Letter to the Editors from the November 1920 issue of the Socialist Standard
Reverting to some remarks made by F. F. in the July "S.S." in his article "Paradox or Illusion," I am tempted to offer a few myself in view of the fact that further argument was indulged in in the September issue.
In the first case I would state emphatically that the £1 Bradbury note does not represent the value of the sovereign, despite the fact that one is able to exchange notes for gold if one cares to pay a visit to the Bank of England.
I may say in this connection that it is necessary to be very sparing in one's demands for such exchange, otherwise the Bank will be sufficiently curious as to one's motives to set the "splits" moving to ascertain them, and a case recently tried in the courts showed what severe penalties are visited upon those who attempt to realise the difference in value contained in a sovereign and a £1 Bradbury and this difference is sufficiently tempting for folk out on the make to risk these penalties in their endeavour, to obtain it.
I was in France a few months since, and whilst exchanging English paper money for French asked what difference would be allowed for gold, and I can state categorically that in every case the offer was between 25 and 30 per cent. higher. Previously to this I was in Egypt, where I found 31s. was the price ; about the same period in India the figure ranged, in various districts, between 32s. and 45s., and while in the Strait Settlements the price was not so high, it was quite easy to obtain as much as 33s. to 35s. In China the same conditions prevailed in a lesser degree owing to the fact that less English money was available and the cost of forwarding the gold to the place of demand had to be taken into account.
I quote the above from actual experience, not from hearsay, and may say a thriving business is being done all the time in this realisation of the difference between the value contained in a gold sovereign and that alleged to be represented in a £1 note. In fact, if F.F. cares to try it, I could prove to him that he could pay first class travelling expenses and live like a duke on the proceeds of the sale of gold sovereigns in the right quarters, if he can be assured of obtaining a sufficient supply of the coin under discussion. But there's the rub ! I would emphasise that in all the cases I have quoted the exchange is offered in English paper currency.
To conclude, I would enquire, does F.F. maintain that despite the rise in price of other commodities that of gold remains unchanged ?
D. W. F.
My critic states "most emphatically that the £1 Bradbury note does not represent the value of the sovereign, despite the fact that one is able to exchange notes for gold if one cares to pay a visit to the Bank of England." But he completely fails to show why they are so exchangeable if the note does not represent the sovereign. The fact that they are exchangeable is surely sufficient to prove that the £1 note is backed by the sovereign, and, therefore, that the latter's value is fully represented by the note. Unless it can be proved that the two are not exchangeable it is idle to assert that they are not equivalents. Only those things containing or representing value in equal amounts are exchangeable in the capitalist world.
The reference by D.W.F. to the "folk on the make" who demand sovereigns for notes has no bearing on the question, although as I pointed out in my reply to Mr. Bannochie, the fact that it is illegal to melt down sovereigns and unpatriotic to demand them, together with the knowledge that the gold is there if wanted, fully explains why it is not demanded.
All the cases D.W.F. cites of the difference allowed for gold when exchanging English for foreign money has nothing to do with the subject. Gold in the form of bullion is international money, and exchanges at its value everywhere. Where the rate of exchange between countries varies, the difference between credit notes and gold will vary in the same direction. The difference in the rate of exchange quoted by D.W.F. represents largely the state of government and other credits of those countries.
A paper currency convertible into the standard metal on demand can no more be inflated than a metal currency in which every coin contains its actual worth in that metal. If the Government in pre-war days had minted more sovereigns than were necessary for the exchange of commodities, all the sovereigns over and above those necessary would simply have lain idle at the Bank.
And exactly the same thing happens where gold is represented by notes that are convertible on demand.
In the business arena of the country the note will buy the same amount of commodities as the sovereign, and is treated with the same respect. Whether debts are paid in gold or paper the same amount must be handed over in £ s. d., and no discount or reduction is made for payment in either medium. Obviously, then, for all business purposes, for the transaction of all exchanges within the country the £1 note represents the sovereign.
The question with which D.W.F. concludes his letter does not affect the above conclusions. It would be just as absurd to deny that the price of gold had risen as it is to deny that the £1 note represents the sovereign. Those who claim that the inflation of currency is the cause of high prices can only establish their claim by explaining how it is possible to inflate a convertible currency.