IV. The True Base of Credit

. . . that is

                                                               The abundance of nature

Ezra Pound


Pound and Theobald are both far ahead of the orthodox economists in seeing that the world has passed into a new era of abundance, in which the parsimony of the past has become a wasteful anachronism. Nations behave like eccentric misers, starving in an attic with a hoard of gold under the mattress. Both authors believe that money should be used for distributing, not concentrating, the world’s wealth.


They also share a profound respect for the value of leisure. Each would cut the proportion of involuntary labour to what he sees as the bare minimum. Says Pound,


I know, not from theory but from practice, that you can live infinitely better with a very little money and a lot of time, than with more money and less time. Time is not money, but it is almost everything else.1


But in Pound’s society, everybody still works: it is different in degree, but not in kind, from that which is governed by the Protestant Ethic. His economic model, in fact, still has much in common with that of classical economics. (As we have seen, his concept of the Just Price goes back even to the Middle Ages.) To understand this, it is necessary to go back to our slowly accumulating definition of money.


Money, we observed, has traditionally been based on a commodity, metal, which is separate from the commodities for which it can be exchanged, and whose scarcity is a metaphor for the general scarcity of useful goods. In an expanding economy, the fixed quantity of metal was cleverly got around: first, by substituting paper (bills or ledger entries) for metal, and later, when even this proved insufficient, by the manipulation of paper based only on the reputation of its guarantor. This fiscal invention was, of course, abused for private gain, but it introduced a socially useful concept. Think of reputation as productive capacity, i.e. the ability to produce gold when wanted, and put it aside for the moment.


Pound learned from Douglas/Orage that money need not be based on a single standard, but could be a ticket representing, in toto, the goods available for purchase. A step forward; but here he stopped. Since money had to stand for something—otherwise it was worth no more than the bills from a Monopoly set—he limited the amount of money to the value of goods available for purchase.


But this confronts us with three problems:


(1)How much are the goods really worth? Someone must decide. The producer? He will probably overvalue in order to inflate his profit. The consumer? He will undervalue to grab a bargain. Better leave it to the state, which is liable to be more reliable than either party to the transaction.


(2)Even if you have established the value of the goods and have exactly enough money in circulation, how do you get it spread out? The logistics are so complicated that, in one segment of the market or another, you’re liable to be back to a scarcity economy again. It’s a bit like running a hotel with two hundred beds and only four hundred sheets.


(3)And most problematical of all, what do you count as money? Pound seemed to be aware that there was a question: “. . . we need a means of exchange and a means of saving, but it does not follow that the means must be the same in each case.”2 But those are not the only alternatives: we have evolved a dizzying spectrum of degrees of liquidity. So, in adding up the total, just what do you include?


This is exactly the problem which faced Milton Friedman and the other quantity theorists of the Chicago School. R. S. Sayers, in speaking of Friedman’s proposal of 100 percent reserve banking designed to “eliminate private creation or destruction of money and discretionary control by central-bank authority” (the principle is much the same as Pound’s), says that such a proposal is based on “the supposed possibility of identifying once and for all something called “money” . . . I find all such proposals tempting, but they are based on a complete misconception of the origin of money.”3 It is a problem which Pound leaves unresolved.


Next, the problem of distributing purchasing power. Pound’s solution, the four-hour day, is certainly equitable. In fact, well into the twentieth century, the trend was in that direction. It assumes, however, a number of very large jobs which are infinitely divisible into smaller ones—unskilled labour, in fact. But these are the jobs which are now disappearing. Furthermore, the recent trend has been back towards longer hours with pay for overtime, which makes for flexibility of the labour force without laying off employees who will be resentful and who may not be around exactly when you want them again.. The workers, of course, go along with this, since it means more security and, usually, more money. Therefore, if a four-hour day is to be introduced, it will have to be done by law. More government intervention.


And what about wages? The employer will presumably want to cut back the wages to fit the hours, in accordance with the old scale. Pound says nothing directly about this, but, in speaking of the fascist policies, he seems to favour wage controls.4 Still more government intervention.


Finally, how do you decide what and how much gets produced? Even if this is left to the free market, you still must keep track of it pretty closely in order to regulate the supply of money. And suppose that production declines for any reason: do you call in money/credit to correspond, thus destroying confidence, lowering production still further, and accelerating a vicious downward spiral? In that case the line goes fuzzy between the ideal state and usurocracy. The alternative is deserting the quantity theory altogether. At any rate, the method calls for still more bureaucracy.


It all adds up to a terrifying accretion of government decisions, to say nothing of the red tape. One wonders why Pound, with his deep-rooted faith in the rugged individual, was not more concerned about it.


One answer, I suspect, lies in his underlying faith in some sort of wise aristocracy, to whom the people delegate the authority to act on their behalf. "The function of an aristocracy is selection . . .”5 , whether of art or of economic policies. The bias showed, inter alia, in his partiality to Mussolini, “the man who gets things done”. In the last analysis, Pound’s economic system, though beneficial, is paternalistic.



BUT WE have not yet returned to Pound’s crucial proposal—state money backed by state credit. On this subject Theobald has nothing to say. One wonders if, under his system, the cream of prosperity would continue to be siphoned off to go sour in the banks.


But are the banks still as powerful as all that? We have seen that large corporations derive more and more of their capital from profits. Furthermore, even the giant corporations are ostensibly diversified in ownership. Does this mean that the economy is simply running itself?


A popular theory is that of Berle and Means, set forth in The Modern Corporation and Private Property (1932). According to this highly influential book, power has passed from creditors to the new class of managers. Both Theobald and Bazelon seem to accept this without question.6 G. William Domhoff, however, has assembled a powerful case for believing that the ruling class of money-holders has become, not less powerful, but less visible.7 So we are back to the banks again.


It would appear, then, that Pound has perceived the veto power of the money-lenders and that Theobald has not. But before we answer this criticism, we must return for the last time to our analysis of money. We have come as far as Pound’s definition, “a certificate of work done”. Pound also realized that, as Douglas had said, there was an accumulated wealth of knowledge—“a legacy of mechanical efficiency and scientific advance”.8


But what of reasonable expectation for the future? Might not one’s assets include, not only one’s inheritance and what one has added to it, but also the uses to which it could be put? This is exactly what giant corporations have been able to do, and the discovery has made them financial as well as industrial centres of power. In the process, according to Bazelon, “productive capacity, or captured technology, has replaced gold as the backing for all the paper.”9 This is one step beyond Pound—but, as usual, exploited to private advantage.


The principle has, however, filtered down to the wage-earner. He too can capitalize his productive capacity, i.e. his expectation of future employment. All the way from the stock exchange to the credit card, the economy is now permeated with the capitalization of “reputation”. This is believed to be perfectly right and proper—except in the public sector. The national debt is still the national disgrace, and is added to only with the greatest reluctance, except for the stockpiling of obsolescent weapons.


This is where we return, at last to Robert Theobald. His proposal to finance the Guaranteed Income by deficit spending based on productive capacity only carries across into the public sector the fiscal structure of the rest of the economy. Viewed from another angle, it is the marriage of Ezra Pound to the Bank of England (i.e. national credit based on the “reputation” of the producing sector).


But we haven’t yet answered Pound’s attack on the banks—nor apparently, has Theobald. The national debt, after all, carries interest, only a tiny proportion of which is paid to the small bond-holder. Most of it swells the coffers of the international money-lenders.


The answer, I suspect, is that Theobald intends to let them wither away. This is not so far-fetched as it may seem. In an economy of plenty, we have noted, money falls in price along with goods, but interest rates have remained high because they are artificially supported. A Guaranteed Income, however, might go far towards undermining the mystique of money, its threat of impending disaster.


What Brooks Adams didn’t realize was that both the Imaginative and the Economic Type govern by fear of the unknown. “Money as Religion” is not merely a figure of speech. But if one could be certain of enough security for dignified survival—for life—the Demon of Insolvency would be exorcised, and Adams’ Law finally repealed.



BUT THEOBALD offers yet another weapon (his language, of course, is more conciliatory). Not only does he propose to divorce production from distribution, but also from profit. This would be done through “consentives”: groups of people coming together to make or do something because they want to.10


Such a development would strike at the very heart of those assumptions about the avidity of human nature which classical economists are so fond of. (It might even send some future Darwin to a lush tropical rain forest instead of the austere Galapagos Islands.) “Only the artist, for centuries,” says Pound, “has succeeded in detaching the idea of work from the idea of profit.”11 But elsewhere he admits that, even in conditions of scarcity, other men that artists were capable of this fundamental dissociation:


. . . my grandfather . . . built a railroad probably less from a desire to make money or an illusion that he could make more than way than some other, than from inherent activity. Artist’s desire to MAKE something, the fun of constructing and the play of outwitting and overcoming obstruction.12


If aggression were depersonalized, what would become of the competitive “instinct”?


There remains the question of where to look for the necessary expertise in working out the details of such a fundamental revolution. Theobald, I suspect, places too much hope in the present managerial class: he even proposes a subsidiary category of Basic Economic Security, called Committed Spending,13 to support unemployed managers at a higher level of income so that they may devote their energies to social instead of economic problem-solving. One questions whether those who have led us deeper into the jungle are those best qualified to lead us out. Still, there would doubtless be a need for experienced administrators.



THE WAY, then, lies open to Utopia. What holds us back, other than an inheritance of misinformation, prejudice and preconception?


A clue, perhaps, lies buried in our observation that interest rates all over the world are maintained at an artificially high level in order not to lose the capital of the international investors. Gold may have lost most of its magic in the national economy, but in the world at large it is still very much in evidence.


What happens, then, to that nation which is so enlightened as to discover that, if you have too much, you give it away? If it moves very far in that direction, the international money market assumes that the people have gone mad and promptly withdraws its assets. The national economy being then based solely on its real wealth, in which the money-lenders have no “confidence”, that nation’s credit is forthwith cancelled.


But the crisis does not end there. Corporations as well as banks are international: if business is unprofitable in one country, they move to another. A single nation has no more control over the greater part of its industry than did a single American state before the establishment of the Interstate Commerce Commission (or after, for that matter). One false step, and its productive capacity goes out the window along with its credit.


So in the last analysis, Brooks Adams’ Law of Centralization has much to recommend it. In effective consolidation, the world’s financial and productive institutions are still one giant step ahead of its political institutions, nor does the prospect of a commercial moon launching offer much hope of a change of balance in the very near future. By the time that world government is a reality, the rape of the galaxy will have begun.


Still, reason may prevail. Let us end, optimistically, with a thought from Old Ezra:


It seems that only a few persons occupied about the temples, at least in Rome, were enough to keep alive the old gods. The preservation of verities, the process of history, the rise and fall of a dogma, whether or not affected by contingent events, is a great deal more interesting than is commonly supposed.14

1 Pound, ABC of Economics, p.29

2 _____, Gold and Work, p.14

3 Quoted in M. L. Burstein, “The Quantity Theory of Money: a Critique”, in Clower, Monetary Theory, p.117

4 Pound, What is Money For?, p.7

5 Pound, Impact, p.218

6 Theobald, Op. cit., p.34; Bazelon, Op. cit., pp.60-1

7 Domhoff, Who Rules America?, pp.38-62

8 Pound, What is Money For?, p.7

9 Bazelon, Op. cit., p.202

10 Theobald, Op. cit., pp.181-3

11 Pound, An Introduction . . ., p.16

12 _____, ABC . . .

13 Theobald, Op. cit., p.48

14 Pound, A Visiting Card, p.34