Various Money Schemes

Excerpted from the book;
Individual Liberty: Selections From the Writings of Benjamin R. Tucker
Vanguard Press, New York, 1926
Kraus Reprint Co., Millwood, NY, 1973.

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The Greenbackers were always a fair target for Liberty's shafts of satire and ridicule, but there were many other money schemes, both fiat and other, that drew its fire - and not infrequently its commendation. Several of these are here subjected to analysis and criticism by Liberty's editor:

The persistent way in which Greenbackers dodge argument on the money question is very tiresome to a reasoning mortal. Let an Anarchist give a Greenbacker his idea of a good currency in the issue of which no government has any part, and it is ten to one that he will answer: "Oh, that's not money. It isn't legal tender. Money is that thing which the supreme law of the land declares to be legal tender for debts in the country where that law is supreme."

Brick Pomeroy made such an answer to Stephen Pearl Andrews recently, and appeared to think that he had said something final. Now, in the first place, this definition is not correct, for that is money which performs the functions of money, no matter who issues it. But even if it were correct, of what earthly consequence could it be? Names are nothing. Who cares whether the Anarchistic currency be called money or something else? Would it make exchange easy? Would it make production active? Would it measure prices accurately? Would it distribute wealth honestly? Those are the questions to be asked concerning it; not whether it meets the arbitrary definition adopted by a given school. A system of finance capable of supplying a currency satisfying the above requirements is a solution of what is generally known as the money question; and Greenbackers may as well quit now as later trying to bind people to this f act by paltry quibbling with words.

But after thus rebuking Brick Pomeroy's evasion of Mr. Andrews, something needs to be said in amendment of Mr. Andrew's position as stated by him in an admirable article on "The Nature of Money," published in the New York Truth Seeker of March 9, 1884 - Mr. Andrews divides the properties of money into essentials, incidentals, and accidentals. The essential properties of money, he says@those in the absence of which it is not money whatever else it may have, and in the possession of which it is money whatever else it may lack, re those of measuring mutual estimates in an exchange, recording a commercial transaction, and inspiring confidence in a promise which it makes. All other properties of money Mr. Andrews considers either incidental or accidental, and among the accidental properties he mentions the security or "collateral" which may back up and guarantee money.

Now as an analysis made for the purpose of arriving at a definition, this is entirely right. No exception can be taken to it. But it is seriously to be feared that nearly every person who reads it will infer that, because security or "collateral" is an accidental feature of money, it is an unimportant and well-nigh useless one. And that is where the reader will make a great mistake. It is true that money is money, with or without security, but it cannot be a perfect or reliable money in the absence of security; nay, it cannot be a money worth considering in this age. The advance from barter to unsecured money is a much shorter and less important step logically than that from unsecured money to secured money. The rude vessel in which primitive men first managed to Boat upon the water very likely had all the essentials of a boat, but it was much nearer to no boat at all than it was to the stanch, swift, and sumptuous Cunarder that now speeds its way across the Atlantic in a week. It was a boat, sure enough; but not a boat in which a very timid or even moderately cautious man would care to risk his life in more than five feet of water beyond swimming distance from the shore. It had all the essentials, but it lacked a great many accidentals. Among them, for instance, a compass. A compass is not an essential of a boat, but it is an essential of satisfactory navigation. So security is not an essential of money, but it is an essential of steady production and stable commerce. A boat without a compass is almost sure to strike upon the rocks. Likewise money without security is almost sure to precipitate the people using it into general bankruptcy. When products can be had for the writing of promises and the idea gets abroad that such promises are good money whether kept or not, the promises are very likely to stop producing; and, if the process goes on long enough, it will be found at the end that there are plenty of promises with which to buy, but that there is nothing left to be bought, and that it will require an infinite number of promises to buy an infinitesimal amount of nothing. If, however, people find that their promises will not be accepted unless accompanied by evidence of an intention and ability to keep them, and if this evidence is kept definitely before all through some system of organized credit, the promisors will actively bestir themselves to create the means of keeping their promises; and the free circulation of these promises, far from checking production, will vastly stimulate it, the result being, not bankruptcy, but universal wealth. A money thus secured is fit for civilized people. Any other money, though it have all the essentials, belongs to barbarians, and is hardly fit to buy the Indian's dug-out.

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The introduction in congress by Leland Stanford of a bill proposing to issue one hundred millions or more of United States notes to holders of agricultural land, said notes to be secured by first mortgages on such land and to bear two percent interest, is one of the most notable events of this time, and its significance is increased by the statement of Stanford, in his speech supporting the bill, that its provisions will probably be extended ultimately to other kinds of property. This bill is pregnant with the economics (not the politics) of Anarchism. It contains the germ of the social revolution. It provides a system of governmental mutual banking. If it were possible to honestly and efficiently execute its provisions, it would have only to be extended to other kinds of property and to gradually lower its rate of interest from two percent (an eminently safe figure to begin with) to one percent, or one half of one percent, or whatever figure might be found sufficient to cover the cost of operating the system, in order to steadily and surely transfer a good three-fourths of the income of idle capitalists to the pockets of the wage-workers of the country. The author of this bill is so many times a millionaire that, even if every cent of his income were to be cut off, his principal would still be sufficient to support his family for generations to come, but it is none the less true that he has proposed a measure which, with the qualifications already specified, would ultimately make his descendants either paupers or toilers instead of gigantic parasites like himself. In short, Leland Stanford has indicated the only blow (considered solely in its economic aspect) that can ever reach capitalism's heart. From his seat in the United States Senate he has told the people of this country, in effect, that the fundamental economic teaching reiterated by Liberty from the day of its first publication is vitally true and sound.

Unhappily his bill is vitiated by the serious defect of governmentalism. If it had simply abolished all the restrictions and taxes on banking, and had empowered all individuals and associations to do just what its passage would empower the government to do, it would not only have been significant, but, adopted by congress, it would have been the most tremendously and beneficially effective legislative measure ever recorded on a statute book. But, as it is, it is made powerless for good by the virus of political corruption that lurks within it. The bill, if passed, would be entrusted for execution either to the existing financial cabal or to some other that would become just as bad. All the beneficent results that, as an economic measure, it is calculated to achieve would be nearly counteracted, perhaps far more than counteracted, by the cumulative evils inherent in State administration. It deprives itself, in advance, of the vitalizing power of free competition. If the experiment should be tried, the net result would probably be evil. It would fail, disastrously fail, and the failure and disaster would be falsely and stupidly attributed to its real virtue, its economic character. For perhaps another century free banking would have to bear the odium of the evils generated by a form of governmental banking more or less similar to it economically. Some bad name would be affixed to the Stanford notes, and this would replace the assignat, the "wild cat," and the "rag baby," as a more effective scarecrow.

While hoping, then, that it may never pass, let us nevertheless make the most of its introduction by using it as a text in our educational work. This may be done in one way by showing its economic similarity to Anarchistic finance and by disputing the astounding claim of originality put forward by Stanford. In his Senate speech of May 23, he said: "There is no analogy between this scheme for a government of 65,000,000 people, with its boundless resources, issuing its money, secured directly by at least $2 for $1, on the best possible security that could be desired, and any other financial proposition that has ever been suggested." If Stanford said this honestly, his words show him to be both an intellectual pioneer and a literary laggard. More familiarity with the literature of the subject would show him that he has had several predecessors in this path. Col. William B. Greene used to say of Lysander Spooner's financial proposals that their only originality lay in the f act that he had taken out a patent on them. The only originality of Stanford's lies in the fact that it is made for a government of 65,000,000 of people. For governments of other sizes the same proposal has been made before. Parallel to it in all essentials, both economically and politically, are Proudhon's Bank of Exchange and the proposal of Hugo Bilgram. Parallel to it economically are Proudhon's Bank of the People, Greene's Mutual Banks, and Spooner's real estate mortgage banks. And the financial thought that underlies it is closely paralleled in the writings of Josiah Warren, Stephen Pearl Andrews, and John Ruskin. If Stanford will sit at the feet of any of these men for a time, he will rise a wiser and more modest man.

Like most serious matters, this affair has its amusing side. It is seen in the idolization of Stanford by the Greenbackers. This shows how ignorant these men are of their own principles. Misled by the resemblance of the proposed measure to Greenbackism in some incidental respects, they hurrah themselves hoarse over the California senator, blissfully unaware that his bill is utterly subversive to the sole essential of Greenbackism, - namely, the fiat idea. The Greenbacker is distinguished from all other men in this and only in this, - that in his eyes a dollar is a dollar because the government stamps it as such. Now in Stanford's eyes a dollar is a dollar because it is based upon and secured by a specific piece of property that will sell in the market for at least a certain number of grains of gold. Two views more antagonistic than these it would be impossible to cite. And yet the leading organs of Greenbackism apparently regard them as identical.

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The great central principle of Anarchistic economics - namely, the dethronement of gold and silver from their position of command over all other wealth by the destruction of their monopoly currency privilege - is rapidly forging to the front. The Farmers' Alliance sub-treasury scheme, unscientific and clumsy as it is, is a glance in this direction. The importance of Senator Stanford's land bill, more scientific and workable, but incomplete, andx vicious because governmental, has already been emphasized in these columns. But most notable of all is the recent revolution in the financial attitude of Edward Atkinson, the most orthodox and cocksure of American economists, who now swells with his voice the growing demand for a direct representation of all wealth in the currency.

The proposal is briefly this: that the national banks of the country shall be divided into several districts, each district having a certain city as a banking center; that any bank may deposit with the clearing-house securities satisfactory to the clearing-house committee, and receive from the clearing-house certificates in the form of bank-notes of small denominations, to the extent of seventy-five percent of the value of the securities; that these notes shall bear the bank's promise to pay on the back, and shall be redeemable on demand at the bank in legal-tender money, and, in case of failure on the bank's part to so redeem them, they shall be redeemable at the clearing-house; and that this new circulating medium shall be exempt from the ten percent tax imposed upon State bank circulation.

Of course a scheme like this would not work the economic revolution which Anarchism expects from free banking. It does not destroy the monopoly of the] right to bank; it retains the control of the currency in the hands of a cabal; it undertakes the redemption of the currency in legal-tender money, regardless of the fact that, if any large proportion of the country's wealth should become directly represented in the currency, there would not be sufficient legal-tender money to redeem it. It is dangerous in its feature of centralizing responsibility instead of localizing it, and it is defective in less important respects. I call attention to it, and welcome it, because here for the first time Proudhon's doctrine of the republicanization of specie is soberly championed by a recognized economist. This fact alone makes it an important sign of the times.

Still another Greenbacker, Mr. E. H. Benton, stepped forward to plead for his favorite doctrine, the unlimited issue of government fiat money, a "full legal tender," which, he maintained, needed no other security than "its inherent function and non-discountableness," making a non-interest-bearing currency. Mr. Tucker tried to make him see the light:

Let me suppose a case for Mr. Benton. A is a farmer, and owns 2 farm worth five thousand dollars. B keeps a bank of issue, and is known far and wide as a cautious and honest business man. C, D, E, etc., down to Z are each engaged in some one of the Various pursuits of civilized life. A needs ready money. He mortgages his farm to B, and receives in return B's notes, in various denominations, to the amount of five thousand dollars, for which B charges A this transaction's just proportion of the expenses of running the bank, which would be a little less than one-half of one percent. With these notes A buys various products which he needs of C, D, E, etc., down to Z, who in turn with the same notes buy products of each other, and in course of time come back to A with them to buy his farm produce. A, thus regaining possession of B's notes, returns them to B, who then cancels his mortgage on A's farm. All these parties, from A to Z, have been using for the performance of innumerable transactions B's notes based on A's farm, - that is, a currency based on some security "other than its inherent function and non-discountableness." They were able to perform them only because they all knew that the notes were thus secured. A knew it because he gave the mortgage; B knew it because he took the mortgage; C, D, E, etc., down to Z knew it because they knew that B never issued notes unless they were secured in this or some similar way. Now, Liberty is ready to see, as Mr. Benton says it ought to see, that any or all of these parties have been robbed by the use of this money when Mr. Benton shall demonstrate it by valid fact and argument. Until then he must stay in his corner.

A word as to the phrase "legal tender." That only is legal tender which the government prescribes as valid for the discharge of debt. Any currency not so prescribed is not legal tender, no matter how universal its use or how unlimited its issue, and to label it so is a confusion of terms.

Another word as to the term "Greenbacker." He is a Greenbacker who subscribes to the platform of the Greenback party. The cardinal principle of that platform is that the government shall monopolize the manufacture of money, and that any one who, in rebellion against that sacred prerogative, may presume to issue currency on his own account shall therefore be taxed, or fined, or imprisoned, or hanged, or drawn and quartered, or submitted to any other punishment or torture which the government, in pursuit and exercise of its good pleasure, may see fit to impose upon him. Unless Mr. Benton believe in that, he is not a Greenbacker, and I am sure I am not, although, with Mr. Benton, I believe in a non-interest-bearing currency.

Mr. Frank A. Matthews, an Anarchist and believing in the "Cost" principle, expressed a feeling that there was something arbitrary about that principle, and at the same time confessed that his mind was unable to reconcile "Cost" and competition. The editor of Liberty revealed the cause of his difficulty and explained the operation of the Cost principle:

The Cost principle cannot fail to seem arbitrary to one who does not see that it can only be realized through economic processes that go into operation the moment liberty is allowed in finance. To see this it is necessary to understand the principles of mutual banking, which Mr. Matthews has not attentively studied. If he had, he would know that the establishment of a mutual bank does not require the investment of capital, inasmuch as the customers of the bank furnish all the capital upon which the bank's notes are based, and that therefore the rate of discount charged by the bank for the service of exchanging its notes for those of its customers is governed, under competition, by the cost of that service, and not by the rate of interest that capital commands. The relation is just the contrary of Mr. Matthews's supposition. It is the rate of interest on capital that is governed by the bank's rate of discount, for capitalists will not be able to lend their capital at interest when people can get money at the bank without interest with which to buy capital outright. It is this effect of free and mutual banking upon the rate of interest on capital that insures, or rather constitutes, the realization of the Cost principle by economic processes. For the moment interest and rent are eliminated as elements of price, and brisk competition is assured by the ease of getting capital, profits fall to the level of the manufacturer's or merchants proper wage. It is well, as Mr. Matthews says, to have the Cost principle in view; for it is doubtless true that the ease with which society travels the path of progress is largely governed by the clearness with which it foresees it. But, foresight or no foresight, it "gets there just the same." The only foresight absolutely necessary to progress is foresight of the fact that liberty is its single essential condition.

"Edgeworth," writing to Liberty, expressed doubt about how some phases of Proudhon's Exchange Bank would work out in practice. Mr. Tucker patiently explained the various points criticized:

Proudhon was accustomed to present his views of the way in which credit may be organized in two forms,@s Bank of Exchange and his Bank of the People. The latter was his real ideal; the former he advocated whenever he wished to avoid the necessity of combating the objections of the governmentalists. The Bank of Exchange was to be simply the Bank of France transformed on the mutual principle. It is easy to see that the precautions against forgery and overissue now used by the Bank of France would be equally valid after the transformation. But in the case of the Bank of the People, which involves the introduction of free competition into the banking business, these evils will have to be otherwise guarded against. The various ways of doing this are secondary considerations, having nothing to do with the principles of finance; and human ingenuity, which has heretofore conquered much greater obstacles, will undoubtedly prove equal to the emergency. The more reputable banks would soon become distinguished from the others by some sort of voluntary organization and mutual inspection necessary to their own protection. The credit of all such as declined to submit to thorough examination by experts at any moment or to keep their books open for public inspection would be ruined, and these would receive no patronage. Probably also the better banks would combine in the use of a uniform banknote paper difficult to counterfeit, which would be guarded most carefully and distributed to the various banks only so far as they could furnish security for it. In fact, any number of checks can be devised by experts that would secure the currency against all attempts at adulteration. Mere is little doubt that the first essays will be, as "Edgeworth" hopes, "local and @ted." But I do not think the money so produced will be nearly as safe as that which will result when the system has become widespread and its various branches organized in such a way that the best means of protection may be utilized at small expense.

Frequently the editor of Liberty found it necessary to attack the delusions and sophistries of writers in other periodicals, and the following is a case in point. (In this article Mr. Tucker used the term "'Socialist" in its generic sense, and of course did not mean "state" Socialist.)

Van Buren Desnlow, discussing in the Truth Seeker the comparative rewards of labor and capital, points out that the present wage system divides profits almost evenly between the two, instancing the railways of Illinois, which pay annually in salaries and wages $811,936,170, and to capital, which Mr. Denslow defines as the "labor previously done in constructing and equipping the roads," $81,720,265. Then he remarks:

"No system of intentional profit-sharing is more equal than this, provided we assent to the principle that a day's work already done and embodied in the form of capital is as well entitled to compensation for its use as a day's work not yet done, which we call labor." Exactly. But the principle referred to is the very thing which we Socialists deny, and until Mr. Denslow can meet and vanquish us on that point, he will in vain attempt to defend the existing or any other form of profit-sharing. The Socialists assert that "a day's work embodied in the form of capital" has already been fully rewarded by the ownership of that capital; that, if the owner lends it to another to use and the user damages it, destroys it, or consumes any part of it, the owner is entitled to have this damage, destruction, or consumption made good; and that, if the owner receives from the user any surplus beyond the return of his capital intact, his day's work is paid for a second time.

Perhaps Mr. Denslow will tell us, as we have so often been told before, that this day's work should be paid for a second and a third and a hundredth and a millionth time, because !he capital which it produced and in which it is embodied increased the productivity of future labor. The fact that it did cause such an increase we grant; but that labor, where there is freedom, is or should be paid in proportion to its usefulness we deny. All useful qualities exist in nature, either actively or potentially, and their benefits, under freedom, are distributed by the natural law of free exchange among mankind. The laborer who brings any particular useful quality into action is paid according to the labor he has expended, but gets only his share, in common with all mankind, of the special usefulness of this product. It is true that the usefulness of his product has a tendency to enhance its price; but this tendency is immediately offset, wherever competition is possible, - and as long as there is a money monopoly there is no freedom of competition in any industry requiring capital@by the rush of other laborers to create this product, which lasts until the price falls back to the normal wages of labor. Hence it is evident that the owner of the capital embodying the day's work above referred to cannot get his work paid for even a second time by selling his capital. Why, then, should he be able to get it paid for a second time and an infinite number of times by repeatedly lending his capital? Unless Mr. Denslow can give us some reason, he will have to admit that all profit-sharing is a humbug, and that the entire net product of industry should fall into the hands of labor not previously embodied in the form of capital - in other words, that wages should entirely absorb profits.

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Some nincompoop, writing to the Detroit Spectator in opposition to cheap money, says: "If low interest insured high wages, during times of business depression wages would be high, for then interest reaches its minimum." Another man unable to see below the surface of things and distinguish association from causation! The friends of cheap money do not claim that low interest insures high wages. What they claim is that free competition in currency-issuing and the consequent activity of capital insure both low interest and. high wages. They do not deny that low interest sometimes results from other causes and unaccompanied by any increase in wages. When the money monopolists through their privilege have bled the producers nearly all they can, hard times set in, business becomes very insecure, no one dares to venture in new directions or proceed much further in old directions, there is no demand for capital, and therefore interest fails; but, there being a decrease in the volume of business, wages fall also. Suppose, now, that great leveler, bankruptcy, steps in to wipe out all existing claims, and economic life begins over again under a system of free banking. What happens then? All capital is at once made available by the abundance of the currency, and the supply is so great that interest is kept very low; but confidence being restored and the way being clear for all sorts of new enterprises, there is also a great demand for capital, and the consequent increase in the volume of business causes wages to rise to a very high point. When people are afraid to borrow, interest is low and wages are low; when people are anxious to borrow, but can find only a very little available capital in the market, interest is high and wages are low; when people are both anxious to borrow and can readily do so, interest is low and wages are high, the only exception being that, when from some special cause labor is extraordinarily productive (as was the case in the early days of California), interest temporarily is high also.