LAND AND WATER 
Jfebruary 6, 1915, 
If the number of transactions In a community 
increases much more rapidly than its stock of gold 
there would be a difficulty in effecting them (inci- 
dentally prices would fluctuate wildly and tend to 
fall in the most disturbing fashion) were not more 
and more of the work done, as production and con- 
sequent exchanges expand in volume by instru- 
ments of credit, that is, by promises to pay, to 
which " credit " or the belief that they certainly 
will be redeemed when presented generally 
attaches. By this contrivance one ounce of gold 
does the work in exchange of ten or a hundred or a 
thousand ; for to one instrument of credit presented 
for payment in a given time there are always many 
in circulation. 
So far, so good. In normal times if you with- 
draw gold from the public or make individuals fear 
that instruments of credit will not be met there is 
a sudden break put on all exchange and therefore 
on all production. 
But if the Government — the sovereign power 
— steps in to compel production and to direct its 
goods to the consumer, or by an artificial currency, 
successfully imposed, supplies the place of true cur- 
rency, there may be inconvenience, but need cer- 
tainly be no famine in anything the nation can 
make. 
For Instance, take all the gold away from a 
country and the man who makes hats can still 
exchange those hats with the man who makes boots, 
and the man who makes boots exchange those boots 
with the man who grows wheat, and the man who 
grows wheat exchange that wheat for hats with the 
man who makes hats, and so forth, there passing in 
each transaction neither metal nor the promise to 
pay metal but any symbol such as a bit of paper on 
which is printed the name of a familiar coin. If this 
enforced currency be increased beyond the sum 
which would have been used in actual gold, supposing 
gold had been present, prices rise, and an attempt 
to regulate currency of this sort, based as it is upon 
a guess as to what would have taken place if gold had 
been present (a guess that can never be accurate), 
always leads sooner or later to a vast disturbance in 
prices and an according suffering and strain in the 
commonwealth, but stiU this strain does not kill a 
nation, it does not prevent the producer firom pro- 
ducing or ultimately two producers from exchanging. 
If the citizens come to doubt the value of the 
paper altogether, that is if a man taking a £1 note 
Buspects that nobody will take it back from him, it is 
of course exceedingly difficult to force the fictitious 
currency, and in the old days one of the greatest 
difficulties a Grovernment had in getting such 
fictitious currency to work was the coercing of its 
Bubjects into taking that currency ; but we have 
changed aU that. The poHce to-day are everywhere. 
A modern government is the absolute master of its 
subjects ; not only fi-om its vastly increased organisa- 
tion but fi-om the nature of modern lethal weapons, 
and we may be quite certain that the modern 
government, particularly such a government as that 
of Germany, can force a fictitious currency upon its 
Bubjects for a very long period. 
But even if it had not this power, even if the 
fictitious currency breaks down, there still remains 
m the last resource the power of the government to 
organise national industry under its own inspection 
and to have the stocks of raw material registered 
and taken over by its officials, the workmen set to 
work upon them, and the finished products delivered 
where theur consumption is necessary. 
The presence of a current medium, even fictitious, 
let alone genuine. Is not necessary to the continuance 
of a war or the national life as a whole within the 
boundaries of the nation, but It is necessary for its 
foreign transactions unless the government of the 
other countries whose citizens are trading across the 
frontier will consent to be at the pains of organising 
international exchange, and that no neutral country 
at peace will be at the expense and trouble of doing 
to oblige a customer who happens to be at war. 
We may sum up, then, and say that Germany will 
never from failure of gold be exhausted in her material 
power to make war with goods produced within her 
own boundaries. But may she not be exhausted if 
gold or its equivalent fails her in her power to make 
war with materials that have to be Imported from 
outside ? 
To see how far that Is likely, let us see how the 
citizens of a sovereign power trade with foreigners. 
Take a concrete case. Let us say that there 
are in Lombardy (as there are for a fact) large 
stocks of India-rubber ; the German armies are 
in bad need of india-rubber. The German manu- 
facturers export to Italy electrical Instruments 
made in Germany. In time of peace the normal 
process of commercial exchange is this : the German 
manufacturer sells to an Italian importer a number of 
electrical Instruments for the sum of say 1,000 ounces 
of gold (the said 1,000 ounces being called by 
different names In the different European countries, 
but the ultimate medium of exchange being gold 
measured by weight). The Italian merchant does 
not send the 1,000 ounces of gold in a bag to the 
German manufacturer, but sends him a piece of 
paper on which he writes a promise to pay to the 
German 1,000 ounces of gold ; and this piece of 
paper he sends (or in the origins of the system sent) 
to the German manufacturer who supplied it. A 
firm making motor-cars for the German armies pur- 
chases india-rubber from an Italian manufacturer, 
and tends him a piece of paper promising to pay 
1,000 ounces of gold. The sum total of these trans- 
actions, so far as international commerce is con- 
cerned, is that Germany has lost a certain amount 
of electrical instruments, and has gained an 
equivalent amount of rubber ; while there lies in 
Germany a paper promise to pay so much gold, and 
in Italy a paper promise to pay the same amount 
of gold. Those who deal with biUs and other 
instruments of credit compare the two situations ; 
they find that the sums cancel out and no gold 
passes. 
The real process is of course a million times 
more complicated than that. The foreign exchanges 
ramify through all commercial countries, and concern 
not two foreign merchants, but thousands upon 
thousands who are continually exchanging and re- 
exchanging. The acceptors of bills do not work for 
nothing, and their profits further complicate the 
affair, while, of course, the deals that cancel out one 
against the other are not deals known to a small 
circle, but moving as currency does, at large over 
the whole surface of commercial life with its millions 
of individual purchases and sales ; but the principle 
is that which appears in this purposely simple 
example, and it will be apparent from that example 
that although no Italian actually gets German gold 
in that particular set of transactions, and no German 
actually gets Italian gold, yet business would not 
have been done unless the Italian merchant had 
believed that the German could pay him gold when 
the time came. 
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