NATIONALIZATION OF BANKING

YOU now know enough about banking and the manufacture of money to understand that they are necessities of civilization. They are in some respects quite peculiar businesses. Banking heaps up huge masses of capital in the banker’s hands for absolutely nothing but the provision of a till to put it in, and clerks to keep an account of it. Coinage is useless without a Government guarantee of the genuineness of the coins, and a code of laws making it a serious crime for any private person to make counterfeit coins, besides settling the limits within which coins that are stamped with more than their value as metal (called token coinage) can be used for paying debts.

As it is impossible for any private person or company to fulfil these coinage conditions satisfactorily, the manufacture of money is a nationalized business, unlike the manufacture of boots. You do not see a mint in every street as you see a bootmaker’s. All the money is made in THE Mint, which is a Government factory of coins. If, in your disgust at the disagreeable white metal shillings which have been substituted since the war for the old silver ones, you were to set up a private mint of your own, you would be sent to prison for coining, even though you could prove that your nice shillings were worth more than the nasty ones of the Government. Formerly, if you had a quantity of gold, you could take it to the Mint, and have it made into sovereigns for you at a small charge for the King’s image and guarantee called seignorage; but you were not allowed to make the coins for yourself out of your own gold. Today the Mint will not do that for you because it is easier for you to give your gold to your banker, who will give you credit for its worth in money. Thus the whole business is as strictly nationalized as that of the Post Office. Perhaps you do not know that you can be prosecuted for carrying a letter for hire instead of giving it to the Postmaster-General to carry. But you can, just as you can be prosecuted for making a coin, or for melting one down. And nobody objects. The people who, when it is proposed to nationalize the coal mines and the railways, shriek into your ears that nationalization is robbery and ruin, are so perfectly satisfied with the nationalization of the Mint that they never even notice that it is nationalized, poor dears!

However, private persons can issue a currency of their own, provided it is not an imitation of the Government currency. You may write a cheque, or a bill of exchange, and use it as paper money as often as you please; and no policeman can lay a finger on you for it provided (a) that you have enough Government money at your bank to meet the cheque when it is presented for payment, and (b) that the piece of paper on which your cheque is printed, or your bill of exchange drawn, bears no resemblance to a Treasury note or a bank note. An enormous volume of business is done today by these private currencies of cheques and bills of exchange. But they are not money: they are only title deeds to money, just as money itself is only a title deed to goods. If you owe money to your grocer he may refuse to take a cheque in payment; but if you offer him Treasury notes or sovereigns, he must take them whether he likes them or not. If you are trading with a manufacturer, and offer him a bill of exchange pledging you to pay for his goods in six months, he may refuse it and insist on Government money down on the nail. But he may not refuse Government money. Your offer of it is “legal tender”.

Besides, money, as we have seen, is a measure of value; and cheques and bills are not. The cheques and bills would have no meaning and no use unless they were expressed in terms of money. They are all for so many pounds, shillings, and pence; and if there were no pounds, shillings, and pence in the background, a cheque would have to run “Pay to Emma Wilkins or Order two pairs of secondhand stockings, slightly laddered, my share of the family Pekingese dog, and half an egg”. No banker would undertake to pay cheques of that sort. Both cheques and banking depend on the existence of nationalized money.

Banking is not yet nationalized; but it will be, because the public gain from nationalization will lead people to vote for it when they understand it just as they will vote for nationalization of the coal mines. Business people need capital to start and extend their businesses just as they need coal to warm themselves. As we have seen, when they want hundreds of thousands they get them by paying enormous commissions to financiers, who are so spoiled by huge profits that they will not deign to look at what they regard as small business. Those who want tens of thousands are not catered for: and those who want modest hundreds are often driven to borrow from money lenders at high rates of interest because the bank manager does not think it worth the bank’s while to let them overdraw. If you could shew these traders a bank working not to make profits at the expense of its customers but to distribute capital as cheaply as possible for the good of the country to all the businesses, large or small, which needed it, they would rush to it and snap their fingers at the profiteering financiers. A national or municipal bank would be just that. It would bring down the price of capital just as nationalization of the coal mines would bring down the price of coal, by eliminating the profiteer; and all the profiteers except the money profiteers (financiers and bankers) will be finally converted to it by this prospect, because, though they aim at making as much profit as possible out of you when you go shopping, they are determined that other people shall make as little profit as possible out of them.

Nationalization of Banking therefore needs no Socialist advocacy to recommend it to the middle class. It is just as likely to be finally achieved by a Conservative Government as by a Labor one. The proof is that the first municipal bank has been established in Birmingham, which returns twelve members to Parliament of whom eleven are Conservatives, and strong ones at that. Only one is Labor. The Birmingham municipal bank has been so easily and brilliantly successful that unless it be deliberately sabotaged in the interests of the financiers by a press campaign against it, which is practically impossible in a city of manufacturers, it will lead to a development of municipal banking all over the manufacturing districts. Already there are several others.

Meanwhile the bankers and financiers continue to assure us that their business is such a mysteriously difficult one that no Government or municipal department could deal with it successfully. They are right about the mystery, which is due to the fact that they only half understand their own business, and their customers do not understand it at all. By this time I hope you understand it much better than an average banker. But the difficulty is all nonsense. Let us see again what a bank has to do.

By simply offering to keep people’s money safe for them, and to make payments out of it for them to anyone they choose to name (by cheque), and to keep a simple cash account of these payments for them, it gets into its hands a mass of spare money which it professes to keep at its customers’ call, but which it finds by experience it can hire out to the extent of about sixteen shillings in the pound because each customer keeps a balance to his credit all the time. There is no mystery or difficulty about this. It can be done by government or municipal banks as easily as petty banking, with its currency of postal notes and stamps, is done by our national post offices and savings banks. The only part of it that is not automatically successful is the hiring out of the money when it is paid in. A bank manager whose judgment was bad would very soon get his bank into difficulties by hiring out the spare money to traders who are in a bad way, either because their businesses were being superseded by new businesses, or because they were too honest, or not honest enough, or extravagant, or drunken, or lazy, or not good men of business, or poetically unfitted to succeed. But a manager who was too cautious to lend any money at all would be still more disastrous; for we must continually remember that the things represented by the spare money in the bank will not keep, and that if fifty billions’ worth of food were saved out of the year’s harvest and lodged in a State bank (or any other bank) it would be a dead loss and waste if it were not eaten pretty promptly by workers building up facilities for producing future harvests. The bank manager can choose the person to whom he lends the bank’s spare money; but he cannot choose not to lend it at all; just as a baker, when he has sold all the bread he can for ready money, must either give credit for the rest to somebody or else throw the loaves into the dustbin.

Only, there is this difference between the baker and the banker. The baker can refrain from baking more loaves than he can reasonably expect to sell; but the banker may find himself heaped up with far more spare money than he can find safe hirers for; and then he has not only to take chances himself, but to tempt tradesmen by low rates of hire to take them (“the banks are granting credit freely” the city articles in the papers will say), whereas at other times his spare money will be so short that he will pick and choose and charge high interest (“the bankers are restricting credit”); and this is why it takes more knowledge and critical judgment to manage a bank than to run a baker’s shop.

No wonder the bankers, who make enormous profits, and consequently have the greatest dread of having these cut off by the nationalization of banking, declare that no Government could possibly do this difficult work of hiring out money, and that it must be left to them, as they alone understand it! Now, to begin with, they neither understand it nor do it themselves. Their bad advice produced widespread ruin in Europe after the war, simply because they did not understand the rudiments of their business, and persisted in reasoning on the assumption that spent capital still exists, and that credit is something solid that can be eaten and drunk and worn and lived in. The people who do the really successful work of hiring out the heaps of spare money in the bank for use in business are not the bankers but the bank managers, who are only employees. Their position as such is not more eligible either in money or social standing than that of an upper division civil servant, and is in many respects much less eligible. They would be only too glad to be civil servants instead of private employees. As to the superior direction which deals with what may be called the wholesale investment of the banked spare money as distinguished from its retail hirings to ordinary tradesmen and men of business, the pretence that this could not be done by the Treasury or any modern public finance department is a tale for the marines. The Bank of England is as glad to have a former Treasury official on its staff as the London Midland and Scottish Railway to have a former civil servant for its Chairman.