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CHAPTER XIX
Eden Vale: Aug. 11, ----
What we learnt from the director of the Freeland Central Bank occupied the thoughts of my father and myself for a long time. As this high functionary, who was a frequent visitor at the house of the Neys, dined with our hosts the next day, the table-talk ran mainly upon the Freeland institutions. My father began by asking whether the circumstance that the rest of the world, from which Freeland did not--and, in fact, in this matter could not--isolate itself, paid interest for loans, did not induce Freeland savers to seek foreign investments for their money; or whether at least some artificial means had not to be adopted to prevent this.
'There is nothing, absolutely nothing,' answered Mr. Clark, 'to prevent Freeland savers from investing their capital abroad; in fact, at present--I have quite recently been referring to the statistics upon this point regularly published by our central bank--some two and a-half milliards (£2,500,000,000) are invested partly in the large foreign banks, partly in European and American bonds. For example, a good half of your Italian national debt is in the hands of Freelanders. But what are such figures in comparison with the gigantic amounts of our savings and capital? We cannot prevent, and have no reason whatever to prevent, many Freelanders from being induced by foreign interest to accumulate more capital than is needed here at home on the one hand, and more than they consider necessary to insure themselves against old age on the other. For what is required for these two purposes cannot go abroad.'
'And is not this last-mentioned fact a disadvantage to the Freeland saver?' I asked.
'A Freelander who thought so,' said Mr. Ney, 'must have a very imperfect knowledge of what is to his own advantage. The interest paid by foreign debtors can in no respect compare with the advantages offered by employment of the money in Freeland, those advantages being, as you know, equably distributed among all the members of our commonwealth. At the end of last year we had altogether thirty-four milliards sterling invested. The calculated profit of these investments amounted to seven milliards; therefore, more than twenty per cent. Moreover, thanks to these same investments, every Freelander enjoys gratuitously the electric light, warming, the use of railways and steamships, &c., advantages the total value of which would very nearly equal the remunerative production effected by our investments. Anyone can now calculate how much more profitable Freeland investments of capital are than foreign ones. Moreover, the two and a-half milliards, of which friend Clark spoke, is a large sum in European and American financial operations, and it has actually contributed towards very considerably lowering from time to time the rate of interest in all the foreign money-markets; but when this amount is compared with Freeland finances, the investment of it abroad is seen to be simply an insignificant and harmless whim. This large sum brings in, at the present rate of interest--you will understand that Freeland savers invest merely in the very best European or American bonds--about thirty-four millions sterling; that is, not quite the two-hundredth part of the national revenue of Freeland. And there can be no doubt that this whim will--for us--lose much of even its present importance as Freeland continues to grow; for the competition of our capital has already reduced the rate of discount of the Bank of England to one and a-quarter per cent., and raised the price of the One and a-Half per cent. Consols to 118; hence there can be no doubt that a large flow of Freeland savings to Europe and America must, in a near future, reduce the rate of interest to a merely nominal figure. That this whim of investing capital abroad will altogether vanish as soon as foreign countries adopt our institutions is self-evident.'
I now addressed to Mr. Clark the question in what way the Freeland commonwealth guarded against the danger of crises, which, in my opinion, must here be much more disastrous than in any other country.
'Crises of any kind,' was the answer, 'would certainly dissolve the whole complex of the Freeland institutions; but here they are impossible, for lack of the source from which they elsewhere spring. The cause of all crises, whether called production-crises or capital-crises, lies simply in over-production--that is, in the disproportion between production and consumption; and this disproportion does not exist among us. In fact, the starting-point of the Freeland social reform is the correct perception of the essential character of over-production arrived at twenty-six years ago by the International Free Society. Until then--and in the rest of the world it is still the case--the science of political economy found in this phenomenon an embarrassing enigma, with which it did not know how better to deal than to deny its existence. There was no real over-production--that is, no general non-consumption of products--so taught the orthodox political economists; for, they contended, men labour only when induced to do so to supply a need, and it is therefore impossible in the nature of things that more goods should be produced than can be consumed. And, on our supposition, to which I will refer presently, this is perfectly correct. Everyone will use what he produces to meet a certain need; he will either use his product himself or will exchange it for what another has produced. It matters not what that other product is, it is at any rate something that has been produced; the question never need be what kind of product, but only whether some product is asked for. Let us assume that an improvement has taken place in the production of wheat: it is possible that the demand for wheat will not increase in proportion to the possibility of increasing its production, for it is not necessary that the producers of wheat should use their increased earnings in a larger consumption of wheat. But then the demand for something else would correspondingly increase--for example, for clothing, or for tools; and if this were only known in time, and production were turned in that direction, there would never be a disturbance in the exchange-relations of the several kinds of goods. Thus the orthodox doctrine explains crises as due not to a surplus of products in general, not to a mere disproportion between production and consumption, but to a transient disturbance of the right relation between the several kinds of production; and it adds that it is simply paradoxical to talk of a deficient demand in view of the misery prevailing all over the world.
'In this, in other respects perfectly unassailable reasoning, only one thing is forgotten--the fundamental constitution of the exploiting system of society. Certainly it is a cruel paradox to speak of a general lack of demand in view of boundless misery; but where an immense majority of men have no claim upon the fruits of their labour, this paradox becomes a horrible reality. What avails it to the suffering worker that he knows how to make right, good, and needful use of what he produces, if that which he produces does not belong to him? Let us confine ourselves to the example of the increased production of wheat by improved methods of cultivation. If the right of disposal of the increased quantity of grain belonged to the agricultural producers, they would certainly eat more or finer bread, and thus themselves consume a part of the increased production; with another part they would raise the demand for clothing, and with another the demand for implements, which would necessarily be required in order that more grain and clothing might be produced. In such a case it would really be merely a question of restoring the right relation between the production of wheat, of clothing, of implements, which had been disturbed by the increased production of one of these--wheat; and increased production, a condition of greater prosperity for all, would, after some transient disturbances, be the inevitable consequence. But since the increased proceeds of wheat-cultivation do not belong to the workers, since those workers receive in any case only a bare subsistence, the progress which has been made in their branch of production does not enable them to consume either more grain or more clothing, and therefore there can exist no increased demand for implements for the production of wheat and textile fabrics.'