Part 02, Chapter 44 : Proudhon’s Bank

[Liberty, September 20, 1884.]

While the principle of equal representation of all available values by the notes of the Exchange Bank is what I have advocated these thirty years, I do not perceive how, in generalizing the system, as Proudhon would do (I refer to the paragraphs translated by Greene), we are to avoid the chances of forgery on the one side, and on the other of fraudulent issues by the officers of the Bank.(95 ¶ 1)

Such a Bank, moreover, is equivalent to a general insurance policy on the property of a country, and the true value of its notes must depend on security against conflagrations and other catastrophes affecting real estate as well as personal property.(95 ¶ 2)

I hope that the first essays will be local and limited. I think the commercial activity of modern civilization dangerously, if not fatally, exaggerated and disproportioned to production. The Railroad is a revolver in the hands of a maniac, who has just about sense enough to shoot himself. Even were we not, in our blind passion for rapid and facile transportation, hanging ourselves by the slip-noose of monopoly, the impulse which railroads give to and towards city life, coming, as it has, before the establishment of a conservative scavenger system, by which the cream of soils would be restored to them, rapidly drains and wastes terra-solar vitality, and suffices soon to render America a desert. The feasible check to this galloping consumption lies in localizing the circuits of production with manipulation and consumption in coöperative associations. The smaller the area in which such self-sufficing circuit is effected, the greater the economy of force in transportation.(95 ¶ 3)

Men and Gods are too extense;
Could you slacken and condense?(95 ¶ 4)

I suppose you see the correlation of this idea with that of the safety of Exchange Bank notes, as in a locally restricted commerce frauds could and would be promptly detected, and therefore would be seldom attempted.(95 ¶ 5)

Edgeworth.

Proudhon was accustomed to present his views of the way in which credit may be organized in two forms,—his 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 bank-note 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. There is little doubt that the first essays will be, as Edgeworth hopes, local and limited. 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.(95 ¶ 6)