Chapter XVII.


“ The time has come for the wise to choose their course, and prepare for reconstruction.”

WE have still to consider the second object of Political Economy as defined by Adam Smith, viz.:—“ To supply the State or Commonwealth with a revenue sufficient for the public services.”  This subject should properly be treated under the head of taxation, but as this would carry us beyond the immediate scope of our investigation, I shall merely consider it in its bearings on the money question.

The debts created by Governments throughout the world are so gigantic as to be practically inextinguishable, and no one can contemplate without a shudder the condition of future generations who must inherit these burdens—resulting from the ignorance and extravagance of past and present generations.

At the present time the support of the State is maintained by the impost of taxes upon incomes, upon manufactures, upon imports, and in fact upon almost every article, act or process capable of supporting them.  And practically the whole burden of maintaining the State is thrown upon wealth producers in such a way as to discourage production.  In the event of extraordinary expenses—for waging wars, etc.—recourse is had to the loan, and the nation is bonded.

Taxes are payable in currency of the realm—in the very instrument created by the power and sanction of the State.  The question will naturally arise, why—since the State has the power of creating legal tender—it does not issue the amount needed year by year and pay its debts, rather than by taking from the volume already in circulation and necessary for business ?  The answer is, that so long as Governments insist upon taking the commodity aspect of money, and maintain that money must be made of some particular metal, just so long must they have recourse to the present system of loans and taxes.  When stripped of all the delusions surrounding the science, money is seen to he nothing more than a token, the evidence of debt, and there can certainly be no objection to the issue of such an amount as the State is in the habit of collecting annually.  Suppose the annual taxes collected by a Government amount to 50,000,000 ;  why should it not issue this amount in notes and pay its officers and servants, and, in fact, its entire expenses therefrom ?  So long as the notes are made receivable in payment of taxes there can be no question as to their passing current.  If a Government bond is considered a valuable instrument, if the public debt is a fit and proper subject on which to base the currency, why should not the Government anticipate the debt by issuing paper money, agreeing to accept it in payment of taxes ?  If the one is a safe system why should not the other be ?  Given the power to collect a certain sum annually, surely a Government can readily draw on this by issuing an equivalent in the form suggested.

An illustration will make this plainer.  It is related that in one of the Channel Island towns, some years ago, the municipality needed a new Market House, and decided to build it without borrowing the money, and thereby creating an annual interest charge.  It was proposed that the municipality should issue notes in denominations of 1 and 5 each, making them receivable for taxes.  Having the power to impose the tax, the redemption of the notes was a simple matter.  Tenders were received, and the successful contractor paid in the notes ;  the working men accepted them gladly, finding no difficulty in purchasing with them the necessities of life from the shopkeepers, who in turn received them knowing that they could again transfer them in payment of their taxes.  The notes ultimately returned to the City Treasury and were destroyed.  In this way, so it is stated, the Market House was built without the payment of one shilling of interest on borrowed money.

After all, does it not appear utterly indefensible for the State to be compelled to beg for the loan of a certain instrument, the power of creating which it has deliberately given away to certain privileged institutions—and often without any sort of compensation ?  So long as the amount of money issued by Governments is well within the maximum amount payable in taxes I fail to see why Governments should not take advantage of this power which they possess.  The advantages are obvious.  In the first place it would avoid the difficulties which now arise by reason of Governments keeping locked up large sums which are taken out of circulation, thereby creating a stringency in the money market.  Of late years the Treasurer of the United States has had to go to the assistance of the banks on several occasions, in order to save the nation from serious crises, owing to the large sums withdrawn from circulation by taxation, and locked up in the National Treasury.  Apparently the only way in which this could be returned to the people was by the Government purchasing its own bonds before maturity, and for which it had to pay a heavy premium.

In the second place it would undoubtedly save nations much of their interest charges.

Lastly, it would, as Dr. Walker has shown in his work on “ Money, Trade and Industry,” give a “ fillip ” to business by augmenting the volume of legal tender.  So long as these notes are collected in payment of taxes and so redeemed, they would undoubtedly form a safe currency and fulfil the necessary functions of money.  The fact that Governments have in the past abused this practice on occasions is no reason for abandoning it altogether.  Within reasonable bounds it can be used, and used to great advantage.

We have now discussed the main objects of political economy as defined by one of its founders, and have seen the numerous fallacies underlying certain of its branches, particularly the branch known as finance, which is to-day the most important of all.  What then is the remedy for the evils and difficulties described ?  What solution for the money problem have we to offer ?

During the course of this investigation, we have seen that the one great obstacle opposing economic advancement, is law.  No matter what may be the special branch of our investigation, no matter how much the righteousness and wisdom of a certain line of action may be demonstrated, in our progress we are invariably brought to a final standstill by the lawmakers’ edict, “ Thou shalt not.”

We have seen that the precariousness of supporting life, that which causes most of our anxiety, and raises the question in the minds of millions whether life is really worth living—in fact, that which necessitates economy, is the scarcity of subsistence.  And we have also seen that the tendency—nay, the economic goal of civilization—is to increase these means, bringing them nearer to Nature’s gifts ;  in the language of Adam Smith, “ to enable the people to provide a plentiful revenue for themselves.”  In short, the object of economics is to abolish scarcity, so far as the means of living are concerned.  We have also seen that the evils of our monetary system may be summed up in that one word, scarcity, a condition arising solely from the operation of restrictive laws—laws which give to the few absolute power over the lives and fortunes of the masses.  Commerce is, in fact, constantly ground between two millstones, the upper being the law compelling settlement of debts in legal tender, and the lower the law which restricts this tender to a particular commodity or certain quantity wholly insignificant in amount to meet the necessities of business.

The first step in the solution of this all-important question is to repeal laws which forbid or interfere with free banking, and which make gold or silver or any other commodity or instrument compulsory legal tender.  To one who is not blinded by superstition, custom and tradition, it will appear just as unreasonable for governments to prescribe the form or method in which payments shall be made, as to set up a compulsory standard for the manufacture of boots and shoes or any other commodity.  That there should be a legally constituted monetary unit—for public convenience—similar to the unit of weight, length and capacity—goes without saying.  Such a unit could be the purchasing power of a pound sterling, a dollar, a franc, a mark—at a given time.  Instead of being or representing a certain weight or mass of a particular commodity, such as gold, it would represent a certain fraction of all the exchangeable wealth at a given time.  This fraction may be 1/1,000,000th part to-day, and 1/1,000,001th part next month, but it would always bear the same relation to the same amount of wealth which existed at the time it was first issued.  As to whether this unit shall be expressed on paper, gold, silver, copper or cabbage leaves, no government should attempt to determine.

Governments might, with equal justice, enact laws making oil the only illuminant, wood the only fuel, and steel the only material for shipbuilding. ... The analysis of a coin has already demonstrated that whilst individuals may rightly claim ownership of the material out of which it is made, the exchange power of the coin—that which gives it the function of money—comes entirely from the community or nation at large, and no individual or firm has a right—morally speaking—to claim a monopoly of this.

To many there may appear no analogy between the issue of money and the issue of postage stamps, and yet if we examine them closely we find several points of resemblance.  We must remember that money is essentially a social instrument created by society for facilitating exchange.  It is society, not banking houses, that gives to gold and paper their money functions.  No individual can create money.  For an instrument to be money it must circulate, and in order to circulate it must have exchange power, and this power is created by the members of society accepting it in exchange for commodities and services.  Money is but a means to an end, a right to demand satisfaction in commodities or services.  A postage stamp is simply evidence of a right to demand the carriage and delivery of a letter.  Both are social instruments created by society for its use.  Now the purchasing power of postage stamps might have been maintained as readily as the purchasing power of money, had the founders of the system adopted a similar course.  For instance :  suppose the Government should pass an Act limiting the production of postage stamps to a certain fixed number per annum ;  suppose, further, that the right to issue these stamps was given exclusively to a certain firm or company, and that the number of stamps issued was restricted to five per cent. of those required for the distribution of letters.  Imagine the effect upon business !  And yet it is easily seen that under such a system postage stamps would become exceedingly valuable, and dealing in them a very lucrative business.  Or suppose that Rowland Hill had succeeded in getting Parliament to pass an Act prohibiting the carriage and delivery of letters except those to which had been affixed a nickel stamp, each stamp to contain so many grains of nickel.  At first the number of letters delivered would have depended upon the amount of nickel available for this purpose and the frequency with which the stamps could be returned and sent out again.  The next step would have been to procure an Act allowing the issue of paper stamps to represent the nickel and so save the metal from being lost in transit and from wear and tear by abrasion.  The nickel would then have been deposited in vaults, and paper stamps issued corresponding to the number of units of weight of the metal held for this purpose.  The effect of this would have been first to hinder the growth of business to an enormous extent by limiting the distribution of letters, and secondly to give to nickel a much greater exchange power than it now possesses.

It would have led to severe fluctuations in business by reason of the uncertainty of the number of stamps available, and had this system been extended and made universal we should have nickel bars going from one country to another and creating the same disturbances in regard to the distribution of the mails that now exists in the money markets by reason of the imports and exports of gold.

Look at the disturbances to which business is subjected from time to time by the mere announcement of the withdrawal of so many bars of gold from one country to another !  And yet that gold never enters into the production of a single commodity the exchange and distribution of which constitutes the chief part of the business of the world.  Some day our descendants will wonder what form of lunacy could have prevailed which permitted men to allow their lives, their fortunes, their very existence to depend upon the possession of a metal they could neither eat, drink, nor wear (except for ostentation), and which for all practical purposes is one of the least useful of all metals !

Our laws make no provision for the creation of money proportional to the growth of commerce, and unless fresh gold discoveries are made, credit must be extended to a much greater degree than has ever yet been contemplated.  Now we are told by economists that financial crises are due to the creation of excessive amounts of credit, which cannot be redeemed ;  and yet, as we have seen in the previous chapter, all this is due to the very system which our bankers advocate, namely a currency based upon and redeemable in gold.  The amount of wealth now created and exchanged is infinitely greater than all the gold in the world, and the basis of the exchanges of all this wealth is a comparatively small and insignificant proportion of it.  The result is that the commerce of the world stands, as I have previously shewn, like a pyramid upon its apex, ready to topple and fall at the slightest tremor.  Looking at the question broadly one cannot help enquiring what possible connection there can be between the demands of a medium of exchange required by the commercial world and the production of gold ?  Why should the world’s exchanges be stimulated or debilitated by the accidents of the mining of a metal—one of the least useful of all minerals—a metal that does not enter into the manufacture or production of any of the necessaries of life ?  It would be just as rational for the directors of a railway to fix the number of cars to be run on their road by the number of shooting stars observed each year, as it is for a nation to limit the amount of currency to the quantity of gold it possesses.  And here it may be asked, as a matter of justice, why should freedom to monetize gold be given and the same right denied to other commodities ?

Why should a privilege be conferred upon the gold miner which is denied to the silver miner, the copper miner, the agriculturist, the builder, or in fact any producer ?  For the privilege of “fluidizing” his wealth granted to the gold discoverer is purely artificial.  He has not to seek a market for his wares for the simple reason that nearly all nations have passed laws allowing the coinage of gold at fixed rates and making such coins legal tender—a right which if granted to any other metal would immediately raise it to a similar position of importance.

The solution of the money question, like the solution of the tariff question, is to be found in the removal of all restraints which governments have placed upon exchange and its mechanism.  It is, in short, but enlarging the field of human liberty.  Having acknowledged the right of all men to life, we have to acknowledge their right to support life ;  in fact, the one implies the other.  But laws that restrict trade, that interfere with the issuance of money, deny this right.  “Commerce,” says Proudhon, “exists only among free men.”  We can transpose this aphorism and assert that men are free only where commerce is free ;  and as we have seen, commerce is only free where the mechanism of exchange is free.

Those who see in the present system of tariffs the evils, oppression and unjust privileges to which its operation gives rise, and who fail to perceive the inequity in a governmental control of the currency, are strangely blind to principle.  Of what benefit is it to a nation to abolish its customs houses, so long as the medium of exchange is left to the control of a few government—licensed banking houses ?  Tariffs are taxes levied upon certain special commodities, and affect special exchanges ;  but a restricted currency, whether it be limited by the supply of a special commodity such as gold, or by the arbitrary rulings of a government, is a tax upon all exchanges, a burden placed over the entire field of industry.  Unrestricted commerce is impossible with a restricted currency.  In other words, free trade is only possible with free banking.

The prevailing idea that a nation’s currency must be restricted in volume, is entirely due to the fallacy that money is necessarily something valuable ;  or, as it is commonly stated, money must be “ intrinsically valuable ”—a fallacy which, as we have already seen, is attributable to a false conception of the term value.  Money is not, scientifically speaking, a thing of value ;  it is not wealth.  It is the symbol of wealth, the evidence of debt, a convenient means of expressing the exchange relations of commodities.

And now let us see the practical result of abolishing laws which maintain the so-called “standard of value.”  The one great result would be to divorce money from its alliance with the “ precious ” metals.  The plea urged by economists and legislators for basing money upon specie, is that it is necessary to do so in order that money may perform the function of a “standard of value.”  Abolition of this so-called function removes at once all necessity and every excuse for the specie basis.  The question arises, what then will take its place ?  What will the monetary system be ?  To begin with, the denomination would be the same.  The dollar or pound will still remain the monetary unit ;  but instead of being determined by a certain fixed weight of gold, it will simply be an ideal unit of purchasing power.  It would represent no fixed amount or quantity of any particular commodity.  It would, however, represent a certain fixed proportion of all the exchangeable wealth of a community at a given time.  Its power would be represented in all commodities.  The market reports would be printed in similar terms as now, the only difference being that prices of commodities would not be subjected to the fluctuations of gold or silver.  These metals might be hoarded, exported, imported, cornered or thrown upon the market with the utmost impunity, without affecting the prices of any other commodities in the slightest degree.  Every commodity would then stand upon its own base.  A general fall or rise in prices would be utterly impossible.  Under our present system, the price of every commodity is dependent, first, upon the supply of and demand for commodities themselves ;  and second, upon the supply of and demand for money.

Variations in these two classes may occur separately or simultaneously, and the fortunes and lives of men are affected far more by the second than the first.  The former are controlled by the latter, and bankers control to a large extent the destinies of producers and merchants.  To-day, a merchant may find the value of his stock suddenly diminished one-half, without any change having taken place in the cost of production or supply of the goods themselves, merely through the conjoint action of a number of bankers in limiting the supply of money.  Consider how absurdly the wealth of nations is made to fluctuate under our present systems.  To-day the total wealth of a nation is expressed in terms of so many millions of dollars or pounds sterling.  To-morrow, by reason of a flurry in the money market, that same wealth, which has undergone no physical change whatsoever, may appear at three-fourths of to-day’s valuation !  Observe, also, how the cornering of gold precipitated the general panic known as Black Friday !  The cornering of a commodity could not possibly create a general panic, so long as debts are not made payable in that one particular commodity.

Under the system I propose, variations in supply and demand of money could have no effect upon prices, because the supply would be always ample to meet the demand.  By making all commodities equal—that is, putting them on the same footing—all would be alike monetizable.  Industry, trade and commerce would then assume their natural position and become independent of finance.  The fortunes of manufacturers and merchants would then cease to be the shuttlecocks of money brokers and speculators.

A dry-goods merchant would find it as easy to monetize his stock, and the builder his house, as the gold miner his gold.  With freedom to monetize all commodities alike, the monopolization of money would be as impossible as the monopolization of all commodities.  Further, the supply of money would be so abundant that interest for the use of money would rapidly disappear.  Interest is only possible with a restricted currency.

In the chapter on Purchasing Power, I shewed how the exchange relations of commodities may be expressed.  The operation of estimating the relation of all commodities in terms of these units, involved, as we saw, the use of an endless number of figures.  By using the present terms this difficulty vanishes.  The exchange relations of all goods are now expressed in terms of dollars and cents, pounds, shillings and pence, or some similar monetary terms.  But, I am asked, what is a dollar or a pound apart from its gold basis ?  Simply an arbitrarily selected unit of purchasing power, in simple multiples or fractions of which the exchange relations of all commodities are expressed.  Such a dollar is merely ideal.  By selecting any commodity, its power is at once made known by the quantity of the commodity which it will purchase.  The ideal dollar is invariable, inasmuch as it does not fluctuate, from supply and demand.  The gold dollar, the commodity dollar, is continually varying.  Although to many this idea of what the dollar should be may seem novel, a few moments’ reflection will shew them that almost all people, outside of bankers and money dealers, do, in practice, use dollars and pounds in this ideal sense, although unconsciously.  Not one person in ten thousand ever stops to think of what a dollar is, expressed in gold.  All they think of is its purchasing power, expressed in the particular commodity they need, and as they do not need gold, they never think of ascertaining the gold equivalent of a dollar.  “ How much of this can I buy with my dollar, or how much of that ? ” is the question that immediately concerns them.

Evidence of the use of ideal money is furnished from experience, in this and other countries, by the inconvertible note currency.  “ Governments, ” says Francis Walker, “ have frequently issued paper money without adequate provision for its redemption in gold and in silver, without such redemption, in fact, taking place, and sometimes without redemption being promised, and yet that paper money has circulated as rapidly as gold or silver would have done, has been taken as freely in exchange for commodities and services, and even in some instances has maintained an actual value equal to that of the amount of the precious metals to which it was nominally equivalent.  The paper money of Massachusetts, for the greater part of the period 1690 to 1710 ;  the paper money of Russia for the twenty years following 1768 ;  the so-called continental currency of the American Revolution, for a year and more after the first emission ;  the paper money of Prussia for no inconsiderable period of time, all circulated freely, even without discount in specie.”  And again he says :  “ The so-called greenbacks of the American Civil War, never, from 1862 to the close of 1878, lost their currency in the smallest degree.  At their price they were always taken readily, eagerly.  Men never sought to avoid their use by taking gold at a premium, or by resorting to barter or credit.”  This last statement is remarkable, owing to the fact that the United States Government dishonoured this currency by the famous—or rather infamous—exception clause, refusing to accept it in payment for duties and customs. . . . And now, having dissolved the partnership of bankers with governments, on what basis will banks operate ?  How and by whom will money be issued ?  The first thing to be said is this :  that with the field entirely free from legislative obstructions, there is room for the best possible financial system to develop which will be the natural outgrowth of commerce.  The best, most useful, most stable institutions have thriven where there were the fewest artificial restrictions.  Such institutions, coming into existence under free and natural conditions, must necessarily be better adapted to the wants of men than those stunted by the artificial hot-house methods of government.

Good systems of finance, like all good social institutions, are things of growth, and they conform naturally—if let alone by law-makers—to the needs of the people.  What those needs will be ten, twenty, fifty years hence no man can foretell.  To arbitrarily fix a system of banking which is incapable of variation or adaptation to social growth, is like the Chinese method of keeping their women’s feet encased in children’s shoes.

Banking methods should adapt themselves to the requirements of trade, and not trade to the fixed systems of bankers.  Banking should exist solely to facilitate commerce.  Numerous plans have been proposed to supplant the present system, and there is no question but that experience would soon determine what was best fitted for the conditions.  The plan which appears to me the most scientific, most capable of variation and expansion, and in accordance with the principles I have announced, is that already described and known as the Mutual Banking System.  In attempting to solve this question, I disclaim any intention of inventing a banking system.  I claim that the money problem will be solved as soon as governments cease monopolizing and interfering with the currency.  Repeal of all laws prohibiting and restricting banking and the issuing of money, would call into existence numerous systems, competition among which would lead to the survival of the fittest, which is the natural solution of the banking and currency question.

My task is finished.  I have endeavoured to point out what I believe to be certain grave errors in the prevailing theories of orthodox political economy, particularly that branch which deals with the subject of money.  Much more might be said in connection with this and other branches of the science, but time does not permit of more than cursory treatment of most of the subjects discussed.  My desire is to create an interest in this science which will lead others abler than I to the discussion and to a searching investigation of the theories which now pass for truth.  The money question is by far the most important of all our political questions ;  it is not a mere abstract study for scholars, nor does it only concern statesmen and financiers.  It affects the lives, fortunes and happiness of every member of society, and must sensibly affect those of future generations.  By building our industries on a false foundation, our civilization is in danger of being swept away.

Let me in conclusion repeat what I have said in the preface.  Fundamentally the money question is a question of commercial equity, and our aim should be to establish such a monetary system that justice will be meted out to wealth producers.  Such a system would, I believe, be immediately called into existence were all restrictive legislation regarding money and exchange abolished.  Notwithstanding the prodigious feats performed by man’s inventive genius in the manner of producing wealth, the mechanism of exchange and the system of distribution—under the fatal ban of legislation—remain as inefficient and inequitable as before the age of modern labor-saving inventions.  In demonstrating these assertions I ask a careful and impartial consideration of the ideas herein advanced.  For the usual haphazard expressions of opinion from those who believe that whatever is, is right, and of those whose judgments are based upon the sentiments of their favourite newspapers or political leaders, I am prepared.  It is not from such that reforms come or are encouraged ;  it is not from these that the conditions of life are made better or brighter ;  it is to the thoughtful men and women whose lives are passed, often painfully, in industrial pursuits, and who feel the grind and friction of the machinery, to whom I appeal.  To such—in fact to nine-tenths of the civilized world—this money question is the supreme problem of the hour.