily removable forms of wealth rise in value. When England feared the Napoleonic invasion gold rose to ₤5/15/- per ounce. On the day of Waterloo it was ₤4/13/6. After the victory it receded to the Mint price of ₤3/17/10½.

In wartime gold is a deserter. It is the first to get out of the war zone. It is the first to seek neutral territory or a dug-out. It can only be kept in the firing line by the strong arm of the Government, and then seeks devious ways of escape. European statisticians estimate that when war broke out in 1914 over 100 millions of gold went into hiding. All countries in times of national stress are driven to resort to paper currency. The crime is in the fact that banking corporations are permitted to turn national issues into instruments of public robbery and bondage. In several war periods, as in England during the Napoleonic war and in America during the first two years of the Civil War of the sixties, the unrestricted note issues of the private banks were far in excess of any issued by the Government.

 Standard of Value

“VALUE, like hate, love, esteem and ambition, is a pure abstraction. It is vague, indefinable and indeterminate. It is an attribute of the mind. It is not a substance. It cannot be fixed, or measured orstandardised.”

“Value, being the accidental varying relationship of one article to another, no single article can be a standard.”—Professor Bowen.

“A standard of value is impossible in the very nature of things. If a quantity of gold were placed beside a number of other things, no human sense could discern their value.”—McLeod.

Writers who have abandoned the ‘standard of value’ theory still cling to the term, ‘measure of value’. Value is an ever-varying relationship, and therefore cannot be measured. —Walker.

Values are ideal and can only be expressed in terms of numbers.

“‘One dollar’ or one pound’ is the unit of calculation or comparison. It is a number.”—Kitson.

See Hong Kong currency, under heading “Asiatic Exchanges.”

Money Trust Armies

In every country there is a powerful group of capi talists, firmly entrenched in society, well served by politicians and journalists, whose business it is to exploit the jealousies of nations and practice the alchemy which transmutes hatred into gold.

Diplomacy is the tool of the vast aggregations of capital in oil trusts, steel trusts and money trusts. Where-ever combinations of capital are competing the reactions are exhibited in the relations of their Governments. For the service of the rival monsters the working classes are regimented in conscript armies—armies and fleets are the

material arguments behind financial diplomacy.

Finance is the arbiter of war and peace, the master of despotisms, the unseen power in democracies.

Brailsford, in “War of Steel and Gold.”

Unscrupulous speculators see pilfering opportunities in their country’s trouble. They wish for war as the piratical wrecker on his rocky shore wishes for fogs or hurricanes.

—General W. T. Sherman.

Foreign Exchange

The words, “foreign exchange,” form one of those meaningless phrases which have filtered down to us through the dust of antiquity.

W. F. Spalding”, Associate of the Institute of Bankers, in his book, “Foreign Exchange in Theory and in Practice.”

Merchants import goods and pay the banker to pay the foreigner, merchants export goods and sell their collecting orders to the banker.

The banker is the money merchant. He buys from the exporter his right to collect foreign money, and sells to the importer a promise to pay his debts abroad in return for cash here.

The banker’s charge to the importer is the “Rate of Exchange.”

“UNFAVORABLE” EXCHANGE.

When a country imports more than it exports, the balance is said to be “unfavorable.”

It means that the banker has contracted to pay more debts in a foreign capital than he has orders to collect on the money of that capital.

He is short of credit in that capital.

Foreign credit can only be secured by the exportation of products—wheat, wool, metals, manufactures—or by foreign borrowing. The banker, short of credit abroad, stimulates exports by paying the exporter a higher price for his bills. Thus the exporter gets the invoiced price of his bills, plus the premium granted by the banker.

The banker loads this premium on to the importer, by increasing the charge for the settlement of the importer’s foreign debt.

The importer is in the position of a man who has to pay more for his goods.

Thus “unfavorable exchange” means unfavorable to the importer.

FAVORABLE EXCHANGE.

When a country exports more than it imports, the balance is said to be “favorable.”

It means that the banker has more to collect in the foreign capital than he has debts to pay in that capital.

He has an excess supply of credit in that capital. He will, therefore, give the exporter a lower price for his bill to collect. The banker wants no more oversea funds—he has plenty. In theory, he will settle the importer’s foreign debt for a smaller fee.

Spalding, in his “Foreign Exchanges,” says it is only in theory that “favorable exchange” means favorable to anybody but the banker. He states:—

“In theory the importer gets the advantage of the cheaper rate at which the exporter sold his bill. In practice a proportion or the whole of the premium goes to the banker.”

But, whether the importer or banker gets the benefit, it is designated “favorable.”

“Favorable” means unfavorable to the exporter. He may get ₤99/10/- for £100 due in the foreign market.

“Unfavorable” means favorable to the exporter. He may get ₤100/10/- for ₤100 due in the foreign market. The terms “favorable” or “unfavor able” are only used in their relation to the importer. The market has no distinctive jargon for the reverse action on the exporter.

FOREIGN EXCHANGES ON LONDON. (Cabled each day to London from Foreign Capitals.)

	Price July 16,	Price May 17,
Par Values.	1914.	1917.
Paris — Francs and cents to ₤1= 25.22. . ....	25.17	27.25
Berlin — Marks and pfennigs to ₤1= 20.43	20.50	No quote.
Vienna — Kronen and hellen to ₤1= 24.02	24.16	No quote.
Amsterdam — Florins and cents to ₤1= 12.10.	12.12	11.59
New York — Dollars and cents to ₤1= 4.86	4.87	4.76
Montreal — Dollars and cents to ₤1= 4.86.	4.87	4.78
Russia — Roubles and kopeks to ₤10= 94.57	95.75	172.25

The quotations show how much a citizen of a foreign capital must pay to secure a credit of ₤1 in London.

Rising rate of exchange is designated “unfavorable” to the foreign country favorable to London.

Falling rate of exchange is designated “favorable” to the foreign country unfavorable to London.

In the above tables the rates since the outbreak of war have gone against England in Holland, United States and Canada.

They have gone in favor of England in France and Russia.

RUSSIA.

Russia is the extreme example; 94½ roubles is the parity of ten English sovereigns. Before the war a Russian could for 95¾ roubles get ₤10 sterling paid in London. On May 17, 1917, he would have to pay in Petrograd 172¼ roubles for an order to receive in London, or to be paid on his behalf in London ten of Lloyd George’s inconvertible notes.

But the Russian could only get his order from some bank or individual in Petrograd possessing credit in London. His 172¼ roubles remained in Russia in exchange for something in London. The seller in Russia was the gainer. For his £10 in London he got 172¼ roubles, against 95¾ roubles before the war. Russia was neither richer nor poorer.

As a matter of fact, Russia’s foreign trade is at an end. The exchanges have practically ceased to operate. The present abnormal rates (May, 1917), represent the anxiety of the Russian monied classes to sell out local credit for credit in London. The moment war is over, and wheat pours out of Russia, exchange in London will fall rapidly to pre-war rates (95 roubles for ₤10 in London). In other words, the so-called depreciation of Russian currency will disappear.

[By the end of June the Russian rate of exchange had gone to over 200 roubles for London.]

Sir George Paish, editor of “The Statist,” told the American Monetary Commission (Document 579): —

“Apart from sudden catastrophes—such as crop failures, war, etc., which temporarily reduce a nation’s exporting power—no country can have an adverse balance of trade, except for a short period.”

But the catastrophe of war is here. For Russia it means no trade. For England it means trade at a sacrifice.

America has exported to England munitions and foodstuffs far in excess of England’s repayment in products.

The American bankers have, therefore, more credit in London than they have debts to pay.

Therefore, they give the American exporter less American money for his London order. For a 100 dollar invoice on London they give 98 dollars in New York.

The exporter makes up his two dollar loss on exchange by adding that amount to his bill and making it 102 dollars.

The British importer must buy additional dollars at the higher price, but the men who make the profit are the men and institutions in England, who, having credit in New York, sell out at the higher prices offering in London.

Under non-war conditions, English buying orders would fall to the level of her capacity to pay in products.

But American munitions and foodstuffs are essential to England. She is driven to sell to American capitalists her holdings in American industries, and thus disposes of a century of peaceful accumulation. She pays by draining her dependencies of gold to send to the United States, the Argentine or other agreed upon destination. She pays by mortgaging the future of her own people to American financiers at high rates of interest. She becomes, in short, an oversea possession of the American Money Power.

Only by these heroic acts and by these sacrifices does England get what she wants from America, and only by these means does she prevent the fur ther depreciation in the buying power of the English sovereign, as compared with the Yankee dollar.

SOUTH AMERICAN EXCHANGE ON LONDON.

(Cabled each day to London.)

	Price July 16, 1914	Price May 17, 1914
Buenos Ayres, Nominal, gold peso 47½  Actual, paper peso 20¼	47d ----	57d ----
Monte Video, Nominal, gold peso 51d  Actual, silver peso 50d	51d ----	55¾ ----
Valparaiso, Nominal, gold peso 18d  Actual, silver peso 10d	9¾d ----	---- 12d

The process of comparison is the reverse of that between European capitals—except Lisbon.

Lisbon is calculated on the South American plan.

The varying methods tend to confuse the student anxious to penetrate the mysteries.

In Buenos Ayres they say one peso will buy an order on so many English pennies in London.

If the Buenos Ayres rate is 48 pence, then 5 pesos (237½d) will buy an order for ₤1 in London (240d.).

If the rate rises to 50 pence, then 4 pesos 80 centavos (230d) will buy an order for ₤1 in London (240d.).

Rising Rate of Exchange is designated “favorable” to the South American republic—unfavorable to London.

Falling Rate of Exchange is designated “unfavorable”‘ to the South American republic—favorable to London.

Since the war commenced, all South American exchanges have gone against London and in favor of the South Americans.

The currency of the South American republics is nominally a gold peso, but the actual peso of circulation is paper or silver.

The paper peso of Argentine is said to be depreciated because 2¼ paper pesos are calculated as equal to one gold peso. On that basis the conversion office will issue notes for gold, or gold for notes. On that basis the Cajade Conversion will change an English sovereign into local paper, or back into gold, as may be desired.

In the majority of the South American States gold is practically non existent, but exchange is expressed in terms of gold. Argentine is at present (1917) building up stocks of Australian gold in return for meat supplied to England, and Australia gets from England paper credit in London for gold shipped to Argentine.

The peso of Uruguay, local nominal value 51 pence, will (May, 1917) buy an order on London for 55¼ pence, and the English importer or Uruguayan wheat and cattle must pay 55¼ pence in London for an order on a 51 penny peso in Montevideo. It is not the value of the local currency, but the ratio of exports to imports that affect the relations of nations.

ASIATIC EXCHANGE ON LONDON.

(Cabled each day to London.)

	Price on July 16, 1914	Price on May 17, 1914
Bombay – Pennies to one rupee, 16	15¾d	28½
Honk Kong – Pennies to on paper dollar, 22½	22¾	28½
Shanghai – Pennies to one silver tael, 29½	29¾	42¼
Yokohama – Pennies to one silver yen, 24½	24¼	25½

The method of comparison and calculation in the two currencies is similar to that with the South American.

The exchanges have all risen against London and in favor of the Asiatics.

Exchange in favor of Japan has been kept down by returning the coupons for interest falling due, and returning for sale certificates of Japan’s indebtedness to England.

In India the Mints issue 15 silver or paper rupees for ₤1 in gold. Silver in normal times is kept on a fixed par in relation to gold, by Government control of foreign exchange. Since the war the disparity in trade balances has been so favorable to India, that exchange favorable to India has been kept down close to par by London paying Indian interest and pension bills due in London.

China’s currency varies with each province. The Chinese tael is a Chinese ounce of silver; but even the tael weight varies between provinces. The Shanghai tael is the base of North China calculations. It is designated worth 2/6, English money. In May, 1917, the exchanges were so favorable to Shanghai that the Shanghai tael would buy an order for 3/6 in London, or, vice versa, the London merchant would have to pay 3/6 in London for an order on the 2/6 tael in Shanghai.

The Hong Kong dollar quoted in the exchange rates is that represented by the notes issued by the British banks established in Hong Kong. They are calculated at 1/10 each. Spalding, in “Foreign Exchange” (page 131), says:—

“The equivalent of these notes in terms of gold is, in fact, the basis of all foreign exchange settlements in Hong Kong.”

Before the war one sovereign in London or Melbourne would buy an order for 11 paper dollars in Hong Kong. In May, 1917, only 8½ dollars. The Chinese merchant, who, before the war, had to give 11 Hong Kong dollars for an order for ₤1 on London, can now do it for 8½ paper dollars. The course of trade has been favorable to Hong Kong, and that is the fundamental fact in foreign exchanges—not local currency.

Australia is not quoted on the Foreign Exchange list. Canada appears, but not Australia. Canada is a part of the American continent, Australia is an appendage of financial London. Throughout 1917 Australian banks held enormous credits in England. According to theory, rates should have fallen—Australians should have been able to buy a settlement of their London debts at a cheaper rate. In actual practice the banks charged as if no such credits existed. Theory was one thing, practice the very opposite.

As a matter of fact, bank charges in Australia for debt settlement in London in no way reflect the financial and commercial relations of the two countries, nor do they furnish any basis of comparison with any other country. Australia, by its isolation from other financial centres, is absolutely at the mercy of its bankers, and these control all local and foreign relations, and fix the charges.

Foreign Exchanges and Gold

Sir George Paish, editor of the “Statist,” told the American Monetary. Commission (Document 579) that:—

“Only in countries where banking is in a relatively backward condition do the precious metals play any great part either nationally or inter nationally.”

Frank Hirst, editor of the “Economist,” told the same Commission (same document) that:—

“Even among those who actually deal in money—bankers, brokers, etc.—and especially amongst speculators on the Stock Exchange, many peculiar notions and superstitions are entertained on the subject of the relationship of nations, more particularly as regards the influence of gold movements and gold production upon the money market.”

That is to say, the export of values—be they wheat, wool or gold—have the same effect on the international exchanges.

What then, it may be asked, is the need of the great “Centrals”—the capitalist gold arsenals?

It is because foreign exchanges are expressed in terms of gold. Therefore, international capitalist rivalry makes it unsafe for any one gang of financiers to be caught “short.” Thus we see the development of the “Central” gold pool.

Stocks of wool or coal could be stored to meet “adverse” balances, but they are bulky, slow in movement, subject to depreciation in quality and variation in value. Gold occupies small space, can be silently and rapidly shifted, and is accepted at an agreed upon value in all countries.

And a gold-producing country is in the most favorable position, and the most susceptible to mobilisation, for national economic defence.

The less gold used for internal purposes, the more is available for estab lishing a gold fortress for international operations.

In theory, gold flows out of a country when the rate of exchange is higher than the cost of shipping gold. The war has blown the bottom out of that theory. England pays the higher rate of exchange in American and Asiatic capitals rather than ship the balance of her gold from England. She drains her dependencies, Australia, New Zealand and South Africa.

In theory, Commonwealth notes are exchangeable into gold. The war has blown that theory to pieces.

In theory, the export of gold from Australia is prohibited. In secret practice, ships of war transport it to Japan, Argentine and the United States. From the outbreak of war to June, 1917, not less than £40,000,000.

Foreign Exchange and Local Currency

The internal currency of a country has nothing to do with “Foreign Exchange.”

Fluctuations in “Foreign Exchange” are caused by the balance of trade, and not local currency.

“Foreign Exchange” does not increase or diminish the wealth of a country, or increase or diminish the totality of its income. If you want a claim on Hour stocks in London, or want a debt paid in London, and the cost is 20/- where it was previously only 10/-, then the “rate of exchange” has gone against you. In other words, prices have risen, and around this plain fact the financiers have built a shelter of mysterious words.

“Foreign payments” are not made in money, but goods—local money takes no part. Gold sovereigns, dollars or pesos are not accepted on their face value anywhere outside their own territory. They go abroad as metal, worth so much per ounce, and on that basis credit is secured in the currency of the country in which they are sold.

Exchange rates rise and fall under a gold standard, according to the relationship of imports to exports.

They rise and fall between London and New York with the same standard, and between London and Melbourne with not only the same standard, but the same monetary unit.

The “Encyclopedia Britannica” says:—

“A paper currency does not interfere with the movement of produce or the profits of those engaged in international exchange.”

D. A. Wells, in “Recent Economic Changes,” cites the testimony of members and directors of English Chambers of Commerce to the effect that there is no difficulty in negotiating exchange or conducting trade with countries on a silver or paper currency base.

Foreign Loans

When the Commonwealth borrows £20,000,000 in London, to carry on works in Australia, that amount is left on the books of London banks, acting as branches or agents of Australian banks.

The banks in Australia finance the Commonwealth with local money to the extent of ₤20,000,000.

The London banks owe the Australian banks that ₤20,000,000.

When Australian merchants import goods from London, they pay the. Australian banks local money to pay their London debts.

With these local monies the banks reimburse themselves for the ₤20,000,000 advanced to the Government.

The debts owing in London for goods sent to Australia are paid out of the ₤20,000,000 credits in London.

Shifting Foundations

In the New York “Tribune,” of April 1, 1917, John Rovensky, Vice-President of the National Bank of Commerce, pointed out that during the war 1000 million dollars of gold had been drawn from other countries, increasing the gold stocks of the United States to 1900 million dollars. He said that “upon this gold base there rested a credit structure of 28,000 million dollars.” In other words, there was 26,000 million dollars of circulating credit in the United States that had no gold behind it—nothing beyond the deposited security of borrowers. If this was the position in America, upon what does credit rest in the countries from which gold has been drawn?

Mr. Rovensky states:—

“The credit structure of each country rests upon the gold reserve held, by the banks of that country.”

Yet every country at war is an evidence to the contrary. In every belligerent State, including Australia, the credit structure is rising upon diminishing gold reserves.

Currency—Notes and Cheques

Under the modern cheque system there is no need to issue notes beyond the counter change and wage requirements of the public.

When cheques or notes are issued from a “National” Bank, and such issue is based upon deposited security, the currency returns to the bank in redemption of such security as it does with private banks.

So far as the securities consist of State or Commonwealth securities the “National” Bank has not only the remedy against depreciation, but a profit at its disposal. When money is “cheap” and plentiful, securities can be sold and the currency contracted. When money is short and securities are being offered for currency, the bank can buy, expand the currency, inci dentally make a profit, ‘and automatically regulate the market. Notes issued from the Treasury have no such method of automatic redemption.

It is not possible to make notes circulate in excess of public requirements. You cannot make gold circulate in excess of public requirements. Whatever of gold or notes be not required for circulation will be left on credit with the bank. Therefore, excess coinage of either gold or notes is a waste.

American Banks

(Read this in connection with article, “Mammon, the Overlord.”)

It is not a fact that private banks in America must redeem in gold.

They can redeem in silver dollars, United States Notes (greenbacks), Federal Reserve Notes or cheques on the “Centrals” (Federal Reserve Banks).

The 1915 report of the United States Treasury, entitled “Paper Currency and Coin,” says:—

“Silver dollars are legal tender at their face value in payment of all debts, public and private, without regard to the amount…Silver dollars are not redeemable.”

Page 59 of the “Treasury Report” says that Federal Reserve Notes can be redeemed in “lawful money.” “Lawful money” is silver or “greenbacks.”

There is no legal obligation to redeem greenbacks in gold. Page 36 of the “Treasury Report” says:—

“The law of non-redemption has not been repealed.”

Federal Reserve Notes are guaranteed redeemable in gold at the Federal Treasury in Washington, but this guarantee is conditional by the terms “if available.” This problematical redemption means, for the vast majority of the citizens of the United States a train ride of over 1000 miles to Washington.

Page 48 of the 1915 United States Treasury Report states that the National Bank Notes, Federal Reserve Notes, United States Notes (greenbacks), Silver Certificates, Gold Certificates in circulation total 2752 million dollars, against a gold reserve in the Treasury of only 209 million dollars. The bulk .of the gold stocks in the United States are held by the private reserve banks, while the nation is pledged to guarantee all notes, public and private.

In law the Federal Reserve Banks must hold 40 per cent, of gold against their note issues.

But this is conditional by the fact that “lawful money” (silver or greenbacks) may be regarded as gold reserve. Further, that “Gold Certificates” (the American ^5 note) may also be regarded as gold reserve. Neither the individual member banks nor the “Centrals” (Federal Reserve Banks) are under any obligation to pay in gold.

Further, the Federal Reserve Banks are not limited to note issues. They may issue to member banks unlimited credit and cheque currency upon general securities, without reference to gold basis. The American financial writer, Alexander Noyes, says:—

“The Federal Reserve Banks furnish credit to member banks on securities previously deposited with member banks by the borrowing-public. The currency, whether furnished by the member banks to the public, or by the Federal Reserve Bank to member banks, is in the form of cheques. Note issues are only a fraction of the total currency issued by Reserve Banks. Cheques and notes are the circulating representative of deposited security.”

The modern American financial system recognises deposited security as a sound basis for currency and holds gold in the great “Central” pools for international emergency.

Australian Banks

During the year ending June, 1917, the bank returns showed a remark able reversal. Apparently liabilities had increased by £17,351,000, while assets decreased by £7,230,000—an apparent reversal of £24,581,000.

The explanation is that the banks only disclose to the Government Statis tician their liabilities and assets in Australia.

During the year the total gold production was sent overseas—to Argen tine, Japan and United States. Gold reserves in the Treasury were depleted for a like purpose. Gold holdings of the private banks were depleted and exported to the extent of £5,000,000—a total gold exportation of £15,000,000 for the year. For their share of the exportation the private banks received credit in London, and to that extent their local assets disappeared.

In addition, the British Government agreed to buy 3,000,000 tons of Australian wheat for £26,600,000. In reality the deal was financed by the local banks. The farmers’ deposits grew, and the local liabilities of banks to depositors correspondingly increased. The banks were repaid with British money, put to the credit of the banks in London. Bank assets corres pondingly increased in London.

The surplus of bank assets over liabilities in Australia and overseas were:

June 30, 1917  ..          ..          ..          ..          £26,447,000

June 30, 1914  ..          ..          ..          ..              5,071,000

Increase during three years of war         ..          £21,376,000

Of these increased assets, £14,640,000 was represented by increased local holdings in Commonwealth, State and Municipal securities, and the balance in Imperial War Loans held in London.

During the three years ending June 30, 1917, the banks increased their holdings of Commonwealth notes by £25,910,000—total holdings, £30,947,000

The total issue from the Treasury to that date was £47,202,000.

The gold in the Treasury on that date was £15,245,000, and in the private banks £22,855,000—total, £38,100,000.

In June, 1914, the banks held in Government securities, £7,377,000. In June, 1917, apart from Imperial War Loans held in London, the local hold ings in Government securities were ₤22,016,000.

Bank Capital

The capital of the Bank of England consists of bank notes guaranteed by the Government of England.

The ₤5,000,000 capital of the Bank of Prussia consists of Government bonds. Against these securities the bank issues notes.

The National Bank of Argentina was established by an authorisation to issue 50,000,000 paper pesos. With this currency land was bought, material purchased, labor employed, and premises erected free of interest. To-day the bank has 150 branches, and its operations are more extensive than even that of the First National Bank of New York.

The Commonwealth Bank was started without capital, but under the amended Act of 1914 the bank, if it needs credit for extension, must float bonds and load its operations with interest to private capitalists. This Act has not yet been put into operation; but, if it is, the bank will have to earn £350,000 for private investors before it earns a penny for the nation. If the bank cannot earn it, then the money will have to be made up out of public funds.

Compare this act of a Labor Government with the favored position of the Bank National of Argentina, the State Bank of Prussia, or the Bank of France.

SECURITIES FOR CURRENCY.

Money has the quickest return in commerce. The money invested is brought back immediately by the disposal of the merchandise, and is again used for other goods, with the result that the term of credit is not long. In commerce the term of fixed capital is shortest, renewal being necessitated on sale of goods.

In manufactures the capital becomes fixed in machinery, factories, etc., and suffers steady depreciation, requiring additional increments of capital to maintain the value of the security.

In agriculture the capital is mainly fixed in land that, under the ordinary growth of population and improved cultivation, will increase in value. The return of capital in agriculture is more uncertain than in commerce or manu factures, owing to the fluctuations of the seasons, and the regularity of the return can only approximate to a surety when small and spread over a long period.

In most countries there are commercial banks, industrial banks, agri cultural banks. In a country like Australia, where the population is sparse, there should be, for economy of management, one bank with three depart ments.

Bankers’ Agreement

Speaking before the Incorporated Accountants’ Society, on February 28, 1917, Mr. J. R. Butchart, of the London Bank of Australia, made this state ment:—

“Soon after the outbreak of war the chief bankers of Australia agreed among themselves to abandon the principle of convertibility of credit documents into gold, and to effect settlement in paper money.”

Read this in conjunction with article “The Unseen Power,” page 14.

The “Age” newspaper (November 16, 1911) said:—

“The banks have an understanding of their own. It is useless to appeal from Caesar to Pompey for relief.”

Read this in conjunction with article “Profiteers’ Programme,” page 38.

The War Profiteers

The New York cables of August 24, 1917, reported that the United States steel and eleven other corporations made 470,000,000 dollars profit for the year ending June.

The war profiteers in Great Britain made war profits of over ₤200,000,000, while Bonar Law admitted that £200 invested in one ship gave him £1000 in insurance when the ship was submarined.

The total war profits in Australia are unknown, but 1600 persons and com panies in the State of Victoria increased their incomes by 3½ millions, while 263 persons and companies increased by 1½ millions—enough to keep 10,000 men and their families for a year at ₤3 each per week.

That in return for this product and other services, the British Government supplies Australia with credit in London, and advances for wool and other products that cannot be transported for lack of shipping. That the fact Australia is a producer of an easily exportable product like gold has been an advantage; and any system of paper currency permits a product to go where it will be of most service is a good currency. The crime is in the fact that it becomes an instrument of private instead of being an exclusive national advantage.