16 
LANU & WATER 
September 13, 1917 
lacUities needed for maintaining the present rate of production. 
This would mean reducing the army supplies of munitions, 
etc., which would probably result in our losing the war. This 
proposal is similarly absurd. 
Is there no remedy for inflation and high prices ? Under 
the world's present abnormal conditions, I see no possible 
remedy short of absolute communism and the rationing of 
every man, woman and child within the United Kingdom 
in regard to every marketable commodity. Outside of this, 
inflation is inevitable. As an illustration, let us suppose 
a besieged town cut off from all communication with the rest 
of. the world. Knowing the impossibility of increasing the 
food supplies, dealers and merchants would immediately 
raise their prices, and as the food became scarcer, prices would 
continue to advance according to the first condition before 
mentioned. The disproportion between supply and demand 
would be increasing- daily. So long as the conditions of trade 
were allowed to remain " free " as in ordinary peace times, 
nothing could prevent this upward movement of prices, 
which would \>c due. to inflation owing to the decrease in the 
supply of goods, whilst the money demand remained as before. 
Another plan, however, and one which would probably 
be. adopted under the conditions stated, would be for the 
Mayor and Corporation of the town to commandeer all the 
food and essentials, giving money or receipts for such g9ods 
to those from whom they were taken, and then rationing the 
entire population. In this way and in this way only infla- 
tion, might be prevented. ■ 
The suggested remedy of contracting the currency, however, 
deserves sjiecial attention, because this is a plan that will 
most probably be attempted after the war in response to the 
demand for lower prices. It is a measure that has been put 
in practice in nearly all countries after war, especially a war 
like the present in which paper money lias had to be exten- 
sively employed to the exclusion of one or both of the precious 
metals. And such contraction of the currency has always 
resulted in industrial depression, wholesale hankrupicy and 
social misery in a more or less acute form for years ! ^ 
Reducing Legal Tender 
Consider wliat it means. By reducing the volume of legal 
tender, the bankers liave to reduce their loans and overdrafts 
to clients who are called upon to pay. .A.s most of these have 
probably invested their borrowings in tools, machines, fac- 
tories and productive implements, they are compelled to close 
down their works and offices and call upon their clients to 
pay up. These in turn having put their money into goods, 
are forced to sell at any prices in order- to save themselves 
from bankruptcy. But" these retailers and jobbers find the 
demand for goods has fallen because there is less money for 
the public to buy with. Moreover, as factories and works are 
closing down through having to repay loans and over- 
drafts necessary to carry on, the great consuming public 
—the working classes — cease buying except the barest 
necessities. Finding .themselves unable to realise in time, 
shopkeepers, dealers and others become bankrupt, and bank- 
rupt stock sales occur all over the country. The manu- 
facturers follow, suit. Their clients having failed them 
they are themselves unable to repay the banks and are com- 
pelled to go into liquidation. In short, restriction of the 
currency is always followed by the industrial and commercial 
ruin of thousands, with armies of unemployed and starving 
women and children. 
Theie is also another impO;-tant side to this question. The 
Government has been borrowing enormous sums to carry on 
the war, u'hich is the chief cause of the present inflation. 'Our 
National War Debt will exceed £6,000,000,000.' Xow what 
kind of pounds are these which have been lent to the countrv 
in its terrible crisis ? They are certanilv not golden pounds 
smce the gold-of the whole world would' fail to equal this 
colossal amount. Neither are thev Treasury note pounds, 
smce these only amount to il 'per cent." of this sum. 
These subscribed pounds are merelv bank -cheque-pounds 
and have no material existence. Thev" arc book entries in the 
books of the banks and represent" the credits of firms 
and mdividuals. and. are backed bv the wealth of the sub- 
scribers. Now these pounds are " "cheap " pounds, that is, 
they are worth in relation to all commodities about one-half 
of the golden sovereign prior to the war. The fanner, the 
manufacturer, the mechanic and the labourer, only have to give 
one-half or even less of their own goods and ser\"ices to buv a 
p<mnd to-day that they had to give prior to the war. 'So 
that when a man has to pay, say £10 of taxes to-day. he can 
do so with the same or fewer goods and services with which 
ho could pay only £5 of taxes in 19x3. 
Tills huge National Debt— the greatest ever incurred by any 
nation since the world began— must be repaid in principal 
and interest by the British taxpayers. The interest charges 
alone will exceed iaoo.ooo.ooo each and every year. This 
is nearly twice ..the 'total iaxes, paid prior to the war. - But it 
is 'not all. In addition 'we rhust pay the expenses of the 
Government, and pensions to the wounded and disabled, 
and to the widows and orphans of the gallant dead, as well 
as the regular Old Age Pensions, etc. Taxation will require 
at least /boo, 000,000 per annum, which will be a very heavy 
burden for our trade and industries to carry. But heavy as 
this will be, imagine what it will mean if short-sighted and un- 
thinking statesmen and financial experts were to induce the 
Government to revert to the so-called " good, sound, honest 
gold currency ! " Such a\ measure [jtjould enslave the pro- 
ducing classes for generations. For it would mean doubling, 
the national debt, doubling the rate of interest, and consequently 
doubling taxation ! . 
The Pound Sterling 
" How will this happen ? " may be asked. How can a debt 
of £6,000,000,000 be suddenly" converted into a debt of 
£12,000,000,000? The answer is by doubling -the value of 
the pound ! If a gold currency is re-introduced resulting in a 
great reduction of legal tender and bank credit, the pur 
chasing power of the pound sterling will be restored to what 
it was before the war, and although all debts will be nominally 
the same, actually — that is in. labour products and service 
generally, which are the only things 99 per cent, of the popula- 
tion have with which tobuymoneyand to pay their debts — all 
debts will be doubled. So thai the ta.xpayers will have to pav the 
cost of the -war — tremendous as it is under ordinary conditions — 
twice over, and Iwice the interest charges in terms of their oxen 
products. This vr.W mean that wliilst the value of all debts 
will be doubled, and the burden of paying them similarly 
increased, the great investors in the War Loans will double 
their wealth with a mere stroke of the pen, besides receiving 
over TO per cent, in the .meantime on their actual and 
original investments ! 
The device of altering the value of the money standard is an 
old one that has been practised by, the great cosmopolitan 
financiers for the past century or more. It can be done so 
insidiously that the public are unaware of the fact until the 
burden begins to be of crushing severity. The trick was played 
on the Americans after their Civil wa'r. President Lincoln's 
Goverment issued a great quantity of paper money known as 
" greenbacks " which circulated throughout the Northern 
States and enabled the Government to win the war. Natur- 
ally this money was cheap in relation to commodities generally . 
The Government also issued Bonds in return for money that 
was subscribed and which was of a similar character, namely 
cheap money. When the war had been concluded and the nation 
was engaged in building up its industries after the losses that 
the war had entailed, the financiers-induced Congress to increase 
the purchasing power of money by destroying a vast number 
of the " greenbacks " and to agree to pay the bonds in a 
money of three or four times the value of that which was 
loaned. The result was that the America'n people were forced 
to pay the cost of theirwar three or four times over in addition 
to the interest charges which averaged 20 per cent, per annum 
on the actual amounts loaned, in order to satisfy the rapacious 
appetites of the money-lending classes. And as an American 
Senator once said to me, " Our producing classes had to go 
through hell in order to satisfy the outrageous demands of these 
financial vultures." 
In order that we may see this proposal for contracting the 
currency in its true perspective .(which by the way is mentioned 
by a writer in the last Quarterly Review "as a natural 
and inevitable event which will logically follow the declaration 
of peace) let us imagine what would happen if any statesman 
or influential body of citizens were to propose a measure 
during ordinary peace times for deliberately inflating the cur- 
rency for the purpose of enabling the nation and the debtor 
classes to pay oft' their debts ! Imagine what would be 
the result of such a proposal ! The Financial and Creditor 
classes would rise in a body and flood the Press with letters 
and articles denouncing such a scheme as barefaced robbery ! 
Deputations would wait upon the Government and demand 
immediate repudiation of such a proposal. And if the scheme 
seemed likely to be put in practice, the country would be 
thrown into a fierce political controversy! 
The danger I have ^^binted out is of course attributable 
largely to the financial ignorance of the average man and par- 
ticularly the average Member of Parliament, who is likely to 
propose as ameans of lowering prices on behalf of the working 
classes, the very measure which will involve not only the 
working classes but the whole of the middle classes iii irre- 
trievable ruin ! The subject at the present time is of the 
utmost national importance. 
NOTE. — The articles on Trade and Finance written by Mr. 
Arthur Kitson for LAND & WATER during the past two years 
have been published in book form under the title "Trade Fallacies," 
published by Messrs. P. S. King and Sons, price 5s. 
