[Liberty, November 23, 1889.]

The most important book that has been published this year comes to Liberty from the press of the J. B. Lippincott Company, of Philadelphia. It is a little volume of something over a hundred very small pages, printed from very large type. For ten years to come it probably will be read by one person where Looking Backward is read by a thousand, but the economic teaching which it contains will do more in the long run to settle the labor question than will ever be done by Looking Backward, Progress and Poverty, and The Cooperative Commonwealth combined. Its title is Involuntary Idleness: An Exposition of the Cause of the Discrepancy Existing between the Supply of, and the Demand for, Labor and Its Products. The book consists of a paper read at the meeting of the American Economic Association in Philadelphia on December 29, 1888, by Hugo Bilgram, the author of that admirable little pamphlet, The Iron Law of Wages, with which most readers of Liberty are familiar. I am strongly inclined to hail Mr. Bilgram’s new work as the best treatise on money and the relation of money to labor that has been written in the English language since Colonel William B. Greene published his Mutual Banking.(83 ¶ 1)

The author prefaces his essay with a very convenient and carefully prepared skeleton of his argument, which I reproduce here, since it gives a much better idea of the book than any condensation that I might attempt:(83 ¶ 2)

The aim of the treatise is to search for the cause of the lack of employment, which is obviously due to the observed fact that the supply of commodities and services exceeds the demand, although reason dictates that supply and demand in general should be precisely equal. The factor destroying this natural equation is looked for among the conditions that regulate the distribution of wealth,—i.e., its division into Rent, Interest, and Wages.(83 ¶ 3)

The arguments evolved by the discussion of the Rent question, which of late has excited much public interest, being unable to account for the apparent surfeit of all kinds of raw materials, the topic of rent is eliminated by assuming all local advantages to be equal.(83 ¶ 4)

At first an examination is made of the relation of capital to the productivity of labor, and that of interest on capital to the remuneration for labor, showing that high interest tends to reduce the productivity of, as well as the remuneration for, labor. Low wages being also concomitant with a scarcity of employment, it is inferred that a close relation exists between the economic cause of involuntary idleness and the law of interest.(83 ¶ 5)

Following this clue, the two separate meanings of the ambiguous word Capital are compared, showing that money, which can never be used in the act of production, cannot be capital when that term is used in its concrete sense; and since capital is capable of producing a profit only when the same is used productively, the fact that interest is paid for money-loans, when that which is loaned cannot be used productively, must be traced to an independent cause. The usual argument that with money actual capital can be purchased is rejected, because money and capital would not be interchangeable if their economic properties were not homogeneous. This compels a search for a property inherent in money that can account for the willingness of borrowers to pay interest on money-loans.(83 ¶ 6)

It is then shown that interest on money-loans is paid because money affords special advantages as a medium of exchange, and the value of this property of money is traced to its ultimate utility, or, in other words, to the increment of productivity which the last addendum to the volume of money affords by facilitating the division of labor.(83 ¶ 7)

Returning to the question of interest on actual capital,—i.e., the excess of value produced over the cost of production,—the question as to what determines the value of a product leads to the assertion that capital-profit must be due to an advantage which the producer possesses over the marginal producer. This is found to be due to the interest payable by the marginal producer on money-loans.(83 ¶ 8)

An ideal separation of the financial from the industrial world reveals a tendency of the industrial class to drift into bankruptcy by force of conditions over which they have no control. Those who are at the verge of bankruptcy being the marginal producers, others who are free of debt will reap a profit corresponding to the interest payable by the marginal producers on debts equal to the value of the capital they employ; hence the rate of capital-profit will tend to become equal to the rate of interest payable on money-loans, and the power of money to command interest, instead of being the result, is in reality the cause of capital-profit.(83 ¶ 9)

The inability of the debtor class to meet their obligations increases the risk of business investments, and the accumulation of money in the hands of the financial class depriving the channels of commerce of the needed medium of exchange, a stagnation of business will ensue, which readily accounts for the accumulation of all kinds of products in the hands of the producers and for the consequent dearth of employment. The losses sustained by the lenders of money involve a separation of interest into two branches, risk-premium and interest proper, and considering that the risk-premiums equal the sum total of all relinquished debts, the law of interest is evolved by an analysis of the monetary circulation between the debtors and creditors.(83 ¶ 10)

This analysis leads to the inference that an expansion of the volume of money, by extending the issue of credit-money, will prevent business stagnation and involuntary idleness.(83 ¶ 11)

The objections usually urged against credit-money are considered and found untenable, the claim that interest naturally accrues to capital is disputed at each successive stand-point, and in the concluding remarks an explanation is given of the present excess of supply over the demand of commodities and service, confirming the conclusion that the correction of this abnormal state is contingent upon the financial measure suggested.(83 ¶ 12)

Admirably accurate as the foregoing is as an outline, it conveys only a faint idea of the beautifully calm, logical, and convincing way in which the argument is worked out and sustained. It seems impossible that any unbiased mind should follow the author’s reasoning carefully from the start to the finish and not accept the conclusion which he reaches in common with Liberty,—namely, that our financial legislation is the real seat of the prevailing social disorder, and that the only way to secure remunerative employment to all who are able and willing to work is to abolish the restrictions upon the issue of money.(83 ¶ 13)

Moreover, the author not only establishes the strength of his own position, but throws numerous and powerful sidelights upon the weaknesses of others. He shows the inadequacy of Henry George’s theory as an explanation of enforced idleness, the futility of protection, tariff reform, factory acts, and anti-immigration laws as measures of relief from stagnation of commerce, and the absurdity of the fiat-money theorists and all who hold with them that the value of money is dependent upon its volume. If Mr. Lloyd, who lately proposed the use of communistic credit-money, will get Mr. Bilgram’s book and carefully read pages 64–77 inclusive, I think he will be satisfied of the unsoundness of any credit-money system that does not specifically assure the ultimate redemption of each note by value pledged for its security.(83 ¶ 14)

Having thus declared my high appreciation of this book, I may add a word or two by way of criticism. The policy of the author in abandoning what he himself considers the true definition of the word capital and adopting the definition generally sanctioned by the economists is of very questionable utility. It is true that he does not allow this confessed misuse of a word to vitiate his argument, but it forces him nevertheless to separate capital from money; and thereby he strengthens the hold of the delusion which is exploited so effectively by the champions of interest,—namely, that in an exchange of goods for money the man who parts with the goods is deprived of capital while the man who parts with the money is not. If Mr. Bilgram had used the word capital to mean what he thinks it means,—all wealth capable of bringing a revenue to its owner,—he would have deprived his opponents of their favorite device for confusing the popular mind.(83 ¶ 15)

But this is a question of words only. It involves no difference of ideas between Mr. Bilgram and Liberty. On another point, however, there is substantial disagreement. When Mr. Bilgram proposes that the government shall carry on (and presumably monopolize, though, this is not clearly stated) the business of issuing money, it is hardly necessary to say that Liberty cannot follow him. It goes with him in his economy, but not in his politics. There are at least three valid reasons, and doubtless others also, why the government should do nothing of the kind.(83 ¶ 16)

First, the government is a tyrant living by theft, and therefore has no business to engage in any business.(83 ¶ 17)

Second, the government has none of the characteristics of a successful business man, being wasteful, careless, clumsy, and short-sighted in the extreme.(83 ¶ 18)

Third, the government is thoroughly irresponsible, having it in its power to effectively repudiate its obligations at any time.(83 ¶ 19)

With these qualifications Liberty gives Mr. Bilgram’s book enthusiastic welcome. Its high price, $1.00, will debar many from reading it; but money cannot be expended more wisely than in learning the truth about money.(83 ¶ 20)