[Liberty, December 1, 1888.]

To the Editor of Liberty:(68 ¶ 1)

I have read attentively Mr. Westrup’s farther statement on mutual banking, but fail to see wherein he touches what is to my mind the vital point. He says that the system would not be making use of capital that belonged to some one else. Then I cannot see how it would answer its purpose. The bank itself has no capital save the pledges advanced by borrowers, and if they take out no more than they put in, they make no gain, but are merely to the expense of the transaction. On the other hand, if they do take out more, some one else must have put it in. They do not increase their wealth by using their own property as a basis on which to make advances to themselves. It is only when some one else accepts it as a pledge on which to advance his property that they have made a gain. And if there is no one to be paid a dividend but the same borrowers, that some one else will go unpaid.(68 ¶ 2)

The borrower’s object is to get the use of additional capital, not of the money that represents it during the transfer. If he gets it, some one [else] is deprived of the use of that much wealth, as two cannot use the same property at the same time. Our farmer worth $1,000, who borrowed $500 and invested it, found at the end of the transaction that he had at his disposal $1,500 worth of property. Now, where did the last $500 worth come from? Like all created things, its ownership vested rightfully in its creator; the farmer was not that creator, or he would not have had to borrow it. The bank, in issuing a volume of circulating medium, neither increased nor diminished the aggregate wealth of the country appreciably. It engaged in no productive industry. It did not create 500 dollars’ nor 500 cents’ worth of property. In fact, Mr. Westrup’s rate of interest represents what it did create in additional value in making out the transfer papers,—a fraction of one percent of the $500. If, then, neither the bank nor the farmer created it, is it not clear that they made use of capital that belonged to some one else(68 ¶ 3)

The distinction between owning property and merely having the use of it has been pointed out to me, but appears largely verbal, for the only value of property is the use thereof. At any rate, it seems clear that our farmer gets the use of $500 worth of property so long as he pays the expense of keeping $500 of circulating medium afloat. He uses his $1,000 worth of property as a guarantee to the producer of the $500 of value that the latter shall receive back his property intact, but with no payment for use.(68 ¶ 4)

If I have understood correctly the reply to my former letter, this is Liberty’s idea; but I do not see that Mr. Westrup coincides. However, if I am in error, I trust I am open to conviction and await further light.(68 ¶ 5)

J. Herbert Foster

Mr. Foster’s difficulty arises from the futile attempt, which many others have made before him, to distinguish money from capital, the real fact being that money, though not capital in a material sense, is, in the economic sense and to all intents and purposes, the most perfect and desirable form of capital, for the reason that it is the only form of capital which will at any time almost instantly procure all other forms of capital. Practically speaking, that man has capital who holds an instantly convertible title to capital.^[12](68 ¶ 6)

If this be true, then Mr. Foster’s claim that mutual banking involves the making use of capital that belongs to some one else falls immediately. Does he mean to say that, when the borrower of a mutual bank’s notes goes into the market and buys capital with them, he is thereby keeping the seller out of his capital? If so, then Mr. Foster, when he pays his butcher cash for a beefsteak for his to-morrow’s breakfast, is keeping his butcher out of his capital. But does either he or his butcher ever look at his conduct in that light? If that is being kept out of capital, then is the butcher only too glad to be thus deprived. He keeps a shop for the express purpose of being kept out of his capital, and he feels that it’s very hard lines and a very dull season when he isn’t kept out of it. He knows that, when he sells a beefsteak to Mr. Foster for cash, he parts with capital for which he has no use himself and gets in exchange a title convertible whenever he may choose into such capital as he has use for, and he knows further that he greatly benefits by the transaction. The position of Mr. Foster’s butcher is precisely parallel to that of the manufacturer of machinery who sells a plow or a press or an engine to a borrower from a mutual bank. Clearly, then, Mr. Foster’s sympathy for this manufacturer is misplaced.(68 ¶ 7)

Of course the position which I have just taken does not hold with notes that will not command capital,—that is, that are not readily received as money. But that is not the point under dispute. When Mr. Foster shall question the solvency of mutual money, I will meet him on that point also. For the present my sole contention against him is that the man who exchanges a material value for good money is not thereby kept out of his capital.(68 ¶ 8)

68 n. 1. This paragraph on the surface seems contradictory of the position taken on a previous page in answer to Basis. And in form and terms it does contradict it. But a careful reading of both passages, in connection with the accompanying explanatory sentences, will show that there is no inconsistency between them. ↩