A Fraudulent Standard



IT is evident that before we can outline a scientific monetary system we must first determine what are the essential functions which money must perform.  As necessity is the mother of invention, and as money is purely an invention, we must first ascertain what necessity led to its discovery.

In tracing the origin and evolution of money, most treatises go back to primitive times and people and show how trade commenced with simple barter.  Fish was exchanged for game, skins for feathers, corn for cattle and so on.  The system naturally involved many difficulties, one of which was the lack of divisibility of certain goods offered and desired.  A cattle raiser who wanted a few apples or fish and had only cattle to barter with found difficulty in getting change.  Sometimes it would happen that a trader who wanted corn had nothing which the corn grower desired as an equivalent.  In such cases the corn grower might be willing to trust the trader until at some future time he could pay for the corn in some commodity the corn grower desired.  But he required some guarantee or at least some evidence of the debt to reassure him that such payment would be made.  Now, according to certain writers, some one, or perhaps many people, hit upon the idea of employing a commodity which was valuable, imperishable, and capable of being subdivided into the smallest possible parts.  The commodities best answering to these requirements were gold, silver, and copper.

This is the usual explanation of how these metals came to be so universally employed as the money metals.

Arguing from this data, economists came to define the necessary functions of money as follows.  They said money is (1) a standard measure of values, (2) a standard of deferred payments, and (3) a store of value.  And although this invention is probably older than the art of writing, no substantial improvement or alteration in the functions or character of what they term “ good ” money has been recognized by the orthodox schools of economics since it was first established.  Whilst in practically every department and branch of individual, social and national life, invention and discovery have raised humanity from a condition little above that of the animal kingdom to its present condition of comparative health, welfare and comfort, we are still bound to the old barbaric method of having to barter all our products for gold or its representatives.

Let us carefully investigate these so-called essential functions of money.

(1) As to the measure or expression of values.  We have already seen in a previous chapter in what manner the exchange values of goods are expressed, viz., by numbers representing quantitative exchange equivalents.

Some system of estimating and expressing values must have existed among all races even where barter was practised.  So much or so many fish would be exchanged for so much corn or for so many skins.  Hence the values would be registered by the quantities, weights, volumes, etc., in which the goods were exchanged.  These values would naturally vary from time to time and from place to place according to variations in conditions, such as weather, scarcity or abundance of products, amount of effort expended in securing the product, etc.

But the mere use of numbers for registering exchange equivalents would not suffice without their association with some unit or common denominator of exchange-values or of purchasing power.  In using a certain commodity like gold, this difficulty was thought to be solved.  Commodities were then appraised in terms of so many grains, ounces, or pieces of gold.  The gold became merely the common denominator, and the numbers indicating the numbers of gold units were the expression of commodity values.

But experience has taught us that the unit need not be associated with any particular commodity.  On the contrary, the fluctuations in the values of all commodities show us that no just or satisfactory system of measuring or expressing values generally, can possibly be established by employing a commodity unit.

A just monetary system ought merely to express the exchange-values of goods as it finds them without intruding upon the scale any special value of its own.  It must therefore be strictly neutral, passive and not active.  It ought to be merely the neutral and invariable scale upon which commodity values are registered.  If it is more than this, if we select a kind of money like one of the precious metals which compels it to obtrude its own varying values from time to time, and thus fraudulently interfere in the equations of commodity exchange, it must necessarily work injustice.

The adoption of a unit or denominator, should be dictated with the main object of securing something or some system which will result in invariability in the unit chosen.  And here we come to the so-called second function.  (2) A standard of deferred payments.  It is evident that when a debt is incurred, justice demands that payment must be made in something or in some manner which shall be a just equivalent.  Here we come to the root of the money problem.  For ages a war has been waged over this question.  In recent years attempts have been made to deal with it in a scientific manner instead of from the standpoint of personal or class interests.  Here also we find the inevitable conflict of the two opposing interests, labour and capital, production and finance.  Whilst finance desires a unit which will expand with the growth and development of invention and industrial progress, so that debts shall expand proportionally, labour and industry are anxious to escape the bondage of debt, and are interested in the establishment of a unit which corresponds merely to the original amount of the debt.

As to the claim of the champions of financial interests for a progressive unit, little need be said.  The claim is not based upon any just or valid argument.  It is said that industrial progress is the result of financial assistance given to industry, and hence money is one of the essential factors of production, and therefore its dealers are entitled to share in any increase in productive methods during the period of the loan.

The reply to this is that since loans are made interest-bearing, such interest payments are ample compensation for the use of such loans.  Moreover since moneylenders would refuse to share in any losses which the industrial borrower might suffer during the same period, there is no just reason why they should be allowed to share the gains.

But, as we shall see later, the controlling influence of money in the field of production is due wholly to special laws which, if abolished, would enable producers speedily to establish a currency system of their own which would be non-interest bearing and would enable them to escape the present tyranny of the money power.  In short, the present position of finance as a necessary factor in production, is an artificial one imposed by Parliamentary laws.

Now the producers’ side of this controversy is as follows.

When one incurs a debt by borrowing or buying on credit, he buys or borrows commodities or labour services or something which holds a certain value relation to all other goods at the time the debt was made.  If we take the whole realm of commodities and wealth in the community to be represented by x units, any debt must be represented by y x 1/x units, y being the number of units of goods or wealth bought or borrowed.  For example, if one borrows from a bank £1,000 to-day, what is the real amount of his debt ?  Let us suppose our total national wealth to be represented by £15,000,000,000.  Then the amount of the debt is 1000/15,000,000,000th = 1/15,000,000th part of the national wealth at the time the money was borrowed.

The practical application of this method to a monetary system will be shown later.  It affords a means of establishing a fixed and invariable unit corresponding to a definite fraction of the total wealth of a community or nation at a given instant of time.

(3) It is also claimed that money is a store of value.

No doubt in times and countries where society and law were scarcely established, and where such a thing as credit and security were unknown, all exchanges had to be made on a barter basis of value for value at the time the exchange was made.  But this system was still a system of barter even where gold was used.  In short, gold was then used not as money as we understand it, but as a commodity pure and simple.

The “ store of value ” function, belongs to an age of barbarism and semi-civilization and was considered essential for safety.  But in our modern and highly organized social system, credit has superseded the gold barter method almost entirely.  As little as still exists, is due to our legal tender laws—to compulsion !

In place of a “ store of value,” all one requires of money nowadays, is an assurance that one will be able to pay one’s debts with it or exchange it for what one needs, at any future time at its face value, which value should represent a certain fraction of all exchangeable wealth at the time the money is paid.

The American greenbacks up until the time they were dishonoured by their own Government, and our present Treasury notes, would represent such units provided their supply was made contingent upon the legitimate trade demand.

Those who have been taught to regard value as something material and tangible, may have some difficulty in understanding how an immaterial and intangible unit can function as the basis of a monetary system.  Such units would be ideal.  It is not necessary that these units should correspond to any fixed amount of any given commodity.  On the contrary since they must express the values of all other commodities, they must be free from such association.

Ideal units of value are not a recent discovery.  Some years ago the chief of an American tribe of Indians was invited to address a society of which I was a member, on the economic system of the aboriginal Indians.  He stated that units of value were known among his race, and a currency system was in use long prior to the advent of the white settlers.  This currency consisted of small pieces of tree branches which were notched with a knife in certain ways to designate the amounts of personal debts incurred by members of the tribe.  Each debtor cut his own sticks and notched and handed them to his creditors, each notch representing an ideal unit of value.  These constituted a sort of I O U and circulated among the members of the various tribes, and were finally redeemed by the debtors in game, fish, skins, feathers, etc., as required.

As showing that honesty is an essential basis for any sound currency system, this Indian chief explained that whilst this aboriginal system worked satisfactorily among his people in early times, he doubted whether it would succeed now since the intercourse between the white and coloured races was so intimate.

He added quite seriously, “ You see, you Christians have taught us many things we never knew.  And unlike us barbarians, you Christians cannot trust each other.”

John Stuart Mill also records the fact, that certain African tribes were known to employ a method of expressing these exchange relations in terms of an ideal unit called the “ macute.”  They say this is worth so many macutes, and that so many, and in this way they estimate the respective values of all exchangeable goods in terms of the macute.  He adds that “ there is no such thing as a macute.”  It is merely an ideal unit created for this special purpose.  Such a unit would when properly issued, entirely fulfil the functions of money in expressing the values of commodities, without intruding any commodity value of its own.

Now the world’s monetary systems, established by law under the advice and influence of money dealers, are founded upon a different theory.

Money created by law is a commodity and is generally regarded as the king of all other commodities.  It is held to be valuable not merely for its utility as the medium of exchange, but chiefly because of the material of which it is made.  Instead of merely expressing the values of other things and functioning as their servant, it obtrudes its own value and insists upon vaunting its brazen qualities in the face of its infinitely more useful brethren.

Gold money is the Hun among commodities.  It is the barbarian that has broken all its treaties and promises, and undertaken the conquest of the world by force and fraud.

Instead of exchanging desirable commodities directly for each other as in primitive times, we are compelled, under this barbaric system, to exchange our useful commodities for the comparatively useless metal, gold itself, or its supposed representative.

It is much as though the Cabinet had been entrusted to provide our King with a private secretary, and had selected a man of such inordinate ambition and self-importance, that soon after his appointment, he had, with the approval of the Cabinet, dethroned the King and placed the crown upon his own head !  And most of our economists and financial experts, have been engaged ever since in the impudent task of trying to make the people believe that this usurper is their rightful king !

The association of a commodity with the currency, prevents it from honestly functioning as the language of values.  One might as well employ as an interpreter for people of various nationalities, a man who can speak but one language.  Gold, whether as a coin or as a commodity, may function as a measure of other pieces of gold.  But it cannot safely nor justly express the values of other commodities.  It knows no language but its own.  And since it could not continue to function as currency solely on its own merits, it has been forced upon the world by legal tender laws.  The public use of a desirable commodity does not require the force of law.  No government has enacted laws compelling its people to eat cheese, or drink beer, or smoke tobacco.

Money is said to be “ a measure and a store of value !”  And it is this “ store of value ” which, functioning as a commodity, prevents money from honestly representing the exchange values of other commodities.  Hence commodities must change their native tongue !  (Again how like the Hun!)  Originally, commodities were socially related by their exchange-values, a relation expressed by numbers, and it was these and these only that the invention of money should express.  But the boorish Prussian commodity-money, insisted upon their all speaking his barbarous tongue !  Hence the language of commodities became no longer numbers expressing values, but weights of gold representing prices—which is a very different story !

In his well-known work entitled The Fundamental Problem in Monetary Science, Mr. C. Moylan Walsh commences his first chapter with the following remarks :—“ In monetary science at the present stage of its development, the fundamental problem is to determine what is in good money the quality that constitutes its goodness, etc.”  Further on he says, “ We are obliged therefore to seek further below the surface and to inquire, what kind of value is it that money measures and stores and should possess in a stable manner ?  This is the fundamental problem in monetary science.”  He then devotes the bulk of his work to a critical historical survey of all the theories which have been advanced by economists for the past three centuries.  The conclusion of this writer, which is the general opinion prevailing among economists, is that money must be a commodity, and in order to “measure” the values of other commodities it must itself possess “ a store of value,” i.e., those qualities which give value to the goods it “ measures.”

It would thus appear that since some commodities, like paintings, owe their worth to the high esteem in which they are publicly held, and others are valued according to their labour cost of production, and others again for their utility and comparative scarcity, money must possess every kind of value in order to function as a “ standard.”

Now it would be utterly impossible for a single commodity to be endowed with such a varied assortment of values.  Moreover, even if such a phenomenon were possible, it would not solve the difficulty which presents itself, of discovering some just and simple method of expressing the exchange relations of commodities in terms of some common denominator.

Most economists imagine that it is necessary to select as a standard of value a commodity possessing all those qualities which make commodities valuable.  This would be analogous to selecting one steam boiler as a standard for measuring the steam pressures of all other boilers, or of trying to measure the electric currents of a dozen or more dynamos by taking one of their number as a standard.

What would be the use of such attempts, when the steam power of the standard boiler and the current of the standard dynamo are themselves both unknown ?

You cannot measure either the use-value, cost-value, esteem-value, or even the exchange≠value of one commodity by placing another—not even a piece of gold—beside it, any more than you can measure the steam pressure of a boiler by coupling it up to another boiler and raising steam in both.

To measure steam pressure, the pressure gauge was invented, in which the force of the steam is made to balance the tension of a spring or raise a weight of known dimensions on a graduated scale.

Similarly with the electric current.

Now the main problem in monetary science is not the selection of a suitable commodity possessing value, stability, ductility, divisibility and other physical qualities which economists assert are essential in a standard.  The fundamental problem is to discover—not a commodity, but—a method which will enable us to (1) accurately express at all times the exchange-values of commodities in terms of some common denominator regardless of why such values exist or how they have arisen, and (2) to issue tokens as evidences of debt and credit, in terms of some invariable unit representing some proportional part of the general wealth of the community at a given time.

Now the exchange-values of commodities, whether gold or pig-iron, are determined, not by their physical qualities, but by their quantities available in relation to the public demand for them.  We are dealing now exclusively with objective exchange-value, and all the other kinds of value pertaining to cost-value, labour-value, use-value, monopoly-value, esteem-value, etc., have no more to do with the problem than the question of the particular fuel has to do with the measurement of steam pressure or electro-motive force.

What we want is a simple method analogous to a steam gauge, in which the resultant of the opposing forces of supply and demand which control exchange-values, can be registered.

Taking the steam boiler once more as our analogy, if the problem were merely to compare a given number and range them in the order of their steam pressures, we might take a number of similar pressure gauges all similarly graduated, and place one on each boiler, and range them according to the numbers corresponding to the pointers on their dials.  In this case we should not even require to know the meaning of each graduation in terms of any known force.  Each graduation might equal a pound weight, a hundredweight, a horse-power or X.  As the problem is merely to determine the relative steam pressures of the boilers in question, we should simply read the numbers and take these as indicating the relative pressures.  Thus if boiler A registered 10, boiler B 20, boiler C 30, and boiler D 40, we should know that the steam pressure in D was four times that in A, twice that in B, and 1⅓ times that in C.

Now this is precisely what we require, and all that is involved in the so-called problem of “ measuring” values.  It is a comparison of commodities one with another in order to ascertain their relative importance in the estimation of the public under the conditions prevailing.

A further illustration of the confusion arising in the minds of most writers on this subject, is the contradiction between the commodity and quality theory of money, and what is known as the quantitative theory.

The latter theory has been definitely established and accepted by every up-to-date economist.  In general terms, the theory is, that the value of money, other things remaining the same, varies inversely with the quantity in circulation.  That qualifying phrase “ other things remaining the same ” includes velocity of currency circulation, quantity of goods offered for sale, etc.

Now if the value of the money commodity depends merely on its physical qualities, its non-corrosiveness, divisibility and all the other attractive features enumerated by the gold standard theorists, it matters not how much nor how little gold there is, these physical qualities are not affected in the slightest degree.  And yet we know perfectly well that if chemistry should discover the secret of the transmutation of baser metals into gold at a very slight expense, or if some mining operations should result in making gold as plentiful as pig-iron, its value would fall to a fraction of its present value, and every government would immediately demonetize it.  In short, its present position as the standard of value is due to circumstances :  first, popular superstition and ignorance ;  secondly, its comparative scarcity ;  and, thirdly, legal-tender laws.

The third is the consequence of the other two causes.

The value of gold, like those of all other commodities, is determined by supply and demand.  It behaves and is subject to the same laws as legal tender paper money.

A century or more ago, both economists and merchants had a far better and more intelligent conception of the medium of exchange than they have to-day.  At that time, money was defined as “ a ticket,” “ a token,” “ a counter,” “ the evidence of debt,” etc.  People accustomed to the currency throughout the Napoleonic wars, knew that the medium of exchange need not be burdened with “ a store of value ” to properly fulfil its trade functions.  It is true that the paper money of those and other times was often issued on the unfortunate theory, that nothing more was required than the enactment of a law to confer upon money in any quantity, a certain fixed power of purchasing commodities.  Those writers who are so fond of picturing the evils of so-called inconvertible paper money, by citing the depreciation which the French and American notes suffered, should tell us how else Napoleon could have financed his wars, the American Colonies their War of Independence, and later their Civil War, and England her campaigns which ended in the conquest of Napoleon, save by the use of the national credit in the form of legal-tender notes ?

How else could we have avoided the most terrible panic in British history in August, 1914, after London had been denuded of gold by the German bankers, through the combined avarice of our money dealers and the folly of our free gold market, but for the issue of our inconvertible Treasury notes ? I underscore “ inconvertible ” because, up to the present time, they have been inconvertible in spite of the efforts of certain bankers and statesmen to make it appear otherwise.  The mere ear-marking of £25,000,000 of gold against £150,000,000 of notes is a long, long way from convertibility.

There is still another view of the functions of money to be considered.  When goods were directly exchanged for goods, each party secured directly the goods he needed.  Mutual satisfaction was the result.  But with the introduction of money, one first exchanges goods for money, and then money for goods, so that where the trader obtained satisfaction under the barter system in one operation, it requires two transactions under our monetary system.  Hence the exchange of goods for money is termed a demi-exchange or half-a-transaction.  The trader accepts the money, not because money can satisfy his wants (he cannot eat it, or wear it, or obtain any satisfaction from its consumption), but because he knows he can exchange it for the goods which he needs.

Now this function of money—the medium of exchange—is merely a utility.  The power here required, is merely purchasing power, which can be conferred upon any valueless token by the agreement of Society and its members, or by law.  Commodity-money advocates insist that this purchasing power must necessarily be associated with some commodity for which the demand is always sufficient to secure its circulation.  And they select gold as the one commodity which answers this condition.  But they fail to explain why it has required the power of the State to ensure this demand.  One thing, however, we do know, and that is that the demand for legal tender is a constantly increasing and universal one, and enormously greater than the industrial demand for gold, for purposes such as jewellery, ornaments, dentistry, etc.  And we also know from the results which the partial demonetization of silver had upon the value of that metal, that if gold were universally demonetized, every gold≠mining operation in the world would cease within twenty-four hours, and the value of gold would fall to a fraction of its present value !

There is enough gold held for coinage purposes to supply the Arts for a century.

It is sheer nonsense to talk of gold owing its present value, importance and stability, to its utility in the Arts.  The use of gold in the jewellery trade, is largely due to love of ostentation, to its being an expensive and somewhat rare metal.  And this is the result of its legal importance as the debt-paying commodity.

Gold has the advantage of being the subject of legal tender laws the world over, whereas no paper money can be legal tender beyond the confines of the country or empire in which it is issued.  Gold coins are just as much “fiat money” as American greenbacks ever were.  To deny it is to deny the law of supply and demand, to deny that the war has affected the values of copper, brass, steel, cotton and other commodities !  Indeed, if the value of gold were due wholly or chiefly to its commodity uses in the Arts, it would long ago have gone out of circulation.  It has had to circulate side by side with millions of “cheap” paper money notes, which have performed the same currency functions, and yet the industrial demand for it in the Arts was altogether insufficient to draw it out of, or seriously affect its circulation.  In short, according to the well≠known Gresham Law, gold is just as much “ bad money ” as cheap paper, because “ bad ” money always drives out “ good ” money.  Ergo, any money not driven out by “ bad ” money must be equally “bad.”

Legal tender, which is the legal debt-paying instrument, is included in the term money, although money should comprise whatever performs the money functions. . . .

Is the legal settlement of debt an essential function of money ? Under our vast and highly specialized industrial and commercial system, no doubt some uniform method of settling or transferring debts is necessary.

Legal tender notes are as simple and satisfactory as any form that could possibly be devised.  Their function should be, to transfer personal claims against the nation from debtors to creditors.  Now this is precisely what golden sovereigns do.  So long as they remain sovereigns they function in transferring credit from one person to another.

A sovereign doesn’t really settle a debt in the economic sense, until it is exchanged for some desirable commodity or service.  If one takes it for the gold in it, he must destroy the money—the sovereign—by melting it, in order to utilize it in the Arts.  But since this use of the sovereign is the exception, it is correct to say that gold sovereigns are of no greater utility in the settlement of debts, than the one pound inconvertible legal-tender notes.

Like other branches of finance, the nature of debt and credit is not generally nor fully understood.  The settlement of debts is usually set forth as one of the most important functions of money.  The term “ legal-tender” is derived from the laws which in all countries specify the particular instrument or method by which creditors can demand payment from their debtors.

Now from the economic standpoint, there are only two ways of settling debts, and these are, first, by the payment of an equivalent in goods, and second, by the payment of an equivalent in services.  Economically speaking, debts can only balance credits by equivalent satisfaction.  Now the payment of legal tender, whether it be paper money or gold coins, is, as we have seen, only half-a-transaction, because the receiver cannot get economic satisfaction from the legal tender until he exchanges it for the goods he needs.  Then and only then is the debt settled as far as he is concerned.  So that the payment of legal tender does not finally settle a debt.  It merely transfers it.  If I pay to my creditors ten pounds—in notes or sovereigns—to settle an account, I do two things :  first, I get rid of the personal debt by transferring it to the nation ;  and secondly, I transfer to my creditor my claim against the nation for ten pounds’ worth of satisfaction (in goods or services).

When persons, banks and governments issue respectively promissory, bank, and legal-tender notes, these notes may function in trade and exchange as transfer agents to an indefinite extent, transferring claims from one set of persons to another set, but they can only finally be redeemed and cancelled when they return to the issuers in exchange for their goods, services, or in payment of taxes.  Our Government might, for example, issue £100,000,000 in notes in anticipation of the taxes due and collectible some time later.  These would function as money and be finally redeemed as soon as they were returned to the Government in payment of the said taxes.  Much nonsense has been written and taught as to the necessity for the convertibility of paper money.  It is asserted that paper money is either dangerous or worthless unless either the Government or the banks agree to exchange such notes for gold on demand.  Beyond limiting the number of such notes which can be issued, convertibility is a waste of both time and material, and it adds nothing whatever to the utility of a paper currency.  How much better off is the average man after he has exchanged his legal-tender notes for gold ?  What more can he obtain with the sovereigns than he could with the notes ?  The objection to convertibility is first that it is based upon deception and fraud.  In no country has convertibility been arranged so that for every note issued a corresponding weight of gold is provided.  The Bank of England has come nearer to an honest performance of this obligation than any other institution in the world.  But even this venerable institution has been compelled to admit its failure during critical periods.  “ Convertibility ” in practice, is analogous to the over-issue of tickets for certain performances without any regard to the seating capacity of the theatre.  If 10,000 tickets are sold and there are only 500 seats, either the majority of purchasers must be content to wait their turn, or miss the performance.  It would be a case of first come, first served.  Convertibility, however, means gold payment on demand—a possibility only so long as the public generally refrain from presenting their claims.  In the case of a theatre or any similar business, such promises would be regarded as fraudulent.

Convertibility may be illustrated by the story of the farmer and his horse.

The story says, that the farmer sold his horse to a man who wanted to use it only one afternoon a week, and the man agreed to allow the farmer to use it for the six and a half days on condition that he cared for it.  Soon after, another client called, and asked the farmer if he could sell him a horse, and the farmer promptly sold him the same one, as the new client only required the horse for a similar period of time, viz., one half-day per week.  At last the farmer managed to sell the horse fourteen times over, so that it was engaged for every half-day during the week.  The transaction was highly profitable to the farmer, and everything worked satisfactorily, until one day these fourteen men met and were discussing the relative merits of their horses, each man supposing that he was the owner of a separate horse.  At last they agreed to compare them in action, and the farmer was requested to bring the fourteen horses for trial, the result being that these gentlemen discovered they were all owners of the same horse !  This is exactly analogous to our gold-basis monetary and banking system.  For every golden sovereign that exists, there are a hundred claimants, and business is only able to proceed by our remaining in blissful ignorance and accepting from each other and being satisfied with mere promises to pay sovereigns.  Let me say at once that this position is not exactly the fault of the bankers.  The fault lies with our stupid laws which have restricted banking operations, and prohibited the issuance of bank-notes (except by the Bank of England), and these laws make it impossible for banks to maintain their integrity and solvency except by periodically destroying many industries and bankrupting members of the mercantile community, whenever trouble arises !

The second objection is, that convertibility necessarily limits paper issues to the amount of gold available, regardless of the needs of trade.  No economist or philosopher, has ever yet been able to prove, that Nature intended to furnish gold proportional to the currency and exchange needs of mankind, in all stages of human progress.  Are we then to regulate the world’s progress by the accidental discoveries of gold or by the intelligence of mankind ?  If by the former, an exclusive gold currency would be the proper method.  If by the latter, convertibility is about as useful to society as crystal-gazing !  In every trading community there must necessarily be at all times an enormous volume of floating debts and credits.  Hence it may be said that credit and debt are merely two aspects of the same thing.  If I buy a hat and promise to pay next month, I have incurred a debt and the hatter has given me credit.  My debt represents his credit.  If I give a promissory note for the value of the hat, the note is a credit note to the hatter, and a debit note to me.  There is a constant demand for this floating credit in all trade circles, for it is by this that the bulk of the world’s commerce is carried on.  The credit is redeemed from time to time as required, but as fast as one lot is redeemed, fresh credits are created.  And in a progressive community where trade and population are advancing, the volume of floating credit will necessarily expand year after year.  Indeed, this growth of credit is essential for the growth and prosperity of a nation.  To suggest that all this, or in fact any portion of such credit should be supplanted with a costly commodity like gold, is to suggest not merely unnecessary extravagance, but the ruin of thousands of businesses.  Further, credit is not only a claim on present wealth, but upon future production.  And this function is one which financial writers often overlook.  They write of the dangers of “ inflation,” of “ redundancy,” etc.  But they forget that the spur to production is effective demand, and demand can only be effective when backed by purchasing power.

A dearth of credit and currency leads to industrial stagnation.

Industrial growth and prosperity necessitate a constant increase of credit.

It should also be noticed that the terms “ over≠issue ” and “ inflation ” are employed in banking circles to denote the limitations of our banking system.  They do not mean that there is necessarily more currency than business requires, but that there is more money circulating than the bankers think good or safe for their business, which consists in selling credit and making dividends.

The bank theory of trade is, that both trade and industry must be limited to “ safe ” banking operations.  If trade conditions tend to outrun the bankers’ facilities, the bankers say “ credit is growing unduly.”  In short, it is the case of the “ tail wagging the dog.”  Instead of enlarging their facilities to keep pace with the industrial growth of the nation, the bankers are compelled to hold conditions down to their own level and limitations, and thus we come to a complete inversion of the logical and natural order of things.

Money and banking have become the autocrats of commerce, instead of fuctioning as the mechanism of trade and as the servants of industry.

The essential functions of money are therefore (1) to express the exchange-values of commodities, (2) to facilitate the exchange of commodities, (3) to register debts in terms of some invariable denominator, and (4) to transfer private debts to the community, and credits from one person to another.