CHAPTER XX

CREDIT AND CIVILIZATION

I have endeavoured to argue that our banking system and a purely credit system are not identical. A perfect credit system would be based entirely on faith, or profound belief in individual and national integrity and honour. Tradesmen know what kind of credit this is. They know that men may have huge and safe balances in banks, yet may be rogues. But a bank’s faith is not of this implicit and profound character. A bank demands material evidence of faith, and it places greater value and trust in the matter than in the spirit. Our banking system is ahead of the banking systems of other countries, but this is largely because our economic organism is older, our national character stronger, our freedom greater. Our so-called bank credit rests primarily on national wealth and secondarily on character. A bank will not lend on character alone. Character is not the wealth it is ready to transform.

It will not lend to the poor man, however noble in character. But it will lend to the rogue who has sound security and other solid wealth. If it can have no faith in the rogue’s character, it has faith in his wealth, and it takes care to have his wealth first. Banks, therefore, are not judges of morals. A man’s private morals are not their concern, only his wealth. They desire to know nothing of a borrower’s private virtues or vices, they are only concerned about his financial or business standing.

Therefore, if it be credit, it is a business, or wealth credit, a non-moral, not a moral credit, and the superstructure of credit on which the visionaries gaze is not a moral superstructure.

If the banks lent only on accommodation paper, “kites” and such things, this would approach nearer to our ideas of credit. For accommodation paper is not representative of real wealth, though it may be manufactured by a house of strong financial standing. But banks, I believe, are most vigilant in distinguishing between “kites” and genuine bills of exchange, thereby demonstrating unmistakably their hesitation in depending solely upon business character, and not upon sound, genuine wealth.

Credit is said to be evidence of civilization; the higher the civilization the higher the credit, or belief. Barter was the evidence of barbarism. As man becomes more intelligent, as his knowledge expands, as higher ideals lead him on, so he conceives loftier codes of ethics. As he grows more humane so he learns to have deeper trust in his neighbour. Knowledge teaches him how his life depends on the services rendered him by his neighbour, how he would struggle, and perhaps die, without his neighbour’s help. Knowledge growing into wisdom teaches him the still higher truths of altruism and morality. The wise nation, therefore, endeavouring to live by the higher morality, is greater than the nation that has not yet reached this mental and spiritual stage.

The text of this chapter has been partly suggested by a pregnant passage in Mr. Hartley Withers’ book, “War and Lombard Street.” The value of the passage lies in the fact that it echoes the views of many. Let us examine it and endeavour to grasp the ideas behind it.

“After all,” says Mr. Withers, “you cannot have credit without civilization, and at the beginning of last August civilization went into the hands of a Receiver, the God of Battles, who will in due course bring forth his scheme of reconstruction. When the five chief nations of Europe turn their attention from production to destruction, it is idle to expect any system of credit to go unscathed. Credit depends on the assumption that goods produced will come to market and be sold, and that securities that are based on the earning power of production will fetch a price on the exchanges of the world. War on the smallest scale weakens this assumption with respect to certain goods and certain securities; if its scale is big enough it makes the assumption so precarious that credit is shaken to its base.”

When we contemplate and analyse civilization we see two aspects, or conditions, of it. There is a moral civilization and a non-moral civilization. Many would contend that Germany presents a type of non-moral civilization and that Great Britain and other countries present types of moral civilization. An advanced stage of economic civilization is not essentially and implicitly an advanced moral or ethical civilization. In moral civilization the Esquimaux may be our superiors. In economic civilization they are our inferiors. This is largely due to environment. Rivalry in commerce is not essentially moral rivalry. We can, indeed, call it a mercenary, or sordid rivalry, in which virtue and honesty play minor parts. We may flatter ourselves that, as a nation, we would gladly be more virtuous if other nations would let us. This is, at least, an admission that other nations “do not play the moral game.” Out of this rivalry wars have sprung, and the present world-war is one of the fruits of the envy begotten of our commercial supremacy.

What is the kind of civilization, therefore, that went into the hands of a Receiver? Germany is fighting for low civilization, the allies for high civilization. Indeed, it is said, and not without truth, that it is not civilization warring with civilization, but civilization warring against barbarism. The motives of Germany are debased, the motives of the allies lofty. If the allies, as all believe, have been raised in this contest to a high plane of morality--I might even say to a high plane of spirituality--then moral civilization may gain, and a higher order of credit, or belief, may come of it.

From a narrow economic standpoint Germany’s civilization has been high and may continue high. But after the war, what will be the state of her moral civilization? Lower than it has ever been, for morally she will be degraded. No nations will be able to put credit, or trust, in her. She will have forfeited moral trust, forfeited all moral credit. But will she have forfeited all economic credit? Should she rehabilitate her economic credit, it will enable us to see more clearly the distinction between moral and economic credit.

Her economic state will for a time surely be weaker. Her finances will be in disorder; her powers of production and consumption will be weakened, and it will take her a long time to repair the ravages to her economic system. This will apply also in some degree to the allied Powers. They, too, will have to repair damage to their respective economic systems.

But we may easily over-estimate the exertions and the length of time needed to repair those ravages. If the allies are victorious the moral gains will, at any rate, be enormous, and these will be tremendous assets to set against the liabilities. Should they be conquered we may, indeed, woefully contemplate the future.

Should, however, the allies be victorious, why should credit be shaken to its base? Instead of being shaken, the base of credit may become stronger than before. If a higher civilization be the outcome, then credit must become stronger, because its moral foundation will be stronger than before.

What is it we mean when we talk of the destruction of wealth? What wealth is this war destroying? The war is certainly producing wealth, even though it may be the most fleeting wealth. The production of some kind of wealth may temporarily cease, and where the war has been waged there may have been great destruction of wealth in devastated cities, towns and villages. But other permanent wealth is being produced. Military stores and materials are being produced in prodigious quantities; but these cannot be produced without increasing the consumptive capacity of the nation in other directions, and consumption is necessary to the production of wealth. We also have to produce to pay for the materials we get from abroad and to provide the materials bought from us by other belligerent countries. There are now less parasites in this country and more producers. Even soldiers consume, though they may produce nothing. But do we always rapidly increase wealth when, in non-warring times, production far outruns consumption? Nothing is more familiar than the destruction of wealth by over-production. The over-produce not only perishes, but the powers of consumption are diminished when over-production throws great numbers out of work.

While, therefore, capital and wealth are being destroyed--that is to say, a vast amount of capital is spent that is not reproductive--while soldiers are killing and not producing, they are consuming, and those who take their places as new producers can also consume more, and therefore can, even during the war, continue to repair the destruction going on. While destruction is proceeding, construction and creation are also proceeding. It cannot be all destruction and no construction. Who, then, can say how much greater the destruction will be months hence than the total construction, and how long it will take to repair the residue destruction?

We cannot confidently estimate. We know we shall have greater burdens to bear in the shape of extra taxation. But the conclusion of the war may greatly lighten these burdens if the blessings of a complete and lasting peace be as great as we hope they will be.

What we truly mean by economic credit is economic confidence. If we eliminated the word “credit” from our economic vocabulary and always used its synonym confidence, we should have a clearer grasp of our ideas. I think Mr. Withers will agree that he really means confidence. If so, we may amend the passage and say, “We cannot have confidence without civilization.... Confidence depends on the assumption that goods purchased will come to market and be sold--that is, consumed--and that securities that are based on the earning power of production, which power comes from wealth, will fetch a price, high or low, on the exchanges of the world.”

We ascribe depression in trade to a lack of confidence. We never say trade is depressed in consequence of a lack of credit. When trade is depressed there is often an abundance of what is called Lombard Street credit. Therefore a scarcity of confidence is frequently coincident with a superfluity of banking “credit.” How, therefore, can they be one and the same thing?

It is confidence that increases wealth, because it imparts the energy to produce and consume. Capital without confidence is impotent, as impotent as a weapon in the hands of a paralytic. Confidence can, perhaps, re-create as quickly as war can destroy.

If, therefore, victory in the present war comes to the higher nations and to the greater number of nations, these, together with the neutral nations, will be revitalized by confidence. They will have a moral and a spiritual re-birth. There can be no prolonged exhaustion, no prolonged prostration in such re-birth. On the contrary, it will bring economic regeneration and re-creation.

As the prospects of ultimate victory become more assured the re-birth and re-creation will begin the sooner. There are, indeed, no signs of moral or economic prostration in this country, and I do not believe such signs appear in France and Russia.

More evil is done by pessimistic prediction than we dream of. No man is gifted to see into the economic future. We have seen already many dark visions dispelled. There are many prophets amongst us--some are on the directorates of banks--already dressed in the mantle of woe, bidding us prepare for the day of sorrow, when we shall gather the aftermath of want and misery. The day of sorrow has indeed come, but, with all respect to the penetrating vision of these seers, the long day of joy may dawn for us when this night is ended.