Delphi complete works of.., p.410
Delphi Complete Works of Stephen Leacock, page 410
Since the departure from the gold standard and the prohibition of private ownership, gold produced in Canada is bought by the government at a fixed price of $35 U.S. currency, plus a premium, to make $38.50 in Canadian funds. Theoretically, the Canadian dollar is still based on $20.67 to one fine ounce, no longer the nominal standard of the United States.
As the pressure of the present war grew heavier on our industrial life, a new situation developed in regard to the mining of gold. It became clear that we must turn all industrial effort away from non-essential production. It was the failure to do so that “bust” the monetary system in the Great War of 1914-1918. People who draw high wages and then call for gramophones, spring hats, new motor cars, and new overcoats, boost the manufacture of luxuries, squeeze production till there’s not enough of anything, and up goes the Spiral of Prices like a Genie of Smoke out of the bottle in the Arabian tale. The whole plan of the world economy, as taught before the war by English economists like Geoffrey Crowther, with our Mr. Ilsley as the bright boy at the top of the class, rests on curtailing production: on giving the workers lots of money and nothing to buy: and keeping them all dressed up (in their old clothes) and nowhere to go. Seen in a bird’s-eye view from above, it’s perfectly simple: you look down and see people making and consuming nothing but what war demands — food, gunpowder, transport. The only trouble is that so few of us are birds.
Now — it is clear as mud — producing gold in Canada is of no service in winning the war, with an ally holding — what is it? — $20,000,000,000 of it at Fort Knox in Tennessee. To dig out gold in North Ontario and dig it in, in Tennessee, is on the face of it idiocy. Luckily for our gold producers, many of them are producing other metals, the very sinews of war, and can’t help producing gold as a part-product or even a mere by-product. But others, like the mines in the Kirkland Lake and Timmins fields, produce nothing else. Each one of these districts is a little South Africa. Gold is its life. Here you have in and around Timmins over forty thousand people all dependent on gold.
Hence when the government undertook (1941-1942) — and I think quite rightly — to restrict the production of gold by various regulations regarding labour supply, new development, import of machinery, etc., there was an immediate outcry. A delegation went up from Timmins to Ottawa — or is it down to Ottawa — up and down, both, eh? — thank you — and received the usual lullaby answer. Undoubtedly the delegation was right. So was the government. But the solution doesn’t lie in letting Timmins produce gold but in giving it a chance to produce, or do something else at just as good pay....
Yet certain people, and among them so high an authority as the veteran geologist, Dr. J. B. Tyrrell, sounded a note of alarm at any restriction of gold, arguing that we need it all. All that, however, is just our national aspect of the question. There is no doubt of the interest of Canada in gold. It goes far beyond anything that can be shown by statistics. It supplies the incentive — aura sacra fames, the cursed lust of gold — that opens up the waste spaces of the earth and turns private greed to a public benefit.
But what about the world at large? Will gold remain after the war as an essential part of the world’s economy? There is every present symptom that it will, or at least that if it doesn’t, it won’t be for lack of trying. The temptation to say, “I told you so,” is difficult to resist in youth, impossible to restrain in old age. So I will not try to restrain it. I am glad to think that I advocated a return to the gold standard even in the dark days when Professor Keynes said that the gold standard had gone the way of the stagecoach. The mistake which I made along with so many other people was that I did not realize that the attempt, twenty years ago, to set up the gold standard at the same old mint content of the pound and dollar as had prevailed till 1914 would mean, of necessity, a fall in prices that would depress business and create unemployment.
But a return to the gold standard does not necessarily mean the return to a pound sterling containing the former number of grains of pure gold. Indeed, the United States has already (1934), through the authorized actions of the President, declared a dollar to mean 13.71 grains of pure gold in place of the previous 23.22. It is true there is as yet no such coin and no such coinage.
It is obvious that in starting the new system the mint content of the coin (if coins are used), or of the monetary unit, must be carefully adjusted. The thing called a dollar should represent the amount of gold that would in a free market be bought with a dollar. On this plan the original U.S. Coinage Act of 1792 initiated the American gold and silver dollars. The British Units never began; they just grew up. And there is now no free market. We don’t know how many ounces of gold a dollar would buy. Purchase is all statutory and fixed.
What has happened, apparently, is that in both Great Britain and America there has arisen a profound distrust of the purely abstract standard of value (a mathematical conception based on average of prices). Hence both the British plan submitted by Lord Keynes and the American plan submitted to the President contemplate a banking and paper money currency for daily use, with a solid basis of gold — under it or behind it, or beside it — they are not exactly certain which. The American plan names a unit to be called a Unita, taken from the United Nations. The name is not so new as they think (or perhaps they don’t think). The Unite (meaning United Nations, England and Scotland) was the chief gold coin in England from the accession of James I to the Restoration of 1660.
The English plan suggests a unit to be called a “bancor” which is in some way to be based on actual gold.
Most of the actual gold bullion in the world is, as said, in the possession of the United States. It is of no physical service and to lend it to the outside world that needs reconstruction would seem like getting something for nothing. So it would be. If the United States lent to Greece a billion actual dollars (a hundred million Unitas), and the same to Denmark, Holland, Norway and all the decent, trampled-down and bankrupt nations, they could then, each of them, start up a banking and paper note currency in the good old-fashioned way, and everybody trade with everybody as merrily as in Mid-Victorian days. You may add to this a general superbank (in London or New York) — not surrounded by dens of thieves like the pitiful Bank of International Settlement still existing in Switzerland for the benefit of Germans. The Dutch and other reserves could be focused at London and hence make the total go further, carry a bigger per cent of the load of paper deposits, as easily as a Zulu woman carries a clothes-basket on her head.
Here are the questions that arise: Will the system work of itself? Or do you have to work it? Does everybody have to promise to play fair? Or does it work like Adam Smith’s automatic world in which everybody consulted his own interest and so advanced that of everybody else?
For example, suppose the United States by means of high tariffs and such practices shut out European goods, and when they sold to Europe new motor cars and machinery, took payment only in gold; would that mean that the gold would all, or a lot of it, drift back to Tennessee? Presumably it would. In a large sense the United States would have given to the European world a lot of excellent motor cars and machinery for nothing. It is generally understood that the Americans have sworn off this one-sided trade, as a drunkard swears off drink. Question, can they keep to it? Or will Uncle Sam take just one little nip out of the Protectionist bottle, and then just another, and a chaser ... And won’t some people say that it does him good? If people in the dark places of the newfangled world are going to work at starvation wages, will you buy what they make and force our own labour to go idle or work cheap? Take Japan: if, after the peace, the dirty little pups work half-starved, who cares? Will you sell to them? Certainly, for gold. Buy from them? Never! ... Moves up from Japan to India, then to depressed Europe. The problem gets harder as you go. I make no pretence of solving it. I consider the world factors too complicated, the economic gears too intricate for any prophecy about the operation of a gold standard in connection with the backwash of gold to the United States. But this much is true: it is better to accept a chance of success than fall back on a certainty of failure. This failure would result, I am certain, from any attempt to run the commerce of a post-war world on a chaos of national currencies with no fixed interlocking of one with the other.
A further difficulty remains. Is it intended that currencies are actually redeemable, day by day, dollar by dollar, from the Unitas to paper, from papers to bancors? That’s the crucial question in the construction of the mechanism. That was the essence of the gold standard. Nor can we dodge the question: either money is redeemable, free to come and go, import and export, or it isn’t. It is impossible, indeed, to restrict redemption to large sums, and to confine it to central places. But either you redeem it, or you don’t. My opinion is that you must — redeem and redeem till you have no gold left — and then put up the sign, “Yes, we have no Unitas.”
How will prices act, with a redeemable monetary system? In my opinion, prices will not be much influenced by the annual production, more or less, of gold. The equation is buried too deep. When the output of California and Australia began, a world production of $100,000,000 a year (old scale $20.67 per fine oz.) was added to a world stock of $2,500,000,000. Yet prices, though they rose, did not rise in any dangerous way. At present a world annual production of 40,000,000 fine ounces ($800,000,000 old scales) would be added to an existing stock of $28,000,000,000. It won’t affect general prices in any way that can be distinguished from more direct and active factors. The fluctuation will be in mining profits, in the closing and reopening of gold mines in response to the rise and fall of wages, due to other things.
In any new world that we can think of, prices will be far more controlled than they used to be forty years ago. Economic complexity demands it, and war experience shows that it can be done. But this control will be like a tension over the surface, not reaching down to the depths, waves in the sunlight that leave the deep water undisturbed.
What I am advocating, in plain words, is the gold standard; not part of it, all of it. Take all the gold there is. Lend it around among our friends: get the bank signs painted: then shout, “Go!”
Can We Beat Inflation?
EVERY AGE AND generation has its special mysteries, its special terrors, its special realms of fear. It fears vague dangers that drive it to blind frenzies — witchcraft, the coming of the Turks or the approach of the end of the world.
And for each generation the terrors of the ones that preceded it seem absurd and even laughable. There was a time in the Sixteen Hundreds in Europe when all the people gathered, each night for weeks, in the churches praying God to take away “The Comet.” It was getting bigger every night with a tail of fire halfway across the sky. And to think that it was just dear old “Halley’s Comet,” friendly as Mary’s Lamb, and back on its last visit in 1910. For quite a time the prayer books of the Church of England printed in the Litany, “From the Turk and from the Comet, Good Lord, deliver us.” If you don’t believe it, ask any clergyman of the Episcopal Church. He won’t know, but you can ask him. “The Turk” was another terror going strong at the time.
Or much later than that, right down in the Nineteenth Century, in the United States itself, people used to get sudden waves of fear that the world was coming to an end. The terror was worked this way: First you formed a “Sect.” A sect was as easy to start in an American backwoods town of 1840, like Pittsburgh or Chicago, as it is to start a steelmakers’ union today. Then the sect started a rumour that the world was coming to an end. Then they named the actual day, and terror swept the back settlements. The people would gather, quaking, on the hilltops on a summer evening to see the world end. It didn’t.
This happened not once but several times. In fact there was great relief when Lord Kelvin, the Great — whatever he was great at — announced that the earth was good for a billion years. Short as it sounds today, it was a relief.
Well, the point is that in the throes of war and national danger we have picked up our own particular terror, the bogey of today — the Inflation of the Currency. We are not scared of Japs or Germans, but at the word “Inflation” we quiver with fear, shake with rage and reach out for an axe.
You recall the old Arabian Fable of the Genie in the Bottle. Here you had a powerful evil spirit corked up in a bottle. You could let him out if you simply pulled the cork, and he’d promise to be your servant if you did. And mind you he had tremendous power — money, wealth, jewels — those things were as pebbles to him. But if you did let him out, the Genie then would expand and grow and swell into a great black spiral cloud that darkened the whole sky ... and the cloud then turned to a vast dark form with outstretched, clutching hands, ready to hurl you into black destruction. What good your petty jewels then?
Our Genie in the Bottle is Inflation. And you notice that awful “spiral” form taken over straight from the fable and appearing as the “vicious spiral.” People who have no idea what a vicious spiral is, warn us against it. Get that “vicious spiral” into the currency and up it goes, away, away up like the vicious boy in Excelsior.
What I am trying to say is that the new terror is becoming largely just terror without any clear idea of what it really is. When we hear that the steelmakers of Pittsburgh want another eighty cents a minute (or is it a second?), we shake our heads apprehensively. We don’t grudge the eighty cents: but the currency? If those fellows keep on they’ll inflate it. And not only steelmakers, not only the big things, but even in the ordinary small business of daily life. If a corner grocer inflates eggs from forty to forty-five cents, there’s a feeling that he may be starting a vicious spiral right here in our own town.
People make this mystery all the more mysterious because men, most men, pretend to understand all about it, and women, most women, pretend to understand nothing about it. That is their attitude in general about economics. “I don’t profess to understand economics,” says a woman, meaning, “so much the worse for economics.” “It’s just a plain matter of economics,” says the man, meaning, “that’s my affair.”
So let us try to get light. What is inflation? What is a vicious spiral? Is there a danger? Can we get out of it?
The answer I want to arrive at — but not too soon — let’s have a little fun with it first — is: yes, there is inflation; and there is a spiral; and it is a real danger; and it has in the past, again and again, led to collapse and disaster and stagnation. But we can avoid it as easily as a lion tamer walks around in a lion’s cage, or an electrician handles forty thousand volts of electricity. Just exactly as easily as that.
Now let us turn back — economics always has to — if it is only just a few centuries for a few minutes.
Currency began with any common thing that primitive people traded around because it was always good for something. Eskimos used fishhooks. In Kurdistan the Kurds used goats as currency. Where is Kurdistan? It’s where the Kurds kept goats. Inflation began in Kurdistan. Starting goats as currency led to such prosperity that the goats bred so fast that it inflated the currency, stopped trade and plunged them in adversity.
The nations learned to use chunks of gold and silver as currency. These couldn’t increase. There was just so much. That plan lasted two thousand five hundred years, from the first coins in Asia Minor, 1000 B.C. to the discovery of America. Gold and silver currency worked all right but oh, how feebly. There was so little of it and that little, by loss, kept getting less. You recall the good Samaritan in the Bible who said, “Look after this poor man: clothe him, feed him and keep him till I come. Here’s two cents, and if it runs to more than that let me know.”
Gold and silver from America came, says history, “in a flood.” Not really; that’s just “history.” All the gold from Mexico and Peru in a year was about one thirtieth of the year’s crop of New Ontario and New Quebec. But it was enough to flood the Europe of that day. People offered so much of it, so readily, that up went prices (1500-1600), three to one, but oh, so slowly. It took three lifetimes. All the way from 1600 to 1800, prices went up but not too fast, because “business” (volume of transactions) went up as fast or faster. So the world went very well then, as an old song had it.
Then came the Genie in the Bottle, Paper Money. “Let me out,” said the Genie to John Law, the French Banker, “and we’ll print money and you’ll be the richest man in France!” (This was around 1717.) They did. It worked: then bust the government.
“Let me out,” said the Genie to George Washington, “and I’ll print United States Continental Dollars and pay for the whole war.” “Ask John Adams,” said George Washington. They did it. The Continental Dollars flew to the sky; nobody lost except honest, patriotic people who sold their land and houses for them to help the war. The Genie, liberated, went to France. “Let’s have a Revolution,” he said. “Come on, we’ll print Assignats and Mandats.” They printed them till their arms were tired — forty-five billion francs. This broke the rich, and impoverished the poor. Those who objected were guillotined.
Europe gasped. “Never again,” said the bankers and economists. “Irredeemable paper money,” went into the British Litany of the days of John Stuart Mill and Macaulay as “Irredeemable Sin.” Never again.
That was all right no doubt — as a Litany, as what we call a counsel of perfection. But the Devil of it was, or rather the Genie of it was, that the first stages of inflation were always so pleasant, so easy, so stimulating — high wages for everybody, jobs for all, and you pay for it all with a printing press! Brandy was nothing beside it as a pick-me-up.
So the Genie could always break loose again, whenever a war gave him a start, a Civil War with a Confederate spiral and a Greenback spiral and later, the great spiral which encircled all Europe, dragging it down to its later doom — an octopus hidden in the Waters of Peace.
Then the Genie of the Bottle joined hands with other devils worse than himself. For he was just an economic devil, and they, were devils of perverted Nationalism, turned to cruelty and aggression, to make this present war.
As the pressure of the present war grew heavier on our industrial life, a new situation developed in regard to the mining of gold. It became clear that we must turn all industrial effort away from non-essential production. It was the failure to do so that “bust” the monetary system in the Great War of 1914-1918. People who draw high wages and then call for gramophones, spring hats, new motor cars, and new overcoats, boost the manufacture of luxuries, squeeze production till there’s not enough of anything, and up goes the Spiral of Prices like a Genie of Smoke out of the bottle in the Arabian tale. The whole plan of the world economy, as taught before the war by English economists like Geoffrey Crowther, with our Mr. Ilsley as the bright boy at the top of the class, rests on curtailing production: on giving the workers lots of money and nothing to buy: and keeping them all dressed up (in their old clothes) and nowhere to go. Seen in a bird’s-eye view from above, it’s perfectly simple: you look down and see people making and consuming nothing but what war demands — food, gunpowder, transport. The only trouble is that so few of us are birds.
Now — it is clear as mud — producing gold in Canada is of no service in winning the war, with an ally holding — what is it? — $20,000,000,000 of it at Fort Knox in Tennessee. To dig out gold in North Ontario and dig it in, in Tennessee, is on the face of it idiocy. Luckily for our gold producers, many of them are producing other metals, the very sinews of war, and can’t help producing gold as a part-product or even a mere by-product. But others, like the mines in the Kirkland Lake and Timmins fields, produce nothing else. Each one of these districts is a little South Africa. Gold is its life. Here you have in and around Timmins over forty thousand people all dependent on gold.
Hence when the government undertook (1941-1942) — and I think quite rightly — to restrict the production of gold by various regulations regarding labour supply, new development, import of machinery, etc., there was an immediate outcry. A delegation went up from Timmins to Ottawa — or is it down to Ottawa — up and down, both, eh? — thank you — and received the usual lullaby answer. Undoubtedly the delegation was right. So was the government. But the solution doesn’t lie in letting Timmins produce gold but in giving it a chance to produce, or do something else at just as good pay....
Yet certain people, and among them so high an authority as the veteran geologist, Dr. J. B. Tyrrell, sounded a note of alarm at any restriction of gold, arguing that we need it all. All that, however, is just our national aspect of the question. There is no doubt of the interest of Canada in gold. It goes far beyond anything that can be shown by statistics. It supplies the incentive — aura sacra fames, the cursed lust of gold — that opens up the waste spaces of the earth and turns private greed to a public benefit.
But what about the world at large? Will gold remain after the war as an essential part of the world’s economy? There is every present symptom that it will, or at least that if it doesn’t, it won’t be for lack of trying. The temptation to say, “I told you so,” is difficult to resist in youth, impossible to restrain in old age. So I will not try to restrain it. I am glad to think that I advocated a return to the gold standard even in the dark days when Professor Keynes said that the gold standard had gone the way of the stagecoach. The mistake which I made along with so many other people was that I did not realize that the attempt, twenty years ago, to set up the gold standard at the same old mint content of the pound and dollar as had prevailed till 1914 would mean, of necessity, a fall in prices that would depress business and create unemployment.
But a return to the gold standard does not necessarily mean the return to a pound sterling containing the former number of grains of pure gold. Indeed, the United States has already (1934), through the authorized actions of the President, declared a dollar to mean 13.71 grains of pure gold in place of the previous 23.22. It is true there is as yet no such coin and no such coinage.
It is obvious that in starting the new system the mint content of the coin (if coins are used), or of the monetary unit, must be carefully adjusted. The thing called a dollar should represent the amount of gold that would in a free market be bought with a dollar. On this plan the original U.S. Coinage Act of 1792 initiated the American gold and silver dollars. The British Units never began; they just grew up. And there is now no free market. We don’t know how many ounces of gold a dollar would buy. Purchase is all statutory and fixed.
What has happened, apparently, is that in both Great Britain and America there has arisen a profound distrust of the purely abstract standard of value (a mathematical conception based on average of prices). Hence both the British plan submitted by Lord Keynes and the American plan submitted to the President contemplate a banking and paper money currency for daily use, with a solid basis of gold — under it or behind it, or beside it — they are not exactly certain which. The American plan names a unit to be called a Unita, taken from the United Nations. The name is not so new as they think (or perhaps they don’t think). The Unite (meaning United Nations, England and Scotland) was the chief gold coin in England from the accession of James I to the Restoration of 1660.
The English plan suggests a unit to be called a “bancor” which is in some way to be based on actual gold.
Most of the actual gold bullion in the world is, as said, in the possession of the United States. It is of no physical service and to lend it to the outside world that needs reconstruction would seem like getting something for nothing. So it would be. If the United States lent to Greece a billion actual dollars (a hundred million Unitas), and the same to Denmark, Holland, Norway and all the decent, trampled-down and bankrupt nations, they could then, each of them, start up a banking and paper note currency in the good old-fashioned way, and everybody trade with everybody as merrily as in Mid-Victorian days. You may add to this a general superbank (in London or New York) — not surrounded by dens of thieves like the pitiful Bank of International Settlement still existing in Switzerland for the benefit of Germans. The Dutch and other reserves could be focused at London and hence make the total go further, carry a bigger per cent of the load of paper deposits, as easily as a Zulu woman carries a clothes-basket on her head.
Here are the questions that arise: Will the system work of itself? Or do you have to work it? Does everybody have to promise to play fair? Or does it work like Adam Smith’s automatic world in which everybody consulted his own interest and so advanced that of everybody else?
For example, suppose the United States by means of high tariffs and such practices shut out European goods, and when they sold to Europe new motor cars and machinery, took payment only in gold; would that mean that the gold would all, or a lot of it, drift back to Tennessee? Presumably it would. In a large sense the United States would have given to the European world a lot of excellent motor cars and machinery for nothing. It is generally understood that the Americans have sworn off this one-sided trade, as a drunkard swears off drink. Question, can they keep to it? Or will Uncle Sam take just one little nip out of the Protectionist bottle, and then just another, and a chaser ... And won’t some people say that it does him good? If people in the dark places of the newfangled world are going to work at starvation wages, will you buy what they make and force our own labour to go idle or work cheap? Take Japan: if, after the peace, the dirty little pups work half-starved, who cares? Will you sell to them? Certainly, for gold. Buy from them? Never! ... Moves up from Japan to India, then to depressed Europe. The problem gets harder as you go. I make no pretence of solving it. I consider the world factors too complicated, the economic gears too intricate for any prophecy about the operation of a gold standard in connection with the backwash of gold to the United States. But this much is true: it is better to accept a chance of success than fall back on a certainty of failure. This failure would result, I am certain, from any attempt to run the commerce of a post-war world on a chaos of national currencies with no fixed interlocking of one with the other.
A further difficulty remains. Is it intended that currencies are actually redeemable, day by day, dollar by dollar, from the Unitas to paper, from papers to bancors? That’s the crucial question in the construction of the mechanism. That was the essence of the gold standard. Nor can we dodge the question: either money is redeemable, free to come and go, import and export, or it isn’t. It is impossible, indeed, to restrict redemption to large sums, and to confine it to central places. But either you redeem it, or you don’t. My opinion is that you must — redeem and redeem till you have no gold left — and then put up the sign, “Yes, we have no Unitas.”
How will prices act, with a redeemable monetary system? In my opinion, prices will not be much influenced by the annual production, more or less, of gold. The equation is buried too deep. When the output of California and Australia began, a world production of $100,000,000 a year (old scale $20.67 per fine oz.) was added to a world stock of $2,500,000,000. Yet prices, though they rose, did not rise in any dangerous way. At present a world annual production of 40,000,000 fine ounces ($800,000,000 old scales) would be added to an existing stock of $28,000,000,000. It won’t affect general prices in any way that can be distinguished from more direct and active factors. The fluctuation will be in mining profits, in the closing and reopening of gold mines in response to the rise and fall of wages, due to other things.
In any new world that we can think of, prices will be far more controlled than they used to be forty years ago. Economic complexity demands it, and war experience shows that it can be done. But this control will be like a tension over the surface, not reaching down to the depths, waves in the sunlight that leave the deep water undisturbed.
What I am advocating, in plain words, is the gold standard; not part of it, all of it. Take all the gold there is. Lend it around among our friends: get the bank signs painted: then shout, “Go!”
Can We Beat Inflation?
EVERY AGE AND generation has its special mysteries, its special terrors, its special realms of fear. It fears vague dangers that drive it to blind frenzies — witchcraft, the coming of the Turks or the approach of the end of the world.
And for each generation the terrors of the ones that preceded it seem absurd and even laughable. There was a time in the Sixteen Hundreds in Europe when all the people gathered, each night for weeks, in the churches praying God to take away “The Comet.” It was getting bigger every night with a tail of fire halfway across the sky. And to think that it was just dear old “Halley’s Comet,” friendly as Mary’s Lamb, and back on its last visit in 1910. For quite a time the prayer books of the Church of England printed in the Litany, “From the Turk and from the Comet, Good Lord, deliver us.” If you don’t believe it, ask any clergyman of the Episcopal Church. He won’t know, but you can ask him. “The Turk” was another terror going strong at the time.
Or much later than that, right down in the Nineteenth Century, in the United States itself, people used to get sudden waves of fear that the world was coming to an end. The terror was worked this way: First you formed a “Sect.” A sect was as easy to start in an American backwoods town of 1840, like Pittsburgh or Chicago, as it is to start a steelmakers’ union today. Then the sect started a rumour that the world was coming to an end. Then they named the actual day, and terror swept the back settlements. The people would gather, quaking, on the hilltops on a summer evening to see the world end. It didn’t.
This happened not once but several times. In fact there was great relief when Lord Kelvin, the Great — whatever he was great at — announced that the earth was good for a billion years. Short as it sounds today, it was a relief.
Well, the point is that in the throes of war and national danger we have picked up our own particular terror, the bogey of today — the Inflation of the Currency. We are not scared of Japs or Germans, but at the word “Inflation” we quiver with fear, shake with rage and reach out for an axe.
You recall the old Arabian Fable of the Genie in the Bottle. Here you had a powerful evil spirit corked up in a bottle. You could let him out if you simply pulled the cork, and he’d promise to be your servant if you did. And mind you he had tremendous power — money, wealth, jewels — those things were as pebbles to him. But if you did let him out, the Genie then would expand and grow and swell into a great black spiral cloud that darkened the whole sky ... and the cloud then turned to a vast dark form with outstretched, clutching hands, ready to hurl you into black destruction. What good your petty jewels then?
Our Genie in the Bottle is Inflation. And you notice that awful “spiral” form taken over straight from the fable and appearing as the “vicious spiral.” People who have no idea what a vicious spiral is, warn us against it. Get that “vicious spiral” into the currency and up it goes, away, away up like the vicious boy in Excelsior.
What I am trying to say is that the new terror is becoming largely just terror without any clear idea of what it really is. When we hear that the steelmakers of Pittsburgh want another eighty cents a minute (or is it a second?), we shake our heads apprehensively. We don’t grudge the eighty cents: but the currency? If those fellows keep on they’ll inflate it. And not only steelmakers, not only the big things, but even in the ordinary small business of daily life. If a corner grocer inflates eggs from forty to forty-five cents, there’s a feeling that he may be starting a vicious spiral right here in our own town.
People make this mystery all the more mysterious because men, most men, pretend to understand all about it, and women, most women, pretend to understand nothing about it. That is their attitude in general about economics. “I don’t profess to understand economics,” says a woman, meaning, “so much the worse for economics.” “It’s just a plain matter of economics,” says the man, meaning, “that’s my affair.”
So let us try to get light. What is inflation? What is a vicious spiral? Is there a danger? Can we get out of it?
The answer I want to arrive at — but not too soon — let’s have a little fun with it first — is: yes, there is inflation; and there is a spiral; and it is a real danger; and it has in the past, again and again, led to collapse and disaster and stagnation. But we can avoid it as easily as a lion tamer walks around in a lion’s cage, or an electrician handles forty thousand volts of electricity. Just exactly as easily as that.
Now let us turn back — economics always has to — if it is only just a few centuries for a few minutes.
Currency began with any common thing that primitive people traded around because it was always good for something. Eskimos used fishhooks. In Kurdistan the Kurds used goats as currency. Where is Kurdistan? It’s where the Kurds kept goats. Inflation began in Kurdistan. Starting goats as currency led to such prosperity that the goats bred so fast that it inflated the currency, stopped trade and plunged them in adversity.
The nations learned to use chunks of gold and silver as currency. These couldn’t increase. There was just so much. That plan lasted two thousand five hundred years, from the first coins in Asia Minor, 1000 B.C. to the discovery of America. Gold and silver currency worked all right but oh, how feebly. There was so little of it and that little, by loss, kept getting less. You recall the good Samaritan in the Bible who said, “Look after this poor man: clothe him, feed him and keep him till I come. Here’s two cents, and if it runs to more than that let me know.”
Gold and silver from America came, says history, “in a flood.” Not really; that’s just “history.” All the gold from Mexico and Peru in a year was about one thirtieth of the year’s crop of New Ontario and New Quebec. But it was enough to flood the Europe of that day. People offered so much of it, so readily, that up went prices (1500-1600), three to one, but oh, so slowly. It took three lifetimes. All the way from 1600 to 1800, prices went up but not too fast, because “business” (volume of transactions) went up as fast or faster. So the world went very well then, as an old song had it.
Then came the Genie in the Bottle, Paper Money. “Let me out,” said the Genie to John Law, the French Banker, “and we’ll print money and you’ll be the richest man in France!” (This was around 1717.) They did. It worked: then bust the government.
“Let me out,” said the Genie to George Washington, “and I’ll print United States Continental Dollars and pay for the whole war.” “Ask John Adams,” said George Washington. They did it. The Continental Dollars flew to the sky; nobody lost except honest, patriotic people who sold their land and houses for them to help the war. The Genie, liberated, went to France. “Let’s have a Revolution,” he said. “Come on, we’ll print Assignats and Mandats.” They printed them till their arms were tired — forty-five billion francs. This broke the rich, and impoverished the poor. Those who objected were guillotined.
Europe gasped. “Never again,” said the bankers and economists. “Irredeemable paper money,” went into the British Litany of the days of John Stuart Mill and Macaulay as “Irredeemable Sin.” Never again.
That was all right no doubt — as a Litany, as what we call a counsel of perfection. But the Devil of it was, or rather the Genie of it was, that the first stages of inflation were always so pleasant, so easy, so stimulating — high wages for everybody, jobs for all, and you pay for it all with a printing press! Brandy was nothing beside it as a pick-me-up.
So the Genie could always break loose again, whenever a war gave him a start, a Civil War with a Confederate spiral and a Greenback spiral and later, the great spiral which encircled all Europe, dragging it down to its later doom — an octopus hidden in the Waters of Peace.
Then the Genie of the Bottle joined hands with other devils worse than himself. For he was just an economic devil, and they, were devils of perverted Nationalism, turned to cruelty and aggression, to make this present war.
