Delphi Complete Works of Stephen Leacock, page 709
The Great War smashed all this into fragments. The peace (1918-39) brought the great crash that pulverized even the fragments. The broad-paved highways of international trade are now broken stones and mud.
Money went first. The gold standard vanished at the outbreak of the war. After the war the attempts to revive it were defeated by the great crash, which brought down also the gold standard of the United States. The war brought an era of paper money, irredeemable and unlimited, a thing which in the view of bygone political economy was as deadly as a creeping palsy. With such currency went a haphazard exchange, all standards gone.
Then followed a strange thing never dreamed of in the older economics. It turned out that the nation with the worse currency did best in international trade. This, to the school of Mill and Ricardo, would have sounded like lunacy. But it was just a fact. What is more, each further depreciation of currency helped the export trade a little more. In the early days of railroad competition it was found that a railroad ‘fights best in the ditch.’ That is to say, once it was bankrupt, with its fixed charges gone, it could cut rates more easily than a solvent road. So it now seemed with nations. Long ago there had been noted, as far back as the days of Sir Thomas Gresham, the founder of the Royal Exchange under Queen Elizabeth, that, inside a country, ‘bad money drives out good.’ The phrase is called ‘Gresham’s Law’ and is A B C to students of political economy.
But since the Great War there appears a Gresham’s law in international trade also — that bad exchange beats good. The reason is not far to seek and is widely understood now, although it did not enter in the argument of early economics. When a particular currency is depreciated its rate of exchange with other currencies falls and at the same time, in its own area, prices and wages rise. But these things do not all move at the same rate. Exchange itself is as volatile as a lump of quicksilver on a sheet of glass. It will move from mere apprehension that it is going to move. It is like the famous dog of Jean de Nivelle Qui s’enfuit quand on l’appelle. Prices also move, but some much faster than others. Fresh eggs leap up, while pig-iron remains immovable. Last of all come wages, hard and difficult to raise, as when a foot is drawn out of mud, each step a harder pull than the last.
Thus the change caused by depreciated money means a harvest for the exporting manufacturer. He gets the same amount of foreign money — dollars or what — for his export, exchanges it for more of his own money than before, but pays for the moment nothing more for material and wages at home. Presently he pays more, but it takes time before the rise in commodity prices drags up wages. In other words depreciated currency is an invisible way of lowering wages and increasing profits.
All this, Mill or Ricardo would have said, is, however only temporary. In the long run the bad currency will be equalized out in wages and prices. In fact this argument, under the name of ‘purchasing power parity’ is still current in the schools. But the trouble is that ‘the long run’ is too long to wait for. Before it comes something else happens. Nations have no time to wait for it and hence come new tariffs to offset international exchange. These were something like the discriminating or dumping duties directed against cut prices of exports and first used by Canada as far back as 1907. But after the war the old dumping duty and the new exchange duty joined in a stranglehold on commerce. To rope it round still tighter, there was invented the quota system — forbidding trade except by allotments — refusing imports except as paid by exports — and applied both to the quantity of goods and the volume of exchange. The song, Yes, we hare no bananas, which broke on the world at this very time, seems, in its odd contradiction, to express the idea of the quota most faithfully.
Thus has been caused the great blockage of the world’s trade, like a street block of traffic. The sheer number of the vehicles make their movement impossible. One old horse and wagon would be better than a hundred blocked taxis.
Over the scene hangs the heavy cloud, grown heavier, of the balance of trade doctrine, by which foreign sale is virtue and foreign purchase sin. Of all the foolish doctrines which have obscured the commercial outlook of mankind and injured peace and goodwill among the nations, this is the worst. What does it matter who sells and who buys, as long as both are satisfied? If I buy a dozen eggs from my grocer, he has, I admit, the balance of trade, but, after all, I have the eggs. Especially in newer countries such as the British Overseas Dominions does the doctrine do harm, for there an ‘unfavourable balance’ is the natural accompaniment of growth and expansion. In other words, an unfavourable balance may mean glorious things for a nation. After the war ends, there should ensue a period of development for Canada such as few countries have seen — a flood of immigration, a mass import of machinery and a vast development of natural resources. The balance of trade will be utterly and completely unfavourable, year after year, and the more rapid the development the heavier the adverse balance. The infancy of a nation spells an adverse balance from the efforts made on its behalf; just as human infancy means an adverse balance of care and kisses. Then, as a nation grows old, so old that its efforts end, and it sits still and lives on its investments abroad, its feet in warm water and its gruel at its side, that again leaves an adverse balance, for the gruel. Thus in the life of trade as in the life of man, do youth and age contrast, and age presents its sorry parody of a second childhood.
Here then, inside this world setting, is the present situation of the Empire. There are many things that we can do to relieve it, to some extent, very rapidly; others only slowly; some we can do by ourselves, others only with outside co-operation.
We might begin with our money, and first with the mere aspect of it, as money of account. At present the Empire uses three kinds, the pounds, shillings and pence of sterling currency, the dollars and cents of American, and the rupees, annas and pice of Indian. Broadly speaking British sterling currency is used in all the British Isles (till Ireland notices it and starts something else). And in all the colonies and dependencies in Africa and Asia, except in Singapore and the Straits Settlements. It is the money also of Australia, New Zealand and the Pacific Islands. Canada and Newfoundland use dollars and cents.
The West Indies officially use pounds, shillings and pence, but for the tourist’s sake, dodge in and out of both currencies, in a sort of egg dance that carefully avoids loss.
British people have used pounds, shillings and pence so long that they don’t notice anything wrong with them. They do not realize the hopeless anachronism involved, the limitation of price making, the difficulty of rapid calculation or conversion. The dollar system is decimal, like our system of numbers itself. Pounds, shillings and pence carries back to the counting of fingers and toes. It refuses to fit in with the orderly notation of our numbers. A Canadian department store can announce a 10 per cent discount on all goods, and a ten-year-old child can calculate it. In London this would defy Regent Street and Lombard Street together. The old ‘guinea’ still survives only because a reduction from guineas to pounds is practically a 5 per cent discount.
Our place system of numbers — ten up at a move — was invented by the Hindus. It’s a pity, the mathematicians say, that they didn’t make it twelve which divides better than ten. But it’s too late now. The Arabs invented the cipher, o, to mark empty spaces. The Spaniards applied it to their money by dividing the silver piece (once the piece-of-eight) into one hundred centavos. The silver piece was nicknamed a ‘Thaler’ because the silver came from a valley (Joachimsthal) in Bohemia, and Bohemia was then in Spain. Bohemia has been a little bit everywhere, on the sea coast with Shakespeare, in Spain, in Paris with Trilby, and now for a while in Germany. It was a good place for the universal dollar to come from.
The dollar and the cent went all round the trading world and all over the New World. That is how they came to the Americans and to the Straits Settlements. The French Revolution brought a mass of ‘national’ changes to replace old weights and measures and the decimal system among them. It was badly applied, as the franc was too low in value for its one hundredth part to mean anything. The French are condemned ever since to count in fives, which is foolish. But at least it is decimal, and from France decimal money went all over continental Europe not already using dollars and cents. Even the quantitative unit of the franc reappeared as the lira and the peseta. Not so with Great Britain. Why change? ‘Brown Bess’ was good enough for Waterloo, and the pound sterling good enough for John Bull. So it stays. And fifty million people who have never known the ease of easy money struggle along with bad. Yet the change would be very simple. Take the half sovereign as the unit — call it a George — and it divides of itself, decimally, into ten shillings. Old accounts in pounds multiply by two. Ten pence are made a shilling, and the most any one has lost on an old account is a few ‘tuppences.’ The change is easy. But it won’t be done. Why change? There’s no hurry.
But if not with the method of counting of money, we could do much with the money itself. What is needed is to re-introduce the gold standard. The world is full of misunderstanding on this. The Empire could re-introduce it without waiting for any one else, and any component Dominion introduce it without waiting for the others. The gold standard does not of necessity mean lower prices or lower wages. That depends on how much gold we put in the standard. A sovereign used to mean 113 grains of pure gold, and a dollar 23.22. At present in order to buy one troy ounce of gold we should need about ten paper pounds sterling, or 35 paper dollars. But we can cut the gold content down to what we like — cut it so low, if need be, that prices and wages will jump up, not down. Any difficulty in management is as nothing beside the hopeless deadlock in which managed currencies have landed us. It would be claimed that we couldn’t redeem the paper money in gold, or that, if we tried to, we would find all our gold drained away. But let it drain. We couldn’t be worse than now. We don’t redeem it now. We sit on it, and call it a ‘reserve’ and take a look at it, now and then, like a miser with a money-box or a French peasant with a sock. The Chancellor of the Exchequer sits on his, and the Governor of the Bank of Canada sits on his — like hens on eggs. Occasionally they get off, take a look and cluck. But the eggs are dead.
The true principle is to make money redeemable in gold and redeem as long as you have the gold and stop when you haven’t. The principle is that described above as ‘Yes, we have no bananas’; the Empire especially could do this; all the flood of gold from South Africa and Canada would have to run through the mints before redemption ran dry. Each stoppage, if such came, would stimulate mining. A hoard is no good unless you use it. An egg is not for sitting on but for hatching.
The world can never regain its trade till it recovers its automatic exchange.
Still more can be done with the reorganization of credit. We are here losing a potential asset of great magnitude. We all borrow money separately, when we ought to borrow it together — not all of our borrowed money but some of it, some for each, pledged by all. Debtors are like rods in bundles; get enough of them and they won’t break.
The world’s money is borrowed at rates that vary with the prospect of repayment. The Stuart Kings thought nothing of paying 12 per cent — and often incidentally, thought nothing of not paying it. The United States in the Civil War days paid six; in the Panama Canal days, less than two. The United Kingdom, in the great solidarity of Victorian finance, had all the money it wanted at 2 1/2 per cent. The rate has gone even lower. In those days a guarantee given by the British Government — such as the one given to the Dominion of Canada seventy years ago for its borrowings to build the Intercolonial Railway — cut the rate otherwise needed, in half. And no one was a penny the worse.
In the world in which we live the ground shakes even under the Bank of England. A pan-imperial loan would spread so wide that the rocks under Ottawa, and the reef under Johannesburg would keep the ground steady. At present we make no use of such a general guarantee, and very little use of any mutual guarantees except on a small scale from Britain to undeveloped Crown Colonies. There is a certain indirect credit link in the various (British) Colonial Stock Acts (1877, 1892, 1900, 1934). Under these acts Colonial and Dominion stocks are listed as securities that British trustees may purchase, under conditions accepted overseas. The advantage is mutual, but the field occupied is small.
What is meant here is something far larger. We could have an all Empire loan, raised in quotas among the United Kingdom and the Dominions, and allotted in quotas but with interest guaranteed by each for all. If need be we could even ear-mark customs duties as interest. The interest rate, for all our governments, is rising with the war. Such a plan might easily cut the rate by a quarter. The world is full of people for whom security is everything, and the rate a lesser matter. They can tighten their belt to that. These are partly people clinging to the rocks after the flood of the great depression; and with them the people who had always preferred the safety of the rocks, to the hazard of open ground.
There is room for a new Empire finance, as imposing as has been Lombard Street and the Bank.
The network of Empire tariffs is far too extensive and complicated for detailed exposition in this place. It involves the permutations and combinations of each of the seven principal tariff areas with each of the others.
The protective duties first adopted in the Province of Canada (1859) and the Colony of Victoria (1860) broke the original mould of the free trade Empire. After that tariffs multiplied. The attempt at a preferential system, initiated in Canada under Sir Wilfred Laurier in 1898, was of little effect. It was stultified by the fact that it was a quid without a quo, free trade Britain having nothing to give in return. Moreover preference, at least as given by Canada, was adjusted with great nicety not to prefer. The foreigner had to climb over a high tariff wall, and John Bull only over a low one. But he couldn’t climb it anyway. As late as 1930 a blunt British minister called preference a ‘humbug.’ Blunt people say things which polite people have known for years and not said.
As a matter of fact when Mr. Jim Thomas said ‘humbug,’ the situation had changed. Great Britain itself had at last adopted a protective tariff. It took nearly a generation over it. How distasteful it was, is seen in the way in which the pill was sugar-coated, the medicine concealed in jam. The dose was taken first as ‘colonial preference,’ obviously a patriotic tonic. When that lost its effect, protection reappeared as war revenue, as the safeguard of key industries. At last it gave itself its true name and like truth, it prevailed. The British protective tariff (1932), made a give-and-take possible and resulted in the Ottawa Compacts of 1932. But in these intricate back-and-forward arrangements the same difficulty appeared as before. The Dominions were anxious to give a preference to the United Kingdom by making duties still higher against the foreigner, not by lowering them to the mother country. Many of the Ottawa agreements have already been allowed to lapse without renewal. And the whole system of trade compacts inside the Empire has been expanded into trade compacts with outside nations, such as that between Canada and the United States (193.Ç), and between the United States and Great Britain (1939). But at least a useful step was taken at Ottawa in laying down the principle of differential costs as the proper measure of a protective tariff. In the ideal sense, this means that a manufacturer is entitled to just as much protection against an outsider as is warranted by the difference in wages and other costs between the two. This is the ideal sense. In practice it is as hard to find as ideals always are. Cost can mean anything. And always the difficulty occurs that the manufacturer is eager and alert and the consumer unfindable.
Meantime the Empire tariff situation is the same, though not so extreme, as the trade blockage in the world at large. We need freer trade and more of it. But it cannot be got by a mere maze of bargains. It has to have behind it the mass impact of public opinion, moving policy towards expanding trade and reducing tariff impediments to the minimum. There is a prayer which asks for the creation of a new heart and the renewal of a right spirit. Without the idea, the impetus, the general desire, neither the world nor the Empire can get rid of the incubus that lies heavy on it. We must wake up the consumer, asleep, in the Dominions, for a generation and now dozing off in Great Britain. We must exert and assert the interest of all against the more eager, more combative interest of the single one.
But the best way to quicken the trade and commerce of the Empire is to develop the Empire itself. There is certain to ensue, after the war, a period of wonderful opportunity for the overseas Dominions and above all for Canada. It is an ill-wind that blows no one luck, and the storms of death and destruction let loose to blow over Europe will cast upon our shores as part of its wreckage a golden harvest of opportunity. Thus ever have the sorrows and disasters of Europe brought fortune to America. Every European cycle of hard times, famine or depression has washed its waves of newcomers to our plains and forests, and raised up in the sunshine a newer generation that would have faded in the European shadow.
Continental Europe for a long time to come is badly damaged as a residential site. Evil-minded nations do not so soon cast off their evil-mindedness. The mechanism of war, the wholesale power to kill, will grow greater not less. The dark shadow from the continent will fall across what was once the snug security, the ‘glorious isolation’ of Great Britain. The ‘right little, tight little’ island will be as right and tight as ever, in its soul — but not an island.
Under these circumstances who would not dream, if only for the children’s sake, of the peace of North America, guaranteed by goodwill, or the isolation of Australia. It is not lack of patriotism to urge for the next generation a vast migration of British people overseas. If even righteousness must now walk armed, the best way to ensure peace is to promote strength. Millions of emigrants, cradlefuls of children, open opportunity, hard work — and in half a century there will be a changed world.
