The Forum: The Confusion of the “Clarion” “Economists”

[To the Editor]

Appropos of a series of articles by a gentleman of the name of Suthers, in “The Clarion,” and also one or two other individuals of much the same way of thinking, all engaged in glorifying paper money as against actual coinage, I should like to have your opinion on one or two of the points raised.
1. First of all, can you inform me what it is that regulates the issue of coin from the Mint ? I take it the supply of sovereigns issued is balanced against what to me is an unknown quantity, and the silver and copper coinage also. Does the Government turn into sovereigns all the gold it can lay its hands on ?
2. We are told that for every bank note issued there is a corresponding amount of gold in the Banks. Is this a fact? The “Clarion” writers say NO.
3. I have always understood that the purchase-power or exchange-value of a medium of exchange always tended to fall to the actual cost of production of that medium of exchange, and that a sovereign or other gold coin actually contained that amount of socially necessary labour. Hence the fluctuations in value of a silver coinage, such as the Indian rupee, which ranges in value from about 8d. to 1s. 4d. Paper money coinage, I believe, fluctuates in value still more in silver standard currency countries.
4. Apparently at the present time the circulation of paper money has, for the moment, anyway, superseded the use of gold coinage, and that satisfactorily. Would it be possible for this to continue for an indefinite period, or is it only answering satisfactorily because there is a gold standard behind it. I have my doubts as to there being a golden coin behind every £1 and 10s. note at present in circulation.
5. Is it a fact that according to the Marxian theory commodities exchange on the average at their cost of production, coinage and all, and that when you purchase an article you simply exchange a coin containing so much socially necessary labour for an article containing the same amount ?
6. According to the “Clarion” writers, if the only coinage in circulation was paper, everything would go on just the same—only more so—because the lending of money by bankers and financiers would at once come to an end, and the community would not have to pay out huge sums in interest for the use of money (gold coinage) which according to them does not exist.
7. What would regulate the issue of the paper money ? For of course the powers-that-be would make a mess of things somewhat if they issued paper money ad lib. so that we all went about with our pockets full of bank notes.
8. I need not express my opinion on the economics of “Clarion” writers generally, but they seem to write very plausibly on this matter, and though I somehow feel convinced their reasoning is wrong, I can’t quite see where it is. The idea of a paper currency does not seem to strike me as being feasible, although on the face of it if, say, a town or borough wanted to erect a public building of some sort, and issued paper money to cover the cost, which was redeemed by the local governing body as the rates came in (a la Jersey Market), the necessity for borrowing money from financiers would be obviated and payment of interest avoided.
9. Now for another little matter. One of your writers observed some time ago that a rise in wages to the workers in a particular industry need not necessarily mean an increase in the cost of the articles produced. This does not seem to me to agree with the argument that commodities are exchanged (or sold) at their cost of production. On the face of it if this is so, a rise of 50 per cent. in the wages of the workers making boots, we’ll say, would mean a rise of 50 per cent. in the cost of the boots. If this is not so, what becomes of the statement that articles exchange in the market at their cost of production ?
10. Then as to the workers not paying rates and taxes. How does this statement with the fact that the workers are at present finding an extra slice to cover the cost of the European War, in the extra cost of beer, tea-etc. Wages have not risen to cover this increased cost. If they as a whole decided not to have the articles on which the extra tax is levied, where is the money to come from to pay for the war ?
Hoping you will elucidate the above points.
—Yours, T. M. WALLACE.


1. The issue of coinage is completely under governmental control and is mainly carried on at the Mint on Tower Hill. Gold is the standard of currency and under the Mint Act anyone may take gold bullion, above a certain degree of fineness, to the Mint and have it assayed, melted, and coined into sovereigns and half sovereigns, free of charge. But the Mint—like the man who promised to marry the girl—”didn’t say when,” and one may have to wait a considerable time before receiving the coins in place of one’s bullion.

The practical result of this is that no one outside the Bank of England ever takes gold to the Mint to be coined, but usually it is sold to the Bank, although the Bank price (£3 17s. 9d.) is lower than the Mint price (£3 17s. 10½d.) per ounce. Generally the time saved by cashing direct at the Bank compensates for the lower price.

Silver and copper coins are only tokens issued for convenience of change, especially in retail business, and are legal tender only up to £2 in silver and 1s. in copper.

It must be understood that the Bank of England is a private concern like any other joint stock bank, although two facts in connection with it obscure this truth from many people. The first is that it transacts (at a splendid profit) all the financial business of the Government, such as Consol dividends, Treasury Bills, Loans, etc., giving many the impression that it is a Government Department. The second is that it is the only bank in England that is authorised to issue bank notes that are legal tender. It may be mentioned that all the other note issues combined form only a negligible factor in our currency. Another important fact is that all the other banks have accounts and deposits with the Bank of England.

Speaking generally, the issue of coin from the Mint is “regulated,” if one may use that word for such haphazard methods as prevail here, by the demands of trade and business. Business and commercial men go to the banks for the coin they require. The banks know, and make provision for, the regular demands—pay days, quarter days, etc. If a local demand exceeds the local supply, more coin may be obtained from a neighbouring branch, or, failing this, from the Head Office in London. If these demands pour in from all over the country, then the Head Office of the Bank of England sends gold to the Mint to be converted into gold coinage and asks for such quantities of silver and copper coinage as it estimates to be required to ba supplied to them at face value. Apart from crises and special occasions this is the only “regulation” that takes place in the issue of the coinage.

2. As stated above the only bank in England issuing notes that are legal tender is the Bank of England, and the amount issued by the others is so small as to be of no general account.

Under the Bank Act of 1844, the Bank of England can only issue notes to the value of the gold held in its vaults plus notes to the amount of the Government Debt and Government Securities held by the Bank.


Notes issued £84,453,975 Govt. Debt £11,015,100
Other securities £7,434,900
Gold coin and bullion £66,002,975
Total £84,452,975 Total £84,452,975

In times of great crisis this Act has been suspended, as in 1847, 1857, and 1866, and the Bank has been allowed to issue notes without any gold backing, but apart from these three occasions, the Bank Note issue is regulated as above.

3. As Marx clearly shows, the purchasing-power of a metalic medium of exchange only tends to pass at its value where international trade and exchanges take place. Inside a national or a local boundary, under certain conditions, a medium of exchange may circulate indefinitely at a face value far above its real value. The silver coinage of the countries in the “Latin Union” are a big example of this fact. In this country the sovereign does actually circulate at its value, but the silver and copper tokens circulate at a face value much above their real value.

Obviously there is no such thing as “paper money coinage.” Paper money or paper currency falls into two main divisions—”convertible” and “inconvertible.”. The “inconvertible” circulates at a price entirely dependent upon the credit of the government issuing it, and its consideration need not detain us here. “Convertible” paper is that paper for which gold (or silver in silver currency countries) can be obtained upon demand at the government’s bank. Its face value will therefore vary with the change in the value of the metal it is convertible into, and as silver fluctuates more than gold, its paper representative will vary more than the latter’s.

4. Paper money has certainly not superseded “the use of gold coinage” today, as a large amount of gold still circulates here. What has happened is that the notes have replaced a portion of the gold previously circulating here. The “gold standard” not only remains, but any or all of these notes can be presented at the Bank of England and gold demanded for them, though Lloyd George expressed the hope that they would not be presented and so far his hope has been realised. The total amount of the notes outstanding on February 10th, 1915, was £36,102,858 and it is quite possible that gold could be paid in full for every one of these notes.

5. Apart from certain technical modifications to the statement, the Marxian analysis is as stated by our correspondent. The point of coinage is already dealt with in answer to No. 3.

6. Seeing that Bankers and Financiers charge the same interest on notes as on gold when making a loan, the absurdity of the claim of the “Clarion” writers is clearly seen.

7. If the writers on the “Clarion” had their way—No ! the way of the currency crank they follow, A. Kitson—it is probable that it would be widespread bankruptcy that would “regulate” their issue of paper money. Their schemes have been tried in the past with disaster to those who adopted them.

8. True, “Guernsey Market Hall” is the great stalking horse of the paper money idiots. It baffles them by its very simplicity and obviousness, whilst its greatest significance is—that it has never been repeated even in Guernsey. If the inhabitants of a town wish certain works to be done, they may either (a) employ people to do it, or (b) do it themselves. It is solely a question oi economy and efficiency in attaining the result. In almost every case it is cheaper and better to “pool” the expense and let those with a knowledge of the particular business carry it out. In the Guernsey case building operatives were employed and paid with notes on the Guernsey Council. The local tradesmen agreed to take these notes in exchange for commodities, and the Council took them from the tradesmen as payment for rates. Obviously, if a workman wished to leave Guernsey—even for a day or two—the notes were useless to him as they would only exchange in Guernsey. Secondly, the tradesman clearly could only pay part of his rates by the notes as the other municipal expenses were still running on the ordinary lines. Moreover, he could not pay his merchants with them, and as he received them every week find only paid them back once a quarter or half year, it meant his money was lying idle and losing interest during that period.

Evidently they came to the conclusion that it was better from their business standpoint to borrow money in the future than to repeat the experiment; for it has to be remembered that all these things happen under capitalism, where profit is the great god. In other words, the “payment of interest” was not actually avoided, it was only borne in another way.

9. Here our correspondent is mixing up wages with cost of production. The whole question is so clearly and splendidly dealt with by Marx in his “Value, Price and Profit” that the questioner is referred to that pamphlet for reply.

10. Again a confusion exists here between price and tax. It is assumed that prices are determined by taxes, which, in reality, are the smallest factors in the whole sum. This is shown with great clearness by the fact that other commodities—as bread, meat, coal, etc.—have, without any tax at all, risen far higher than beer or tea ! Wages only rise when the supply of labour-power is short compared to the demand, or when the workers struggle to force them up. Of course every struggle is not successful. Prices may rise for some time before wages follow, but the essential point is that the rise of prices is affected by two chief factors (1) increase in cost of production, (2) reduction of competition either by shortage of supply or elimination of some of the competitors, as shown in the recent rise in shipping rates. Taxes may sometimes be another factor, though, as said above, it is in general the smallest of all.

J. F.

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