Extract from

by The Rt. Hon. Thomas Johnston, P.C., ex-Lord Privy Seal 1934; republished in 1994 by Ossian Publishers Ltd.


‘The investing public have been pandered  to in a manner altogether out of keeping  with the times. . . . Victory can be purchased at  too high a price.’ — Glasgow Herald (4/10/16).

‘The Imperial Democracy that held all the  world beneath its sway, from the senators who  bore historic names down to the humblest  tiller of the soil, from Julius Caesar down to  the smallest shopkeeper in a back street of  Rome, was at the mercy of a small group of  usurers.’ — Ferrero, Greatness and Decline of the  Roman Empire, vi. 223.

WHEN the whistle blew for the start  of the Great War in August 1914 the  Bank of England possessed only nine  millions sterling of a gold reserve, and,  as the Bank of England was the  Bankers' Bank, this sum constituted  the effective reserve of all the other  Banking Institutions in Great Britain.

The bank managers at the outbreak of  War were seriously afraid that the  depositing public, in a panic, would  demand the return of their money.  And, inasmuch as the deposits and  savings left in the hands of the  bankers by the depositing public had  very largely been sunk by the bankers  in enterprises which, at the best, could  not repay the borrowed capital  quickly, and which in several and  large-scale instances were likely to be  submerged altogether in the stress of  war and in the collapse of great areas  of international trade, it followed that  if there were a widespread panicky run  upon the banks, the banks would be  unable to pay and the whole credit  system would collapse, to the ruin of  millions of people.

Private enterprise banking thus being  on the verge of collapse, the Government (Mr. Lloyd George at the time  was Chancellor of the Exchequer)  hurriedly declared a moratorium, i.e. it  authorized the banks not to pay out  (which in any event the banks could  not do), and it extended the August  Bank Holiday for another three days.  During these three or four days when  the banks and stock exchanges were  closed, the bankers held anxious  negotiation with the Chancellor of the  Exchequer. And one of them has  placed upon record the fact that 'he  (Mr. George) did everything that we  asked him to do.' When the banks  reopened, the public discovered that,  instead of getting their money back in  gold, they were paid in a new legal  tender of Treasury notes (the £1 notes  in black and the 10s. notes in red  colours). This new currency had been  issued by the State, was backed by the  credit of the State, and was issued to  the banks to prevent the banks from  utter collapse. The public cheerfully  accepted the new notes ; and nobody  talked about inflation.

Not since 1697 had the State itself  issued paper money. In that year,  1697, notes in the denomination of £5  were issued direct to the public  without the intervention of the finance  houses ; and these notes were not  backed by gold but were legal tender  for the payment of taxes. In 1914,  however, the State issue of money was  upon a colossal scale; the legal tender  was not limited to the payment of  taxes, but was complete for all purposes, and the issue was made with  the goodwill of the bankers and  indeed at their plea and intercession.  Had that new money not been issued,  the private banking houses of Britain  would have been compelled to default  to their creditors in a week's time. Dr.  Walter Leaf, late Chairman of the  Westminster Bank and an ex-President  of the Institute of Bankers, has  enlightened us as to the real effect of  the issue of Treasury notes under the  Currency and Bank Notes Act of  August 6, 1914.

‘The amount and manner of the issue’ he  declares, ‘was left to the absolute discretion  of the Treasury. This was essentially a War  Loan, free of interest, for an unlimited  period, and, as such, was a highly profitable  expedient from the point of view of the  Government.’1

He proceeds to argue that, to some  extent, this State issue of Treasury  notes was covered by the gold coinage  which patriotic people exchanged for  the notes; but there was no provision  whatever in the Currency and Bank  Notes Act of 1914 for any gold  backing, and, in any event, the amount  of gold coin reserved for pretended  security against Treasury notes total- ling some three hundred million  pounds was, at its maximum, only  twenty-seven million pounds. The  three hundred million of new money  issued by the Treasury in 1914 was  therefore, in effect, a War Loan, free  of interest. But, alas, when the War  was over, the Treasury, by a Minute  issued on December 15, 1919, announced that its policy was to be a  gradual reduction in these Treasury  notes; and it proceeded year by year to  take the notes off the Market, on the  plea that the notes so cancelled were  not covered either by gold or by Bank  of England notes. Between the years  1920 and 1926, there was a progressive reduction in Treasury notes from  £320,600,000 to £246,902,500.

To return, however, to the early war  period, no sooner had Mr. Lloyd  George got the bankers out of their  difficulties in the autumn of 1914 by  the issue of the Treasury money, than  they were round again at the Treasury  door explaining forcibly that the State  must, upon no account, issue any  more money on this interest free  basis; if the war was to be run, it must  be run with borrowed money, money  upon which interest must be paid, and  they were the gentlemen who would  see to the proper financing of a good,  juicy War Loan at 31/2 per cent,  interest, and to that last proposition  the Treasury yielded. The War was not  to be fought with interest-free money,  and/or/with conscription of wealth;  though it was to be fought with  conscription of life. Many small  businesses were to be closed and their  proprietors sent overseas as redundant, and without any compensation  for their losses, while Finance, as we  shall see, was to be heavily and  progressively remunerated.

As each war loan became exhausted  the lenders upon the first lower  interest War Loans were permitted to  transfer into the later higher interest  Loans, and usurers’ interest upon  credit was added to the national  burden, so that to-day that burden is  insupportable and the nation staggers  along, cutting the bread and cheese of  its poor, and starving the social  services in a vain attempt to meet the  charges incurred in the Great War  Loan ramps.

The report of the Cunliffe Committee  (1927) relates the story of the progressive piling up of our War Debt  burdens.2

But it is in nowise a complete chronique  scandaleuse of usury in war-time ; nor  did its authors so intend it to be. We  find in its pages no reference to or  hint of the magical process by which,  while the nation struggled almost at  death's door for its very existence, and  while masses of the fittest of our  manhood were daily being blown into  bundles of bloody rags, our banking  fraternities continued to create for  themselves a great volume of new  credit and to lend that • credit to us at  interest, and indeed at progressively  increased interest ; no reference to the  fact that by this manufacture of  bankers' credit some portion, variously  estimated in amount, of what now  stands as the public debt, was simply  fabricated for private ends and was  not a bona-fide loan of real wealth to  the nation. Professor Soddy has  estimated that the , bankers actually  created £2,000,000,000, no less, of this  bank credit, and lent it out to us at 5 per cent.3 That means £100,000,000 a  year upon nothing.

The first War Loan at interest was  floated in November 1914, at 31/2 per  cent., and the investors were only  required to subscribe £95 for each  £100 of scrip. The total amount of the  loan was £350 millions, but as there  were not three hundred and fifty  millions of money in the country,  what the State received was credit —  the pledged credit of individuals and  corporations and banking houses (the  same banking houses which, as we  have seen, three months earlier had  been begging the Treasury notes on  loan from the Government to save  their precious banking system from  bankruptcy).

The second War Loan was issued at  par in June 1915 at 41/2 per cent.  interest; and such investors, and  corporations and banking houses as  had held the previous War Loan Stock  at 31/2 per cent, were permitted to  transfer into the new loan at the  increased rate of interest.

Actually of the 41/2 per cent. Loan  the sum of £176,000,000 was not new  loan money at all, but was a consider- able portion of the old 31/2 per cent.  Loan silently ‘jumping the counter’ on  to the higher rate. And, in addition to  that, the holders of no less than  £138,000,000 of the new 41/2 per  cent. Loan were old holders of 21/2  per cent. Consols and 21/2 per cent.  and 23/4 per cent. Annuities, who also  had been permitted to transfer into  the higher rate of interest yield. These  conversions at the higher rate of  interest meant a clear gift of at least  £4,000,000 a year in extra interest to  the money-lenders.

But the story of this great finance  ramp of June 1915 is incomplete  without a reference being made to the  pledge extracted from the State by the  finance houses and banks that, should  there be any subsequent issue of War  Loan at a still higher rate of interest  than 41/2 per cent., the holders of the  new 41/2 per cent. Loan  (£901,000,000 in amount) would be  entitled to convert at a higher scale,  and this, as we shall see in a moment,  the great bulk of them succeeded in  doing.

Mr. Lloyd George has publicly  declared that the increased rate of  interest offered in the War Loan of  June 1915 was quite unnecessary.  He says :
‘Looking back, I cannot help regretting that  Mr. McKcnna should have thought it necessary  to raise the interest rate of a Government loan  to 41/2 per cent. Maybe this corresponded to  the price that was being offered for other  gilt-edged securities. But in view of the in- crease in our nominal capital reserves due to  war inflation and to the restriction of an  overseas market for investment money, which  was also one of the effects of the War, there  can be little doubt that the Government could  have continued to obtain as much  money as it required by , voluntary  investment, without raising its interest rate  beyond the level of 32/3 per cent. at which my  first loan had been negotiated. Investors would  have had to take this, for lack of an alternative.  And if they had been unwilling to do so, there  would have been a clear and popular ground  for the conscription of capital for war purposes — a step which would have been an  appropriate corollary to the conscription of  man-power which we were soon to introduce.'  4

We must note another, even more  amazing and more impudent, of the  methods of debt and interest concoction in these delirious war-times. The  banks actually issued circulars to  thousands of their customers inviting  them to apply for a portion of the  new War Loan and to borrow credit  from the banks for that purpose at 3 per cent. The customer was to put up  no money for his War Loan, no  margin, no securities. The bank was to  supply the credit, or rather was to  back the customer's credit and was to  charge the customer 3 per cent.  interest for so doing ; but the State  was pledging itself to pay 41/2 per  cent. interest on the War Loan which  the customer was purchasing with his  3 per cent. money. The customer,  after allowing for his Income Tax, &c,  was clearly 1 per cent. per annum in  pocket on the deal.

It is indeed difficult to write in cold  blood of these financial dodges,  arranged between the City and the  Treasury and committed upon a  nation in extremis. In March 1916 the  Bank of England, without any apparent sense of shame, issued press  advertisements which ran :

‘If you cannot fight, you can help  your country by investing all you can  in 5 per cent. Exchequer Bonds. . . .  Unlike the soldier, the investor runs  no risk.’

Yet all these efforts surely paled  before the shameless greed of the  third great War Loan in January 1917.  No foreign conqueror could have  devised a more complete robbery and  enslavement of the British Nation.  The rate of interest in War Loan was  jumped to 5 per cent, (or at the  option of the investor, 4 per cent, free  of Income Tax until October 1942)  and the holders of previous War  Loans and Treasury Bills and War  Expenditure Certificates were invited  to come in and convert their old stock  into the higher rates of booty, and for  each £100 of Stock in the new loan,  only £95 had to be subscribed, so that  the rate of interest really had been  raised to 51/3 per cent. Into this 5 per  cent. War Loan tumbled the holders  on £820,000,000 of the 41/2 per cent.  Loan, thus securing an extra 1/2 per  cent, or £4,000,000 in addition to the  increases which many of them had  secured when the rate of interest was  previously jumped from 31/2 per cent  to 4 1/2 per cent. And not only were  the 41/2 per centers permitted to  convert into the 5 per cent. War Loan,  but the holders of £130,000,000 of  Treasury Bills and £280,500,000 of  Exchequer Bonds also converted. The  new 5 per cent. Loan of  £2,075,750,000 secured only, in fact,  £844,750,000 of new loans, the  balance being paper conversions from  old lower interest Stocks, whereby the  converters were enabled to dig deeper  into the national pocket than they had  hitherto done.

But that was not the sum-total of the  iniquitous ramp which the lackeys of  the money interest imposed upon us  with the 5 per cent. Loan of 1917.  The investors were made exempt from  all British Income Tax upon their  interest payment if they chose to go  and live abroad. Mr. Lloyd George  has himself testified that this 5 per  cent. Loan was raised at ‘a penal  figure,’ and he continues :

‘The same rate governed subsequent  borrowings, which by the end of the  War had added a further £4,000,000,000  to our National Debt. It cost the country  a dozen years of remorseless deflation  and concomitant depression to bring  interest rates down again to a level that  would enable this vast sum to be  reconverted to 31/2 per cent. Throughout  the interval, not only was the country  taxing itself to pay a sum ranging at one  time as high as £100,000,000 a year  more than it would otherwise have done,  but the high yield of a gilt-edged Government security kept up rates all round,  and made money dearer for all enter- prises, industrial, commercial, and  national. It would be hard to estimate  the sum-total of the price paid by the  nation in every department of affairs for  the decision of Mr. McKenna in 1915 to  increase the rate of interest paid by the  Government on its war-time borrowings.  His action had, no doubt, the fullest  authorization from the leading circles of  banking and finance. But the country has  since then had ample evidence that these  circles are by no means to be reckoned  as infallible advisers.' 5

…..[chapter ends:]

Doubtless there were many millions of  money lent patriotically to the State,  money whose owners were disturbed  and ashamed at the profiteering in  finance which made riot during and  after the War. The Rt. Hon. Stanley  Baldwin, for example, who was  Financial Secretary to the Treasury,  and saw at first hand the roguery and  ravenous greed of Finance while the  Nation was in extremis, anonymously  handed over £150,000, representing  20 per cent, of his fortune,6 to the  State to clear his conscience, and to  set an example.

But the controllers of the Money  Power, the men who cold-bloodedly  raised their demands upon their  fellow-countrymen with every German  advance in the field and with every  German U-boat campaign at sea ; the  men who organized the creation of  hundreds of millions of unnecessary  debt, the men who inflated rates of  interest ; the men who, as the price of  providing credits to free us from the  threat of German slavery, enmeshed  us in an interest burden of a million  pounds per diem — it is they whose  war-time plunderings I have sought to  record in the foregoing pages. The  machinations of the organized Money  Power during the stress of war surely  provide the most convincing of  evidence that the nation must be the  sole creator of money, and the  guardian and banker of the savings  and thrift of its citizens, if well-being  and security are ever to be the  common lot of men.

1 Banking, by Dr. Walter Leaf, Home  University Library, p. 46.

2 Appendices to the Report of the Committee  on National Debt and Taxation (1927), p. 18 et  seq.

3 Soddy, Wealth, Virtual Wealth, and Debt (Allen  & Unwin Ltd.), p. 195.

4 War Memoirs of David Lloyd George, vol. i. p.  122.

5 War Memoirs of David Lloyd George, vol. i. p.  123.

6 Encyclopaedia Britamica, ii. 986.

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