This page contains a Flash digital edition of a book.
“ We will no doubt see the political pendulum swing to the far right and left as it did in the 1930’s; surely

the most comparable decade to this. ”

in precious metal supplies helped restrict the growth of money, and price stability became the rule rather than the exception for the balance of the nineteenth century. While 1815 brought an end to the conflict on the battlefront, severe austerity ensued on the home front. The application of the Gold Standard meant that loans issued over many years were then recalled to balance the ratio of money to precious metals. It led to economic gridlock with labour and materials abundant, but much-needed projects could not be started for want of finance; a period known as "poverty amongst plenty".

Guernsey endured similar trauma. The disintegrating sea defenses were symptomatic of her financial woes as the island faced being swamped with hefty debts and interest payments. The situation seemed insoluble as borrowing costs consumed 80% of the island’s revenues. What was already an unsustainable debt burden would need to be doubled to fund essential infrastructure projects. This was when a committee of States members was formed by the then-Bailiff, Daniel DeLisle Brock, in what proved to be the defining moment for the island’s finances. He is still commemorated on Guernsey £1 notes, as is the Town Market which was one of the first beneficiaries of the so-called Guernsey Experiment. Like all great ideas, the principles were straightforward. The committee realized that if the government created their own money to fund a project, rather than borrowing from an English bank, there would be no interest to pay, leading to substantial savings. To bring balance to the equation they would have to avoid expanding or contracting the money supply

excessively to prevent either inflation or deflation. This was achieved by adding a sell-by date to the notes in issue, rather like a maturity date on a bond. For example, on a note issued 21 November 1827, it "Promises to pay the bearer One Pound on the first of October 1830". Rent from the resulting infrastructure and tax revenues on liquor were set aside into a sinking fund to pay off the interest-free borrowing. In other words, the projects paid for themselves once interest was stripped from the equation.

The end result was spectacular – new roads, sea defenses and public buildings were established, fostering widespread trade and prosperity. Full employment was achieved, no deficits resulted and prices were stable, all without a penny paid in interest. What started as a trial led to a string of construction projects, which still stand and function to this day. Money was used in its purest form for oiling the wheels of commerce and development. One would have thought that everyone would be happy with such a success story but this was not the case. When you open a closed shop to competition, those with vested interests become highly protective. The private banks were threatened because they were cut out of the action. No loans meant no interest and no profit margin. They may well have been the source of a mysterious complaint made to England’s Privy Counsel which put a ceiling on the issuance of Guernsey notes for the rest of the century. Why is this relevant today?

Whenever stimulus packages or bank bail-outs are paraded as solutions to the credit crisis they are actually part and parcel of its cause. Credit creation is possible

and even beneficial, but only if the money is later retired in a measured manner. This requires restraint and stewardship; qualities that are all-too-rare for those with misplaced incentives (or share options to be more precise).

Like swords to ploughshares, the banking industry does not have to be eradicated in the process of reform. Banks still have a role to play in providing liquidity by matching investors with borrowers. But they can no longer be trusted with unfettered credit creation. The Guernsey Experiment – as it was termed in a booklet compiled in 1960 by Olive and Jan Grubiak for Omni Publications, USA – shows that simple ideas can work wonders. They simply require an unselfish philosophy and a desire to do the right thing for future generations, much like America’s Founding Fathers. One of their number, Thomas Jefferson – who was US President during the Napoleonic era – had uncanny foresight when he said "If the American people ever allow private banks to control the issue of money, first by inflation and then by deflation, the banks and corporations that grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."

As the blame game begins once more today, the very people who fostered conditions for the credit crisis will no doubt be implementing knee-jerk legislation. This is not the time for new laws, but for new leaders to match the calibre and insight of our ancestors. It is time for us to Master the Morlocks and take control of our destiny before we are devoured by debt and subjugated by selfish elites.


3rd Floor, NatWest House, Le Truchot, St. Peter Port, Guernsey, GY1 1WD Tel: 01481 721981 Mobile: + 44 (0) 7781 136 534 E-mail:

20/20 Money Matters Page 49

Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100