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Here follows what I have on the subject:
**The story of how the Island of Guernsey created its own money,
without cost to the taxpayer, and established a prosperous community
free of debt.**
HOW GUERNSEY BEAT THE BANKS by EDWARD HOLLOWAY
(Originally published in 1958 by the Social Credit Centre, Montagu
Chambers, Mexborough, S Yorkshire, England)
INTRODUCTION
The announcement by the Chancellor of the Exchequer in his budget
speech that he intends to set up a committee to inquire into monetary
and credit policy is bound to focus attention on the workings of our
financial system. Over the years there have been many interesting
monetary experiments undertaken in various parts of the world.
These have mainly taken place in small communities, but they are
none-the-less of interest. For example, there was the experiment in the
island of Guernsey in the period following the Napoleonic wars. There
were also experiments in the towns of Swanenkirchen in Bavaria and
Worgl in the Austrian Tyrol, which took place in the years of depression
following the 1914-l8 war. Another interesting example is the amazing
development which took place in the island of Gosaba, off the coast of
India. These, and similar experiments had one factor in common. A
depressed and unproductive community was changed in a comparatively
short while into an active, prosperous and happy community.
The story of the island of Guernsey is particularly interesting from
our point of view, for it is a relatively easy matter to see for oneself
the actual buildings which were created - as a result of these
experiments. For example, the Market house, and Elizabeth College were
two examples of the result of the sensible money policy adopted by the
island Parliament in the early part of last century. Other improvements
included better roads, a modern sewage system, all of which
were constructed without a debt being incurred by the community.
These experiments have a considerable bearing upon our present monetary
policy, which, as is being increasingly realised is in need of
considerable revision. We make no apology therefore for re-telling
the story of the successful monetary experiment in Guernsey.
THE GUERNSEY MARKET SCHEME
Our story opens in the year 1815. It was a year of considerable
difficulty for the people of Britain, but the people of the little
island of Guernsey were particularly hard hit. The effects of the
Napoleonic wars had resulted in a state of despair on the part of the
island community, due to the acute economic distress then prevailing.
The following extract from a document presented by the States (as the
island Parliament is called) to the Privy Council speaks very
eloquently on the state of affairs:
"In this island, eminently favoured by nature, nothing has been done by
art or science towards the least improvement; nothing for the display
or enjoyment of local beauties and advantages; not a road, not even an
approach to the town, where a horse and cart could pass abreast; and
the deep roads only four feet six inches wide, with a footway of two or
three feet, from which nothing but the steep banks on each side can be
seen, appeared solely calculated for drains to the waters which running
over them, rendered them ever yet deeper and narrower. Not a vehicle,
hardly a horse kept for hire; no four-wheeled carriage existed of any
kind, and the traveler landed in a town of lofty houses, confined and
miserably paved streets, from which he could only penetrate into the
country by worse roads, left the island in haste and under the most
unfavourable impressions.
In 1813, the sea, which had in former times swallowed up large tracts,
threatened, from the defective state of its banks, to overflow a great
extent of land. The sum required to avert the danger was estimated at
more than £10,000, which the adjoining parishes subject to this charge
were not in a condition to raise. The state of the finance was not
consolatory ; with a debt of £19,137 and an annual charge for interest
of £2,390, the revenue of £3,000 left only £600 for unforeseen expenses
and improvements. Thus, at the peace, this island found itself with
little or no trade, little or no disposable revenue, no inducement for
the affluent to continue their abode, and no prospect of employment for
the poor."
What a tale of woe. Small wonder that the people were depressed and any
that could were making their way to the mainland. As often happens in
communities when there are major difficulties, a committee was appointed
in 1815 to consider in particular the overcrowded state of the market,
of which it was said that "humanity cries out against the crush which it
is difficult to get out of; and against the lack of shelter for the
people who, often arriving wet or heated, remained exposed for whole
hours to wind and rain, to the severity of the cold and the heat of the
sun."
The committee examined the situation, and came to the conclusion that
further taxation was impossible. The alternative was to try and borrow
money from the banks. But this entailed the payment of a high rate of
interest, which they could not afford, particularly in view of the fact
that these interest payments would continue for years and would
eventually mean that, although the original sum had been repaid in
interest charges, the capital sum would remain as a debt. Fortunately
for the people of Guernsey, they had at that time among their leaders
some honest men of keen intellect, who put forward the revolutionary
suggestion that the States should take advantage of their ancient
prerogative and produce their own notes to finance the re-building of
the market. At first this proposal was turned down. But later in the
same year the proposal to issue State notes was agreed to, for a
different purpose. The finance committee reported that £5,000 was
wanted for roads and a monument to the late Governor, while they had
only £1,000 in hand. It was agreed that the remaining £4,000 should be
raised by the issue of State £1 notes, 1,500 of which should
be payable in April 1817, l,250 in October the same year, and 1,250 in
April 1818. "In this manner" they said, "WITHOUT INCREASING THE DEBT OF
THE STATES, we can easily succeed in finishing the works undertaken,
leaving moreover in the coffers sufficient money for the other needs of
the States."
A SUCCESSFUL VENTURE
How wise they were is proved by the event. The success of this first
creation of State money was so great that it was rapidly followed by
others. In June 18l9 the question of the market became ever more acute,
and it was agreed to finance the rebuilding of it, not in the orthodox
manner by raising a loan. but by the State creating the necessary notes
"interest free."
The following comment made by the finance committee at a later date
shows how successful the venture had become. It was at the time when a
further issue of notes was made to diminish the interest bearing debt to
the States. The finance committee declared: "The States could increase
the number of notes in circulation without danger up to 10,000 in
payment of the debt, and the committee recommends this course as most
advantageous to the States' finance, as well as to the public, who, far
from making the slightest difficulty in taking them, look for them with
eagerness."
And so the story went on. On 29th March, 1826, a further issue was
authorized to re-build Elizabeth College which had been founded in 1563
by Queen Elizabeth, and some parochial schools. The Bailiff of that
time - Daniel de Lisle Brock - in his address to the States Assembly
expressed his belief that the creation of this new money was of great
benefit to the States, and caused no inconvenience because of the
great care with which it was issued.
Various other creations of new money took place for projects of
re-building, widening the streets of St Peter Port, reconstructing some
of its buildings, making new roads and public works of many kinds. The
experiments continued over a period of 20 years, by which time the
people of Guernsey had developed from a depressed unhappy state to a
position of prosperity and happiness. The following brief quotation
shows how improved was the situation as a direct result of the wise and
statesmanlike action of the Island Parliament. Daniel de Lisle Brock, to
whom, it seems. much of the credit must go, said in 1827:
"To bring about the improvements which are the admiration of visitors
and which contribute so much to the joy, the health, and well-being of
the inhabitants, the States have been obliged to issue notes amounting
to £55,000. If it had been necessary, and if it were still necessary,
to pay interest on this sum, it would be so much taken from the fund
earmarked to pay for the improvements made and to carry out new ones."
To talk of joy, health and well-being is a very different story from
the position in 1815, when it was "little or no trade, little or no
disposable revenue, and no prospect of employment for the poor." But
this happy state of affairs was not to the liking of everyone, and
opposition to the idea of the Island States creating their own
"debt-free" money had been growing over the years, particularly among
the banking interests on the island. A new bank, called the Commercial
Bank was founded in 1830. This institution, together with the old bank,
failing to prevent the growing prosperity of the islanders, began to
issue notes at its own discretion, flooding the island with paper money.
Reference has already been made to the care exercised in deciding the
quantity of money to be issued by the States, and now Daniel de Lisle
Brock sought to restrain the private banks from this anti-social
activity.
There remains on record his spirited speech to the States' meeting held
in September 1836 on this subject, and the following two extracts are
of particular interest.
"No one has the right to arrogate to himself the power of circulating a
private coinage on which he imprints for his own profit an arbitrary
value."
"With these facts before our eyes we must realise the necessity of
limiting the issue of paper money to the needs and customs, and the
benefit, of the community in general. Permission cannot he granted to
certain individuals to play with the wealth and prosperity of society."
In spite of all, however, the banks finally won the day. Despite a
careful search of the records, no explanation of what actually happened
can be found - merely an exchange of letters between representatives
of the banks and the Bailiff of the Island. In this, the former
suggested that the States should cease to make further issue, should
withdraw £1,500 from circulation, and have no more than £40,000 in
circulation. To this proposal the Bailiff agreed. Having read the
account of his fighting speech to the States, it is difficult to
understand what combination of forces caused him to give way. But at
least it can be said that the inhabitants of the island benefited
materially from the monetary experiment which took place, when the
island Parliament created its own money - ' interest-free' over 150
years ago.
POSTSCRIPT
Although the original experiment came to an abrupt end in 1836, there
was a further development in 1914, just after the outbreak of the first
world war. The demand for an increase in the supply of money was then
so great that the Royal Court passed an Ordinance making State notes
and those issued by the Banks legal tender. But the Banks were
prohibited from increasing their note issue, and all additional
notes were issued by the States.
There was a great demand for these States notes, and they first had to
be printed locally by two firms in the island, the Star Company and the
Guernsey Press Company, who were able to provide what proved to be very
serviceable five shilling and ten shilling notes. These were later
replaced by notes printed on proper bank-note paper with the customary
watermark. The local banks have now been absorbed by the Big Five, so
that there is no other local note issue, other than that of States
notes, which circulate alongside the more familiar Bank of England
notes.
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