i8 
L AND cS: W A T E R 
March 30, 1916 
great National crisis universally, (lie Governments 0/ the 
world Itave ahtays fallen b.ick on their national credit 
expressed in the form of paper vwney. Neither i;vld 
nor silver bullets have ever proved so effective as paper 
bullets. Surely if a financial system is sirfficiently strong 
to weather a great crisis such as the United States went 
through in her Civil vVar, it is good enough in times of 
peace. 
The National Credit 
Now the national credit is based upon all the wealth 
and all the productive capacity of the inhabitants of these 
islands. It includes the credit of all the banks. It is 
not based upon one comparatively insignificant metal — • 
gold — but upon every commodity including gold, upon 
all that is comprised within the British Isles and its 
wealth beyond the seas. Moreover this crccht is not 
the property of any one class or section of the community. 
It exists because of the enterprise and labour of all 
British citizens, past and present. It is as solid as anything 
earthly can possibly be made. Why then should our 
statesmen hesitate to employ it as the basis for legal 
tender and bank credit for the bcrctit of the entire nation, 
instead of lending it as a source of profit to a small and 
privileged class ? Above all, why does the Government 
dishonour the national credit by pawning it for bank 
credit, which is inferior in (piality ? But more of this 
later. The fact is that the linancial (juestion opens up 
so many others, such as taxation, foreign trade, com- 
merical union with the Dominions, etc., as often to 
tempt one to })ursue this immense subject in all of its 
different phases. 
I suggest therefore that the basis for l)ank credit 
should be the National credit. Legal-tender notes slujuld 
be issued under proper regulations to the limit of meeting 
the demands of trade. I may add, in passing, that the 
root of all our currency and banking troubles exists in 
the popular superstitution surrounding the so-called 
gold standard — the pons asinorum of Finance — which 
covers one of the greatest economic fallacies ever 
taught. 
Neither currency nor credit require any metallic 
base. Values are ideal creations — not concrete magni- 
tudes — and can hi expressed only in terms of the ideal. 
Now the required financial conditions may be obtained 
in several ways. They may be attained (i) by a system 
of Mutual Banking, (2) by Free Competitive Banking, 
or (3) by a system of National Banking. Our present 
system is neither National, Competitive nor Mutual. 
Like many other of our medieval institutions — the legal 
profession, for example — banking is a highly protected 
guild constituting a legalised monopoly. 
An Astonishing Feature 
One of the most astoJiishing features of our com- 
mercial history is the failure of our commercial and 
industrial classes to seize and control the banking business 
as a necessary branch of trade. The entire business and 
stock-in-trade of the banks is furnished by the trading 
classes, and instead of forming a mutual banking system 
under their own control and operated for industrial needs, 
they have allowed a professional class to secure control 
and run it for their own profit, until to-day the tail wags 
the dog, and instead of our industries controlling credit, 
credit dealers dominate our industries. 
Mutual banking is a system whereby banking facilities 
are furnished to all the members of the bank at a rate 
sufficient to cover expenses and insurance. Anyone can 
become! a member who owns capital and bears a good 
H'putation. Credit accounts arc opened and advances 
mack: after careful investigation of the x'aluc of the 
securities and the character of. the applicant. The bank 
orticers are elected by the members annually and the 
bank is controlled by a committee similarly elected. 
The object of mutual banking is to furnish cheaj) banking 
facilities, not to make profits. Its success naturally 
depends Upon the number and importance of its members. 
In regard to legal cturency. This might bo obtained 
at present by the ])ur(liasc of Government bonds, which 
the Government would exchange for their face value in 
legal-tender notes. Now supposing all classes could be 
induced to patronise such a bank. It is evident that 
very little legal tender would be ro(|uircd. Long ago it 
was pointed out bv lohn Stuart Mill that if cverv busi- 
ness man could be induced to open his account with one 
central London bank, all business beginnfng and ending 
in London could be transacted without the use of cash, 
except that required for wages, small payments and 
purcliases. All payments could be made by cheque, and ' 
the settlement of accounts would consist merely of the 
transfer of credit from one person's account to that of 
another. If all the banks of Great Britain were amalga- 
mated, it would effect the greatest economy in the use of 
money (that is. legal tender) ever achieved. It is 
knowledge of this fact that is forcing the union of so 
many banking firms, because it reduces costs, economises 
cash, reduces the amount of gold reserves necessary, and 
increases bank profits. 
If all the business firms and members of the trachng 
classes in this country agreed to organise a central Mutual 
Bank, with branches in every town, on the lines suggested, 
they would not only be able to j)rovide a safe and satis- 
factory financial system for supporting the trade and 
enterprises of Great Britain, but they would effect a 
saving of tens of millions of pounds annually ! It has 
been estimated that under such a system, credit could 
bz supplied at the rate of i per cent, per annum, after al- 
lowing for all charges, expenses, and insurance against losses. 
Free Competitive Banking has never really existed 
in this country. Most people believe that the various 
Joint Stock Banks are fierce com]>etitors \sith each other. 
And within certain limits, this is true. But the door is 
dosed against the addition of any new banking company 
by means of their control of the Clearing House, 
The Clearing House 
The Clearing House is most vital to the banking busi- 
ness. It is where the daily balarices due by one bank to 
anotherare ascertained and settled. Refusal by the Clearing 
House authorities to clear the cheques of any banking 
company would put it out of business. If, however, the 
Clearing Houses were nationalised and free banking per- 
mitted with the right of every bank to use the Clearing 
Houses, such a system of competition would undoubtedly 
tend to the evolution of a better and cheaper service 
than has ever yet been discovered. 
Naturally the Government would have to enact 
rules and restrictions under which banks could be formed 
and operated. In this case also, the National Credit 
could form the basis of bank credit by the purchase of 
Government bonds convertible on demand in legal- 
tender notes. Here, let me say that at present I am 
dealing exclusively with a banking system suitable for 
our home trade and industries. I am aware that a some- 
what different arrangement is necessary for carrying on 
our foreign trade. At present the popular opinion seems 
to be in favour of the creation of a National Banking 
System, which could be effected by the purchase by 
the nation of the Bank of Flngland, together with the 
Joint Stock Banking Companies of London, including 
those in the provinces, Scotland, Ireland and Wales. 
Such a scheme is quite feasible, and would prove a 
paying investment for the Nation. It would involve a smn 
([uite moderate in comparison with the amounts we have re- 
cently become accustomed to in connection with the war. 
Naturally the credit of the nation could be better 
organised and supplied to the peoi)le through a properly 
estahlislied State Department than by any other means, 
provided, of course, that such a Department was officered 
by the right men. In this, as in all other (iovernmental 
Departments, the success of an institution dejiends on 
the ability and honesty of those who administer it. 
Dameslic Life in Kotniania, liy Dorothea Kirke (Juhu 
Lane, 5s. net.) is a ratlier <omn»oiii)iace account of a governess's 
life with a Kouniani;in family, and cm lioliday in and about 
Constantinople. It contains a good deal of inforinati(»n of the 
domestic, jirosaic order, which is conveyed in a series of letters 
that tliread together tlie details of a slight romance affecting 
the writer of the letters and one other. The result is an ex- 
tremely practical account of Roumanian life. 
Th.' Platoon Commander's Vade Mccum, by Major H. 
(i. ]<. Wakefield (Hugh Kees. is. t)d. net) emphasises the 
importance of moral as the chief responsibility in the leading 
of men, and details the duties of the platoon commander in 
billets, in the trenches, and in the attack and defejice of a 
position. The booklet is iutendc-rl as a handy guide to the 
j)latoun commander, and it fullils the purpose well. 
