Marcn z, 19 16. 
LAND AND WATER. 
THE GOLD FETISH. 
By Arthur Kitson. 
THE meeting of the Associated Chambers of Com- 
merce this week wll mark an important step 
in our foreign trade pohcy. The members of 
our commercial bodies are fully aroused to the 
necessity of preparing for the coming trade war which 
will be waged relentlessly at the conclusion of present 
hostilities. The most urgent question, however, which 
will doubtless occupy the attention of these bodies will 
be the establishment of Industrial banks for assisting 
British merchants in extending their trade and commerce 
throughout the world. Tariff measures will prove of 
little avail against the enemy, unless accompanied by a 
radical change in our banking and iinancial methods. 
Many members of our Chambers of Commerce have 
written expressing their interest in — and in many cases 
their agreement with — the articles on the Banking Ques- 
tion in Land and Water. Some correspondents, 
however, have expressed surprise that they have been 
devoted principally to a criticism of our existing Financial 
.System, whilst little has been said to indicate what 
system should replace the present one. To such critics 
it is sufficient to say, that before one can erect a new 
building on the site of an old one, it is necessary first to 
clear away all the rubbish and obstructions. 
Our Banking System as I have hitherto pointed out, 
is founded on several glaring fallacies. It is the product 
of greed, ignorance and superstition. I have already 
exposed one or two of these fallacies, such as the Gold 
Basis fiction, and the so-called " Gresham " law, but 
other errors equally glaring remain to be exposed and 
eradicated before we can attempt to replace the present 
institution with a better one. 
Fallacious Principles. 
Already many proposals have been offered to the 
Government regarding what their authors believe would 
prove salutary changes in our credit and monetary arrange- 
ments, but these proposals are not likely to receive 
serious consideration by the authorities until the current 
theories and principles of finance are shown to be 
fallacious. 
The chief object of the writer of these articles is to 
endeavour to convince the British public not only that the 
existing financial system is , inadequate, dangerous and 
costly, but that owing to the false teachings of financial 
writers, the public has been defrauded of the free use of its 
own credit for industrial and commercial purposes. Since 
the War started, events have shown that the credit of 
Great Britain is worth several thousands of milhons of 
]wunds sterhng. On the other hand, the credit of all 
tlic British banking companies combined is only a frac- 
tion of that of the British nation. How is it then, that 
the British Government compels the nation to sell its 
superior credit for Bank credit and pay interest charges 
for the exchange ? That " the whole is greater than a 
part " is an elementary mathematical axiom. Why does 
not the axiom hold good in financial matters ? 
The credit of Great Britain comprises that of all the 
British people and its institutions. Why then does the 
Government enter into such an apparently foolish 
l)argain as the exchange of the more valuable credit for 
the less valuable and pay a premium ? The answer 
is that the gold superstition still dominates the minds — 
not only of the Government — but of the vast majority 
of the citizens of this country. The average man still 
believes that there is some special virtue in gold when 
used for currency purposes which does not exist in paper. 
It is the prevalence of this superstition that has cost this 
country untold millions in interest charges which might 
have been saved. And just as the poor benighted heathen 
are victimised by their priests and sorcerers and induced 
to pay to have their homes freed from imaginary devils 
and evil spirits, so the average Britisher has been willing 
to pay for the use of gold where paper would have answered 
equally well and would have facilitated his business to 
precisely the same degree. 
The Chancellor of the Exchequer is reported to have 
boasted in a recent speech in the House of Conunons 
that every £1 note issued by the Government is redeem- 
able in gold on demand. It" is to be hoped the public vnll 
not take Mr. McKenna at his word, otherwise we shall 
have a repetition of the Midsummer crisis of 1914. The 
inference the Chancellor wishes us to draw from his 
statement is, that our legal tender notes are valuable 
because they can he redeemed in gold. So long as this 
superstition prevails, so long will our producing classes 
be taxed for the use of credit and currency, which, under 
more enlightened conditions, they might have at practic- 
ally little or nothing save the cost of service plus a small 
tax for insurance. 
Actual Facts. ' 
Let us at once face the actual facts. 7/ in the fulttre 
our currency and credit are to be based on gold, aiid if they 
a,re to he made redeemable in gold on demand, then our 
industries, our trade and commerce must bs restricted. In 
other words, the limit of enterprise and industry must be 
the amount of gold that our banks are able to control and are 
zailling to make available, and as for capturing German 
trade, we may as laell abandon all our efforts. On the other 
hand, if the people of this country hope greatly to increase 
their trade and commerce, if they have any serious inten- 
tions of capturing German trade, the gold basis will have to 
he abandoned as being insecure and insufficient, and the 
much safer and broader bxsis of the national credit will 
have to replace it. 
The statement made by Mr. McKenna regarding the 
ability of the banks to redeem their obligations in gold 
• has already proved to be incorrect. The real test was 
made at the end of July and the beginning of August 
1914, and nothing has happened since then to invalidate 
or alter the result of that test. -Of course, what Mr. 
McKenna means and what the bankers undoubtedly 
mean when they speak of " gold redemption " is, that 
so long as the public is content to take gold in small 
quantities, the banks are able to perform their obhgations. 
If the question of time be ehminated, any bank might 
undertake to issue a million pounds of credit on a gold 
reserve of one hundred pounds. But in financial matters, 
time is always the essence of the contract. If the pubhc 
demand gold redemption, they want redemption im- 
mediately on demand, and not some months later — at 
the banker's convenience. 
It would undoubtedly be possible in the course of 
six months for London Bridge to carry all the traffic that 
now passes across the Thames in a single month. Sup- 
posing during a Zeppelin raid, all the Thames bridges 
were destroyed except one. Naturally the traffic would 
be seriously disorganised. At the same time, this one 
remaining bridge would no doubt enable the traffic to 
continue, although greatly reduced, and at very serious 
cost and delay to the London merchants and manufactur- 
ers. The same is true in regard to the redemption of 
credit in gold. In short, the gold standard and the gold 
basis mean that trade and commerce must bs cut down 
solely in the interests of the money-lending classes, in order 
that they may be allowed to continue their control of credit. 
A Serious Indictment. 
One of the most serious indictments brought against 
the gold basis will be found in a paper* read by Sir 
Edward Holden of the London City and Midland Banking 
Co. before the Liverpool Bankers' Institute, in December, 
1907, immediately after the United States currency panic! 
I cannot do better than reproduce Sir Edward's ex- 
planation of the depreciation of securities in gold at that 
time. His illustrations form one of the most complete 
exposures of the blighting and depressing effects upon 
trade and industry exercised by this gold superstition, 
ever pubUshed. Sir Edward illustrated the condition of 
the banks by a triangle which showed that credit 
is necessarily restricted by gold, regardless of the enormous 
wealth possessed by the nation in other forms. He first 
* " The Depreciation of Securities in Relation to Gold 
by Blad?s, East and Blades.^ 
(Publishod 
