The Tyranny of Usury

The Tyranny of Usury; A Plea for the Nationalisation of Exchanges,  by John McLachlan. Manchester, Leventhulme. 1d.

Superstition dies hard. Driven from the human mind on the religious side it endeavours to find entry on another, and no subject has brought forward so many cranks, faddists and maniacs as the subject of the above pamphlet if we except religion.

The author, who, by his praise of Keir Hardie, is probably a member of the I.L.P., first defines usury as the total surplus taken by the capitalist class, and then narrows it down to the ordinary definition of interest, or the amount charged for the use of money or forms of credit. By a shuffling of these two definitions, when it suits him, he is able to skim over awkward points and give his case some small appearance of being worth consideration.

An attempt is first made to explain how it is that poverty exists. “Socialists usually lay stress upon Private Monopoly of Production and Distribution as the cause. But while this later assumption (?) is undoubtedly ultimately a true one, it is daily being borne in upon us that PRIVATE MONOPOLY OF EXCHANGE is proximately the cause of Unemployment (and, of course, of Poverty) through the operation of those commercial crises which have exercised until now the wit of capitalist apologists to explain”.

What causes the crisis? The author gives the following description of a crisis while deferring the explanation of how it arises.

“On a given day let us assume, trade and commerce are exceedingly brisk . . . All is well – apparently. Suddenly the unthinking merchant discovers a difficulty in obtaining credit. Bankers call in their loans, refuse renewals, and decline to discount even the best paper except at high rates, credit being generally refused”. The ordinary features of a crisis are then detailed. The “catastrophic” and “dogmatic” economists who used to say that the cause was overproduction are summarily dismissed as “antiquated”. This sort of thing may have been the cause early in the nineteenth century, but is utterly fallacious to-day.

A so-called review of the crises of the nineteenth century is then given in an attempt to show that they were due to financial causes, and the following “general rules” are deduced.

“(1) Unemployment and trade depression always succeed a Credit stringency.
“(2) Financial Crises and Unemployment are quite possible as cause and effect without the additional factor of over-production which was formerly a feature of these crises.
“(3) An increase in the currency always lessens the immediate strain upon the national credit”.

All this leaves one quite in the dark as to why “the unthinking merchant discovers a difficulty in obtaining credit” and what it is that causes a “credit stringency”. But the next chapter, headed “The Fallacy of the Gold Standard”, attempts to explain the position gold occupies in the settlement of debts, and says, “It is legally enacted, we repeat, that debts must be paid in Gold on demand”. A comparison is given between the liabilities of the banks and the gold in circulation, and the question is asked, “Why is our gold currency not larger? Ah! there’s the rub! If our currency were enlarged to the extent of giving representation to everything considered as negotiable the People would be freed from the obligation of paying for the money they use.”

Lucien Saniel, in his introduction to the American edition of Marx’s Value, Price and Profit has pointed out the dangerous misleading given to the working class by the “revolutionary sounding but intensely bourgeois sophism of the Anarchist Proudhon”, and this warning applies with full force here. Further on we shall show the similarity of McLachlan’s and Proudhon’s positions. Note the portion of the above quotation from pamphlet italicised by the author. Who are the people who find a difficulty in “paying for the money they use”? Not the working class in any sense of the word. Not the large capitalists, for they control the powers of government and have a currency suitable to their interests. There is left the small capitalist and shopkeeping section, who, fond of calling themselves the “middle” class, find themselves unable to hold their own positions against the giant production and “chain store” system of distribution that is crushing them out in all directions. Hence this howl for an extension of “credits” and the introduction of “cheap” money for the purpose of paying their debts.

It is one of the stock lies of the money cranks to say that all exchange is a question of creditor and debtor and that all debts must be paid in gold. An exchange means to pass over one thing for another. Whether the things exchanged are directly use-values or not does not affect the point. If the commodity gold is given for the commodity food then an exchange has taken place, but there is no creditor or debtor. A debt only exists when a promise to pay in the future has been made. In the absence of any specific statement to the contrary, and only in this case, the creditor can demand payment in gold or legal tender.

Moreover, the removal of this obligation would not alter the facts of the case one atom. If the currency gave representation to all things considered negotiable, where is the debtor to obtain this currency when his debts fall due? From the State bank, it may be answered. How will the bank advance the money? Upon the negotiability – that is, the saleability – of the debtor’s things. But that is exactly what applies to-day, and it is only when his goods are unsaleable that he fails to pay his debts. In other words, it is because of the industrial crisis or depression that we have “Credit stringency” in various directions. A striking illustration of this “stringency” fallacy was shown a little time ago when the L.C.C. floated the last loan. The money market was “tight” and business bad, yet the amount required was subscribed nearly forty times over. In other words this was a proof that bad trade caused the “stringency”, and not the absence of currency, of which there were large amounts seeking sound investment. It is a well known fact that when trade is bad, or a crisis is upon us, there is more currency circulating than when trade is good. According to Mr. McLachlan’s third general rule, this should lessen the strain. Therefore, the crisis should bring its own cure! Such is one of the absurdities these cranks land themselves into.

In the section dealing with the Clearing House the author objects to the “commission” levied upon the paper transactions there recorded, and then says that this “the toll paid by commercial men for the management of their accounts”. Why he objects to this he does not say.

In the last section on “The Nationalisation of Exchange”, the author reaches his grand panacea – and shows incidentally how superficial and shallow his knowledge is, and how easily he has been gulled by another money crank – Mr. Kitson. After stating that “to confer upon any single article the sole privilege of determining the values of all other commodities whatsoever is iniquitous”, without giving any evidence that this is done, he gives us the following gems.

“What is value? Simply an exchange relation between commodities.” Then he says “cost of production must be reckoned with in all transactions”. Here is a flat contradiction, for what has cost of production to do with the exchange relation? If it is answered that this decides the quantities in the exchange relation, he at once denies this, for in the next sentence he says “Value is determined by Supply and Demand and its relations are always changing in deference to changes in the supply and demand for commodities”. To explain this he follows the old dodge of the capitalist apologists who, as Marx has so caustically put it, always have to wander outside Capitalism in their endeavour to talk round awkward points. Mr. McLachlan therefore leaves modern society and goes to an island.

“If on an island, there existed at a given time, 6 pigs, 4 sacks of flour, 12 sacks of potatoes, and two cows, it would follow that for the time being one cow would exchange for three pigs; for two sacks of flour; or for six sacks of potatoes. And if £1,000,000 in gold were imported, 1 cow would inevitably exchange for £500,000, while potatoes would cost £166,666 13s. 4d per sack”. And if I import 10 bricks each brick will be worth £100,000! Political economy up to date. “When any increase or decrease takes place in the quantities on the market of any commodities the ratio of values (and, of course, the price) undergoes a corresponding change”.

In the above statements the immense superiority of the method of demonstration used is at once apparent. Dull, awkward things like facts, evidence, history, experience, are beneath our author’s notice, and from the higher standpoint of his “inner consciousness” he evolves the proof in the words “it would follow”. The only authority he can evoke is the “inimitable” Mr. Kitson, who says in his book A Scientific Solution of the Money Question, that the only relation between commodities is number and “this is the only expression of value possible”.

And yet a 3rd standard school boy can put a question that knocks the bottom out of the whole case. Why does a given number of one article exchange for a given number of another article? Mr. Kitson cannot tell us. His disciple says it is a question of division of the quantities existing into each other. Then how can he explain that the Statistical Abstract gives Raw Wool at 11.88d. per lb while Woollen Yarn is given at 20.54d., or nearly double the price? Divide wool into wool and the result is – wool. Yet the difference in price is 8.34d.!

Finally we have an outline of the scheme for salvation laid down.

“A municipal bank would operate in this fashion. Let us take the case of a farmer short of ready money, but with 400 acres under wheat crops, estimated to produce from four to six quarters of grain per acre. His labourers want their wages. Ordinarily a credit stringency would cripple the farmer, whose workmen would also suffer as a result, but at our Municipal Bank he could monetize his credit based on 1,600 quarters of wheat. He draws notes on the Branch Bank at Puddleton and pays his workmen therewith, the notes circulating as legal tender, and being received by tradesmen in Puddleton and elsewhere on the strength of the stamp of the Puddleton Branch Bank. Farmer Brown doesn’t pay 3½ per cent for the accommodation, either; any charge upon his loan is calculated upon the cost of maintaining the Bank, which preferably should be a charge upon the local rates. Farmer Brown simply exchanges his unknown credit for that of the Bank, which forthwith debits him with the amount of the loan, payable in a given period of time by tendering a number of notes equal in total value to the amount of his loan. And this procedure could be followed in the case of all reputable citizens, commercial and industrial houses, shopkeepers, etc.” In fact by everybody except the working class, whose “unknown credit” would fail to pass the bank test.

Passing by the numerous assumptions with which the above quotation bristles, the general position is that laid down by John Gray, afterwards plagiarised by Proudhon and crushingly dealt with by Marx in Poverty of Philosophy and The Critique of Political economy. How a tradesman would be better off in having to accept a note instead of gold for his goods it would be difficult to explain; while the experience of the French Assignats shows the folly of trying to pay debts with paper.

The quotation assumes sound security in one part and denies it in another. If the Bank issues notes upon security of an exchangeable value, then, as shown by the L.C.C. loan, there is plenty of money awaiting that use now. If the farmer’s credit is “stringent” , that means his security is of doubtful exchange value. Then where is the soundness of the Bank?

The only point that might be said is the one that Farmer Brown would not pay 3½ per cent for the loan. Ignoring at this stage the question of what it would actually cost to run the Bank, we can now see the economic interest standing behind this scheme. It is to relieve the farmers, commercial men, shopkeepers etc from the burden of paying interest on their borrowed capitals. It is the attempt of the smaller section – financially speaking – of the capitalist class to increase their share of the surplus-value by cutting out one of those with whom they at present have to share that surplus, namely – the interest lord. So blatantly ignorant is the author of even the smallest conception of the working class position that he has the brass to say that “It is safe to say that the [French] Revolution of 1848 failed mainly because the insurgents neglected to capture the means of Exchange. The breakdown of the Commune was due, too, largely to the financial operations directed against it”. Shades of Thiers and Gallifet! What friends you have in the Anarchists and the I.L.P.!

(Socialist Standard, August 1909)

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