chapter I

have been assuming that you are a capitalist. I am now going to assume that you are perhaps a bit of a gambler. Even if you abhor gambling it is a necessary part of your education in modern social conditions to know how most of it is done. Without such knowledge you might, for instance, marry a gambler after having taken the greatest pains to assure yourself that he had never touched a playing card, sat at a roulette table, or backed a horse in his life, and was engaged solely in financial operations on the Stock Exchange. You might find him encouraging you to spend money like water in one week, and in the next protesting that he could not possibly afford you a new hat. In short, you might find yourself that tragic figure, the gambler’s wife who is not by temperament a gambler.

A page or two ago I dropped a remark about a game played on the Stock Exchange and called Speculation, at which phantom prices are offered for imaginary shares. I will explain this game to you, leaving it to your taste and conscience to decide whether you will shun it or plunge into it. It is by far the most widely practised and exciting form of gambling produced by Capitalism.

To understand it you must know that on the London Stock Exchange you can buy a share and not have to pay for it, or sell a share and not have to hand over the share certificate, until next settling day, which may be a fortnight off. You may not see at first what difference that makes. But a great deal may happen in a fortnight. Just recollect what you have learnt about the continual fluctuations in the prices of incomes and of spare subsistence in the Money Market! Think of the hopes and fears raised by the flourishing and decaying of the joint stock companies as their business and prospects grow or shrink according as the harvests are good or bad: rubber harvests, oil harvests, coal harvests, copper harvests, as well as the agricultural harvests: all meaning that there will be more or less money to divide among the shareholders as yearly income, and more or less spare money available to buy shares with. The prices of shares change not only from year to year but from day to day, from hour to hour, and, in moments of excitement on the Stock Exchange, from minute to minute. The share that was obtained years ago or centuries ago by giving £100 spare money to start a new company may bring its owner £5000 a year, or it may bring her thirty shillings, or it may bring her nothing, or it may bring her all three in succession. Consequently that share, which cost somebody £100 spare money when it was new, she may be able to sell for £100,000 at one moment, for £30 at another, whilst at yet another she may be unable to sell it at all, for love or money. As she opens her newspaper in the morning she looks at the city page, with its list of yesterday’s prices of stocks and shares, to see how rich she is today; and she seldom finds that her shares are worth the same price for a week at a time unless she has been prudent enough to lend it to the Government or to a municipality (in which case she has communal security) instead of to private companies.

Now put these two things together: the continual change in the prices of shares, and the London Stock Exchange rule that they need not be paid for nor delivered until next settling day. Suppose you have not a penny of spare cash in your possession, nor a share (carrying an income) to sell! Suppose you believe for some reason or other that the price of shares in a certain company (call it company A) is going to rise in value within the next few days! And suppose you believe that the price of shares in a certain other company (company B) is going to fall. If you are right, all you have to do to make some money by your good guessing is to buy shares in company A and sell shares in company B. You may say “How am I to buy shares without money or sell them without the share certificates?” It is very simple: you need not produce either the money or the certificates until settling day. Before settling day you sell the A shares for more than you bought them for on credit; and you buy the B certificates for less than you pretended to sell them for. On settling day you will get the money from the people you sold to, and the certificates from the people you bought from; and when you have paid for the A shares and handed over the B certificates, you will be in pocket by the difference between their values on the day you bought and sold them and their values on settling day. Simple enough, is it not?

This is the game of speculation. Nobody will blame you for engaging in it; but on the Stock Exchange they will call you a bull for pretending to buy the A shares, and a bear for pretending to sell the B shares. If you pay a small sum to get shares allotted to you in a new company on the chance of selling them at a profit before you have to pay up, they will call you a stag. If you ask why not a cow or a hind, the reply is that as the Stock Exchange was founded by men for men its slang is exclusively masculine.

But, you may say, suppose my guess was wrong! Suppose the price of the A shares goes down instead of up, and the price of the B shares up instead of down! Well, that often happens, either through some unforeseen event affecting the companies, or simply because you guessed badly. But do not be too terrified by this possibility; for all you can lose is the difference between the prices; and as this may be only a matter of five or ten pounds for every hundred you have been dealing in you can pawn your clothes and furniture and try again. You can even have your account “carried over” to next settling day by paying “contango” if you are a bull, or “backwardation” if you are a bear, on the chance of your luck changing in the extra fortnight.

I must warn you, however, that if a great many other bears have guessed just as you have, and sold imaginary shares in great numbers, you may be “cornered”. This means that the bears have sold either more shares than actually exist, or more than the holders will sell except at a great advance in price. Bulls who are cunning enough to foresee this and to buy up the shares which are being beared may make all the money the bears lose. Cornering the bears is a recognized part of the game of speculation.

As the game is one of knowledge and skill and character (or no character) as well as of chance, a good guesser, or one with private (inside) information as to facts likely to affect share prices, can make a living at it; and some speculators have made and lost princely fortunes. Some women play at it just as others back horses. Sometimes they do it intelligently through regular stockbrokers, with a clear understanding of the game. Sometimes they are blindly tempted by circulars sent out from Bucket Shops; so I had better enlighten you as to what a bucket shop is.

You will remember that a speculator does not stand to lose the whole price she offers for a share, or the whole value of the share she pretends to buy. If she loses she loses only the difference between the prices she expected and the prices she has to pay. If she has a sufficient sum in hand to meet this she escapes bankruptcy. This sufficient sum is called “cover”. A bucket shop keeper is one who undertakes to speculate for anyone who will send him cover. His circulars say, in effect, “Send me ten pounds, and the worst that can happen to you is to lose it; but I may be able to double it for you or even double it many times over. I can refer you to clients who have sent me £10 and got back £50 or £100.” A lady, not understanding the business in the least, is tempted to send him £10, and very likely loses it, in which case she usually tries to get it back by risking another £10 note if she has one left. But she may be lucky and pocket some winnings; for bucket shops must let their clients win sometimes or they could hardly exist. But they can generally prevent your winning, if they choose, by taking advantage of some specially low price of shares to shew that your cover has disappeared, or even by selling two or three shares themselves at a low price and quoting it against you. Besides, if you sue them for your winnings they can escape by pleading the Gaming Act. They cannot be mulcted or expelled by the Stock Exchange Committee; for they are not members of the Stock Exchange, and have given no securities. A bucket shop keeper is not necessarily a swindler any more than a bookmaker is necessarily a welsher; but if he fleeces you you have no remedy, whereas if a stockbroker cheats you it may cost him his livelihood.

If you speculate through a regular stockbroker you must bear in mind that he is supposed to deal in genuine investments only: that is, in the buying of shares by clients who have the money to pay for them, and the sale of shares by those who really possess them and wish to exchange them for a lump sum of spare money. The difference is that if you go into a bucket shop and say frankly “Here is a five pound note, which is all I have in the world. Will you take it as cover, and speculate with it for me in stocks of ten times its value”, the bucket shop will oblige you; but if you say this to a stockbroker he must have you shewn out. You must allow him to believe, or pretend to believe, that you really have the spare money or the shares in which you want to deal.

You will now understand what gambling on the London Stock Exchange means. The game can be played with certain variations, called options and double options and so on, which are as easily picked up as the different hazards of the roulette table; and the foreign stock exchanges have rules which are not so convenient for the bears as our rules; but these differences do not change the nature of the game. Every day speculative business is done in Capel Court in London, on Wall Street in New York, in the Bourses on the Continent, to the tune of millions of pounds; and it is literally only a tune: the buyers have no money and the sellers no goods; and their countries are no richer for it all than they are for the gaming tables at Monte Carlo or the bookmakers’ settlements at the end of a horse race. Yet the human energy, audacity, and cunning wasted on it would, if rightly directed, make an end of our slums and epidemics and most of our prisons in fewer hours than it has taken days of Capitalism to produce them.

54

BANKING

The Stock Exchange is only a department of the money market. The commonest way of hiring money for business purposes is to keep an account at a bank, and hire spare money there when you want it. The bank manager will lend it to you if he feels reasonably sure that you will be able to repay him: in fact that is his real business, as we shall see presently. He may do it by letting you overdraw your account. Or if somebody with whom you are doing business has given you a written promise to pay you a sum of money at some future time (this written promise is called a bill of exchange) and the bank manager thinks the promise will be kept, he will give you the money at once, only deducting enough to pay him for its hire until your customer pays it. This is called discounting the bill. All such transactions are forms of hiring spare money; and when you read in the city articles in the papers that money is cheap or money is dear, it means that the price you have to pay your banker for the hire of spare money is low or high as the case may be.

Sometimes you will see a fuss made because the Bank of England has raised or lowered the Bank Rate. This means that the Bank of England is going to charge more or less, as the case may be, for discounting bills of exchange, because spare money has become dearer or cheaper: that is to say, because spare subsistence has become scarcer or more plentiful. If you are overdrawn at your bank, the announcement that the Bank Rate is raised may bring you a letter from the manager to say that you must not overdraw any more, and that he will be obliged to you if you will pay off your overdraft as soon as possible. What he means is that as spare subsistence has become scarce and dear he cannot go on supplying you with it, and would like you to replace what he has already supplied. This may be very inconvenient to you, and may prevent you from extending your business. That is why there is great consternation and lamentation among business people when the Bank Rate goes up, and jubilation when it goes down. For when the terms on which spare money can be hired at the Bank of England go up, they go up everywhere; so that the Bank Rate is an index to the cost of hiring spare money generally.

And now comes the question, where on earth do the banks get all the spare money they deal in? To the Intelligent Woman who is not engaged in business, or who, if she has a bank account, never overdraws it or brings a bill to be discounted, a bank seems only a place where they very kindly pay her cheques and keep her money safe for her for nothing, as if she were paying them a compliment by allowing them to do it. They will even hire money from her when she has more than enough to go on with, provided she will agree not to draw it out without giving them some days’ notice (they call this placing it on deposit). She must ask herself sometimes how they can possibly afford to keep up a big handsomely fitted building and a staff of respectably dressed clerks with a most polite and sympathetic manager to do a lot of her private business for her and charge her nothing for it.

The explanation is that people hardly ever draw as much money from the bank as they put in; and even when they do, it remains in the bank for some time. Suppose you lodge a hundred pounds in the bank on Monday to keep it safe because you will have to draw a cheque for it on Saturday! That cheque will not be presented for payment until the following Monday. Consequently the bank has your hundred pounds in its hands for a week, and can therefore hire it out for a week for a couple of shillings.

But very few bank transactions are as unprofitable as this. Most people keep their bank accounts open all the year round; and instead of paying in every week exactly what they want to spend and drawing it out again by their cheques as they spend it, they keep a round sum always at their call so as to be ready when they may happen to want it. The poorest woman who ever dreams of keeping a bank account at all is not often driven to draw the last half crown out: when her balance falls as low as that, she knows it is time to put in another pound or two. Indeed it is not every bank that will do business on so small a scale as this: the Governor of the Bank of England would turn blue and order the porters to remove you if you offered him an account of that sort. Bank customers are people some of whom keep £20 continually at call, some £100, some £1000, and some many thousands, according to the extent of their business or the rate at which they are living. This means that no matter how much money they may put into the bank or take out, there always remains in the bank a balance that they never draw out; and when all these balances are added up they come to a huge amount of spare money in the hands of the bank. It is by hiring out this money that the banks make their enormous profits. They can well afford to be polite to you.

And now the Intelligent Woman who keeps a bank account, and most conscientiously never lets her balance fall below a certain figure, may ask in some alarm whether her bank, instead of keeping her balance always in the bank ready for her to draw out if she should need it, actually lends it to other people. The reply is, Yes: that is not only what the bank does, but what it was founded to do. But, the Intelligent Woman will exclaim, that means that if I were to draw a cheque for my balance there would be no money in the bank to pay it with. And certainly that would happen if all the other customers of the bank drew cheques for their balances on the same day. But they never do. “Still”, you urge, “they might.” Never mind: the bank does not trouble about what might happen. It is concerned only with what does happen; and what does happen is that if out of every pound lodged with them the bankers keep about three shillings in the till to pay their customers’ cheques it will be quite sufficient.

Only, please remember that the woman who has a bank account should never frighten the others by letting them know this. They would all rush to the bank and draw out their balances; and when the bankers had paid to the first comers all the three shillingses they had kept, they would stop payment and put up the shutters. This sometimes actually happens when a report is spread that some particular bank is not to be trusted. Something or somebody starts a panic; there is “a run on the bank”; the bank is broken; and its customers are very angry with the directors, clamoring to have them prosecuted and sent to prison, which is unreasonable; for they ought to have known that banks, with all the services they give for nothing, can exist only on condition that their customers do not draw out their balances all on the same day.

Perhaps, by the way, you know some woman who not only always draws her full balance, but overdraws it; so that she is always in debt to the bank. Her case is very simple. The bank lends her the other customers’ money to go on with, and charges her for the hire of it. That sort of business pays them very well.

And now that you know what banking is from the inside, and how the bankers get all the spare money they let on hire, may I remind you again, if I am not too tiresome, that this spare money is really spare subsistence, mainly perishable stuff that must be used at once. One of the greatest public dangers of our day is that the bankers do not know this, because they never handle or store the stuff themselves; and the right to take it away and use it which they sell on the hire system is disguised under the name of Credit. Consequently they come to think that credit is something that can be eaten and drunk and worn and made into houses and railways and factories and so on, whereas real credit is only the lender’s opinion that the borrower will be able to pay him.

Now you cannot feed workmen or build houses or butter parsnips with opinions. When you hear of a woman living on credit or building a house on credit or having a car on credit you may rest assured that she is not doing anything of the kind: she is living on real victuals; having her house built of bricks and mortar by men who are eating substantial meals; and driving about in a steel car full of highly explosive petrol. If she has not made them nor paid for them somebody else has; and all that her having them on credit means is that the bank manager believes that at some future time she will replace them with equally substantial equivalent goods of the same value after paying the bank for waiting meanwhile. But when she goes to the bank manager she does not ask for food and bricks and cars: she says she wants credit. And when the bank manager allows her to draw the money that is really an order for so much food and so many bricks and a car, he says nothing about these things. He says, and thinks, that he is giving her credit. And so at last all the bankers and the practical business men come to believe that credit is something eatable, drinkable, and substantial, and that bank managers can increase or diminish the harvest by becoming more credulous or more sceptical as to whether the people to whom they lend money will pay them or not (issuing or restricting credit, as they call it). The city articles in the papers, the addresses of bank chairmen at the annual shareholders’ meetings, the financial debates in Parliament, are full of nonsensical phrases about issuing credit, destroying credit, restricting credit, as if somebody were shovelling credit about with a spade. Clever men put forward wonderful schemes based on the calculation that when a banker lends five thousand pounds worth of spare subsistence he also gives the borrower credit for five thousand pounds, the five thousand credit added to the five thousand spare subsistence making ten thousand altogether! Instead of being immediately rushed into the nearest lunatic asylum, these clever ones find disciples both in Parliament and in the city. They propose to extend our industries (that is, build ships and factories and railway engines and the like) with credit. They believe that you can double the quantity of goods in the country by changing the cipher 2 into the cipher 4. Whenever a scarcity of spare subsistence forces the Bank of England to raise the Bank Rate they accuse the directors of playing them a dirty trick and preventing them from extending their business, as if the Governor and Company of the Bank of England could keep the rate down any more than the barometer can keep the mercury down in fair weather. They think they know, because they are “practical business men”. But for national purposes they are maniacs with dangerous delusions; and the Governments who take their advice soon find themselves on the rocks.

What is it, then, that really fixes the price you have to pay if you hire ready money from your bank, or that you receive for lending it to the bank (on deposit), or to trading companies by buying shares, or to the Government or the Municipalities? In other words, what fixes the so-called price of money, meaning the cost of hiring it? And what fixes the price of incomes when their owners sell them for ready money in the Stock Exchange?

Well, it depends on the proportion between the quantity of spare subsistence (“saved” money) there may be in the market to be hired, and how much the people who want to use it up are able and willing to pay for the hire of it. On the one hand you have the property owners who are living on less than their incomes and therefore want to dispose of their spare stuff before it goes rotten. On the other are the business men who want what the property owners have not consumed to feed the proletarians whose labor they need to start new businesses or extend old ones. Beside these, you have the spendthrift property owners who have lived beyond their incomes, and must therefore sell the incomes (or part of them) for ready money to pay their debts. Between them all, you get a Supply and Demand according to which spare money and incomes are cheap or dear. The price runs up when the supply runs short or the demand becomes more pressing. It runs down when the supply increases or the demand slackens.

By the way, now that we are picking up the terms Supply and Demand, remember that Demand in the money market sense does not mean want alone: it means only the want that the wanter can afford to satisfy. The demand of a hungry child for food is very strong and very loud; but it does not count in business unless the mother has money to buy food for the child. But with this rather inhuman qualification supply and demand (called “effective demand”) settle the price of everything that has a price.

Banks are safe when they lend their money (or rather yours) judiciously. If they make bad investments, or trust the wrong people, or speculate, they may ruin themselves and their customers. This happened occasionally when there were many banks. But now that the big ones have swallowed up the little ones they are so few and so big that they could not afford to let one another break, nor indeed could the Government. So you are fairly safe in keeping your money at a big bank, and need have no scruple about availing yourself of its readiness to oblige you in many ways, including acting as your stockbroker, borrowing from you at interest (on deposit account), and lending you, though at a considerably higher rate, any ready money for the repayment of which you can offer reasonably satisfactory security.

As we now see why the hiring terms for money vary from time to time, sometimes from hour to hour, let us amuse ourselves by working out what would happen at the banks if the Government, misled by the practical business men, or by the millennial amateurs, were to attempt to raise say £30,000 millions by a tax on capital, and another £30,000 millions by a tax on credit.

The announcement of the tax on credit would make an end of that part of the business at once by destroying all credit. The financial magnate who the day before could raise a million at six or seven per cent by raising his finger would not be able to borrow five shillings from his butler unless the butler let him have it for the sake of old times without the least hope of ever seeing it again.

To pay the tax the capitalists would have to draw out every farthing they had in the bank, and instruct their stockbrokers to sell out all their shares and debentures and Government and municipal stock. There would be such a prodigious demand for ready money that the Governor and Company of the Bank of England would meet at eleven o’clock and resolve, after some hesitation, to raise the Bank Rate boldly to ten per cent. After lunch they would be summoned hurriedly to raise it to a hundred per cent; and before they could send out this staggering announcement they would learn that they might save themselves the trouble, as all the banks, after paying out three shillings in the pound, had stopped payment and stuck up a notice on their closed doors that they hoped to be able to pay their customers the rest when they had realized their investments: that is, called in their loans and sold their stocks and shares. But the stockbrokers would report only one price for all stocks, that price being no pounds, no shillings, and no pence, not even farthings. For that is the price in a market where there are all sellers and no buyers.

When the tax collector called for his money, the taxpayer would have to say “I can get no money for you; so instead of paying the tax on my capital, here is the capital itself for you. Here is a bundle of share certificates which you can sell to the waste paper dealer for a halfpenny. Here is a bundle of bonds payable to bearer which you can try your luck with, and a sheet of coupons which in a few years’ time will be as valuable as rare and obsolete postage stamps. Here is a transfer which will authorize the Bank of England to run its pen through my name in the War Loan register and substitute your own. And much good may they all do you! I must shew you out myself, as my servants are in the streets starving because I have no money to pay their wages: in fact, I should not have had anything to eat myself today if I had not pawned my evening clothes; and precious little the pawnbroker would give me on them, as he is short of money and piled up to the ceiling with evening suits. Good morning.”

You may ask what, after all, would that matter? As nine out of every ten people have no capital and no credit in the financial sense (that is to say, though a shopkeeper might trust them until the end of the week, no banker would dream of lending them a sixpence), they could look on and laugh, crying “Let the rich take their turn at being penniless, as we so often are”. But what about the great numbers of poor who live on the rich, the servants, the employers and employed in the luxury trades, the fashionable doctors and solicitors? Even in the productive trades what would happen with the banks all shut up and bankrupt, the money for wages all taken by the Government, no cheque payable and no bill of exchange discountable? Unless the Government were ready instantly to take over and manage every business in the country: that is, to establish complete nationalization of industry in a thunderclap without ever having foreseen or intended such a thing, ruin and starvation would be followed by riot and looting: riot and looting would only make bad worse; and finally the survivors, if there were any, would be only too glad to fall on their knees before any Napoleon or Mussolini who would organize the violence of the mob and re-establish the old state of things, or as much of it as could be rescued from the chaos, by main force applied by a ruthless dictator.

55

MONEY

You now know more than most people about the money market. But it is not enough to know what settles the value of stocks and shares in spare money from day to day. All money is not spare money. Few of us spend as much on shares as on food and clothes and lodging. Most of us, having no spare money, would as soon dream of buying shooting lodges in Scotland as of investing or speculating on the Stock Exchange; yet we use money. Suppose there were no spare money on earth, what would fix the value of money? What is money?

Take a gold coin for instance. You are probably old enough to remember such things before the war swept them away and substituted bits of paper called Treasury notes; and you may be young enough to live until they come back again. What is a gold coin? It is a tool for buying things in exactly the same sense as a silver spoon is a tool for eating an egg. Buying and selling would be impossible without such tools. Suppose they did not exist, and you wanted to go somewhere in a bus! Suppose the only movable property you had was twenty ducks and a donkey! When the bus conductor came round for the fare you would offer him the donkey and ask for the change in potatoes, or offer him a duck and ask for the change in eggs. This would be so troublesome, and the bargaining so prolonged, that next time you would find it cheaper to ride the donkey instead of taking the bus: indeed there would be no buses because there would be nobody willing to take them, unless buses were communized and fares abolished.

Now it is troublesome to take a donkey about, even when it takes you, but quite easy to carry as much gold as a donkey is worth. Accordingly, the Government cuts up gold into conveniently shaped bits weighing a little over 123 grains of standard gold (22 carat) apiece, to be used for buying and selling. For transactions that are too small to be settled by a metal so costly as gold it provides bronze and silver coins, and makes a law that so many of these coins shall pass as worth one of the gold coins. Then buying and selling become quite easy. Instead of offering your donkey to the bus conductor you exchange it for its worth in coins; and with these in your pocket you can pay your bus fare in two seconds without having any words about it.

Thus you see that money is not only a necessary tool for buying and selling, but also a measure of value; for when it is introduced we stop saying that a donkey is worth so many ducks or half a horse, and say instead that it is worth so many pounds or shillings. This enables accounts to be kept, and makes commerce possible.

All this is as easy as A B C. What is not so easy is the question why the donkey should be worth, say, three-quarters of a sovereign (fifteen bob, it would be called at this price), or, to put it the other way, why fifteen bob should be worth a donkey. All you can say is that a buyer at this price is a person with fifteen shillings who wants a donkey more than she wants the fifteen shillings, and a seller at this price a person with a donkey who would rather have fifteen shillings than keep the donkey. The buyer, though she wants a donkey, does not want it badly enough to give more than fifteen shillings for it; and the seller, though she wants money, will not let the donkey go for less than fifteen; and so they exchange. Their respective needs just balance at that figure.

Now a donkey represents just a donkey and nothing else; but fifteen shillings represents fifteen shillingsworth of anything you like, from food and drink to a cheap umbrella. Any fund of money represents subsistence; but do not forget that though you can eat and drink and wear subsistence, you cannot eat or drink or wear Treasury notes and metal coins. Granted that if you have two shillings the dairyman will give you a pound of butter for it; still, a pound of butter is no more a round piece of metal than a cat is a flat iron; and if there were no butter you would have to eat dry bread, even if you had millions and millions of shillings.

Besides, butter is not always two shillings: it is sometimes two and twopence or even two and sixpence. There are people now living who have bought good fresh butter for fourpence a pound, and complained of its being dear at that. It is easy to say that butter is cheap when it is plentiful, and dear when it is scarce; but this is only one side of the bargain. If ten pounds of butter cost a sovereign on Monday and a sovereign and a quarter on Saturday, is that because there is less butter or more gold?

Well, it may be one or the other or both combined. If the Government were to strike off enough new sovereigns at the Mint to double the number in circulation we should have to pay two sovereigns for ten pounds of butter, not because butter would be scarcer but because gold would be more plentiful. But there is no danger of this happening, because gold is so scarce and hard to get that if the Government turned more of it into sovereigns than were needed to conduct our buying and selling, the superfluous ones would be melted down, and the gold used for other purposes, in spite of the law against it; and this would go on until sovereigns were so scarce that you could get more for gold in the form of sovereigns than in the form of watch chains or bracelets. For this reason people feel safe with gold money: the gold in the sovereign keeps its value for other purposes than buying and selling; and if the worst came to the worst, and the British Empire were annexed by the planet Mars, and only Martian money were current, the sovereigns would still be taken in exchange for as much butter or anything else as before, not as money, but as so much gold; so that the British sovereign would buy as much as a Martian gold sovereign of equal weight.

Suppose, however, you had a dishonest Government! Suppose the country and its Mint were ruled by a king who was a thief. Suppose he owed large sums of money, and wished to cheat his creditors. He could do it by paying in sovereigns which were made of lead, with just gold enough in them to make them look genuine. Henry the Eighth did it less crudely by giving short weight in silver coins; and he was not the only ruler who played the same trick when pressed for money. When such frauds are discovered prices go up and wages follow them. The only gainers were those who, like the king, had borrowed heavy money and were paying it in light; and what they gained the creditors lost. But it was a low trick, damaging English as well as royal credit, as all English debtors were inextricably and involuntarily engaged in the swindle as deeply as the king.

The moral is that a dishonest ruler is one of the greatest dangers a nation has to dread. People who do not understand these things make a great fuss because Henry married six wives and had very bad luck with most of them, and because he allowed the nobles to plunder the Church. But we are far more concerned today with his debasement of the coinage; for that is a danger that is hanging over our own heads. Henry’s trick is now played not only by kings, but by republican governments with Socialist majorities and by the Soviets of proletarian States, with the result that innocent women, provided comfortably for by years of self-denial on the part of their parents in paying insurance premiums, find themselves starving; pensions earned by lifetimes of honorable and arduous service lose their value, leaving the pensioners to survive their privations as castaways survive in a boat at sea; and enormous fortunes are made without the least merit by A, B, and C, whilst X, Y, and Z, without the least fault, go bankrupt. The matter is so serious and so menacing that you must summon all your patience while I explain it more particularly.

At present (1927) we do not use sovereigns. We use bits of paper, mostly dirty and smelly, with the words _One Pound_ printed in large letters on them, and a picture of the Houses of Parliament on the back. There is also a printed notice that the bit of paper is a currency note, and that by Act of Parliament IV and V Geo. V, ch. XIV, if you owe anyone a pound you can pay him by handing him the bit of paper, which he must accept as a full discharge of your debt to him whether he likes or not.

Now there is no use pretending that this bit of paper which you can pass as a pound is worth anything at all as paper. It is too small and too crowded with print and pictures to be usable for any of the uses to which paper can be put, except that of a short title deed to a poundsworth of goods. Yet there is no law to prevent the Government, which owes 7700 million pounds to its creditors, from printing off 7700 millions of these one pound Treasury notes, and paying off all its home creditors with them, even though a thousand of them would not buy a cigarette.

You may say that this is too monstrous to be possible. But it has been done, and that quite recently, as I know to my cost. The German Government did it after the war when the conquerors, with insane spite, persisted in demanding sums of money that the Germans had not got. The Austrian Government did it. The Russian Government did it. I was owed by these countries sums sufficient to support me for the rest of my days; and they paid me in paper money, four thousand million pounds of which was worth exactly twopence halfpenny in English money. The British Government thought it was making Germany pay for the war; but it was really making me and all the other creditors of Germany pay for it. Now as I was a foreigner and an alien enemy, the Germans probably do not feel very sorry for me. But the same occurred to the Germans who were owed German money, whether by foreigners or by other Germans. Merchants who had obtained goods for bills payable in six months paid those bills with paper Marks and thus got the goods for nothing. Mortgages on land and houses, and debentures and loan stocks of every redeemable sort, were cleared off in the same way. And one very unexpected result of this was that German employers, relieved of the burden of mortgages and loans such as the English employers were bearing, were able to undersell the English even in the English market. All sorts of extraordinary things happened. Nobody saved money, because its value fell from hour to hour: people went into a restaurant for a five million lunch, and when they came to pay found that the price had gone up to seven millions whilst they were eating. The moment a woman got a scrap of money she rushed to the shops to buy something with it; for the thing she bought would keep its usefulness, but the money that bought it, if she kept it until tomorrow, might not purchase half so much, or a tenth so much, or indeed anything at all. It was better to pay ten million marks for a frying-pan, even if you had two frying-pans already, than to buy nothing; for the frying-pan would remain a frying-pan and fry things (if you had anything to fry) whatever happened; but the ten million marks might not pay a tram fare by five o’clock the same evening.

A still better plan in Germany then was to buy shares if you could get them; for factories and railways will keep as well as frying-pans. Thus, though people were in a frantic hurry to spend their money, they were also in a frantic hurry to invest it: that is, use it as capital; so that there was not only a delusive appearance of an increase in the national capital produced by the simple expedient of calling a spare loaf of bread fifty thousand pounds, but a real increase in the proportion of their subsistence which people were willing to invest instead of spending. But however the money was spent, the object of everyone was to get rid of it instantly by exchanging it for something that would not change in value. They soon began to use foreign money (American dollars mostly); and this expedient, eked out with every possible device for doing without money altogether by bartering, tided them over until the Government was forced to introduce a new gold currency and leave the old notes to be thrown into the waste paper basket or kept to be sold fifty years hence as curiosities, like the famous assignats of the French Revolution.

This process of debasement of the currency by a Government in order that it may cheat its creditors is called by the polite name, which few understand, of Inflation; and the reversal of the process by going back to a currency of precious metal is called Deflation. The worst of it is that the remedy is as painful as the disease, because if Inflation, by raising prices, enables the debtor to cheat the creditor, Deflation, by lowering them, enables the creditor to cheat the debtor. Therefore the most sacred economic duty of a Government is to keep the value of money steady; and it is because Governments can play tricks with the value of money that it is of such vital importance that they should consist of men who are honest, and who understand money thoroughly.

At present there is not a Government in the world that answers fully to this description. Between our own Government, which took advantage of the war to substitute Treasury notes for our gold currency, and the German and Russian Governments, which issued so many notes that a vanload of them would hardly buy a postage stamp, the difference is only one of degree. And this degree was not in the relative honesty of Englishmen, Russians, and Germans, but in the pressure of circumstances on them, and consequently of temptation. Had we been defeated and forced to pay impossible sums to our conquerors, or momentarily wrecked as Russia was by the collapse of the Tsardom, we should not have been any honester; for though the doubling of prices that occurred here seems to have been caused by scarcity of goods and labor rather than by an excessive issue of paper money, we still treat with great respect as high financial authorities gentlemen who recommend Inflation as a means of providing industry with additional capital. Whether these gentlemen really believe that we could double our wealth by simply printing twice as many Treasury notes, or whether they owe so much money that they would be greatly relieved if only they could be let pay it in paper pounds worth only ten shillings, is not always easy to guess. But if you catch your Parliamentary representative advocating Inflation, and ask him, at the risk of being told that you are no lady, whether he is a fool or a rogue, you will give him a salutary shock, and force him to think for a moment instead of merely grabbing at the illusion of enriching the nation by calling a penny twopence.

And now, if you agree with me that it is the duty of a Government to keep the value of its money always as nearly as possible at the same level, we are both up against the question, “What level?” Well, you may take it as a rule of thumb that the answer always is the existing level, unless it has been tampered with and has wobbled badly, in which case the easiest answer is “Whatever level it had before it began to wobble”. But if you want a real explanation and not a mere rule of thumb, you must think of coins and notes as useful articles which you carry about because without them you cannot take a bus or a taxi or a train, or buy a bun. There must be enough of them to supply you and all the other people who have purchases to make. In short, coins and notes are like needles or shovels; and their value is settled in the same way. If the manufacturers make ten times as many needles as anyone wants, then their needles will fetch nothing as needles, because no woman will pay anything for the one needle she wants if there are nine lying about to be had for nothing. So all that can be done is to take the nine worthless needles and use the steel in them to make something else (say steel pens), after which there will be no longer any useless needles, and the remaining useful ones will be worth at least what it cost to make them, because sempstresses will want them badly enough to be willing to pay that price. An intelligent community will try to regulate the supply of needles so as to keep their value at that level as nearly as possible. A Capitalist community, on the contrary, will regulate it so as to make needles yield the utmost profit to the capitalist. But anyhow the value will depend on the quantity available.

Now just as a needle is for sewing, and is of no legitimate use for anything else, so coins and notes are for enabling people to buy and sell, and no use for anything else. And one coin will do for many sales as it passes from hand to hand, just as one needle will do to hem many handkerchiefs. This makes it very difficult to find out how many needles and coins are wanted. You cannot say “There are so many handkerchiefs in the country which must be hemmed; so we will make a needle for every one of them”, or “There are so many loaves of bread to be sold every morning; so we will make coins or issue notes for the price of every one of them”. No person or Government on earth can say beforehand how many needles or coins will be enough. You can count the mouths you have to feed, and say how many loaves will be required to fill them, because a slice of bread can be eaten only once, and is destroyed by being eaten; but a needle or a sovereign or a Treasury note can be used over and over again. One pound may be lying in an old stocking until the landlord calls for it, whilst another may be changing hands fifty times a day and effecting a sale every time. How then is a Government to settle how many coins and notes it shall issue? And how is a needle manufacturer to decide how many needles he shall make?

There is only one way of doing it. The needle makers just keep on making needles at a fancy price until they find they cannot sell them all without charging less for them; and then they go on charging less and less, but selling more and more (because of the cheapness), until the price is so low that they would make less profit if it went any lower, after which they make no more needles than are necessary to keep the supply, and consequently the price, just at that point. The Government has to do the same with gold coins. At first, because gold is more useful for coins than for anything else, an ounce of gold coined into sovereigns will be worth more than an ounce of uncoined gold (called bar or bullion). But if the Government issues more sovereigns than are needed for our buying and selling there will be more sovereigns than are wanted; and their value per ounce of gold will fall below that of gold bullion. This will be shewn by all prices going up, including that of gold in bars and ingots. The result will be that gold merchants will find it profitable to melt down sovereigns into bars of gold to be made into watches and bracelets and other things than coins. But this melting down reduces the number of sovereigns, which immediately begin to rise in value as they become scarcer until gold in the form of sovereigns is worth as much as gold in any other form. In this way, as long as money consists of gold, and melting down cannot be prevented as soon as it becomes profitable, the value of the coinage fixes and maintains itself automatically. It is against the British law to melt down a British sovereign in the British Empire; but as this silly law cannot restrain, say, a Dutch goldsmith in Amsterdam from melting down as many British sovereigns as he pleases, it does not count.

Though this settles the value of gold money, and all prices can be fixed in terms of gold, a penny being the two hundred and fortieth part of a sovereign, half a crown the eighth part of a sovereign, and so on, yet you cannot have gold pennies or even sixpences: they would be too small to handle. Also, if you want to make or receive a payment of five thousand pounds, you would find five thousand sovereigns more than you would care to carry. We get out of the penny and sixpenny difficulty by using coins of bronze and silver, making a law that bronze pennies shall be accepted, provided not more than twelve are offered at a time, as worth the two hundred and fortieth part of a sovereign, and that silver coins shall pass up to £2. We get over the five thousand pound difficulty by allowing the Bank of England to issue promissory notes, payable at sight in gold at the Bank, for sums of five pounds, ten pounds, a hundred pounds, and so on. People hand these notes from one to another in buying and selling, knowing them to be “as good as gold”. Certain Scottish and Irish banks have the same privilege on condition that they hold sufficient gold in their cellars to redeem the notes when presented, and, of course, that they do not pay their debts in their own notes.

In this way we all get used to paper money as well as to bronze and silver coins: that is, we get used to pretending that a scrap of paper with a water mark is worth 615 grains of gold or thereabouts; that a bit of metal that is only half silver is worth a much larger piece of pure silver; that 240 bits of bronze are worth a sovereign, and so on. We find these cheap substitutes do just as well as gold coins; and we naturally begin to ask what is the use of having any gold money at all, seeing that we get on quite well without it. Paper is just as effective as an instrument of exchange, and much less heavy to handle. We measure prices in quantities of gold; but imaginary gold does for that as well as real gold, just as you can measure fluids by pints and quarts without having a drop of beer in the house. If only the honesty of Governments could be depended on, the use of gold for money would be a pure luxury, like using gold safety pins and diamond shirt studs instead of common ones, which fasten quite as well.

But that is a very large If. When there is a genuine gold currency, the purchasing power of the coins does not depend on the honesty of the Government: they are valuable as precious metal, and can be turned to other purposes if the Government issues more of them than are needed for buying and selling. But the Government can go on printing and issuing paper money until it is worthless. Where should it stop when the check of gold is removed? As we have seen, it should stop the moment there is any sign of a general rise of prices, because the only thing that can cause a general rise of prices is a fall in the value of money. This or that article may become cheaper by the discovery of new ways of making it, or dearer by a failure in the crops, or worthless by a change of fashion; but all the articles do not move together from these causes: some rise and others fall. When they all rise or fall simultaneously, then it is not the articles that are changing in value but the money. In a paper money country the Government should watch carefully for such movements; and when prices all rise together they should withdraw notes from circulation until prices all fall again. When all prices fall simultaneously the Government should issue fresh notes until they rise again. What is needed is just enough money to do all the ready money selling and buying in the country. When less is issued money gets a scarcity value; so that when you go into a grocer’s shop he will give you more for your money (falling prices); and when more is issued there is a glut of it and the grocer will give less for it (rising prices). The business of an honest and understanding Government is to keep it steady by adjusting the supply to the demand. When Governments are either dishonest or ignorant, or both, there is no safety save in a currency of precious metal.

Remember, by the way, that modern banking makes it possible to do an enormous quantity of business without coinage or notes or money of any sort. Suppose Mrs John Doe and Mrs Richard Roe are both in business. Suppose Mrs Doe sells Mrs Roe five hundred pounds’ worth of goods, and at the same time buys goods from her to the value of five hundred pounds and one penny. They do business to the amount of a thousand pounds and one penny; yet all the money they need to settle their accounts is the odd penny. If they keep their accounts at the same bank even the penny is not necessary. The banker transfers a penny from Mrs Doe’s account to Mrs Roe’s; and the thing is done. When you have to pay a business debt you do not give your creditor the money: you give him an order on your banker for it (a cheque); and he does not go to your bank and cash the cheque: he gives it to his own banker to collect. Thus every bank finds every day that it has to pay a heap of money to other banks which hold cheques on it for collection, and at the same time to receive a heap of money for the cheques it has received for collection from the other banks. These cheques taken together may amount to hundreds of thousands of pounds, yet the difference between the ones to be paid and the ones to be collected may be only a few pounds or less. So the banks began by setting up a Clearing House, as they call it, to add up all the cheques and find out what each bank ought to pay or receive on balance. This saved a great deal of money handling, as the transfer of a single pound from one bank to another would settle transactions involving huge sums. But it presently occurred to the banks that even this pound might be saved if they all kept an account at the same bank. So the banks themselves opened accounts at the Bank of England; and now their accounts with oneanother are settled by a couple of entries in the Bank of England’s books; and trade to the amount of millions and millions is done by pure figures without the use of coinage or notes. If we were all well enough off to have banking accounts money might disappear altogether, except for small transactions between strangers whose names and addresses were unknown to oneanother: for instance, you give an order and pay by a cheque in a shop because you can count on finding the shopkeeper in the same place if there is anything wrong with the goods; and he can count on finding you similarly if there is anything wrong with your cheque; but if you take a taxi on the way home, you can hardly expect the driver to open an account for you; so you settle with him by handing him his fare in coin.

This need for pocket money (change) is greatly reduced by Communism. In the days of turnpike roads and toll bridges every traveller had to keep a supply of money to pay tolls at every turnpike gate and bridge head. Now that the roads and bridges are communized he can travel by road from London to Aberdeen in his car without having to put his hand in his pocket once to pay for the roads, because he has already paid when taking out the communal license for his car. If he pays his hotel bills by cheque he needs no money for his journey except for tips; and when these fall into disuse, as the old custom of making presents to judges has done, it is easy to conceive motoring trips, in the Communist future, being carried out in the greatest luxury by highly prosperous but literally penniless persons.

In this way actual money is coming to be replaced more and more by money of account: that is, we still count our earnings and our debts in terms of money, and value our position in the same way, earning hundreds of pounds, paying hundreds of pounds, owning hundreds of poundsworth of furniture and clothes and motor cars, and yet never having more than a few pounds and a handful of silver in our pockets from one end of our lives to the other. The cost of providing coins and notes for the nation to buy and sell with is dwindling continuously to a smaller and smaller percentage of the value of the goods bought and sold.

It may amuse you to realize that when coinage disappears altogether it does not matter whether we call our debts sovereigns and pennies and shillings or millions and billions and trillions. When the Germans were paying millions for tram fares and postage stamps, no harm was done by the apparent magnitude of the price: poor men could still ride in trams and send letters. If only those prices could have been depended on to stay put, so that the poor man (or the rich one for that matter) could have felt sure that his million mark note would buy as much tomorrow as today, and as much next year as this year, it would not have inconvenienced him in the least that the million mark note used to be a bronze coin. Germany has now stabilized her currency at the old rate of twenty marks to the English pound. Austria stabilized hers at first at the startling rate of 300,000 tenpences to the English pound but had to alter this to 34½ sevenpenny schillings later on. Except for the look of the thing the change made no great difference to the marketing housekeeper. When prices are in millions she soon gets into the habit of dropping the six noughts in conversation across the counter. Such prices seem silly to us because we are not accustomed to millionaire scavengers and beef at billions a pound. We are accustomed to pounds worth 160 ounces of butter; but pounds worth half a grain of butter or ten tons of butter will do as long as they are stabilized at that, and as long as the money is either money of account, existing only as ink marks in ledgers, or paper notes of no intrinsic value. If a tram ticket costs a million pounds it can be paid more cheaply than by a penny, provided the million pounds be only a scrap of paper costing less than a disk of bronze.

To sum up, the most important thing about money is to maintain its stability, so that a pound will buy as much a year hence or ten years hence or fifty years hence as today, and no more. With paper money this stability has to be maintained by the Government. With a gold currency it tends to maintain itself even when the natural supply of gold is increased by discoveries of new deposits, because of the curious fact that the demand for gold in the world is practically infinite. You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.

56

NATIONALIZATION OF BANKING

You now know enough about banking and the manufacture of money to understand that they are necessities of civilization. They are in some respects quite peculiar businesses. Banking heaps up huge masses of capital in the banker’s hands for absolutely nothing but the provision of a till to put it in, and clerks to keep an account of it. Coinage is useless without a Government guarantee of the genuineness of the coins, and a code of laws making it a serious crime for any private person to make counterfeit coins, besides settling the limits within which coins that are stamped with more than their value as metal (called token coinage) can be used for paying debts.

As it is impossible for any private person or company to fulfil these coinage conditions satisfactorily, the manufacture of money is a nationalized business, unlike the manufacture of boots. You do not see a mint in every street as you see a bootmaker’s. All the money is made in THE Mint, which is a Government factory of coins. If, in your disgust at the disagreeable white metal shillings which have been substituted since the war for the old silver ones, you were to set up a private mint of your own, you would be sent to prison for coining, even though you could prove that your nice shillings were worth more than the nasty ones of the Government. Formerly, if you had a quantity of gold, you could take it to the Mint, and have it made into sovereigns for you at a small charge for the King’s image and guarantee called seignorage; but you were not allowed to make the coins for yourself out of your own gold. Today the Mint will not do that for you because it is easier for you to give your gold to your banker, who will give you credit for its worth in money. Thus the whole business is as strictly nationalized as that of the Post Office. Perhaps you do not know that you can be prosecuted for carrying a letter for hire instead of giving it to the Postmaster-General to carry. But you can, just as you can be prosecuted for making a coin, or for melting one down. And nobody objects. The people who, when it is proposed to nationalize the coal mines and the railways, shriek into your ears that nationalization is robbery and ruin, are so perfectly satisfied with the nationalization of the Mint that they never even notice that it is nationalized, poor dears!

However, private persons can issue a currency of their own, provided it is not an imitation of the Government currency. You may write a cheque, or a bill of exchange, and use it as paper money as often as you please; and no policeman can lay a finger on you for it provided (_a_) that you have enough Government money at your bank to meet the cheque when it is presented for payment, and (_b_) that the piece of paper on which your cheque is printed, or your bill of exchange drawn, bears no resemblance to a Treasury note or a bank note. An enormous volume of business is done today by these private currencies of cheques and bills of exchange. But they are not money: they are only title deeds to money, just as money itself is only a title deed to goods. If you owe money to your grocer he may refuse to take a cheque in payment; but if you offer him Treasury notes or sovereigns, he must take them whether he likes them or not. If you are trading with a manufacturer, and offer him a bill of exchange pledging you to pay for his goods in six months, he may refuse it and insist on Government money down on the nail. But he may not refuse Government money. Your offer of it is “legal tender”.

Besides, money, as we have seen, is a measure of value; and cheques and bills are not. The cheques and bills would have no meaning and no use unless they were expressed in terms of money. They are all for so many pounds, shillings, and pence; and if there were no pounds, shillings, and pence in the background, a cheque would have to run “Pay to Emma Wilkins or Order two pairs of secondhand stockings, slightly laddered, my share of the family Pekingese dog, and half an egg”. No banker would undertake to pay cheques of that sort. Both cheques and banking depend on the existence of nationalized money.

Banking is not yet nationalized; but it will be, because the public gain from nationalization will lead people to vote for it when they understand it just as they will vote for nationalization of the coal mines. Business people need capital to start and extend their businesses just as they need coal to warm themselves. As we have seen, when they want hundreds of thousands they get them by paying enormous commissions to financiers, who are so spoiled by huge profits that they will not deign to look at what they regard as small business. Those who want tens of thousands are not catered for: and those who want modest hundreds are often driven to borrow from money lenders at high rates of interest because the bank manager does not think it worth the bank’s while to let them overdraw. If you could shew these traders a bank working not to make profits at the expense of its customers but to distribute capital as cheaply as possible for the good of the country to all the businesses, large or small, which needed it, they would rush to it and snap their fingers at the profiteering financiers. A national or municipal bank would be just that. It would bring down the price of capital just as nationalization of the coal mines would bring down the price of coal, by eliminating the profiteer; and all the profiteers except the money profiteers (financiers and bankers) will be finally converted to it by this prospect, because, though they aim at making as much profit as possible out of you when you go shopping, they are determined that other people shall make as little profit as possible out of them.

Nationalization of Banking therefore needs no Socialist advocacy to recommend it to the middle class. It is just as likely to be finally achieved by a Conservative Government as by a Labor one. The proof is that the first municipal bank has been established in Birmingham, which returns twelve members to Parliament of whom eleven are Conservatives, and strong ones at that. Only one is Labor. The Birmingham municipal bank has been so easily and brilliantly successful that unless it be deliberately sabotaged in the interests of the financiers by a press campaign against it, which is practically impossible in a city of manufacturers, it will lead to a development of municipal banking all over the manufacturing districts. Already there are several others.

Meanwhile the bankers and financiers continue to assure us that their business is such a mysteriously difficult one that no Government or municipal department could deal with it successfully. They are right about the mystery, which is due to the fact that they only half understand their own business, and their customers do not understand it at all. By this time I hope you understand it much better than an average banker. But the difficulty is all nonsense. Let us see again what a bank has to do.

By simply offering to keep people’s money safe for them, and to make payments out of it for them to anyone they choose to name (by cheque), and to keep a simple cash account of these payments for them, it gets into its hands a mass of spare money which it professes to keep at its customers’ call, but which it finds by experience it can hire out to the extent of about sixteen shillings in the pound because each customer keeps a balance to his credit all the time. There is no mystery or difficulty about this. It can be done by government or municipal banks as easily as petty banking, with its currency of postal notes and stamps, is done by our national post offices and savings banks. The only part of it that is not automatically successful is the hiring out of the money when it is paid in. A bank manager whose judgment was bad would very soon get his bank into difficulties by hiring out the spare money to traders who are in a bad way, either because their businesses were being superseded by new businesses, or because they were too honest, or not honest enough, or extravagant, or drunken, or lazy, or not good men of business, or poetically unfitted to succeed. But a manager who was too cautious to lend any money at all would be still more disastrous; for we must continually remember that the things represented by the spare money in the bank will not keep, and that if fifty billions’ worth of food were saved out of the year’s harvest and lodged in a State bank (or any other bank) it would be a dead loss and waste if it were not eaten pretty promptly by workers building up facilities for producing future harvests. The bank manager can choose the person to whom he lends the bank’s spare money; but he cannot choose not to lend it at all; just as a baker, when he has sold all the bread he can for ready money, must either give credit for the rest to somebody or else throw the loaves into the dustbin.

Only, there is this difference between the baker and the banker. The baker can refrain from baking more loaves than he can reasonably expect to sell; but the banker may find himself heaped up with far more spare money than he can find safe hirers for; and then he has not only to take chances himself, but to tempt tradesmen by low rates of hire to take them (“the banks are granting credit freely” the city articles in the papers will say), whereas at other times his spare money will be so short that he will pick and choose and charge high interest (“the bankers are restricting credit”); and this is why it takes more knowledge and critical judgment to manage a bank than to run a baker’s shop.

No wonder the bankers, who make enormous profits, and consequently have the greatest dread of having these cut off by the nationalization of banking, declare that no Government could possibly do this difficult work of hiring out money, and that it must be left to them, as they alone understand it! Now, to begin with, they neither understand it nor do it themselves. Their bad advice produced widespread ruin in Europe after the war, simply because they did not understand the rudiments of their business, and persisted in reasoning on the assumption that spent capital still exists, and that credit is something solid that can be eaten and drunk and worn and lived in. The people who do the really successful work of hiring out the heaps of spare money in the bank for use in business are not the bankers but the bank managers, who are only employees. Their position as such is not more eligible either in money or social standing than that of an upper division civil servant, and is in many respects much less eligible. They would be only too glad to be civil servants instead of private employees. As to the superior direction which deals with what may be called the wholesale investment of the banked spare money as distinguished from its retail hirings to ordinary tradesmen and men of business, the pretence that this could not be done by the Treasury or any modern public finance department is a tale for the marines. The Bank of England is as glad to have a former Treasury official on its staff as the London Midland and Scottish Railway to have a former civil servant for its Chairman.

57

COMPENSATION FOR NATIONALIZATION

By the way, when demonstrating the need for the nationalization of banking to you I did not forget that you may be a bank shareholder, and that your attention may have been distracted by your wonder as to what will become of your shares when the banks are nationalized. I have had to consider this question rather closely myself, because, as it happens, my wife is a bank shareholder. We might have to cut down our household expenses if everyone went to a national or municipal bank instead of to her bank. In fact, when banking is nationalized, private banking will probably be made a crime, like private coining or letter carrying. So we shall certainly insist on the Government buying her shares when it nationalizes banking.

The Government will buy them willingly enough, for the excellent reason that it will get the money by taxing all capitalists’ incomes; so that if my wife were the only capitalist in the country the transaction would be as broad as it was long: the Government would take from her with one hand what it gave her with the other. Fortunately for her there are plenty of other capitalists to be taxed along with her; so that instead of having to provide all the money to buy herself out, she will have to provide only a little bit of it; and all the little bits that the other capitalists will have to provide will go into her pocket. This transaction is called Compensation.

It is very important that you should grasp this quaint process which seems so perfectly fair and ordinary. It explains how Governments compensate without really compensating, and how such compensation costs the nation nothing, being really a method of expropriation. Just consider. If the Government purchases a piece of land or a railway or a bank or a coal mine, and pays for it out of the taxes, it is evident that the Government gets it for nothing: it is the taxpayers who pay. And if the tax is a tax like the income tax, from which the bulk of the nation is wholly or partially exempt, or the supertax and estate duties, which fall on the capitalist classes only, then the Government has compelled the capitalist class to buy out one of themselves and present her property to the nation without any compensation whatever. The so-called compensation is only an adjustment by which the loss is shared by the whole capitalist class instead of being borne wholly by the particular member of it whose piece of land or bank shares or other property the Government happens to want. Even that member pays her share of the tax without compensation.

Some ladies may find this clearer if an imaginary case is put before them in figures. Suppose the Government wants a piece of land of the market value of £1000! Suppose it raises that sum, not by taxing the nation, but by taxing the incomes of a hundred rich landlords, including the owner of the piece of land, making each of them contribute £10! The Government then takes the piece of land, and solemnly hands £1000 to its former owner, telling him that he has nothing to complain of, as he has been paid the full market value of his land instead of having had it wrested from him violently in a revolutionary manner, as the Bolshevists took the land from the Russian landlords in 1917. Nothing can be more reasonable and constitutional and customary; the most Conservative Government might do it; in fact (except for the substitution of all the landlords for a hundred selected ones) Conservative Governments have done it over and over again. None the less, at the end of the transaction a piece of land has passed from private property into national property; and a hundred landlords have had their incomes reduced by ten shillings a year each (the interest on £10 at 5 per cent). It is quite clear that if such a transaction is repeated often enough the nation will have all the land, and the incomes of the landlords will be reduced to nothing, although every acre has been bought from its owner at full market price. The process can be applied to bank shares or any other shares as easily as to acres.

Let me repeat that this is not something that may be done: it is something that has been done and is being done. It has gone so far already that a huge quantity of property formerly owned by private persons is now owned by the Government and the municipalities: that is, by the nation; whilst taxation has risen to such a point that the rich have to remind themselves continually that their pounds are only thirteen-and-fourpences or less, because the Government will take the other six and eightpence or more as income tax and supertax, and that even out of the thirteen and fourpence the municipalities of the places where their houses are (rich men keep from two to five houses) will take a considerable dollop in rates for pure Communism. At present they are selling their houses in all directions to speculators and contractors who have made large fortunes out of inflation and War; but these New Rich will in their turn be forced to buy oneanother out just as the Old Rich, now called the New Poor, were.

In this way you get the constitutional rule for nationalization of private property, which is, always to pay the full market price or more to the proprietors for every scrap of property nationalized. Pay for it by taxing incomes derived from property (there is, of course, no compensation for taxation). Your own rule as a voter should be never to vote for a candidate who advocates expropriation without compensation, whether he calls himself a Socialist or Communist, in which case he does not understand his own political business, or a Liberal. The Liberal impulse is almost always to give a dog a bad name and hang him: that is, to denounce the menaced proprietors as enemies of mankind, and ruin them in a transport of virtuous indignation. But Liberals are not, as such, hostile to capitalists, nor indeed to anybody but publicans and imaginary feudal landlords. Conservatives are practically always for compensation to property owners; and they are right; but they do not see through the trick of it as you now do.

Anyhow, always vote against the no-compensation candidate unless you are opposed to nationalization, and are subtle enough to see that the surest way to defeat it is to advocate its being carried out vindictively without a farthing of compensation.

There is, however, an alternative to compensated nationalization of private industries. Why should not the Government set up for itself in the industry it desires to nationalize, and extinguish its private competitors just as the big multiple shops extinguish the small shops, by underselling them, and by all the other methods of competitive trade? The Birmingham municipality has begun the nationalization of banking without troubling itself about the private banks: it has simply opened its bank in the street and gone ahead. The parcel post was established without any compensation to private carriers; and the Cash on Delivery development of it was effected without any consideration for the middlemen whom it superseded. Private employers have always proceeded in this manner on competitive principles; why should not the State, as public employer, do just the same?

The reason is that the competitive method is an extremely wasteful one. When two bakeries are set up in a district that could be quite well served by one, or two milk carts ply in the same street, each trying to snatch the other’s custom, it means that the difference between the cost of running two and one is sheer waste. When a woman wears out her hat, or rather when the hatmakers change the fashion so as to compel her to buy a new hat before the one she is wearing is half worn out, and fifty shops make new hats on the chance of selling that one to her, there is overproduction, with its sequel of unemployment.

Now apply this to, for example, the nationalization of railways. The Government could, no doubt, construct a network of State railways parallel with the existing railways; so that you could go from London to Penzance either by the Great Western or by a new State line running side by side with it. The State could then, by introducing the system of Penny Transport proposed by Mr Whately Arnold on the lines of Penny Postage, undersell the separate private companies and take all their traffic from them. That would be the competitive method. Then there would be two railways to Penzance and Thurso and Bristol and Cromer and everywhere else, one of them carrying nearly all the traffic, and the other carrying only its leavings and holiday overflows until it fell into hopeless and dangerous decay and ruin.

But can you imagine anything more idiotically wasteful? The cost of making the competing State railway would be enormous, and quite unnecessary. The ruin of the private railway would be sheer destruction of a useful and sufficient means of communication which had itself cost a huge sum. The land occupied by one of the railways would be wasted. What Government in its senses would propose such a thing when it could take over the existing railways by compensating the shareholders in the manner I have described: that is, distributing their loss over the propertied class without a farthing of expense to the nation as a whole?

The same considerations must lead the State to take over the existing banks. Municipal banks on the Birmingham model may be competing banks; but when a national banking service comes, it will come by way of nationalizing the existing private banks.

There is another objection to the competitive method. If the State is to compete with private enterprise, it must allow private enterprise to compete with it. Now this is not practicable if the full advantage of nationalization is to be obtained. The Post Office is able to establish a letter service and C.O.D. parcel post in every village in the country, and a telephone and telegraph service in most of them, with charges reckoned in pence and halfpence, on condition that profiteers are not allowed to come in and pick out the easy bits of the business to exploit for themselves. The Postmaster-General does things for the nation that no profiteer would or could do; but his rule is All or Nothing.

A Banker-General would have to insist on the same rule. He would establish banks, if not literally everywhere, at least in hundreds of places where the private banks would no more dream of opening a branch, even on the open-once-a-week scale, than of building a Grand Opera House. But he, too, would say “All or Nothing: I will not have any intelligent Jewish gentleman, or rapacious Christian person trained in the intelligent Jewish gentleman’s office, picking the plums out of my pudding”.

Yet do not conclude that all State activities will be State monopolies. Indeed the nationalization of banking will certainly enlarge the possibilities of private activity in all sorts of ways. But as the big public services will have to be made practically ubiquitous, charging more than they cost in one place and less in another, they must be protected against sectional private competition. Otherwise we should have what prevails at present in municipal building, where all the lucrative contracts for the houses of the rich and the offices of the capitalists and the churches and institutions and so forth go to the private employer, whilst the municipality may build only dwellings for the poor at a loss, which they conceal from the ratepayers by fictitious figures as to the value of the land. Municipal building is always insolvent. If it had a monopoly it could afford to make every town in the land a ratepayers’ and tenants’ paradise.

This reminds me to remind you that every nationalization of an industry or service involves the occupation of land by the State. This land should always be nationalized by purchase and compensation. For if it is merely rented, as I am sorry to say it sometimes is, the charges made to the public must be raised by the amount of the rent, thus giving the ground landlord the money value of all the advantages of the nationalization.

I have said nothing about one of the cruelest effects of superseding an industry by competition instead of buying it up. The process consists fundamentally of the gradual impoverishment and ruin of those who are carrying on the superseded business. Capitalism is ruthless on this point: its principle is “Each for himself; and devil take the hindmost!” But the State has to consider the loser as well as the winner. It must not impoverish anybody. It must let the loser down easily; and there is no other way of doing this except the way of purchase and compensation.

58

PRELIMINARIES TO NATIONALIZATION

You now see that nationalization and municipalization are so desirable as a means of cheapening the things we all need that the most violently anti-Socialist Parliaments and municipal corporations have established nationalized and municipalized industries in the past, and are quite likely to do so in future under electoral pressure from Conservative voters. You see also that the alleged enormous expense of buying out private owners, which has been alleged by a Coal Commission as an insuperable objection to the nationalization of our coal mines, is a bogey, because, though the coalowners (of whom, by the way, I am one) will be fully compensated, the proprietary class as a whole will pay the bill out of their unearned incomes, leaving the nation richer instead of poorer by the transaction. So far so good. Theoretically, nationalization is perfectly sound.

Practically, it takes, as the people very accurately put it, a lot of doing. A mere proclamation that such and such an industry is nationalized can do nothing but just put a stop to it. Before any industry or service can be effectively nationalized a new department of the Civil Service must be created to carry it on. Unless we had a War Office we could not have an army, because no soldier could get his pay, or his uniform, or his weapons. Without an Admiralty, no navy. Without a General Post Office and a Postmaster-General, no letters in the morning. Without a Royal Mint and a Master of the Mint, no money. Without Scotland Yard in London, and Watch Committees in the country, no police. And as in the present so in the future. Without a great extension of the Treasury, banking cannot be nationalized, nor coal without the creation of a Department of Mines much bigger than our existing Department of Woods and Forests, nor railways without a Railway Board and a Railroadmaster-General as important as the Post Office and the Postmaster-General.

Such institutions can be set up by stable and highly organized States only, which means--and here is the political moral of it--that they cannot be done by revolutions, or by improvised dictatorships, or even by permanent States in which, as in America, where in some cases the civil services are still regarded as the spoils of office, a new set of officials oust the old ones whenever the Opposition ousts the Government. What a revolution can do towards nationalization is to destroy the political power of the class which opposes nationalization. But such a revolution by itself cannot nationalize; and the new Government it sets up may be unable even to carry on the nationalized services it finds in existence, and be obliged to abandon them to private enterprise.

A nationalizing Government must also be financially honest, and determined to make the nationalization a success, and neither plunder it to eke out the general revenue, nor discredit and wreck it so to have an excuse for giving the nationalized service back to the private profiteers. State railways have sometimes been standing examples of what State management can be at its worst. The Governments, instead of keeping the railways in proper repair, grabbed all the money paid by the public in fares and freightage; applied it to the relief of general taxation; and let the stations and rolling stock decay until their railways were the worst in the world, and there was a general clamor for their denationalization. Private profiteering enterprises have gone to pieces in the same way and worse; but, as they have been responsible to themselves only, their failures and frauds have passed unnoted, whilst the failures and frauds of Governments have raised great popular agitations and even provoked revolutions. The misdeeds of Governments are public and conspicuous: the misdeeds of private traders are practically invisible; and thus an illusion is created that Governments are less honest and efficient than private traders. It is only an illusion; but all the same, honesty and good faith are as necessary in nationalized businesses as in private ones. Our British nationalized services are held up as models of integrity; yet the Postmaster-General overcharges us a little for our letters, and puts the profit into the pockets of the propertied class in the form of reduced income tax; and the Admiralty is continually fighting against the tendency to keep down taxation by starving the navy. These depredations do not amount to much; but they illustrate what may be done when voters are not vigilant and well instructed.

59

CONFISCATION WITHOUT COMPENSATION

Our study of nationalization by compensated or distributed confiscation has no doubt relieved you from all anxiety as to the need for nationalization without compensation. But there is always a loud-mouthed, virtuously indignant political group, still saturated with the revolutionary traditions of Liberalism, which opposes compensation. If the property owner is, in effect, a thief, they say, why should he be compensated for being compelled to cease to do evil and learn to do well? If by taxation we can make the whole capitalist class find the money to buy out the coalowners, and thus transfer their property to the nation to that extent, why not take the rest of their property simply for the sake of transferring it also to the nation? Our joint stock companies work as well with one set of shareholders as with another: in fact their shares change hands so continually in the Money Market that they never have the same set of shareholders from one working day to the next. If all the railway shares in the country were held on Monday by the inhabitants of Park Lane, and on Tuesday by the British Government, the railways would go on just the same. In like case so would any other of the great industrial services now in joint stock ownership. If a landlord had to hand over the title-deeds of half a dozen farms and an urban street to the Exchequer, the farmers would go on farming, and the tenants go on living in the street, unaffected by the obligation to pay their rents in future to an agent of the Government instead of to the agent of a duke or any other plutocrat. The business of a bank would proceed just as smoothly after as before the owners had handed over their claims on its profits to the Chancellor of the Exchequer. Then why not at once push taxation of capital to the point at which the capitalist taxpayer, unable to find the money, will be forced to surrender to the Government his share certificates, his War Loan interest, and his title-deeds? The share certificates would not be worth a farthing on the Stock Exchange, because there would be all sellers and no buyers there; but none the less each certificate would, like the title-deeds to the land, carry the right to an income out of the future harvests of the country; and if the Government could immediately use that income for the benefit of the nation, it would be extremely well worth its while to get hold of it by accepting the certificates at their face value.

It could even do so with a show of generosity; for it could say to the capitalist, “You owe the tax collector a thousand pounds (say); but instead of selling you up we are authorizing him to give you a clean receipt, not for the money, but for ten paper certificates marked a hundred pounds each, for which the cleverest stockbroker in London could not get you twopence”. “But”, exclaims the cornered capitalist, “what becomes of my income? What am I to do for a living?” “Work for it, as others have to do”, is the reply. In short, from the point of view of its Socialist advocates, taxation of capital, though absurd as a means of raising ready money for the expenses of Government, is a way of confiscating without compensation the title-deeds of, and thereby nationalizing, the land and the mines and the railways and all the other industries which the capitalists now hold as their private property.

The scheme is plausible enough.

60

REVOLT OF THE PARASITIC PROLETARIAT

But there is an objection to it; and that objection may be learnt from the stupidest woman you ask in the street. She will tell you that you must not take away the property of the rich, because “they give employment”. Now, as we have seen, it is quite true that fundamentally it is nonsense to say that an unproductive rich person can give employment in any other sense than as a lunatic gives employment to her keeper. An idle rich woman can give no productive employment: the employment she gives is wasteful. But wasteful or not, she gives it and pays for it. She may not have earned the money she pays with; but it will buy as good bread and clothes for her employee as the most honestly earned money in the kingdom. The idler is a parasite: and the idler’s employee, however industrious, is therefore a parasite on a parasite; but if you leave the parasite destitute you leave the parasite’s parasites destitute; and unless you have productive employment ready for them they will have to starve or steal or rebel; and as they will certainly not choose to starve, their choice of the remaining two alternatives (which they will probably combine) may upset the Government if they are numerous enough. And they are, as a matter of fact, very numerous, as you may see by counting the Conservative votes that are given at every General Election by people who work for weekly wages in wholly or partly parasitic occupations. The plunder of the proletariat is shared handsomely by the plunderers with the proletarians. If our capitalists could not plunder our proletarians, our proletarians and their middle class organizers, from the Bond Street art dealers and jewellers to the errand boys of Bournemouth, could not live on the custom of our capitalists. That is why neither Bond Street nor Bournemouth can be persuaded to vote for uncompensated expropriation, and why, if it came to fighting instead of voting, they would fight against it.

The trouble would begin, not with the nationalized industries, but with the others. As we have seen, the mines and banks and railways, being already organized as going concerns, and managed by directors elected by the votes of the shareholders, could be confiscated by taxing the shareholders heavily enough to oblige them to transfer their shares to the Government in payment of the tax. But the income derived from these shares would therefore go into the pocket of the Government instead of into the pockets of the shareholders. Thus the purchasing power of the shareholders would pass to the Government; and every shop or factory that depended on their custom would have to shut up and discharge all its employees. The saving power of the shareholders, which means, as we now understand, the power of supplying the spare money needed for starting new industrial enterprises or extending old ones to keep pace with civilization, would also pass to the Government. These powers, which must be kept in action without a moment’s interruption, operate by continual expenditure (mainly household expenditure) and continual investment of the enormous total of all our private incomes.

What could the Government do with that total? If it simply dropped it into the national till, and sat on it, most of it would perish by natural decay; and meanwhile a great many of the people would perish too. There would be a monster epidemic of bankruptcy and unemployment. The tide of calamity would sweep away any Government unless it proclaimed itself a Dictatorship, and employed, say, a third of the population to shoot down another third, whilst the remaining third footed the bill with its labor. What could the Government do to avert this, short of handing back the confiscated property to the owners with apologies for having made a fool of itself?

61

SAFETY VALVES

It could distribute the money in doles; but that would only spread the very evil the confiscation was intended to destroy: that is to say, the evil of unearned income. A much sounder plan (and do not forget this when next you are tempted to give a spare £5 note to a beggar instead of putting it on deposit at your bank) would be to throw all the money into the confiscated banks, and lend it to employers at unprecedentedly cheap rates. Another expedient would be to raise wages handsomely in the confiscated industries. Another, the most desperate of all, but by no means the least probable, would be to go to war, and waste on the soldier the incomes formerly wasted on the plutocrat.

These expedients do not exclude oneanother. Doles, cheap capital available in Government-owned banks, and high wages, could be resorted to simultaneously to redistribute purchasing power and employing power. The doles and pensions would tide over the remaining years of those discharged servants of the ruined rich who were incapable of changing their occupations, and of the ruined rich themselves. The cheap capital at the banks would enable employers to start new businesses, or modify old ones, and to cater for the increased purchasing power of the workers whose wages had been raised, thereby giving employment to the workers who had lost their jobs in Bournemouth or Bond Street. The art dealers could sell pictures to the National Gallery and the provincial municipal galleries. There would be a crisis: but what of that? Capitalism has often enough produced displacements of purchasing power and loss of livelihood to large bodies of citizens, and fallen back on doles in the shape of Mansion House Funds and the like as safety valves to ease the pressure when the unemployed began to riot and break windows. Why should we not muddle through as we have always done?

Well, we might. But serious as the biggest crises of Capitalism have been, they have never been as big as the crash that would follow confiscation by the Government of the entire property of the whole propertied class without any preparation for the immediate productive employment not only of the expropriated owners (who are too few to give much trouble) but of the vast parasitic proletariat who produce their luxuries. Would the safety valves act quickly enough and open widely enough? We must examine them more closely before we can judge.

A civilized country depends on the circulation of its money as much as a living animal depends on the circulation of its blood. A general confiscation of private property and its incomes would produce an unprecedented congestion in London, where the national Treasury is, of money from all over the kingdom; and it would become a matter of life or death for the Government to pump that congested money promptly back again to the extremities of the land. Remember that the total sum congested would be much larger than under the capitalist system, because, as the capitalists spend much more of their incomes than they save, the huge amount of this expenditure would be saved and added to the Government revenue from the confiscated property.

Now for the safety valves. A prodigious quantity of the congested money would come from the confiscated ground rents of our cities and towns. The present proprietors spend these rents where they please; and they seldom please to spend them in the places where they were produced by the work of the inhabitants. A plutocrat does not decide to live in Bootle when he is free to live in Biarritz. The inhabitants of Bootle do not get the benefit of his expenditure, which goes to the west end of London and to the pleasure resorts and sporting grounds of all the world, though perhaps a little of it may come back if the town manufactures first class boots and riding breeches and polo mallets. The dwellers in the town enjoy a good deal of municipal communism; but they have to pay for it in rates which are now oppressively heavy everywhere. And they would be heavier still if the Government did not make what are called Grants-in-Aid to the municipalities.

An obvious safety valve, and a popular one with the ratepayers, would be the payment of the rates by the Treasury through greatly increased grants. If you are a ratepaying householder, and your landlord were suddenly to announce that in future he would pay the rates, you would rejoice in the prospect of having that much more money to spend on yourself. A similar announcement by the Chancellor of the Exchequer would be equally welcome. It would relieve the congestion at the Treasury, and send a flood of money back from the heart to the extremities.

Then there is the combination of raised wages in the confiscated industries with a flood of cheap capital pumped to all the business centres through the confiscated banks. The raised wages would check the flow of income to the Treasury by reducing dividends; and the cheapening of capital would enable new businesses to be started and old ones re-equipped to meet the demand created by the increased purchasing power (pocket money) of the wage workers and the disburdened ratepayers.

And there is always a good deal to be done in the way of public expenditure on roads; on reclamations of land from the sea; on afforestation; on building great dams across valleys and barrages across rivers and tideways to concentrate waterflow on turbine engines; on stations for the distribution of the power thus gained; on the demolition of slum towns that should never have been built, and their replacement by properly planned, healthy and handsome garden cities; and on a hundred other things that Capitalism never dreams of doing because it is impossible to appropriate their advantages as commercial profit. The demand for labor created by such operations would absorb all the employable unemployed, and leave only the superannuated and the incurably unemployable on the dole, with, of course, the children, on whom much more money could and should be spent than at present, with great uncommercial profit to the next generation.

All this sounds very reassuring, and costs little to describe on paper. But a few minutes’ reflection will dispel all hope that it could occur instantly and spontaneously through the uncompensated transfer of all existing shares and title-deeds to the Government. The Ministry of Health would have to produce a huge scheme for the grants-in-aid to the cities; and Parliament would wrangle for months over it. As to glutting the existing banks with spare money to lend without any further interference with them, the results would include an orgy of competitive enterprise, overcapitalization, overproduction, hopeless shops and businesses started by inexperienced or silly or rash people or people who are all three: in short, a boom followed by a slump, with the usual unemployment, bankruptcies, and so forth. To keep that part of the program under control, it would be necessary to set up a new department of the Treasury to replace the present boards of predatory company directors; to open banks wherever the post offices are doing substantial business; and to staff the new banks with specially trained civil servants. And all that would take longer than it takes a ruined citizen to starve.

As to raising industrial wages and reducing prices with the object of eliminating profit, that is so precisely the contrary of the policy which the existing managers of our industry have trained themselves to pursue, and which alone they understand, that their replacement by civil servants would be just as necessary as in the case of the banks. Such replacements could be effected only as part of an elaborate scheme requiring long preliminary cogitation and a practical preparation involving the establishment of new public departments of unprecedented magnitude.

Public works, too, cannot be set on foot offhand in the manner of Peter the Great, who, when asked to dictate the route to be taken by his new road from Moscow to Petrograd, took up a ruler and drew a straight line on the map from the word Moscow to the Neva. If Peter had had to get a proposal for a turbine barrage through a parliament with a fiery Welsh contingent determined that it should be across the Severn, and an equally touchy Scots contingent bent on having it across the Kyle of Tongue, he would have found many months slipping by him before he could set the first gang of navvies to work.

I need not weary you by multiplying instances. Wholesale nationalization without compensation is catastrophic: the patient dies before the remedy has time to operate. If you prefer a mechanical metaphor, the boiler bursts because the safety valves jam. The attempted nationalization would produce a revolution. You may say “Well, why not? What I have read in this book has made me impatient for revolution. The fact that any measure would produce a revolution is its highest recommendation”.

If that is yours view, your feelings do you credit: they are or have been shared by many good citizens. But when you go thoroughly into the matter you will realize that revolutions do not nationalize anything, and often make it much more difficult to nationalize them than it would have been without the revolution if only the people had had some education in political economy. If a revolution were produced by unskilled Socialism (all our parliamentary parties are dangerously unskilled at present) in the teeth of a noisy and inveterate Capitalist Opposition, it would produce reaction instead of progress, and give Capitalism a new lease of life. The name of Socialism would stink in the nostrils of the people for a generation. And that is just the sort of revolution that an attempt to nationalize all property at a blow would provoke. You must therefore rule out revolution on this particular issue of out-and-out uncompensated and unprepared general nationalization versus a series of carefully prepared and compensated nationalizations of one industry after another.

Later on, we shall expatiate a little on what revolutions can do and what they cannot. Meanwhile, note as a canon of nationalization (economists like to call their rules for doing anything canons) that all nationalizations must be prepared and compensated. This will be found an effectual safeguard against too many nationalizations being attempted at a time. We might even say against more than one nationalization being attempted at a time; only we must not forget that industries are now so amalgamated before they are ripe for nationalization that it is practically impossible to nationalize one without nationalizing half a dozen others that are inextricably mixed up with it. You would be surprised to learn how many other things a railway company does besides running trains. And if you have ever gone to sea in a big liner you have perhaps sometimes looked round you and wondered whether the business of making it was called shipbuilding or hotel building, to say nothing of engineering.

62

WHY CONFISCATION HAS SUCCEEDED HITHERTO

Now that I have impressed on you at such length as a canon of nationalization that Parliament must always buy the owners out and not simply tax them out, I am prepared to be informed that the canon is dead against the facts, because the direct attack on property by simple confiscation: that is, by the Government taking the money of the capitalists away from them by main force and putting it into the public treasury, has already, without provoking reaction or revolution, been carried by Conservative and Liberal Governments to lengths which would have seemed monstrous and incredible to nineteenth century statesmen like Gladstone, proving that you can introduce almost any measure of Socialism or Communism into England provided you call it by some other name. Propose Socialistic confiscation of the incomes of the rich, and the whole country will rise to repel such Russian wickedness. Call it income tax, supertax, and estate duties, and you can lift enough hundreds of millions from the pockets of our propertied class to turn the Soviet of Federated Russian Republics green with envy.

Take a case or two in figures. Gladstone thought it one of his triumphs as Chancellor of the Exchequer to reduce the income tax to twopence in the pound, and hoped to be able to abolish it altogether. Instead of which it went up to six shillings in 1920, and stopped at that only because it was supplemented by an additional income tax (Supertax or Surtax) on the larger incomes, and a partial abolition of inheritance which makes the nation heir to a considerable part of our property when we die possessed of any. Just imagine the fuss there would have been over this if it had been proposed by a Socialist Prime Minister as Confiscation, Expropriation, and Nationalization of Inheritance on the Communist principles of the prophet Marx! Yet we took it lying down.

You have perhaps not noticed how this taxation is arrived at in Parliament at present. The Chancellor of the Exchequer is the Minister who has to arrange the national housekeeping for the year, and screw out of a reluctant House of Commons its consent to tax us for the housekeeping money; for with the negligible exception of the interest on certain shares in the Suez Canal and in some ten companies who had to be helped to keep going during the war the nation has no income from property. Whom he will be allowed to tax depends on the sort of members who have been returned to Parliament. Without their approval his Budget, as he calls his proposals for taxation, cannot become law; and until it becomes law nobody can be compelled to pay the taxes. In Gladstone’s time Parliament consisted practically of landlords and capitalists and employers, the handful of working class members being hopelessly outvoted by the other three sections combined, or even single. Each of these sections naturally tried to throw as much of the burden of taxation as possible on the others; but all three were heartily agreed in throwing on the working class as much of it as they could without losing too many working class votes at the next election. Therefore the very last tax they wished to sanction was the income tax, which all of them had to pay directly, and which the wage workers escaped, as it does not apply to small incomes. Thus the income tax became a sort of residual tax or last resort: an evil to be faced only when every other device for raising money had been found insufficient. When Gladstone drove it down from sixpence to fourpence, and from fourpence to twopence, and expressed his intention of doing without it altogether, he was considered a very great Chancellor of the Exchequer indeed. To do this he had to raise money by putting taxes on food and drink and tobacco, on legal documents of different kinds, from common receipts and cheques and contracts to bills of exchange, share certificates, marriage settlements, leases and the like. Then there were the customs, or duties payable on goods sent into the country from abroad. The industrial employers, who were great importers of raw materials, and wanted food to be cheap because cheap food meant low wages, said “Let them come in free, and tax the landlords”. The country gentlemen said “Tax imports, especially corn, to encourage agriculture”. This created the great Free Trade controversy on which the Tories fought the Liberals for so many years. But both parties always agreed that income tax should not be imposed until every other means of raising the money had been exhausted, and that even then it should be kept down to the lowest possible figure.

When Socialism became Fabianized and began to influence Parliament through a new proletarian Labor Party, budgeting took a new turn. The Labor Party demanded that the capitalists should be the first to pay, and not the last, and that the taxation should be higher on unearned than on earned incomes. This involved a denial of the need for keeping Government expenditure and taxation down to the lowest possible figure. When taxation consists in taking money away from people who have not earned it and restoring it to its real earners by providing them with schools, better houses, improved cities, and public benefits of all sorts, then clearly the more the taxation the better for the nation. Where Gladstone cried “I have saved the income tax payers of the country another million. Hurrah!” a Labor Chancellor will cry “I have wrung another million from the supertaxed idlers, and spent it on the welfare of our people! Hooray!”

Thus for the last fifteen years we have had a running struggle in Parliament between the Capitalist and Labor parties: the former trying to keep down the income tax, the supertax, the estate duties, and public expenditure generally, and the latter trying to increase them. The annual debates on the Budget always turn finally on this point, though it is seldom frankly faced; and the capitalists have been losing bit by bit until now (in the nineteen-twenties) we have advanced from Gladstone’s income tax of 2d. in the pound to rates of from four to six shillings, with, on incomes exceeding £2000, surtaxes that range from eighteen pence to six shillings according to the amount of the income; whilst on the death of a property owner his heirs have to hand over to the Government a share of the estate ranging from one per cent of its fictitious capital value when it is a matter of a little over £100, to forty per cent when it exceeds a couple of millions.

That is to say, if your uncle leaves you five guineas a year you have to pay the Government seventy-three days income. If he leaves you a hundred thousand a year you pay eight years income, and starve for the eight years unless you can raise the money by mortgaging your future income, or have provided for it by insuring your life at a heavy premium for the nation’s benefit.

Now suppose this income of a hundred thousand a year belongs to an aristocratic family in which military service as an officer is a tradition which is practically obligatory. In a war it may easily happen, as it did sometimes during the late war, that the owner of such a property and his two brothers next in succession are killed within a few months. This would bring the income of £100,000 a year down to £12,000, the difference having been confiscated by the Government. If we were to read in The Morning Post that the Russian Soviet had taken £78,000 a year from a private family without paying a penny of compensation, most of us would thank heaven that we were not living in a country where such Communistic monstrosities are possible. Yet our British anti-Socialist Governments, both Liberal and Conservative, do it as a matter of routine, though their Chancellors of the Exchequer go on making speeches against Socialistic confiscation as if nobody outside Russia ever dreamt of such a thing!

That is just like us. All the time we are denouncing Communism as a crime, every street lamp and pavement and water tap and police constable is testifying that we could not exist for a week without it. Whilst we are shouting that Socialistic confiscation of the incomes of the rich is robbery and must end in red revolution, we are actually carrying it so much further than any other fully settled country that many of our capitalists have gone to live in the south of France for seven months in the year to avoid it, though they affirm their undying devotion to their native country by insisting that our national anthem shall be sung every Sunday on the Riviera as part of the English divine service, whilst the Chancellor of the Exchequer at home implores heaven to “frustrate their knavish tricks” until he can devise some legal means of defeating their evasions of his tax collectors.

But startling from the Victorian point of view as are the sums taken annually from the rich, they have not in the lump gone beyond what the property owners can pay in cash out of their incomes, nor what the Government is prepared to throw back into circulation again by spending it immediately. They have transferred purchasing power from the rich to the poor, producing minor commercial crises here and there, and often seriously impoverishing the old rich; but they have been accompanied by such a development of capitalism that there are more rich, and richer rich, than ever; so that the luxury trades have had to expand instead of contract, giving more employment instead of less. And they have proved that you may safely confiscate income derived from property provided you can immediately redistribute it. But you cannot tax it to extinction at a single mortal blow. You have always to consider most carefully how far and how fast you can go without crashing. The rule that the Government must not tax at all until it has an immediate use for the money it takes is fundamental: it holds in every case. The rule that if it uses it to nationalize an already established commercial industry or service it must have a new public department ready to take the business over, and must compensate the owners from whom it takes it, is also invariable. When the object is not nationalization, but simple redistribution of income within the capitalist system by transferring purchasing power from one set of people to another, usually from a richer set to a poorer set, thus changing the demand in the shops from dear luxuries to comparatively cheap necessities, then the process must go no faster than the capitalist shops can adapt themselves to this change. Else it may produce enough bankruptcies to make the Government very unpopular at the next election.

Let us study a sensational instance in which we have incurred a heavy additional burden of unearned income, so strongly resented by the mass of the people that our Governments, whether Labor or Conservative, may not long be able to resist the demand for its redistribution.

63

HOW THE WAR WAS PAID FOR

In 1914 we went to war. War is frightfully expensive and frightfully destructive: it results in a dead loss as far as money is concerned. And everything has to be paid for on the nail; for you cannot kill Germans with promissory notes or mortgages or national debts: you must have actual stores of food, clothing, weapons, munitions, fighting men, and nursing, car driving, munition making women of military age. When the army has worn out the clothes and eaten up the food, and fired off the munitions, and shed its blood in rivers, there is nothing eatable, drinkable, wearable, or livable-in left to shew for it: nothing visible or tangible but ruin and desolation. For most of these military stores the Government in 1914-18 went heavily into debt. It took the blood and work of the young men as a matter of course, compelling them to serve whether they liked it or not, and breaking up their businesses, when they had any, without compensation of any kind. But being a Capitalist Government it did not take all the needed ready money from the capitalists in the same way. It took some of it by taxation. But in the main, it borrowed it.

Naturally the Labor Party objected very strongly to this exemption of the money of the rich from the conscription that was applied ruthlessly to the lives and livelihoods and limbs of the poor. Its protests were disregarded. The spare subsistence needed to support the soldiers and the workers who were producing food and munitions for them, instead of being all taken without compensation by taxation, was for the most part hired from capitalists, their price being the right to take without working, for every hundred pounds worth of spare subsistence lent, five pounds a year out of the future income of the country for waiting until the hundred pounds they put down was repaid to them in full.

Roughly, and in round figures, what happened was that the National Debt of 660 millions owing in 1914 from former wars was increased by the new war to over 7000 millions. Until we are able to repay this in full we have to pay more than 350 millions a year to the lenders for waiting; and as the current expenses of our civil services (300 millions), with our army, our navy, our air force, and all the other socialized national establishments, come to more than as much again, the Chancellor of the Exchequer has now to budget for more than two millions a day, and get that out of our pockets as best he can. And as it is no use asking the proletarians for it at a time when perhaps a million or so of them are unemployed, and have to be supported out of the taxes instead of paying any, he has to make the property holders contribute, in income tax, supertax, and estate duties, over 380 millions a year: that is, a million and fifty thousand a day, or more than half the total taxation. This is confiscation with a vengeance.

Does it strike you that there is something funny about this business of borrowing most of the 7000 millions from our own capitalists by promising to pay them, say 325 millions a year whilst they are waiting for repayment, and then taxing them to the tune of 382 millions a year to pay not only their own waiting money but that of the foreign lenders as well? They are paying over 50 millions a year more than they are getting, and are therefore, as a class, losing by the transaction. The Government pays them with one hand, and takes the money back again, plus over 17 per cent interest, with the other. Why do they put up with it so tamely?

The explanation is easy. If the Government took back from each holder of War Loan exactly what it had paid him plus three and sixpence in the pound, all the holders would very promptly cry “Thank you for worse than nothing: we will cancel the debt; and much good may it do you”. But that is not what happens. The holders of War Loan Stock are only a part of the general body of property owners; but all the property owners have to pay income tax and death duties, and, when their income exceeds £2000, supertax. Those who did not lend money to the Government for the war get nothing from it. Those who did lend get the 325 millions a year all to themselves; but their liability for the taxation out of which it is paid is shared with all the other property owners. Therefore, though the property owners as a whole lose by the transaction, those property owners who hold War Loan Stock gain by it at the expense of those who do not. The Government not only robs capitalist Peter to pay capitalist Paul, but robs both of more than it pays to Paul; yet though Peter and Paul taken together are poorer, Paul taken by himself is richer, and therefore supports the Government in the arrangement, whilst Peter complains that the burden of taxation is intolerable.

To illustrate, my wife and I are capitalists, but I hold some War Loan stock, whilst all her money is in bank, railway, and other stocks. We are both taxed equally to pay me the interest on my War Loan; but as the Government pays me that interest and does not pay her anything, I gain by the transaction at her expense; so that if we were not, as it happens, on the communal footing of man and wife, we should never agree about it. Most capitalists do not understand the deal, and are in effect humbugged by it; but those who do understand it will never be unanimous in resisting it; consequently it is voteproof at the parliamentary elections.

This quaint state of things enables the Labor Party to demonstrate that it would pay the propertied class, as a whole, to cancel the National Debt, and put an end to the absurdity of a nation complaining that it is staggering under an intolerable burden of debt when as a matter of fact it owes most of the money to itself. The cancellation of the debt (except the fraction due to foreigners) would be simply a redistribution of income between its citizens without costing the nation, as a whole, a single farthing.

The plan of raising public money by borrowing money from capitalists instead of confiscating it by direct taxation is called funding; and lending money to the Government used to be called putting it in the Funds. And as the terms of the borrowing are that the lender is to have an income for nothing by waiting until his money is repaid, we get the queer phenomenon of lenders who, instead of being anxious to get their money back, dread nothing more; so that the Government, in order to get the loans, has actually to promise that it will not pay back the loan before a certain date, the further off the better. According to Capitalist morality people who live on their capital instead of on interest (as the payment for waiting is called) are spendthrifts and wasters. The capitalist must never consume his spare subsistence himself even when it is of a kind that will keep until he is hungry again. He must use it to purchase an income; and if the purchaser stops paying the income and repays the sum lent him, the lender must not spend that sum, but must immediately buy another income with it, or, as we say, invest it.

This is not merely a matter of prudence: it is a matter of necessity; for as investing capital means lending it to be consumed before it rots, it can never really be restored to the investor. Investing it means, as we have seen, allowing a body of workmen to eat it up whilst they are engaged in preparing some income producing concern like a railway or factory; and when it is once consumed no mortal power can bring it back into existence. If you do a man or a company or a Government the good turn of letting them use up what you can spare this year, he or she or they may do you the good turn of letting you have an equivalent if they can spare it twenty years hence, and pay you for waiting meanwhile; but they cannot restore what you actually lend them.

The war applied our spare money, not to a producing concern but to a destroying one. In the books of the Bank of England are written the names of a number of persons as the owners of capital to the value of 7000 million pounds. They are said in common speech to be “worth 7000 millions”. Now they are in fact “worth” nothing at all. Their 7000 millions have long since been eaten, drunk, worn out, or blown to smithereens, along with much other valuable property and precious lives, on battle-fields all over the world. We are therefore in the ridiculous position of pretending that our country is enriched by property to the value of 7000 millions when as a matter of fact it is impoverished by having to find 350 fresh millions a year for people who are not doing a stroke of work for her in return: that is, who are consuming a huge mass of wealth without producing any. It is as if a bankrupt, asked if he has any assets, should reply proudly, “Oh no: I have made ducks and drakes of all my assets; but then I have a tremendous lot of debts”. The 7000 millions of capital standing in the names of the stockholders in the Bank of England is not wealth, it is debt. If we flatly repudiated it, the nation would be richer not only by 350 millions a year, but by the work the stockholders would have to do to support themselves when their incomes were cut off. The objection to repudiating it is not that it would make the nation poorer, but that repudiation would seem a breach of contract after which nobody would ever lend money to the Government again. Besides, the United States, which lent us a thousand millions of it, might distrain on us for that amount by force of arms. Therefore we protest that nothing would induce us to commit such an act of cynical dishonesty. But that does not prevent us, as far as the debt is due to our own capitalists, from paying them honestly with one hand, and forcibly taking back the money plus seventeen per cent interest with the other.

By the way, lest somebody should come along and assure you that these figures are inaccurate, and that I am not to be trusted, I had better warn you that the figures are in round numbers; that they vary from year to year through paying off and fluctuation of values; that the thousand millions borrowed from America were lent by us to allies of whom some cannot afford to pay us at all, and others, who can, are trying how little we can be induced to take; that the rest of the money was raised through the banks in such a way that indignant statisticians have proved that we accepted indebtedness for nearly twice what we actually spent; that the rise in the market price of hiring spare money must have enriched the capitalists more than the war taxation impoverished them: in short, that the simplicity of the case can be addled by a hundred inessential circumstances when the object is to addle and not to elucidate. My object being elucidatory, I have left them all out, as I want to shew you the nest, not the hedge.

The point is that the war has produced an enormous consumption of capital; and instead of this consumption leaving behind it an addition to our industrial plant and means of communication and other contrivances for increasing our output of wealth, it has effected a wholesale destruction of such things, leaving the world with less income to distribute than before. The fact that it has swept away three empires, and substituted republicanism for monarchy as the prevalent form of government in Europe, thus bringing Europe into line with America as a republican continent, may seem to you to be worth the money; or, as this is not in the least what was intended by the British or any other of the belligerent Powers, it may seem to you a scandalous disaster. But that is a matter of sentiment, not of economics. Whether you regard the political result with satisfaction or dismay, the cost of the war remains the same, and so does the effect of our way of paying it on the distribution of our national income. We are all heavily taxed to enable that section of the capitalist class which invested in War Loan for five per cent interest (a high rate considering the security), to draw henceforth a million a day from the fruits of our daily labor without contributing to them. True, we take that much, and more, back from the whole capitalist class by taxation; so that what really happens is a redistribution of income among the capitalists, leaving the proletariat rather better off than worse, though unfortunately it is not the sort of redistribution that makes for equality of income or discredit of idleness. But it illustrates the point of this chapter, which is that a virtual confiscation of capital to the amount of thousands of millions proved perfectly feasible when the Government had employment in the shape of national service, even in work of destruction, instantly ready for an unlimited number of proletarians, male and female. Those had been halcyon days but for the bloodshed.

64

NATIONAL DEBT REDEMPTION LEVIES

Although the taxation of capital is nonsensical, it does not follow that every proposal presented to you in that form must necessarily be impracticable. It is true that the Government, if it wants ready money, can obtain it only by confiscating income; but this does not rule out operations for which no ready money is required, nor does it prevent the Government from taking not only the income of a proprietor, but the source of his income: that is, his property, as well. To take a possibility that is quite likely to become a fact in your experience, suppose the Government were driven to the conclusion that the National Debt, or some part of it, must be wiped out, either because the taxation needed to pay the interest of it is hampering capitalist enterprise, which would be a Conservative Government’s reason, or for the sake of redistributing income more equally, which would be a Socialist Government’s reason! To pay off what we have borrowed from America, or from foreigners of any nationality, would need ready money; and therefore the simple wiping out of this part of the national debt would be impossible except by flat repudiation, which would destroy our credit abroad and probably involve us in a war of distraint. But that part of the debt which we owe to ourselves could be wiped out without a farthing of ready money by a tax presented and assessed as a tax on capital, or rather a levy on capital (to indicate that it was not to be an annual tax but only a once-in-a-way tax). Take the war debt as an illustration of the possibility of a total wipe-out. Let us suppose for the sake of simplicity that as much of the National Debt as the Government owes to its own subjects is £100, all lent to it by one woman (call her Mary Anne) for the war, and, of course, long since spent and blown to bits, leaving nothing behind but the obligation of the Government to pay Mary Anne £5 a year out of the taxes. Imagine also that there is only one other capitalist in the country (say Sarah Jane), whose property consists of £100 from stocks and land yielding an income of £5 a year. That is, Sarah Jane owns the entire industrial plant of the country; and Mary Anne is the sole domestic (as distinguished from foreign) national creditor. The Chancellor of the Exchequer brings in a tax of 100 per cent on capital, and demands £100 from Sarah Jane and £100 from Mary Anne. Neither of them can pay £100 ready money out of their £5; but Sarah Jane can hand over all her share certificates to the Government; and the Government can transfer Mary Anne’s War Loan of £100 to itself. Mary and Sarah, left destitute, will have to work for their livings; and all the industrial plant of the country will have passed into the hands of the Government; that is, been nationalized.

In this transaction there is no physical impossibility, no selling of worthless shares for non-existent ready money, no rocketing of the Bank Rate, nothing but simple expropriation. The fact that the £200 at stake are really thousands of millions, and that there are many Marys and many Sarahs, each with her complement of Toms and Dicks, alters the size of the transaction, but not its balance. The thing could be done. Further, if the disturbance created by a sudden and total expropriation would be too great, it could be done in instalments of any desired magnitude. The 100 per cent tax on capital could be 50 per cent or 5 per cent or 2½ per cent every ten years or what you please. If 100 per cent meant a catastrophe (as it would) and 10 per cent only a squeeze, then the Government could content itself with the squeeze.

By such a levy the Government could take off the taxation it had formerly imposed to pay the home War Loan interest, and use the dividends of the confiscated shares to pay the interest on our war debt to America, taking off also the taxation that now pays that interest. If it were a Conservative Government it would take it off in the form of a reduction of income tax, supertax, excess profits tax (if any), death duties, and other taxes on property and big business. A Labor Government would leave these taxes untouched, and take taxes off food, or increase its contributions to the unemployed fund, its grants-in-aid to the municipalities for public work, or anything else that would benefit the proletariat and make for equality of income. Thus the levy could be manipulated to make the rich richer as easily as to raise the general level of well-being; and this is why it is just as likely to be done by a Capitalist as by a Labor Government until the domestic war debt is--shall we say liquidated, as repudiated sounds so badly?

The special objection to such practicable levies is that they are raids on private property rather than orderly and gradual conversions of it into public property. The objection to raids is that they destroy the sense of security which induces the possessors of spare money to invest it instead of spreeing it. Insecurity discourages saving among those who can afford to save, and encourages reckless expenditure. If you have a thousand pounds to spare, and have not the slightest doubt that by investing it you can secure a future income of £50 a year, subject only to income tax, you will invest it. If you are led to think it just as likely as not that if you invest it the Government will presently take it or some considerable part of it from you under pretext of a Debt Redemption Levy, you will probably conclude that you may as well spend it while you are sure of it. It would be much better for the country and for yourself if you could feel sure that if the Government took your property it would buy it from you at full market price, or, if that were for any reason impracticable, compensate you fully for it. It is true that, as we found when we went into the question of compensation, this apparently conservative way of doing it is really as expropriative as the direct levy, because the Government raises the purchase money or compensation by taxing property; so that the proprietors buy each other out and are not as a body compensated at all; but the sense of insecurity created by the raiding method is demoralizing, as you will understand if you read the description by Thucydides of the plague at Athens, which applies to all plagues, pathological or financial. Plagues destroy the sense of security of life: people come to feel that they will probably be dead by the end of the week, and throw their characters away for a day’s pleasure just as capitalists throw their money away when it is no longer safe. A raid on property, as distinguished from a regular annual income tax, is like a plague in this respect. Also it forms a bad precedent and sets up a raiding habit. Thus domestic debt redemption levies, though physically practicable, are highly injudicious.

65

THE CONSTRUCTIVE PROBLEM SOLVED

You may now stop for breath, as you are at last in possession not only of the object of Socialism, which is simply equality of income, but of the methods by which it can be attained. You know why coal mining and banking should be nationalized, and how the expropriation of the coalowners and bankers can be compensated so as to avoid injustice to individuals or any shock to the sense of security which is necessary to prevent the continued investment of spare money as capital. Now when you have the formula for these two nationalizations, one of a material industry involving much heavy manual work, and the other a service conducted by sedentary brain work, you have a formula for all nationalizations. And when you have the formula for the constitutional compensated expropriation of the coalowners and bankers by taxation you have the formula for the expropriation of all proprietors. Knowing how to nationalize industry you know how to place the Government in control of the distribution of the income produced by industry. We have not only found these formulas, but seen them tested in practice in our existing institutions sufficiently to have no more doubt that they would work than we have that next year’s budget will work. Therefore we need no longer be worried by demands for what people call a constructive program. There it is for them; and what will surprise them most about it is that it does not contain a single novelty. The difficulties and the novelty are not, as they imagine, in the practical part of the business, which turns out to be quite plain sailing, but in the metaphysical part: that is, in the will to equality. We know how to take the distribution of the national income out of the hands of the private owners of property and place it under the control of the Government. But the Government can distribute it unequally if it decides to do so. Instead of destroying the existing inequality it can intensify it. It can maintain a privileged class of idlers with huge incomes, and give them State security for the continuance of those incomes.

It is this possibility that may enlist and to a certain extent has already enlisted the most determined opponents of Socialism on the side of nationalization, expropriative taxation, and all the constructive political machinery of Socialism, as a means of redistributing income, the catch in it being that the redistribution at which they aim is not an equal distribution, but a State-guaranteed unequal one. John Bunyan, with his queer but deep insight, pointed out long ago that there is a way to hell even from the gates of heaven; that the way to heaven is therefore also the way to hell; and that the name of the gentleman who goes to hell by that road is Ignorance. The way to Socialism, ignorantly pursued, may land us in State Capitalism. Both must travel the same road; and this is what Lenin, less inspired than Bunyan, failed to see when he denounced the Fabian methods as State Capitalism. What is more, State Capitalism, plus Capitalist Dictatorship (Fascism), will compete for approval by cleaning up some of the dirtiest of our present conditions: raising wages; reducing death rates; opening the career to the talents; and ruthlessly cashiering inefficiency, before in the long run succumbing to the bane of inequality, against which no civilization can finally stand out.

This is why, though you are now equipped with a complete answer to those who very properly demand from Socialists constructive plans, practical programs, a constitutional parliamentary routine, and so forth, you are still not within eight score pages of the end of this book. We have still to discuss not only the pseudo-Socialism against which I have just warned you, but other things which I cannot omit without leaving you more or less defenceless against the alarmist who, instead of being sensibly anxious about constructive methods, is quite convinced that the world can be turned upside down in a day by an unwashed Russian in a red tie and an uncombed woman with a can of petrol if only they are wicked enough. These poor scared things will ask you what about revolution? what about marriage? what about children? what about sex? when, as they assume, Socialism will have upset all our institutions and substituted for our present population of sheep a raving pack of mad dogs. No doubt you can tell them to go away, or to talk about such matters as they are capable of understanding; but you will find that they are only the extreme instances of a state of mind that is very common. Not only will plenty of your most sensible friends want to discuss these subjects in connection with Socialism, but you yourself will be as keen about them as they. So now that we know exactly what Socialism aims at and how it can be done, let us leave all that as settled, and equip ourselves for general conversation on or around the subject.

66

SHAM SOCIALISM

The example of the war shews how easy it is for a government to confiscate the incomes of one set of citizens, and hand them over to another without any intention of equalizing distribution or effecting any nationalization of industries or services. If any class or trade or clique can obtain control of Parliament, it can use its power to plunder any other class or trade or clique, to say nothing of the nation as a whole, for its own benefit. Such operations are of course always disguised as reforms of one kind or another, or as political necessities; but they are really intrigues to use the State for selfish ends. They are not on that account to be opposed as pernicious: rogues with axes to grind must use popular reforms as bait to catch votes for Acts of Parliament in which they have some personal interest. Besides, all reforms are lucrative to somebody. For instance, the landlords of a city may be the warmest supporters of street improvements, and of every public project for making the city more attractive to residents and tourists, because they hope to reap the whole money value of the improvements in raised rents. When a public park is opened, the rents of all the houses looking on that park go up. When some would-be public benefactor endows a great public school for the purpose of making education cheap, he unintentionally makes all the private houses within reach of it dear. In the long run the owners of the land take from us as rent in one form or another everything that we can do without. But the improvements are none the less improvements. Nobody would destroy the famous endowed schools of Bedford because rents are higher there than in towns which possess no such exceptional advantage. When Faust asked Mephistopheles what he was, Mephistopheles answered that he was part of a power that was always willing evil and always doing good; and though our landlords and capitalists are certainly not always either willing evil or doing good, yet Capitalism justifies itself and was adopted as an economic principle on the express ground that it provides selfish motives for doing good, and that human beings will do nothing except for selfish motives. Now though the best things have to be done for the greater glory of God, as some of us say, or for the enlargement of life and the bettering of humanity, as others put it, yet it is very true that if you want to get a philanthropic measure enacted by a public body, parliamentary or municipal, you may find it shorter to give the rogues an axe to grind than to stir up the philanthropists to do anything except preach at the rogues. Rogues, by which perhaps rather invidious name I designate persons who will do nothing unless they get something out of it for themselves, are often highly effective persons of action, whilst idealist talkers only sow the wind, leaving the next generation of men of action to reap the whirlwind.

It is already a well-established method of Capitalism to ask the Government to provide for some private enterprise on the ground of its public utility. Some good has been done in this way: for instance, some of our modern garden cities and suburbs could not have been built if the companies that built them had not been enabled, under the Industrial and Provident Societies Act, to borrow a large share of their capital from the Government on the understanding that the shareholders were poor people holding no more than £200 capital apiece. But this limitation is quite illusory, because, though the companies may not issue more than £200 in shares to any individual, they may and do borrow unlimited sums by creating what is called Loan Stock; and the very same person who is not allowed to have more than £200 in shares may have two hundred millions in Loan Stock if the company can use them. Consequently these garden cities, which are most commendable enterprises in their way, are nevertheless the property of rich capitalists. As I hold a good deal of stock in them myself I am tempted to claim that their owners are specially philanthropic and public-spirited men, who have voluntarily invested their capital where it will do the most good and not where it will make the most profit for them; but they are not immortal; and we have no guarantee that their heirs will inherit their disinterestedness. Meanwhile the fact remains that they have built up their property largely with public money: that is, by money raised by taxing the rest of the community, and that this does not make the nation the owner of the garden city, nor even a shareholder in it. The Government is simply a creditor who will finally be paid off, leaving the cities in the hands of their capitalist proprietors. The tenants, though led to expect a share in the surplus profits of the city, find such profits practically always applied to extending the enterprise for the benefit of fresh investors. The garden cities and suburbs are an enormous improvement on the manufacturing towns produced by unaided private enterprise; but as they do not pay their proprietors any better than slum property, nor indeed as well, it is quite possible that this consideration may induce the future owners to abolish their open spaces and overcrowd them with houses until they are slums. To guarantee the permanence of the improvement it would be safer for the Government to buy out the shareholders than for the shareholders to pay off the Government, though even that would fail if the Government acted on Capitalist principles by selling the cities to the highest bidders.

A more questionable development of this exploitation of the State by Capitalism and Trade Unionism is the subsidy of £10,000,000 paid by the Government to the coalowners in 1925 to avoid a strike. The coal miners said they would not work unless they got such and such wages. The employers vowed they could not afford to keep their mines open unless the men would accept less; and a great press campaign was set up to persuade us that the country was on the verge of ruin through excessive wages when as a matter of fact the country was in a condition that at many earlier periods would have been described as cheerfully prosperous. Finally the Government, to avert a strike which would have paralyzed the main industries of the country, had either to make up out of the taxes the wages offered by the employers to the wages demanded by the men, or else nationalize the mines. Being a Capitalist Government, pledged not to nationalize anything, it chose to make up the wages out of the taxes. When the £10,000,000 was exhausted, the trouble began again. The Government refused to renew the subsidy; the employers refused to go on without it unless the miners worked eight hours a day instead of seven; the miners refused to work more or take less; there was a big strike, in which the workers in several other industries at first took part “sympathetically” until they realized that by using up the funds of the Trade Unions on strike pay they were hindering the miners instead of helping them; and many respectable people were, as usual on such occasions, frightened out of their wits and into the belief that the country was on the verge of revolution. And there was this excuse for them: that under fully-developed Capitalism civilization is always on the verge of revolution. We live as in a villa on Vesuvius.

During the strike the taxpayer was no longer exploited by the owners; but the ratepayer was exploited by the workers. A man on strike has no right to outdoor relief; but his wife and children have. Consequently a married miner with two children could depend on receiving a pound a week at the expense of the ratepayers whilst he was refusing to work. This development of parochial Communism really knocks the bottom out of the Capitalist system, which depends on the ruthless compulsion of the proletariat to work on pain of starvation or imprisonment under detestable conditions in the workhouse. Thus you have had the Government first giving outdoor relief (the ten million subsidy) to the owners at the expense of the taxpayers, and then the local authorities giving outdoor relief to the proletariat at the expense of the ratepayers, the Government being manned mostly by capitalists and the local authorities by proletarians.

It was in the proletarian quarters of London, notably in Poplar, that the Poor Law Guardians first claimed the right to give outdoor relief at full subsistence rates to all unemployed persons, thereby freeing their proletarian constituents from “the lash of starvation”, and enabling them to hold out for the highest wages their trades could afford. The mining districts followed suit during the coal strike of 1926. This right was contested by the Government, which tried to supplant the parochial authorities by the central Ministry of Health. The Ministry, through the auditors of public accounts, surcharged the Guardians with the part of the outdoor relief which they considered excessive; but as the Guardians could not have paid the surcharge even if the proceedings taken against them had not failed, the Government took the administration of the Poor Law into its own hands, and passed Acts to confirm its powers to do so. This was essentially an attempt by the Capitalist central Government to recover the weapon of starvation which the proletarian local authorities had taken out of the owners’ hands. But the day had gone by for the ultra-capitalist relief rules of the nineteenth century, when, as I well recollect, the Registrar-General’s returns of the causes of the deaths during the year always included starvation as a matter of course. The lowest scale of relief which the Government ventured to propose would have seemed ruinously extravagant and demoralizing to the Gradgrinds and Bounderbys denounced by Dickens in 1854.

As to the demoralization, they would not have been very far wrong. If mine-owners, or any other sort of owners, find that when they get into difficulties through being lazy, or ignorant, or too grasping, or behind the times, or all four, they can induce the Government to confiscate the taxpayers’ incomes for subsidies to get them out of their difficulties, they will go from bad to worse. If miners, or any other sort of workers, find that the local authorities will confiscate the incomes of the ratepayers to feed them when they are idle, their incentive to pay their way by their labor will be, to say the least, perceptibly slackened. Yet it is no use simply refusing to make these confiscations. If the nation will not take its industries out of the hands of private owners it must enable them to carry them on, whether they can make them pay or not. If the owners will not pay subsistence wages the nation must; for it cannot afford to have its children undernourished and its civil and military strength weakened, though it was fool enough to think it could in Queen Victoria’s time. Subsidies and doles are demoralizing, both for employers and proletarians; but they stave off Socialism, which people seem to consider worse than pauperized insolvency, Heaven knows why!

Still, governments need not be so shamelessly unbusinesslike as they are when subsidies are in question. The subsidizing habit was acquired by the British Government during the war, when certain firms had to be kept going at all costs, profit or no profit, because their activities were indispensable. It was against all Capitalist principles; but in war economic principles are thrown to the wind like Christian principles; and the habits of war are not cured instantly by armistices. In 1925, when the Government was easily blackmailed into paying the mine-owners ten millions of the money of the general taxpayer (your money and mine), it might at least have secured for us an equivalent interest in the mines. It might have obliged the owners to mortgage their property to the nation for the means to carry on, as they would have had to do if they had raised the money in the ordinary commercial way. As to the miners, they felt no responsibility, because, as the owners bought labor in the market exactly as they bought pit props, there was no more excuse for asking the miners to admit indebtedness for the subsidy than the dealers in pit props. On every principle of Capitalism the Government should either have refused to interfere, and have let the comparatively barren mines which could not afford to pay the standard wage for the standard working day go smash, or else it should have advanced the millions by way of mortgage, not on the worthless security of the defaulting mines, but on that of all the coal mines, good and bad. The interest on the mortgage would in that case have been paid to the nation by the good mines, which would thus have been compelled to make up the deficits of the bad ones; and if the interest had not been paid, the Government could finally have nationalized the mines by simple foreclosure instead of by purchase.

But capitalists are by no means in favor of having Capitalist principles applied to themselves in their dealings with the State. Besides, why should the fortunate owners of solvent mines subsidize the owners of insolvent ones? If the Government chooses to subsidize bad mines, let it be content with the security of the bad mines. It ended in the Government making the owners a present of the ten millions. The owners had to pass it on to the miners as wages: at least that was the idea; and it was more or less the fact also. But whether we regard it as a subsidy to the miners or to the owners or to both, it was none the less confiscated from the general taxpayer and handed as alms to favored persons.

The people who say that such subsidies are Socialistic, whether with the object of discrediting them or recommending them, are talking nonsense: they might as well say that the perpetual pensions conferred by Charles II on his illegitimate children were Socialistic. They are frank exploitations of the taxpayer by bankrupt Capitalism and its proletarian dependents. Socialist agitators, far from supporting such subsidies, will shout at you that you are paying part of the men’s wages whilst the mine-owners take all the profits; that if you will stand that, you will stand anything; that you are paying for nationalization and not getting it; that you are being saddled with a gigantic system of outdoor relief for the rich in addition to their rents, their dividends, and the doles they have left you to pay to their discarded employees; that the capitalists, having plundered everything else, land, capital, and labor, are now plundering the Treasury; that, not content with overcharging you for every article you buy, they are now taxing you through the Government collector; and that as they will have to hand over a share of what they take from you in this way as wages, the Trade Unions are taking good care to make the Labor Party support the subsidies in Parliament.

Meanwhile you hear from all quarters angry denunciations of Poplarism as a means by which the rate collector robs you of your possibly hardearned money, often to the tune of twentyfour shillings for every pound of the value of your house, to keep idle ablebodied laborers eating their heads off at a higher rate of expenditure than you, perhaps, can afford in your own house.

All this, with due allowance for platform rhetoric, is true. The attempt to maintain a failing system by subsidies plus Poplarism burns the candle at both ends, and makes straight for industrial bankruptcy. But you will not, if you are wise, waste your forces in resentful indignation. The capitalists are not making a conscious attempt to rob you. They are the flies on the wheel of their own system, which they understand as little as you did before we sat down to study it. All they know is that Trade Unionism is playing their own game against them with such success that more and more of the overcharges (to you) that formerly went to profit are now going to wages. They cry to the Government to save them, and it saves them (at your expense) partly because it is afraid of a big strike; partly because it wants to put off the alternative of nationalization as long as possible; partly because it has to consider the proletarian vote at the next general election; and mostly because it can think of nothing better to do in the rare moments when it has time to think at all. The British employers, the British Trade Unionists, and the British Government have no deep designs: so far it is just hand to mouth with them; and you need not waste any moral indignation on them. But please note the word British, thrice repeated in the last sentence, and also the words “so far”. The American employers and financiers are far more self-conscious than our business men and working men are; and the Americans are teaching our people their methods. Modern scientific discoveries have set them dreaming of enormously increased production; and they have found out that as the world depends on the people who work, whether with head or hand, they can by combining prevent idle and incapable owners of land and capital from getting too much of the increase. They know that they can neither realize their dream nor combine properly by using their own brains; and they are now paying large salaries to clever persons whose sole business is to think for them. Suppose you were the managing head of a big business, and that you were determined not to tolerate Trade Unionism among your workpeople, and therefore had to treat them well enough to prevent them feeling the want of a union. In England your firm would be called “a rat house”, in America simply a non-union house. Imagine yourself visited by a well-dressed lady or gentleman with the pleasant nonchalance of a person of proved and conscious ability and distinction. She (we will assume that she is a lady) has called to suggest that you should order all your workpeople to join the union of their trade, of which she is the pampered representative. You gasp, and would order her out if you dared; but how can one shew the door to a superior and perfectly self-confident person. She proceeds to explain whilst you are staring at her. She says it will be worth your while: that her union is prepared to put some new capital into your business, and that it will come to a friendly arrangement with you as to the various trade restrictions to which you so much object. She points out that if instead of working to increase the dividends of your idle shareholders you were just to give them what they are accustomed to expect, and use the rest of the profit for bettering the condition of the people who are doing the work (including yourself), the business would receive a fresh impulse, and you and all the really effective people in it make much more money. She suggests ways of doing it that you have never dreamt of. Can you see any reason except stupid conservatism for refusing such a proposal?

This is not a fancy picture. It has actually occurred in America as the result of the Trade Unions employing first-rate business brains to think for them, and not grudging them salaries equal to the wages of a dozen workmen. When English Trade Unions become Americanized as English big business is becoming Americanized they will do the same. Our big businesses are already picking out brainy champions from the universities and the public services to do just such jobs for them. Both big business and skilled labor will presently be managing their affairs scientifically, instead of dragging heavily and unimaginatively through the old ruts. And when this is accomplished they will enslave the unskilled, unorganized proletariat, including, as we have seen, the middle-class folk who have no aptitude for money making. They will enslave the Government. And they will do it mostly by the methods of Socialism, effecting such manifest improvements in the condition of the masses that it will be inhuman to stop them. The organized workers will live, not in slums, but in places like Port Sunlight, Bournville, and the Garden Cities. Employers like Mr Ford, Lord Leverhulme and Mr Cadbury will be the rule and not the exception; and the sense of helpless dependence on them will grow at the expense of individual adventurousness. The old communal cry of high rates and a healthy city will be replaced by Mr Ford’s cry of high wages and colossal profits.

Those profits are the snag in the stream of prosperity. If they are unequally distributed they will wreck the system that has produced them, and involve the nation in the catastrophe. In spite of all the apparent triumphs of increased business efficiency the Socialists will still have to insist on public control of distribution and equalization of income. Without that, capitalist big business, in league with the aristocracy of Trade Unionism, will control the Government for its private ends; and you may find it very difficult, as a voter, to distinguish between the genuine Socialism that changes private into public ownership of our industries, and the sham Socialism that confiscates the money of one set of citizens without compensation only to hand it over to another set, not to make our incomes more equal, but to give more to those who have already too much.

67

CAPITALISM IN PERPETUAL MOTION

And now, learned lady reader (for by this time you know much more about the vital history and present social problems of your country and of the world than an average Capitalist Prime Minister), do you notice that in these ceaseless activities which keep all of us fed and clothed and lodged, and some of us even pampered, NOTHING STAYS PUT? Human society is like a glacier: it looks like an immovable and eternal field of ice; but it is really flowing like a river; and the only effect of its glassy rigidity is that its own unceasing movement splits it up into crevasses that make it frightfully dangerous to walk on, all the more as they are beautifully concealed by natural whitewash in the shape of snow. Your father’s bankruptcy, your husband’s, or your own may precipitate you at any moment into a little crevasse. A big one may suddenly swallow a whole empire, as three of them were swallowed in 1918. If, as is most likely, you have been brought up to believe that the world is a place of permanent governments, settled institutions, and unchangeable creeds in which all respectable people believe, to which they all conform, and which are unalterable because they are founded for all eternity on Magna Carta, the Habeas Corpus Act, the Apostles’ Creed, and the Ten Commandments, what you have gathered here of the continual and unexpected changes and topsy-turvy developments of our social order, the passing of power from one class to another, the changes of opinion by which what was applauded as prosperity and honor and piety at the beginning of the nineteenth century came to be execrated as greedy villainy at the end of it, and what were prosecuted as criminal conspiracies under George IV are legalized and privileged combinations, powerful in Parliament, under George V, may have driven you to ask, what is the use of your drudging through all these descriptions and explanations if by the time you have reached the end of the book everything will have changed? I can only assure you that the way to understand the changes that are going on is to understand the changes that have gone before, and warn you that many women have spoilt their whole lives and misled their children disastrously by not understanding them.

Besides, the things I have been describing have not passed wholly away. There are still old-fashioned noblemen who lord it over the countryside as their ancestors have done for hundreds of years, sometimes benevolently, sometimes driving the inhabitants out to make room for sheep or deer at their pleasure. There are still farmers, large and small. There are still many petty employers carrying on small businesses singly or in firms of two or three partners. There are still joint stock companies that have not been merged in Trusts. There are still multitudes of employees who belong to no Trade Union, and are as badly sweated as the woman who sat in unwomanly rags and sang the Song of the Shirt. There are still children and young persons who are cruelly over-worked in spite of the Acts of Parliament that reach only the factories and workshops. The world at large, though it contains London and Paris and New York, also contains primitive villages where gas, electric light, tap water and main drainage are as unknown as they were to King Alfred. Our famous universities and libraries and picture galleries are within travelling distance of tribes of savages and cannibals, and of barbarian empires. Thus you can see around you living examples of all the stages of the Capitalist System I have described. Indeed, if you come, or your parents came (like mine) from one of those families of more than a dozen children in the genteel younger-son class which were more common formerly than they are today, you are certain to have found, without going further than your parents, your brothers and sisters, your uncles and aunts, your first cousins, and perhaps yourself, examples of every phase of the conditions produced by Capitalism in that class during the last two centuries, to say nothing of the earlier half medieval phases in which most women, especially respectable women, are still belated.

Beside the Changing and the Changed stand the Not Yet Changed; and we have to deal with all three in our daily business. Until we know what has happened to the Changed we shall not understand what is going to happen to the Not Yet Changed, and may ourselves, with the best intentions, effect mischievous changes, or oppose and wreck beneficial ones. If we look for guidance to the articles in our party newspapers (all living on profiteers’ advertisements) or the speeches of party politicians, or the gossip of our politically ignorant and class-prejudiced neighbors and relatives, which is unfortunately just what most of us do, we are sure to be either misguided and corrupted or exasperated.

Take, as a warning, those adventures of Capitalism in pursuit of profits which I sketched for you in