Karl Marx

The New Financial Jugglery;

or, Gladstone and the Pennies

Written on 12 April 1853.

From the English.

["The People's Paper," No. 50, 16 April 1853]

Our readers know from their own experience and can feel it in their pockets that old financial swindles have saddled the people with a national debt of £800,000,000. This debt was mainly contracted to prevent the emancipation of the American colonies and to counteract the French Revolution of the last century. The effect that the increase in the national debt exerts on the increase in state expenditure may be illustrated by the following little table:

1. National Debt

When Queen Anne ascended the throne after William (1701) — £16,394,702

When George I ascended the throne (1714) — £54,145,363

When George II assumed government (1727) — £52,092,235

When George III seized the reins of government (1760) — £146,682,844

After the American war (1784) — £257,213,043

At the end of the anti-Jacobin war (1801) — £579,931,447

In January 1810 (during the Napoleonic war) — £811,898,082

After 1815, roughly — £1,000,000,000

2. State Expenditure

Total expenditure, including interest on the national debt

When Queen Anne ascended the throne after William (1701) — £5,610,987

When George I ascended the throne (1714) — £6,633,581

When George II assumed government (1727) — £5,441,248

When George III seized the reins of government (1760) — £24,456,940

At the end of the anti-Jacobin war (1801) — £61,278,018

3. State Taxation

Under Queen Anne (1701) — £4,212,358

Under George I (1714) — £6,762,643

Under George II (1727) — £6,522,540

Under George III (1760) — £8,744,682

After the American war (1784) — £13,300,921

After the anti-Jacobin war (1801) — £36,728,971

1809 — £70,240,226

After 1815, roughly — £82,000,000

The people know very well from the experience of their own pockets how heavily the national debt weighs upon taxation; but only few know under what peculiar circumstances this debt was contracted and continues to exist. The “State,” that joint instrument of power of the mutually entangled landed and stock exchange speculators, needs money to carry out oppression at home and abroad. He borrows money from capitalists and usurers and gives them in return a piece of paper in which he engages to pay so much interest for every £100 lent. The means to pay these monies he draws, in the form of taxes, from the pockets of the working class, so that it is the people themselves who must serve as surety for their oppressors to those people who lend their money so that the people’s throats may be cut. This money is borrowed under various denominations as debt: sometimes 3, 3 1/2 or 4% etc. is paid for it, and according to the percentage and other contingencies the funds also bear different designations: three per cents, etc.

Since, however, not only the working class but also manufacturers and landlords have to pay a part of these interests and are at pains to pay as little as possible, every Chancellor of the Exchequer – unless he is a Whig – endeavours to reduce this nightmare in one way or another accordingly.

On 6 April, before the budget of the present Ministry was moved, Mr. Gladstone laid before the House of Commons several resolutions for its decision, dealing with the national debt. Previously the *Morning Chronicle* had announced that proposals of the utmost importance would be made, which “it is understood are of great moment and unusual interest.” On these rumours, the public securities rose; the impression was that Gladstone meant to wipe out the national debt. So “what was all the fuss to mean?”

The final aim of Mr. Gladstone’s proposals was, as he himself said, the reduction of the interest on the different public securities to 2 1/2%. In the years 1822/1823, 1824/1825, 1830/1831, 1844/1845 reductions had already taken place from 5% to 4 1/2%, from 4 1/2% to 4%, from 4% to 3 1/2%, from 3 1/2% to 3%. Why should a further reduction from 3% to 2 1/2% not now be undertaken?

Let us therefore examine what Mr. Gladstone proposes in order to attain this end.

Firstly, he proposes to bring certain securities to the amount of £9,500,000, connected mainly with the old South Sea bubble, under one single denomination, and to compulsorily reduce them from 3% to 2 3/4%. This results in a running annual saving of about £25,000. The invention of a new single designation for different securities and the saving of £25,000 on an expenditure of £30,000,000 a year is not exactly a very admirable achievement.

Secondly, he proposes the issue of a new security under the name of Exchequer Bonds, not exceeding £30,000,000. These Exchequer Bonds are to be transferable by simple delivery, without any costs, and to yield 2 3/4% interest until 1 September 1864 and then, until 1 September 1894, 2 1/2%. This is therefore nothing but the creation of a new financial instrument for the benefit of the monied and trading class. He says “free of charge,” i.e., free of charge for the stock exchange people. At present there are £18,000,000 of Exchequer Bills at 1 1/2%. Does it not mean a loss to the country if it has to pay 1% more for the Exchequer Bonds than for the Exchequer Bills? The second proposal has, in any case, nothing to do with a reduction of the national debt. The Exchequer Bills can circulate only in England; the Exchequer Bonds are transferable like ordinary bills of exchange; this measure, therefore, is nothing more than a facility for the stock exchange people, which the people have to pay for at a high price.

We finally come to the only important point, the three per cent consols and the “reduced three per cents,” which together represent a capital of nearly £500,000,000. A parliamentary provision forbids the compulsory reduction of these securities, except on twelve months’ notice. Mr. Gladstone therefore chooses a voluntary conversion scheme and offers the holders of the three per cents to exchange their securities at their option for others to be created under his proposals. The holders of the three per cents are to have the choice of exchanging each £100 of their securities in one of the three following ways:

1. Partial exchange. Every £100 of the three per cents may be exchanged for an Exchequer Bond of the same amount, which yields £2 15s. up to 1864 and £2 10s. up to 1894. If the whole £30,000,000 of Exchequer Bonds at 2 1/2% replaced £30,000,000 of consols at 3%, this would result in a saving of £75,000 for the first ten years and, after the first ten years, of £150,000 – £225,000 in all. The government, however, would be obliged to repay the whole £30,000,000 after forty years. This proposal in no way represents a measure calculated to cope with the national debt on a large scale or even partially. What are £225,000 saving against an annual expenditure of £30,000,000?

2. The second proposal is that the holders of three per cent securities receive for every £100 – £82 10s. in new 3 1/2 per cent securities, which are to be paid off at £3 10s. per £100 up to 5 January 1894. If people take up this exchange, they receive, instead of the present £3 interest, only £2 17s. 9d., or in other words, they lose 2s. 3d. per £100 in interest. If the whole £500,000,000 were converted according to this proposal, the nation would have to pay only £14,437,500 a year instead of £15,000,000 as before, which would be equivalent to a gain of £562,500 annually. For the sake of this small saving of £562,500, however, Parliament would tie its hands for half a century and grant an interest rate exceeding 2 4/5%, and that at a time when everything is in a state of flux and the utmost uncertainty prevails as to the future rate of interest! It is true, Gladstone would have gained this much: after the expiry of forty years, instead of the three per cents, which are at present protected by twelve months’ notice, there would be 3 1/2 per cents which Parliament could redeem at par. Gladstone proposes no restriction for the 3 1/2 per cent securities.

3. The third proposal reads: The holders of every £100 of three per cent securities receive £110 in new 2 1/2 per cent securities running until 1894. When Gladstone first submitted his plan to the House of Commons on 6 April, he had not yet fixed the amount of the new 2 1/2 per cents to be issued. But when Mr. Disraeli pointed out to him that any reasonable person, comparing this proposal with the two others, would unreservedly decide for the conversion of his £100 three per cents into £110 2 1/2 per cents, and that, further, on the conversion of the £500,000,000 three per cents into new 2 1/2 per cents, the nation would, on the one hand, gain £1,250,000 annually, but on the other hand the national debt would increase by £50,000,000, Mr. Gladstone altered his proposal the following day and proposed to limit the new 2 1/2 per cents to £30,000,000. By this limitation, however, his proposal loses all appreciable influence on the great mass of the national debt and only increases its amount by £3,000,000.

Now you know “one of the most momentous and weighty financial proposals ever made.” There is probably no greater humbug in the world than what is called finance. The simplest operations, relating to budget and national debt, are designated by the disciples of this “secret science” with the most abstruse terms; behind this terminology are concealed the trivial manoeuvres of creating various denominations of securities – the exchange of old paper for new, the lowering of interest and the raising of the nominal capital, the raising of interest and the lowering of the capital, the introduction of premiums, bonuses and preference shares, the distinction between redeemable and irredeemable annuities, the artificial graduation of the transferability of different securities in such a way that the public is completely bewildered by this abominable stock exchange scholasticism and loses itself entirely in the multiplicity of details. To the usurers, however, every such new financial operation offers a greedily awaited opportunity to unfold their baneful and predatory activity. Mr. Gladstone is undoubtedly a master of this kind of financial alchemy, and Disraeli characterises his proposal very aptly when he says:

“The wit and genius of the most consummate casuists never devised a more complicated and intricate machinery to effect so trifling a result. In the writings of St. Thomas Aquinas there is a chapter discussing the question how many angels can dance on the point of a needle. That was one of the subtlest efflorescences of the human mind; and I recognise in Gladstone’s proposals a striking affinity with this distinguished mind.”

You will recall our statement that the end goal of Gladstone’s plans was the establishment of a “normal” 2 1/2 per cent fund. Now, in order to achieve this purpose, he creates a very restricted 2 1/2 per cent fund and an unlimited 3 1/2 per cent loan. To create the restricted 2 1/2 per cent fund, he lowers the rate of interest by 1/2 per cent and increases the capital by a bonus of 10 per cent. To evade the difficulty of the law which grants the three per cent paper a twelve-month period of notice, he makes a law for half a century in advance. In short: if he were successful, he would cut off from the English people any chance of financially liberating themselves for half a century.

Everyone must admit, if the Jewish Disabilities Bill [Jewish Emancipation Act] was a small attempt to achieve religious tolerance, the Canada Reserves Bill [Act for the Secularisation of the Canadian Clergy Reserves Fund] a small attempt to concede colonial self-government, the Education Resolution [Elementary Education Act] a small attempt to circumvent the question of national education, Gladstone’s financial project, on the other hand, is an infinitely small attempt to cope with the giant monster called the national debt of Great Britain.

Karl Marx