Equity Between Man and Man

Anthroposophy  7.2 (Midsummer 1932) pp. 134-156

Students of Rudolf Steiner’s World Economy are not likely to forget the difficult lecture in which he attributes many of the morbid symptoms displayed by the economic life of the world to-day to the tendency of capital to accumulate in the form of land-values. He speaks of the way in which the economic process of the production and consumption of commodities subsists between two poles: Nature and Spirit. In the first place human labour operates upon Nature (that is, essentially, on land); in the second place the creating and organising spirit works upon human labour, “saving” it and making it more and more productive; and in this way the thing which we call capital is built up.

Steiner goes on to point out how it is not merely morally but also economically necessary that – as a third stage – the capital so accumulated should be placed at the service of the spirit and thus allowed indirectly (that is via its disbursement on educative and other spiritual activities) to flow back into the land and into further production. Instead of this the spirit is omitted, and as a result huge masses of capital, vainly attempting to complete the circuit and return to the land, but without dissipating themselves, pile up in mortgages and land-values and produce a terrible congestion.

The whole course makes us more sensible of the true nature of capital. Most people to-day suffer from the incorrigible illusion that capital is “wealth” – an illusion easily explained by the fact that the individual who is placed in control of some capital may, in a civilised state of society, very conveniently change it into wealth at any moment. This does not, however, make it wealth, any more than the fact that a salesman earns his family’s bread and butter by his labours makes salesmanship a productive activity.

Capital is rather (to use an electrical metaphor) a “difference of potential.” It is a state of disequilibrium, of unequal pressure, and, as such, is the pre-requisite of all economic activity. If the economic process were complete, these pressures, after doing their work, would discharge to earth again, that is to the land. But the conductor is wanting. Instead, therefore, they pile up above the earth, over it. This creates a static charge of steadily increasing intensity; and a static charge is, for the people living in it, the atmosphere before a thunderstorm.

If we ask, what is the practical arrangement which makes possible the accumulation of capital, which makes possible its conversion into personal wealth and, above all, its congestion in the form of land-values and upon the security of land, the answer is short and simple. It is the fact that there is a law of property. It is the fact that men have certain rights as against each other, rights which the law guarantees and will if necessary enforce. The history of the law of property is the history of these rights. And one of the first things which the study of this history teaches us is the fact that these rights tend to vary widely with the different kinds of property concerned.

What are these different kinds of property? The basic distinction is, of course, the distinction between land on the one side and all other kinds of property on the other. English law calls these two classes Real Property and Personal Property, and there is possibly no better illustration of the typical differences, and of the typical relation, between the varying rights to which they may give rise, than the English law of property. At any rate, an historical view of the law illuminates this relation in a peculiarly interesting way.

To understand the law of real property, it is necessary to be able to think with a certain amount of sympathy of the feudal system. In a feudal society, we have, to begin with, a social organism in which the land is everything and the human being (except possibly for a few exalted nobles) is attached to it almost after the fashion of a vegetable. If he is a serf, he is adscriptus glebæ – “annexed to the soil” – and is not allowed to leave the place of his birth. The notion that the word ‘law’ involves a separate, abstract system of personal rights, rights independent of topography and attaching equally to all men simply because they are men, is as yet hardly existent. The very rights themselves spring, as it were, from the soil. Thus, just as to-day land may be sold with certain rights (of drainage, light, etc.) over adjacent land attaching to it, so in the time of the feudal tenures rights of quite a different kind would pass with a given piece of land – rights which we cannot think of as concerning the land, as such, at all, rights and obligations of a personal kind; some of them of a very personal kind indeed.

It was only gradually that there first emerged from this older conception of “real” property, and afterwards grew up side by side with it, steadily increasing in relative importance, that very different conception of “personal” property, which covers the sort of property that is easily transferable by simple delivery and in which (as far as the law is concerned) any man may acquire a good right, irrespective of his status or the place of his birth, by paying the price which its owner demands for it. The distinction between real property and personal property is, however, not quite as simple as it is apt to appear on the face of it. One is tempted by the terms themselves to think of land as having been called “real,” because it is nice and solid and immovable, while “personal” property would be the kind of property (cash and so forth) which can be carried on the person. But this is not really the meaning of the terms. They arise, as has been pointed out, from the fact that the right involved in the ownership of real property was of a different kind from the right involved in the ownership of other kinds of property.

It is necessary to explain this difference. What is a right? How is its nature defined and determined? The lawyer answers this question by asking another. If my client’s right is infringed, what sort of action can I bring and against whom? It is in the answer to this question that the origin of the difference between real and personal property is to be found. The owner’s right to his land was a right which he could enforce against the whole world. It was a right in rem – to the thing itself – so that if he were dispossessed, he could bring an action for the recovery of the thing itself. But the law at first recognised no such right in the case of personal property. He who was deprived of this could not, at law, enforce its return. His sole remedy was an action for damages against the particular person who had wronged him. Such an action was called a ‘personal’ action.

For similar reasons a distinction arose between two different kinds of personal property. Just as there is real property and personal property, so personal property itself may consist either of “things-in-possession” or “things-in-action” The difference is again a question of rights. If I see my watch lying on your table, I am entitled to pick it up and carry it away without your permission. But the fact that you owe me ten pounds does not entitle me to remove from your table ten pound notes or a bearer cheque for £10. In order to recover “my” £10 against your will, I must bring an action.

These rights to acquire property by bringing an action, as distinct from property itself, are called things – or (not to shirk the Norman French) – ‘choses-in-action.’ My watch, on the other hand (quite apart from the question whether it is actually at the moment in its true owner’s possession or not) is classified as a chose-in-possession. Thus, choses-in-possession are concrete, ascertained chattels; choses-in-action are, in essence, rights enabling me to obtain something if I choose. These rights may be contingent only, for there may be nothing to be got. The copyright of this article is a chose-in-action and, as such, forms part of the writer’s personal property. So are the shares in a limited company. Thus, though choses-in-action are only ‘rights’ to property, they are also a form of property itself. They may be bought and sold, and a large part of the buying and selling that goes on in the world to-day is concerned with them.

We can now amplify a little the original distinction between real property and personal property. We have instead three categories:

Real property (land)
} (personal property)

It is obvious that choses-in-action lie at the opposite pole to realty. On the one hand, the actual possession and enjoyment of something ascertained is guaranteed and maintained by the law; on the other hand, it is only a right to possess something unascertained which is supported.

The gradual recognition of this often not very clearly defined right to possess is, in this country, closely bound up with the history of Equity. What is Equity? How has it come about that this academic name of a universal principle of justice or equality is now used in such peculiarly technical ways, so that, for instance, a man who has signed a contract to purchase a house is said to “have the equity” in it, and the ordinary shares of the most bogus and disreputable limited company that can possibly be imagined are properly called “equity shares”?

In the same course of lectures by Dr. Steiner (World Economy) there is at one point a very curious sentence. The lecturer is speaking of loans. He begins to illustrate his thesis. “A lends B money,” he says (or words to that effect) and then he adds: “There you have a relation between two persons.” The remark seems so unnecessary that for that very reason it pulls up the reader. In any other writer one would not think twice about it, but the more experienced one becomes in the study of Anthroposophy, the more one is inclined to adopt towards Steiner’s words the attitude which scientists adopt towards nature. That is to say, one assumes an underlying principle of uniformity in the light of which nothing is meaningless, if one could only learn to understand it. The history of Equity (I mean in English jurisprudence, where the development has been quite peculiar) is precisely the history of the recognition of this relation between two persons by the Courts. Equity begins as soon as the “relation between two persons” begins to be recognised as a thing, as an object no less ‘real,’ in fact though not in name, than a piece of land.

It is too commonly assumed that the subjection of the processes of litigation to a hide-bound formalism is a disease of civilization from which primitive societies were immune. This is far from the truth; at any rate, it is far from the truth in the case of those peoples among whose customs we must look for the origin of the English common law. One has only to read one of the Icelandic Sagas to realise two things: first, that a Viking was obliged to give a far greater portion of his time and attention to the business of conducting lawsuits than, let us say, a member of the stock-exchange; secondly, that the operation of law, even at its most primitive stage, when nearly every dispute ended in personal combat, was bound hand and foot by the necessity for correctness of form. Everything depended on using the correct words in your summons. A right was enforceable only if there happened to be some established form of action (and there were none too many) which would fit the particular infringement of which you had to complain. If not, no matter how unjustly you had been treated, the courts could do nothing for you. “Where there is a remedy,” ran the old maxim, “there is a right.” Whereas it is quite instinctive with us to reverse the order and say: “Where there is a right, there must be a remedy.”

This cramping limitation of the right of action lasted in England well into the thirteenth century, and the remedy, when it came, took a rather curious form. People who had a genuine grievance for which, owing to formal reasons, no relief was available at law, turned to the King as the ultimate fountain of justice: and the person who had to deal with their petitions was the King’s highest official, the Chancellor. Down to the Reformation this official was invariably an ecclesiastic, and he was known among other titles, as the “Keeper of the King’s Conscience.” The way in which the Christian Church had taken into itself and metamorphosed certain conceptions developed by the Roman lawyers is beyond the scope of this article. Here we have only to notice that the story of equity is the story of how the relief which the Chancellor gave to oppressed and remediless suitors became more and more systematic, until it eventually resulted in a whole set of courts existing parallel to and yet quite distinct from those of the common law, and known as the Courts of Equity or “courts of conscience.” It is from these extraordinary courts, whose jurisdiction was both concurrent with, and superior to, that of the courts of common law, that the present Chancery Division of the High Court has descended.

The term “courts of conscience” was in many ways a singularly correct description of the courts of equity, and indeed it conceals in itself the very essence of equity. For, while on the one hand it is still necessary to-day for a lawyer to have some understanding of the meaning of this phrase, “courts of conscience,” even for the ordinary practical purposes of his business, at the other end of the scale it carries us deep into the roots of human consciousness. What does it mean?

Equity is of course a branch of civil law, and the court would move only at the instance of a plaintiff with some grievance. But in spite of this, the principle which underlay the relief granted was not, as at common law, the satisfaction of the aggrieved plaintiff. On the contrary, the court was concerned to clear the conscience of the defendant. His conscience could be cleared only by repentance, and in order that he might repent, it was necessary that he should first of all make restitution to the person whom he had wronged. One cannot, as the King in Hamlet knew, “be pardoned and retain the offence.”

Now the common law took no account of such personal rights and obligations as these. A man might be a notorious rogue, but nevertheless he could succeed in evicting from a piece of land (if he could show that it was technically “his”) another man whose personal right to the land was universally admitted to be far better than his own. This was where equity stepped in. When such a situation arose, the sufferer could apply to the Chancellor, and, if satisfied of the rights of the case the Chancellor would say, in effect, to the oppressor: “It is perfectly true that you have this legal right to the land, and if you choose to go to law to enforce it, the common law will assist you. I cannot stop that. But there is something else which I both can and shall do. The moment you begin any such action, in order to prevent you going on with it, I shall imprison your person for contempt of my court.” Thus the would-be oppressor was helpless. He had a legal ‘right,’ but equity prevented him from enforcing it for ‘personal’ reasons. The maxim was: “Equity acts in personam.”

There was another sense in which the courts of equity were ‘courts of conscience.’ The person who applied for relief must be able to show that his own conscience was clear. Otherwise the court would not help him. “He who seeks equity must do equity.” In enforcing this principle the Chancellor would particularly take into account the degree of knowledge of certain significant facts which the parties could be shown to have possessed at the time when they acted. (This is the important equitable doctrine of “notice.”) Thus the courts of equity were indeed concerned with a relation between two persons; the relation itself was felt as a reality, as something which changed its nature according as the state of mind – as the state of knowledge – of either party in relation to the other changed.

Now criminal law also takes account of the state of mind of the wrongdoer. An accident is not a crime. Yet the criminal courts could never be called ‘courts of conscience.’ With them it is simply a question of establishing that the accused did in fact intend the consequences of his actions. A crime is essentially a crime against the group of which the criminal is a member. It is a breach of the King’s peace. Whereas the infringement of an equitable right is the wronging of another individual human being. It depends on a relation between two persons.

To understand this, it is necessary to go rather deeply into the meaning of the word ‘conscience.’ Like ‘consciousness,’ of which it is philologically merely a variant form, the word conscience originally means ‘knowing with.’ It implies a state of knowledge either shared with, or at any rate considered in relation to, another being. That this ‘knowing with’ another (which, reduced to its lowest terms, is the bare admission that there is another being) is, first an act of will, and, secondly, that it is the basis of self-consciousness – these are sublime truths, which may be demonstrated philosophically, as they were by Hegel and by Samuel Taylor Coleridge. But they are also truths which may be won from purely moral experience by persons of the most limited intelligence. By watching ourselves, by watching the harm that we keep doing in some of the most intimate experiences of life, we may come to grasp this truth.

Let us suppose, for instance, that in the midst of some argument we pull ourselves up, finding that we are becoming excessively dogmatic, excessively self-assertive. We discover that we no longer wish the other person to arrive at the truth by his own voluntary act. We are now trying to force our own thought outward at his expense, to remove him from the path, to put him to sleep. We do not want to admit his right to a separate existence. We should like his mind to be a sort of mechanical attachment to our own, registering assent at intervals, simply in order to keep us sufficiently conscious to be able to enjoy the act of thinking and the accompanying sense of power. But this is not a true increase of self-consciousness. Such an increase will come only if we are willing to accept the pain of his otherness, to acknowledge his full and equal right to be other than ourselves. It is only this pain and contrast which can shock us into a real awareness of ourselves.

This is only an example. The point is that out of quite ordinary everyday experiences (between two persons) one may come to perceive the profound truth that is contained, for instance, in Coleridge’s Essay on Faith, where he shows the necessary relation between consciousness and conscience. Self-consciousness is made possible only by the voluntary recognition of another self-consciousness. It becomes possible when, by an act of free will, we resist the impulse to regard other human beings as mere phenomena, as mere points on the circumference of a circle; and it is developed in us at any moment only to the extent that we are able to acknowledge with our whole heart that these others too are centres, centres of equal status with ourselves. In Coleridge’s words, we must “negative their sameness in order to establish their equality.” Self-consciousness has its rise in the recognition by one being of the equality of another being. It is a gift which men can receive only at the hands of one another.

It may be objected that too much importance is attached to self-consciousness. Why is it so desirable that we should become aware of what we are? The answer is, of course, that only by doing so can we become aware of the Spirit in which we are. It has been common ground for the great religions of the world that self-consciousness, when deeply realised in self-knowledge, involves God-consciousness. But it is just here that an important distinction may be made. Religion has always possessed as its heart the truth that God is to be sought for in the Ego of man, and Moses so far made this doctrine exoteric to the ancient Hebrews when he preached the I AM. But here the Ego is always emphatically the Ego of the seeker. Only one religion has ever taught that God is to be sought in the Ego of another man, and that religion is Christianity.

The central discovery wrought in a man by the ancient mystery religions was the discovery “I am divine.” The crucial discovery wrought in a man by Christianity is the experience “thou art divine.” It is only reflected in another that we can see the eternal Self which we are, but not yet. Christ can only make his home in a “relation between two persons.” For a relation between more than two implies the relation between each two – where two or three are gathered together.

If the incarnation of Christ be indeed at the centre of the evolution of the Earth, then, as only 2,000 years have elapsed since it occurred, we can hardly in our time have touched the threshold of the age of Christianity. For contrast this paltry 2,000 years with the æons that have preceded it and the æons that are still to follow! Such is in fact the view of Spiritual Science. We also realise, when we begin to get that firmer grasp of the evolution of consciousness which it assures, that the fourth post-Atlantean Age (beginning with the year of the foundation of Rome and ending in 1413 A.D.), while it was in some few respects the best, was in many others the worst adapted of all for understanding the great Event which it brought to Earth. It was, for example, an age in which the institution of slavery was widespread and acknowledged. The word “equity” (Latin æquus) is closely bound up with the notion of equality. If we recollect all these things and if we also carry in our minds a sense of the great spiritual significance of this recognition of an equality of status as between two persons (a feeble attempt has just been made to put this before the reader), then it becomes a simpler matter to comprehend the really very strange and distinctive quality of this equity – this ‘roguish thing’ as one of the old common lawyers called it – which springs rather suddenly into prominence in England at the dawn of the fifth post-Atlantean Age. Then too (and there is much more that could be said, were there space) in spite of all the nonsense which no doubt has been talked, in spite of all the base uses which the growth of technical equity has served, and of which something is shortly to be said, it is impossible not to abandon prejudice and admit that the true body of equity has a certain breath of fragrance about it and that that fragrance is the fragrance of Christianity itself.

One of the most remarkable things in Rudolf Steiner’s book, The Threefold Commonwealth, is the way in which he identifies with the three members or systems of the modern State the triple ideal of the French Revolution – Liberty, Equality and Fraternity. He points out that the ideal of the equality of all men is indeed capable of realisation, but that it will be realised only if it is understood to what sphere of the whole social organism, and thus to what aspect of the individual human being, it applies. To be an expression of the equality of all men is characteristic of the politico-legal structure of the State, of that life of reciprocal rights which corresponds in man himself to the life of feeling, out of which his private social relations with other men are built up. In other respects men are not equal.

Now the phenomenon of equity and the way in which, originating in the sphere of rights, it has gradually spread outward and incorporated itself in a metamorphosed form into the economic life, throws much light on this conception. It is characteristic of the three members or systems of the modern State to interpenetrate in this way, just as it is characteristic of the threefold man. The important thing is that they should be able to be separated in our thinking about them. And the history of Equity assists us to do this. We trace its progress from the rights sphere, through a changing conception of property, into the economic sphere. But its nature is such that in doing so we do not easily lose sight of its essentially juristic origin. Thus, equity enables us to feel how equality, not the abstract uniformity of the bureaucratic foot-rule, not ‘standardisation’ but equality in a truly inward and truly human sense, is at the very heart of the life of rights.

So far it is only the first stage of this progress from the rights sphere into the economic sphere at which we have looked. We have seen how the emergence of social and economic life from feudalism has been very closely connected in this country with the solvent influence exerted by the doctrines of equity on the conception of property. A man’s land might at law be tied up in all sorts of complicated ways connected with his family status, so that, for example, he could not sell it, even though he might wish to go and live somewhere else, nor could he dispose of it as he desired in his will. Or again he might wish to sell without going through the elaborate public ceremony which the law required in the case of real property. In such circumstances he could escape many of his difficulties by providing that A should “own” the land, but that A should hold it for the benefit of B (who might possibly be himself).

The result was that, as far as the ordinary courts of law were concerned, A (the ‘trustee’ as we should now call him) was the owner. Theoretically he could, if he chose to ignore the trust reposed in him, confine the whole enjoyment to himself. The common law courts would not recognise B’s right at all. But the courts of equity would prevent A from doing anything of the sort. By putting his trust in A, B had created a certain relation between two persons, a relation which bound A’s conscience; and equity would see (such was the theory) that A’s conscience was preserved from the damage which it must suffer by ignoring that obligation. B’s personal right to enjoy the land was thus something so secure, so concrete, that he could sell it, and the purchaser would obtain something which for practical purposes was as good as the land itself.

Thus the ancient feudal attachment of man to the land was allowed to fade away into the background. It did not wholly disappear; but there came into existence, hovering as it were above it, a quite separate system of ownership, in which the theory was that, not the land itself was owned, but the personal right to enjoy it. Under the feudal system it had been in some respects almost as true to say that the land owned the man as that the man owned the land. But now these personal rights had come to be felt as things no less actual and concrete than the land itself. They could be left in a will, bought and sold, dealt in. The conception of property had thus become a much freer one. It no longer involved a kind of physical oneness with the object owned. It was a personal right.

The characteristic of this kind of property was the ease with which it could be transferred from one person to another. Thus in a sense the equitable doctrines of ownership underlay the whole phenomenon of the growth of commerce and the rise of the free cities. In commerce, the relations of human beings to one another are based not on the land but on cash. This is not necessarily an evil. It is rendered evil by the egoism of human beings, but that makes other things evil also. A commercial ‘bargain’ is not essentially a transaction by means of which one human being ‘does’ another and gains something at his expense. Essentially it is a transaction from which both are the gainers, and as such is a material reflection of the spiritual significance of men’s coexistence on the Earth: How great that significance may be, we have just seen. It was precisely in connection with the commercial loan of money that Steiner pointed to a “relation between two persons.”

But the development of that conception of property which equity fosters did not stop here. We have traced it, in the case of land, from the old feudal conception to that of a mere right, albeit a right which could be bought and sold for cash. There remains the question of the nature of property in cash itself.

In the same course of lectures on World Economy, Dr. Steiner, speaking of the history of the loan, points out that the loan in its pristine form was a gift for which the consideration was not a defined contract to repay the exact amount with or without interest, but rather a tacit understanding that the present borrower would be willing to become a lender in his turn, should occasion arise. Again one sees that he thought it characteristic of the loan that it creates a peculiarly personal relation. Now it is just this whole sphere of personal relations, relations which are based on some kind of confidence, some ‘trust’ or ‘credit’ that is so peculiarly the sphere of equity. Trust is the soul of equity. So strong is its sense of the concreteness of the situation which is created as soon as one man places confidence in another and acts accordingly, that it will, up to the limits of possibility, presume that the confidence is justified. Equity, it has been said (and the doctrine is of practical importance – for instance, in the construction of Wills), “imputes to a man the intention to fulfil his obligations.” It does much more. As a judge on the Queen’s Bench asserted in 1885, “Equity looks upon that as done which ought to be done.”

This does not, of course, mean that in the ordinary course of litigation a man who has made a promise will be excused from fulfilling it. But there is one sense in which it almost amounts to this. The influence which such conceptions have had on the development of money, and of those numerous substitutes, such as cheques, which are its virtual equivalent in many of the transactions of modern social life, can hardly be exaggerated. It is one thing for a freemasonry of merchants and bankers to have acquired the habit of exchanging one another’s promises to pay in settlement of their debts. It is another when such customs become incorporated into the law of the land, so that some of the sharpest and most subtle brains are occupied in defining the situations which result and endeavouring to make them of universal application.

The economic process deals with physical things. When rights begin to be bought and sold and used for the payment of debts, we see them trying to turn into physical things. They become abstracted from the personal relation which is their essence, and the result is confusion. For instance, it is apparent enough to common sense that there must be some difference between “paying” and “promising to pay.” But to-day, if the Bank of England has promised to pay me £5, it will fulfil that promise by handing me either one or five or ten pieces of paper having printed on them the words, “Bank of England promise to pay the Bearer on demand the sum of £5” (or £1 or 10/- as the case may be). Must a “promise to pay” be a promise to pay something, or may it be a promise to pay nothing? Are these promises “money”? What is money? Does it exist before it is issued, and, if so, to whom does it belong?

These are some of the questions upon which an absolutely hopeless confusion reigns to-day, not only in the minds of persons in the humbler walks of life but also among those whom destiny has called to the task of governing the central banks of the great nations of the world. It is only necessary to look at the evidence given before the recent Macmillan Committee on Finance and Industry (1931) to see how total is the darkness out of which decisions are fetched which determine the material welfare of the world.

We have glanced at the emergence, in the past, of a system of ownership based on cash from a system of ownership based on land and the family. To-day we appear to be in the midst of another process – the emergence of a system based on credit from a system based on cash. The principles of equity are influential in both cases, but there is this difference. In the former process the personal element which underlies equity was never quite lost sight of. Personal relations and the rights based on them were indeed felt to be realities, things – they were freely bought and sold – but they were never actually confused with physical things. The physical thing with which they might have been confused – the land – was there in the background of men’s consciousness, in pointed contrast to them, and the equities hovered above it, as it were, in a different sphere. Such is the essential nature of the Trust Settlement.

This transition from cash-finance to credit-finance is inevitable and beneficial; what is disastrous is the application to the latter of forms of thought proper only to the former – through lack of the ability to create fresh forms of thought. The obligation which is produced by a “promise to pay,” and the corresponding right called “credit” – these things have become actually confused in men’s minds with physical objects. They are indistinguishable from “money,” and money is still thought of by most people as an aggregation of physical objects.

Money in its earliest form was in fact a commodity among other commodities, and it has always been so treated by the common law. It is not regarded as evidence of a right to demand goods; it is itself goods. It is not a chose-in-action, but a chose-in-possession. Yet bank-notes, when they are also currency notes or when they are legal tender and inconvertible, are indistinguishable from money. On the other hand, bank-notes are merely “promises to pay!”1

No better evidence could be required of the heights which doubt and confusion on the subject of currency have now reached than the decision come to in April of this year (1932) by the Appeal Committee of the House of Lords in the case of Banco de Portugal v. Waterlows. This is the highest tribunal in the kingdom and from it there is no further appeal. It had to decide (inter alia) the question whether a bank (with a right of note similar to that of the Bank of England), when it issues its own inconvertible notes in exchange for forged ones, is the poorer by the face value of the notes or whether it has lost merely the cost of printing them. It had to decide whether the Bank of Portugal was correct in claiming that the replacement of the forged notes “cost” it half a million sterling, or whether Messrs. Waterlow were correct in claiming that it had cost only a few thousands. This would appear to be a pretty fundamental question. The House of Lords does not know the answer to it! Of the five Lords Justices of Appeal, three decided for the half million and two for the few thousands. It is perhaps worthy of remark that the first three are men who have gained their experience in common law advocacy, while the two dissentients come from the Chancery, or, as it is often called, the Equity Bar.

Such confusion on such a subject is unfortunately of more than theoretical importance. For what effect does it have when the essentially inter-personal nature of promises and “credit” is forgotten, when rights are metamorphosed in men’s minds into the semblances of physical things, so that the attempt is made to compel them to obey physical laws? The result is that the world is caught within a network of unreal ghosts of personal obligations. A situation arises in which the whole world is in theory (but the theory is acted on) head over ears in debt to – itself. Huge sums of money are owed to nobody and are withdrawn from circulation to liquidate that spectral debt. But without money the world cannot get at the goods which it produces, and, as a result, it soon ceases even to produce. We therefore have a world starving to death in the midst of material plenty. The latest (1932) unemployment figure from America alone is 8,000,000.

The failure of the whole system of financial credit built up by the Western world, with which we are now threatened, will not be due to a lack of personal confidence between human beings. This has probably never been greater than it is now, as is proved by the very abuses to which it is exposed. Confidence could not be abused on the scale practised by the late Ivar Kreuger, if there were not plenty of it there to abuse. No. The failure will be due to ignorance of the nature of credit and the position it has come to occupy in the economic life of the world. It will be due, and so far as it has already happened, it is due, to inability to realise that confidence is an immaterial substance, and not a material one. The failure of credit reacts on the land itself. The substitute for genuine credit, for personal trust, is collateral “security,” and people quickly come to feel that the safest of all securities is land. For it alone is indestructible. Thus the land becomes pledged deeper and deeper, as attempts grow more and more desperate to postpone the meeting of the enormous debts, the ghostly obligations, the obligations to nobody, which in fact will never be met because it is mathematically impossible that they should be. Laws are passed which make it easier to alienate land, easier to chop it up into small separately-owned pieces, easier to pledge it. Such was the tendency of the 1925 legislation, which is associated with the name of the late Lord Birkenhead.

The picture is indeed nearly as dark as it could be. Pestilence and famine have come upon men before, but they have come as the result of the natural forces of the earth. Or – over smaller areas – they have been brought about by certain easily identifiable personal crimes. Never before have they been caused, as they are being caused to-day, by something between the two, by the natural or at any rate impersonal, forces of a sort of second earth, an earth which is not the physical earth at all, but is compacted of the personal relations of men with one another and of the uneasy ghosts and decaying relics of such relations.

Perhaps it is for this very reason that more and more people seem to be drawn to the study of money-problems. In the last decade it has been by no means uncommon for souls impelled rather by a vague spiritual unrest than by any instinctive interest in economics to apply themselves to the study of such things as credit and currency. Is this because behind the thick darkness in which money, the “root of all evil,”2 is shrouded, a darkness which has now extended itself from the moral over the intellectual sphere, they divine the mysterious presence of the root of all good? Really to understand a perverted and morbid growth involves understanding the healthy body of which it is the perversion. Really to understand money involves understanding that above the decaying, increasingly mechanised physical body of the earth, whose future even science predicts to be increasing cold and darkness, there is coming into being another earth, an earth which is literally composed of the relations of human beings with one another, an earth whose destiny it is to become increasingly one of light.

This at any rate was the teaching of Rudolf Steiner, and it is this picture of the two earths, the “real” and the personal, of which the old-fashioned “trust” of settled land appears to me to be a sort of clumsy but honest caricature. Or rather it is more than this. For what is contained in this most characteristic of all the creations of the old courts of equity? Apart from all other considerations, there is contained in it a certain striking and impressive form of thought; and anyone who has ever attempted to inculcate an idea with even modest pretensions to being new, will understand what an important part of the task is this establishment of a suitable form of thought.

At the end of his Republic, Plato makes Socrates reply to someone who objects that the city which he has been describing exists nowhere on earth. “But perhaps there is a pattern laid up in heaven for him who wishes to see it and seeking to dwell therein himself. Nor does it matter at all whether the city is or ever will be in any particular place.” This has often been interpreted in the sense that philosophers ought to go on dreaming and not to trouble whether or no their dreams come true. The city is called the “ideal” city, and ideal to-day means non-existent. This is not what Plato meant at all. He intended to say that his city is already there as a spiritual reality, and as one whose very nature it is to seek material expression on earth.

Those who become aware of such spiritual realities, allowing their minds to be filled with such (in this sense) ideal pictures are really in a position to say from one point of view that it “does not matter” whether or no the spiritual reality is “realised” in the earthly sense at some particular time and place. But this does not mean that they will be indifferent and inactive – like a lazy politician for whom the ideal is the conveniently unattainable. On the contrary, those whose grasp of the eternal is strongest, and for whom therefore at a certain level no earthly event matters, will be precisely the ones to act most as if the destiny of the earth mattered to them. For they will have the strength which such action demands.


In 1932, when this article was written, the economic and social climate in this country, and in the West generally, was very different from to-day. In the late twenties great misery had been created here by extensive and lasting unemployment, while in America the storm of the 1931 economic crisis had only recently burst. Raw materials, labour and the necessary skills appeared to be available in plenty, but they could not be brought together and set working because of a shortage of “money”. The paradox of “poverty in the midst of plenty” was the all-pervasive and startling phenomenon which had led to monetary theories such as that of Professor Soddy, and to the small but growing Social Credit movement inaugurated by Major C. H. Douglas.

The production of goods cannot be financed unless there is a reasonable prospect of selling then later on and so recovering the cost. They will not be able to be sold unless a sufficiency of purchasing-power is, at the time when they come on the market, being distributed to the consuming public in the form of wages. These are the (largely false) assumptions of orthodox finance. In a highly organised industrial society, however, a large and ever-increasing proportion of the wages so distributed is paid out in respect of current production (of tools, machinery, etc.) which will only bring further consumable goods on to the market in a relatively remote future – long after the wages so distributed have been spent. Meanwhile, in order to absorb the money now being distributed, the prices of the goods now on the market tend to rise. The circle, or spiral, thus being created, is arrested whenever production ceases to expand, or whenever it is feared that production will cease to expand; and there comes about what is called a “slump”. This is the disease which results from the false assumptions.

I must be content with this very lame epitome of the arguments of the credit-reformers of the twenties and thirties. Now on one interpretation of the Portuguese Bank Case (and it is the one I accept, though it did not find favour with the majority of the Law Lords) in such a highly organised society, when the gold standard has ceased to operate, “money” is the same thing as “credit” and “credit” is daily created by banks in the form of loans, even when they have not, as in the case of the Bank of Portugal, any right to issue their own notes. Whether I own the particular “chose-in-action” called a banknote, or enjoy the other kind called a bank loan (resulting in a credit-balance on which I can draw cheques), makes no difference.

Thus, the fact that “banks create credit” and only banks create it (and, by calling in their loans, destroy it) was another plank in the platform of the credit-reformers and was adduced as one of the prime causes of poverty in the midst of plenty. Nor were they by any means alone in this view of credit-creation. During the years 1920 to 1927 the Chairman of the Midland Bank, The Right Hon. Reginald McKenna, had been regularly utilising his annual speech to its shareholders to educate the public in the same view. “I am afraid,” he said in January 1925, “the ordinary citizen will not like to be told that the banks or the Bank of England can create or destroy money.” (In some of his own speeches to his own shareholders, the Chairman of the Westminster Bank made it clear that he did not like it either.)

Briefly, in the thirties a large number of people were becoming convinced that there was an artificial shortage of purchasing-power, and of these a not inconsiderable number held that the uncontrolled power of creating and withdrawing credit, which lay in the hands of the banking system, was at least one of its causes. For the people who run the system did not even understand it themselves, the ideas in their heads being applicable only to a state of affairs which had ceased to exist. Everyone knew that reckless inflation of the currency, of the kind that had occurred in Germany soon after the last World War, was disastrous and must be avoided at all costs, but the real bugbear of the thirties was deflation – the wholesale restriction of credit by the calling in of existing bank-loans and the refusal to issue fresh ones except on onerous terms. For it was this that produced unemployment.

To-day the climate is very different. We rarely if ever hear the cry of “poverty in the midst of plenty”. There is virtually no unemployment problem, and on the whole it is inflation rather than deflation that we fear. Nobody seems to bother very much whether banks create credit or not, or at all events the number of those who do would appear to be decreasing rather than increasing.

A number of causes have contributed to bringing this about. In the first place, Douglas himself had always said that the alternative remedy to his own was a large-scale war. During war, production is undertaken and maintained on an enormous scale (with the resultant liberal distribution of purchasing-power) and there can be no slump, because no one dares stop to consider whether the loans which provide the expanded purchasing-power will ever be repaid. Moreover, this production is of the kind that does not bring further consumable goods on to the market. You do not produce a torpedo or a rocket in order to sell it. Not only has there in fact been such a war, but ever since it ended a high level of expenditure on the development and maintenance of war-potential has continued. Under war and post-war conditions the shortage of actual goods is more apparent in most parts of the world than a shortage of money to buy them with.

Secondly, the world’s ideas on the subject of land-finance have undergone a considerable loosening, largely under the influence of Keynes and his disciples, here and abroad. Those who heard President Roosevelt’s broadcast inaugural speech on assuming office will remember his beginning the assault. If financial rectitude, according to banking ideas, meant the starving of millions, financial rectitude could wait. The mental picture of large-scale, and particularly international, “loans” as temporary advances to be repaid in due course, as when one man borrows half-a-crown from another, has ceded somewhat to the mental picture of them as a mere machinery for financing production and distribution. Moreover, since the war, under the name of “Economic Aid,” the highly unorthodox principle that some of the product of industry must be given away, if the wheels of industry are to be kept turning, has by force of circumstance been widely, if reluctantly, accepted in the United States.

Again, the notion that plenty was to be had for the asking, once the economics of distribution could be solved, was based on views of man and nature which are less widely accepted than they were. Non-economic motives have been proved to play a much larger part in the behaviour of the masses than was assumed by the credit-reformers, many of whom proclaimed, during the early stages of Hitler’s rise to power, that he was a mere tool of controlling financial interests, and would be discarded when he had served their purpose!

Again, soil-erosion and other disasters and warnings have brought home to many that nature herself is not an inexhaustible mine of plenty available for crass scientific exploitation, and populations are increasing rapidly. Finally, there is the spectre of nuclear warfare. All things considered, the shadow under which we live to-day is not predominantly a financial one.

It was otherwise in the early thirties, and I think this needs to be remembered in reading the foregoing article, if some of its emphases are to be understood. On the other hand, I doubt if there is any less confusion of thought on the issues which it raises towards its conclusion than there was then. I doubt also whether the moneylending fraternity is much less powerful than it was then, though it has learnt willy-nilly how to fiddle the worst effects of the system under which it operates.

The whole structure of investment, loan-finance and credit-creation cries aloud for the application of those clear concepts of “loan-money” and “gift-money” which Rudolf Steiner developed in his World Economy. But where is the will towards this to be found? It is, one fears, symptomatic of the absence of any such will in responsible quarters that the question raised by the Portuguese Bank case should have been buried by common consent, instead of being squarely faced. It may have done no harm therefore to recall it to memory now.

Owen Barfield

1 In the last century, when all English bank-notes were as a matter of course freely convertible into gold, it was settled that they are negotiable instruments and thus choses-in-action. I do not know if the modern bank-note has yet been classified. But, since this article was written, the courts have decided that not only banknotes and bank deposits, but such typical choses-in-action as stocks and shares, are now “money, at all events for the purpose of determining the meaning of the expression “all my money” used in a Will. Return.
2 I fear this is misleading. The allusion is to a remark by Dr. Johnson, but what he actually said was: “The love of money is the root of all evil.” —O. B., 1960. Return.