[Liberty, August 22, 1891.]

To the Editor of Liberty:(75 ¶ 1)

One does not lay oneself open to a charge of disloyalty to the principles of liberty by guarding against extravagant hopes. It seems necessary to keep this mind before saying a word against any anticipations formed by ardent and able advocates of liberty like yourself. It is a hyperbole (possibly open to misconstruction) to imply that some advocates of liberty regard it as a panacea for every ill. It therefore is a great advantage when its expected benefits are clearly defined as in your issue of the 11th. You believe that under liberty a laborer’s wages will buy back his product. This is fortunately a definite issue. It implies that if there be a naked producer or a commodity the complete production of which, including all the outlay needful for its delivery to the consumer at the very moment when he needs to consume it, occupies time and demands the employment of wealth in material, sustenance of producer, and tools, of none of which this producer is possessed, this pauper producer shall retain the full value of his product notwithstanding his partial dependence upon some one who provides the necessaries for his production in anticipation of his fruition. Is not this a fair and correct interpretation of your phrase? and supposing it to be so, does it not show that you expect too much? (1)(75 ¶ 2)

The facilitation of credit and the so-called circulation of debts as a substitute for currency, together with all schemes for mutual banking or schemes for the more rapid development of commerce, imply that valuables shall be temporarily placed at the disposal of others than their owners who meanwhile sustain a privation and also take a serious risk, but that these owners shall obtain no recompense beyond the bare return of their valuables unimpaired. (2) If a complex and therefore intricate scheme or calculation results in producing something out of nothing it opens a suspicion that there is some concealed flaw in the train of thought. Credit without remuneration, debt without cost, unlimited or very plentiful money without depreciation, are the desired and hoped results of the new schemes. It is most important to distinguish between demanding liberty to try these schemes, and pledging liberty to their success. Unfortunately it does not appear to be sufficient to call attention to this distinction. Ardent friends will often unite the cause of the fad with that of the principle unless the fad itself be destroyed. There are faddists who avoid this pitfall. (3) Thus there are some who advocate a reform of spelling, but as advocates of freedom decline to make even that hoped success of reformed spelling, or its hoped rapid progress under a free system of education, a plea or prop for arguments to emancipate teaching from government restriction, or for enforced alienation of citizens’ property for its support. Teaching ought to be free not because it is argued that spelling would be reformed and the reform would be good, but simply that the reform may get a chance and if good may succeed. So government restriction on banking and credit ought not to be repealed, because Westrup’s or Greene’s finance would prevail and bless the people, but so that this and any other device may be tested and if good succeed. (4).(75 ¶ 3)

As against the scheme itself the contention is that wealth originates solely in production, and that with plentiful production the wealth of the poor will increase even though the wealth of some rich people is vastly, and, as it is thought, inordinately increased. But this banking scheme does not add to production. (5) It is but a scheme for destroying one source of income of the rich or appropriating it to the poorer producer. Without any attempt at deduction experience dictates the induction that the chances are in favor of the man with a special faculty for successful financial operations rather than of students of principles. The man who can actually value a horse, a house, a crop of wheat, is more useful in pursuing his function as a speculator than a student who can ably analyze the components of value by prolonged and tardy research. The trader helps society most and at greatest risk, so those of them who succeed have the greater gain, and it is probably cheaper to society to pay this figure for the organization of commerce than dabble in amateurish schemes. The experience of cooperation—both its successes and its failures seem to point in this direction in this country. (6)(75 ¶ 4)

Government interference in finance has broken down whenever it has done serious violence to sound economical principles. At present it does not do so. It needlessly coins some metal. This is in England unaccompanied with the gross error of buying and hoarding increasing quantities of a metal whose production has been greatly cheapened of late. Apart from the silver folly of your government the residual evils of government coinage are infinitesimal, and they are not commercial. They are confined to the loss arising from carrying on a productive or distributive process by government under monopoly rather than by free individuals in combination or separately under the economic control of competition. Here they end. It is pure fancy unsupported as yet by evidence or true analogy that they interfere with the movements of the metal, or materially coerce the markets into using an inferior commodity as its most reliable and most fluent investment. (7) There is not the slightest use for the purposes of this argument in comparing a law enforcing the use of golden drinking-vessels with any laws connected with the use of gold as currency. A true analogy would be found in studying the effect of monetizing iron by law. Such a law would not demonetize gold unless it were much more tyrannical in its mode of prescribing iron as a legal tender than our present law is in prescribing gold. (8) All government income, borrowings, taxes, postage, school pence, court fees, all government outlay in wages, war material, grants to localities, payment of interest upon debt and all accounts, court verdicts, official valuations, bankrupt statements, and so on, would be in terms of iron. But I should be free to promise future delivery, or acceptance of gold, or to sell my services or my products for gold as I now am to promise to give or take iron at an agreed time and place or to hire myself for iron or for board and lodging or any other mode of recompense I can get any one to agree upon. (9) Now it is quite likely the first effect of this would be to raise the price of iron and thereby lower the value of gold in comparison with iron, coal, and other economic components of the value of iron. It is also quite likely it would stimulate the production of iron. But both of these effects would combine to maintain a larger stock of iron hanging as a buffer between producer and consumer. This would steady value, but it would also in time counteract the first temporary effects of the supposed monetization of iron, and neither price nor production would continue to be excessive—with the sole exception of the small increase of consumption from wear and tear of coins. It would not in all probability displace gold as the money in the market, because government, instead of doing as it now does, registering, and taking praise for the best monetary substance, would attempt to monetize an ill-adapted commodity, a task beyond its strength, and would sustain defeat as it has often done when debasement or other anti-economic schemes were undertaken.(75 ¶ 5)

If as you assert the main utility of gold consists in the fact that it is used for currency, then your general position is impregnable. But that this is not sound is somewhat implied by Greene, who recognizes gold and silver as merchandise. Specie is merchandise having its value determined, as such, by supply and demand. The words as such may simply imply therefore or may imply an idea on Greene’s part that the value of specie as money was otherwise determined. But what evidence have we that the very frequent resale of gold—called its monetary circulation—is effectual in altering its price (wear and tear excepted)? Every time gold is bought in or gathered in taxes the tendency is to put up the price, and every time it is thrown into market or spent by government in outlay it tends to lower its value. These operations do not constitute a monopoly. Any one can buy and any one can sell gold coin. There is no monopoly in the matter. The monetary privilege is not a monopoly, and it grows in the open market, not in the fancied forcing-house of government. Greene alleges (in small caps) that mutual money would neither raise nor lower the price of specie. You hold that it would be tangibly reduced by mutual banking? Which is correct? (10) Comparing the reduction in value you anticipate with one which might arise in the price of whiskey if there were unrestricted competition in the sale of it, you overlook the fact tha there is unrestricted competition in the sale of gold buillon and specie. Moreover, though we cannot tell by what amount the price of whiskey would be reduced by unrestricted competition, we can tell of what the fall would consist. It would be limited to such relinquishment of profit as would be forced upon the dealers by competition. If consumption increased, it might raise the price by its effect upon marginal or residual production yielding a diminished return, or it might be lowered by cheapening production by remunerating economic employment of capital. This is a false and inapplicable analogy. It is no more correct to say that gold is in the process of being consumed when it is in use as currency than to say that the inevitable waste or deterioration of commodities on the road from producer to consumer is economically an act of consumption. (11) Production is not complete until the commodity reaches the hands of a person who applies it to the direct gratification of some personal craving. The waste of gold in the function of currency is part of the cost which the consumer has to repay when that coin has been converted into a consumable product which he purchases. The only exception is that this cost may fall upon some other product when the less waste of gold is voluntarily substituted for the waste of any other commodity if one seeks to transport to a distant market mere value irrespective of its embodiment. It is as if one temporarily needed a certain weight to steady a machine, but was indifferent as to whether it was embodied in stone, iron, or gold, all of which he happens to have in stock, but which he can subsequently consume or sell unimpaired, and whose employment for this purpose only infinitesimally deterioriates the ponderable and does not impoverish his trade stock because it does not withdraw the ponderous article from inspection or sale.(75 ¶ 6)

It is not correct to reply to a monetary question by pointing out that government might keep gold as dear as it now is even if it were as cheaply produced as copper, by decreeing that we should drink only from gold goblets. If this could have such effect it would be inapplicable to this discussion, because it would be decreeing consumption while currency is not consumption, but only marketing. But it would fail, because of the durability of the substance. Only by buying up the metal at the desired value could the value be maintained. No purchases of gold with gold would alter its value. Silver, copper, wheat would have to be used to buy up gold at the value it was desired to maintain, and of course no government would have the strength for this. (12) It must be remembered that miners would be sellers at cost. The United States government raises the price of silver now while it is a buyer. If it tipped it in mid-ocean it would then consume it in an economic sense. When it becomes a seller the price must fall. The fact that there is a possibility that the law may change at any moment even now keeps the price from rising as it would if the silver were immediately consumed or destroyed instead of being hoarded. Surely it is a very palpable error to say that when government sells or spends gold it consumes it in an economic sense. If I swap a horse for a cow and kill and eat the cow, do I consume the horse? (13) I took the horse from the market when I bought it, and I return it to the market when I offer to sell it. The question of the metal has demanded so much elucidation that debts as commodities and as currency must wait a future communication.(75 ¶ 7)

J. Greevz Fisher

78 Harrogate Road, Leeds, England.

(1) No, this is not a correct interpretation of my phrase, because it is based upon a conception of the term product seriously differing from my own. If a laborer’s product is looked upon as the entirety of that which he delivers to the consumer, then indeed Mr. Fisher’s point is well taken, and to expect the laborer’s wages to buy back his product is to expect too much. But that is not what is ordinarily meant by a laborer’s product. A laborer’s product is such portion of the value of that which he delivers to the consumer as his own labor has contributed. To expect the laborer’s wages to buy this value back is to expect no more than simple equity. If some other laborer has contributed to the total value of the delivered article by making a tool which has been used in its manufacture by the laborer who delivers it, then the wages of the laborer who makes the tool should also buy back his product or due proportion of value, and would do so under liberty. But his portion of the value and therefore his wage would be measured by the wear and tear which the tool had suffered in this single act of manufacture, and not by any supposed benefit conferred by the use of the tool over and above its wear and tear. In other words, the tool-maker would simply sell that portion of the tool destroyed in the act of manufacture instead of lending the tool and receiving it again accompanied by a value which would more than restore it to its original condition. Mr. Fisher’s interpretation rests, furthermore, on a misconception of the term wages. When a farmer hires a day-laborer for a dollar a day and his board, the board is as truly a part of the wages as is the dollar; and when I say that the laborer’s wages should buy back his product, I mean that the total amount which he receives for his labor, whether in advance or subsequently, and whether consumed before or after the performance of his labor, should be equal in market value to his total contribution to the product upon which he bestows his labor. Is this expecting too much? If so, might I ask to whom the excess of product over wage should equitably go?(75 ¶ 8)

(2) Every man who postpones consumption takes a risk. If he keeps commodities which he does not wish to consume, they may perish on his hands. If he exchanges them for gold, the gold may decline in value. If he exchanges them for government paper promising gold on demand, the paper may decline in value. And if he exchanges them for mutual money, this transaction, like the others (though in a smaller degree, we claim), has its element of risk. But, as long as merchants seem to think that they run less risk by temporarily placing their valuables at the disposal of others than by retaining possession of them, the advocates of mutual money will no more concern themselves about giving them recompense beyond the bare return of their valuables unimpaired than the advocates of gold and government paper will concern themselves to insure the constancy of the one or the solvency of the other. As for the something out of nothing fallacy, that is shared between God and the Shylocks, and, far from being entertained by the friends of free banking, is their special abomination. Credit without remuneration! shrieks Mr. Fisher in horror. But, if credit is reciprocal, why should there be remuneration? Debt without cost! But, if debt is reciprocal, why should there be cost? Unlimited or very plentiful money without depreciation! But if the contemplated addition to the volume of currency contemplates in turn a broadening of the basis of currency, why should there be depreciation? Free and mutual banking means simply reciprocity of credit, reciprocity of debt, and an extension of the currency basis. Mr. Fisher has been so inveterate a drinker of bad economic whiskey that he has got the economic jim-jams and sees snakes on every hand.(75 ¶ 9)

(3) In applying it to his own views also, Mr. Fisher takes the sting out of the word fad. But it was and is my impression that he originally applied it to the views of the free money advocates, not in the playful spirit in which all independent men call themselves cranks, but in the contemptuous spirit in which they are given that appelation by the mossbacks. And it was natural enough. In finance, Mr. Fisher is a mossback. Contempt for contempt,—that’s fair, isn’t it?(75 ¶ 10)

(4) It has been repeatedly stated in these columns that we ask nothing but liberty. Given liberty, if we fail, we will subside. Nevertheless, with Mr. Fisher’s permission, we will continue to put in our best licks for liberty in those directions which seem to us most promising of good results. Meanwhile we accord to Mr. Fisher the privilege of rapping away for spelling reform so long as he does it at his own expense, which is not the case at present. (My readers will not see the point, but Mr. Fisher and my printers will.)(75 ¶ 11)

(5) This I deny. It is the especial claim of free banking that it will increase production. To make capital fluent is to make business active and to keep labor steadily employed at wages which will cause a tremendous effective demand for goods. If free banking were only a picayunish attempt to distribute more equitably the small amount of wealth now produced, I would not waste a moment’s energy on it.(75 ¶ 12)

(6) Here we have a very good reason why I should continue to debate with Mr. Fisher rather than form a banking partnership with Mr. Westrup. Very likely the banking firm of Westrup, Tucker & Co. would come speedily to grief. But I am none the less interested in securing the greatest possible liberty for banking so that I may profit by the greater competition that would then be carried on between those born with a genius for finance. But what about Proudhon, Mr. Fisher? He was no amateur. He could value, not only a horse, but a railroad, the money kings utilized his business brains, his Manual for a Bourse Speculator served them as a guide, and, when he started his Banque du Peuple, it immediately assumed such proportions that Napoleon had to construct a crime for which to clap him into jail in order to save the Bank of France from this dangerous competitor. Amateur, indeed!(75 ¶ 13)

(7) On the contrary, there is an abundance of evidence. The suppression of Proudhon’s bank was a coercion of the market. And in this country attempt after attempt has been made to introduce credit money outside of government and national bank channels, and the promptness of the suppression has always been proportional to the success of the attempt.(75 ¶ 14)

(8) Here Mr. Fisher becomes heretical. The champions of gold are proclaiming with one voice that the monetization of silver will prove the demonetization of gold.(75 ¶ 15)

(9) Just as free, and no more so. But this is no freedom at all. I tell Mr. Fisher again that it is a crime to issue and circulate as currency a note promising to deliver iron at a certain time. I know that it is a crime in this country, and I believe that the laws of England contain restrictions that accomplish virtually the same result.(75 ¶ 16)

(10) There is no contradiction between my position and Greene’s. Greene held, as I hold, that the existing monopoly imparts an artificial value to gold, and that the abolition of the monopoly would take away this artificial value. But he also held, as I hold, that, after this reduction of value had been effected, the variations in the volume of mutual money would be independent of the price of specie. In other words, this reduction of the value of gold from the artificial to the normal point will be effected by the equal liberty given to other commodities to serve as a basis of currency; but, this liberty having been granted and having taken effect, the issue of mutual money against these commodities, each note being based on a specific portion of them, cannot affect the value of any of these commodities, of which gold is one. It is no answer to the charge of monopoly to say that any one can buy and sell gold coin. No one denies that. The monopoly complained of is this,—that only holders of gold (and, in this country, of government bonds) can use their property as currency or as a basis of currency. Such a monopoly has even more effect in enhancing the price of gold than would a monopoly that should allow only certain persons to deal in gold. The price of gold is determined less by the number of persons dealing in it than by the ratio of the total supply to the total demand. The monopoly that the Anarchists complain of is the monopoly that increases the demand for gold by giving it the currency function to the exclusion of other commodities. If whiskey were the only alcoholic drink allowed to be used as a beverage, it would command a higher price than it commands now. I should then tell Mr. Fisher that the value of whiskey was artificial and that free rum would reduce it to its normal point. If he should then ask me what the normal point was, I should answer that I had no means of knowing. If he should respond that the fall in whiskey resulting from free rum would be limited to such relinquishment of profit as would be forced upon the dealers by competition, I should acquiesce with the remark that the distance from London to Liverpool is equal to the distance from Liverpool to London.(75 ¶ 17)

(11) It is Mr. Fisher’s analogy, not mine, that is false and inapplicable. The proper analogy is not between gold and the commodities carried, but between gold and the vehicle in which they are carried. The cargo of peaches that rots on its way from California to New England may not be economically consumed (though for my life I cannot see why such consumption isn’t as economic as the tipping of silver into the Atlantic by the United States government, which Mr. Fisher considers purely economic), but at any rate the wear of the car that carries the cargo is an instance of economic consumption. Now the gold that goes to California to pay for those peaches and comes back to New England to pay for cotton cloth, and thus goes back and forth as constantly as the railway car and facilitates exchange equally with the railway car and wears out in the process just as the railway car wears out, is in my judgment consumed precisely as the railway car is consumed. That only is a complete product, Mr. Fisher tells us, which is in the hands of a person who applies it to the direct gratification of some personal craving. I suppose Mr. Fisher will not deny that a railway car is a complete product. But if it can be said to be in the hands of a person who applies it to the direct gratification of some personal craving, then the same can be said of gold.(75 ¶ 18)

(12) I did not mean to say for a moment that a government could carry out such an arbitrary policy of fixing values to an unlimited extent without a revolution, but only that as far as the attempt should be made, the economic result, pending the revolution, would be as stated.(75 ¶ 19)

(13) Yes, to a trifling extent. And if the horse were then to be used to buy a sheep, and then to buy a dog, and then to buy a cat, and then to buy a cigar, until finally he could not be sold for enough oats to keep him from falling in his tracks, it is my firm conviction that the horse in that case would be economically consumed in fulfilling the function of currency.(75 ¶ 20)