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The following is Chapter Five of the RSJ Rands' booklet
"The Problem of Money" published first in 1970. The Chapter is entitled
"The Guernsey Experiment", (what else?)
"To those puzzled by the idea of the Community creating credit we recommend
a careful study of the Guernsey Experiment, which began about 1815.
Critics of Money Reform often delight in scaring people by referring to the
massive printing of notes in Germany after the First World War, which resulted
in appalling inflation, but such critics avoid telling us, or do not realise,
that these notes were purposely over-issued to create economic chaos as a
protest against the Peace Treaty, and that they were not issued in relation to
goods and services. (This inflationary printing of notes, however, enabled them
to abolish their National Debt, and this advantage, coupled later with that of
large loans from their victors after both World Wars, enabled them to modernise
their industrial equipment and set them well on the way to becoming today one of
the leading industrial nations of the world.)
In 1815, after the Napoleonic Wars, Guernsey was so economically crippled
that it was unable to raise enough money even to pay interest due on debts
or to raise sufficient from taxation to meet urgent needs, such as measures to
protect the island from the sea, or to build a market place, a school, or
roads, etc. To overcome these difficulties someone suggested the State
should issue its own money in some form of scrip, and in due course the State
issued 4,000 pounds in 1 pound notes to build a market place. Every year
400 pounds was recalled in rents and redeemed (in other words, cancelled out of
existence) and so after 10 years the whole 4,000 pounds of notes was redeemed
and there was no State debt.
State notes were later issued to pay for the building of a school, a
lighthouse, a road, etc. and were redeemed by Customs Duties on wines and
spirits. In this way money was created for useful purposes and then
cancelled, and in this way the creation of money was related to the creation of
physical wealth. It is interesting to note that after the First World War
the State issue of notes was increased to 200,000 pounds and circulated
alongside Bank of England notes. As a result the world crisis of 1931
never really troubled Guernsey ; there was practically no unemployment ; and
even now Income Tax is only about 4/ in the pound.
This creation and cancellation of money in relation to important public
projects should be of great interest to all public servants, both National and
Local, and should be of particular interest to all people and associations
concerned with the vital problem of housing, especially the problem
of abolishing the slums and housing the homeless. What a vast difference
it would make to the matter of housing if magnificent organisations like
"Shelter" were encouraged with allocations of sumns of money considerably
greater than anything they can raise from voluntary aid! What a vast
difference it would make to the Minister of Housing and to Local Authorities if
money could be created (debt-free) for housing in some similar way to the
Guernsey Experiment! Whereas the market place in Guernsey was built for,
and only cost, 4,000 pounds, a Council House today can be built for 4,000
pounds and yet, owing to the authorities having to borrow the money at high
rates of interest for a period of 60 years, the final cost is now well over
16,000 pounds as far as ratepayers or tenants are concerned. In other
words rents are almost double what they should be, for, if the State created the
necessary 4,000 pounds to pay the builders, etc., and recovered this amount in
payments of rent over a period of about 20 years, the house would obviously have
cost only about 4,000 pounds instead of over 16,000 pounds as it does at
present, and as a result, rents on all Council Houses could be very greatly
reduced. It is perhaps unnecessary to point out that the 4,000 pounds
required to build the Council House could be created by ledger entries in the
Central Bank or a National Credit Office at the cost of clerical work instead of
at high rates of interest as at present ; the credit would be recalled through
rents over a period of about 20 years and cancelled out in the books of the
Central Bank or National Credit Office in the same kind of way as the notes were
redeemed in Guernsey. It makes little difference whether notes or credit
are used, but, as today most transactions are paid for by cheques, it is
necessary to understand that money can just as easily be made by bank ledger
entries as by printing notes, and just as easily be cancelled out of existence
in the ledger as in the redeeming and destroying of the notes.
There have also been other occasions when local authorities have issued
their own currency backed by known productive capacity, ususally to combat
severe unemployment. As detailed in their book, "Money+The Decisive
Factor", economic researchers Allhusen and Holloway studied examples in India,
Germany, and Austria, and concluded that all "were completely successful".
But they also reported that in every instance the local banks were eventually
successful in having the practice phased out."
End. |
"The Guernsey Expe
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