VI. Free Exchange

We all accept the definition of capital as being that portion resulting from the application of labor used for reproduction. But it becomes necessary to define more clearly “the relations between capital and labor” under the absence of privilege. It needs no further argument to show that all differences in their relations have arisen from unjust prerogatives assumed or usurped by capital over its creator, labor, and that with the removal of these restrictions upon labor, in other words the denial of privilege to capital, capital and labor would cease to be antagonistic forces in production, leading to poverty from inequitable distribution. That, in fact, capital being the result of past labor, under the freedom to which industrialism aspires, is but the tool or instrument of present labor, in which its real productiveness consists in the creation of wealth instead of its exploitation. Therefore, in equitable economics capital becomes the handmaid of labor, follows and seeks after it, and exists only as applied by labor to further production in the exploitation of nature.

Under the heading we have now reached we will see more clearly the nature of the antagonism, or “strained relations”, which evidently do exist between capital and labor. That our present financial legislation is marked by inequality, that by our laws the right to issue free money, “emit bills of credit”, is denied, that voluntary organization of mutual credit by associative action to perform administrative functions is prevented by the artificial system now enjoying protection, to use a Gallicism, goes without saying.{28} The fact is beyond dispute; the reasons given for its maintenance are to facilitate exchange and to guarantee security, and that it is far superior to the methods it has supplanted. Following the application of our crucial test we are debarred from appealing to authority to institute some other enforced scheme, unless liberty proves deceptive and unavailing; and the industrial type rests confidently upon the assertion of J. S. Mill that “the only unfailing and permanent source of improvement is liberty.” Consequently, we cannot accept any of the various phases of greenbackism,{29} which not only deny the equal right of all men to the use of their own wealth to facilitate exchange, but which also rests {30} upon the assumption that public welfare is best subserved by arbitrary restriction of individual liberty and that financial wisdom is only attainable by a poll of general ignorance; that society like children at a table, must have their supply regulated by paternalism, but lacking guidance we select other children to play pater familias! The money-lender stands entrenched behind the banking privilege with charted rights to sell to necessity the use of credit founded upon debt! The remedy here, as in that other monopoly – human slavery, does not lie in attempting legislative injection of morality or sentiment into an inequitable system, but in the death of the moribund system itself, and this necessarily must proceed along rather than contrary to the lines of evolution. Under the power of increase given to money by its monopoly the borrowers is ever dependent upon and under subjection to the lender; the privilege accorded on the one side necessarily carries with it a corresponding restriction on the other to avail one’s self of natural resources. The case is not one where a great benefit is obviously conferred which could not otherwise be obtained, but one where a militant method is suggested by selfishness and enforced by denying scope to any other. By granting liberty to contract mutually our much vaunted financial system would die of inanition.

Nor can it be longer objected that the growing interrelations of social needs have led to a specie basis currency to facilitate exchange and thus escape the fatal limitations of direct barter, for the use of coin is barter: it is the interchange of one commodity for another. True, it is a vast improvement, but by conferring upon gold and silver a legal value it has virtually enhanced their intrinsic value. And as its legal-tender value makes it alone available, or its representative, in the payment of debt, the dealer in this absolute necessity for the purpose of exchange is enabled to impose a tax upon credit. Further, the monopoly of the medium of exchange by government is the power to use debt instead of solvency as an instrument of credit to facilitate exchange, and through and by this monopoly empowered to prevent exchanges until privileged exactions are first met. That is, for the boon for using these evidences of debt as a medium of exchange instead of my own solvent credit based on both personal character and acquired wealth, I must pay a bonus for the alleged accommodation so graciously conferred! Making it through force of special privilege a marketable commodity before it can serve me, and justifying it as less barbarous than past militant schemes. It therefore follows than on its market rate will depend its quantity, and here the interests of monopoly exact that its per capita distribution shall be limited to the lowest point consistent with the enormous superstructure of speculative credit raised upon it, that capital may turn over with greater rapidity and increase the desired gain from its use. Yet this anomalous state of affairs is defended by our from day-to-day{31} economists under pretext of sustaining “the standard of value” while admitting that value itself is an indeterminable factor. A foot, a pound, a gallon, a minute, are determinable measures because they possess both the property and quality of what they measure, but gold and silver are not, for being commodities themselves they vary in intrinsic value; but when gold does appreciate in value, as has often been the case, being the standard of value for unlike things, the degree of appreciation is marked in a fluctuating quantity of articles thus measured. Hence, value remains uncertain and variable; to use S. P. Andrews’ pithy phrase, it is “uncertainty X fluctuation = price.” In all ages the precious metals have been in great demand for purposes of ornamentation and luxury, and a large percentage of our coinage goes directly from the mint to the crucible, though still theoretically in circulation; and it is this demand that is still continually converting coin into plate, jewelry, etc., that increases its value. Its speculative value is determined not only by this demand, but by the monopoly of the remaining percentage as the basis for credit. Coin is wealth itself, it has value as a product of labor; currency based upon it depends upon confidence in its redeemability. But its chief characteristic is that it represents wealth, can be converted into other wealth. But in making it and its representative the sole legal tender in exchange, it crowds out all other wealth which might as well facilitate exchange with equal security and without interest. Consequently, the necessity for sustaining a fluctuating “standard of value” is not only equivalent to an assumed necessity for sustaining the monopoly over credit, but also prevents the real value from being determined by the cost of labor expended.

A solvent, whether issued by a banker, a farmer, or a mechanic, under freedom to the exchange of credit needs no artificial guarantee, for protection to all is equivalent to protection to none. It would receive credit to the extent of the wealth known to be pledged behind it for redemption, and no less scrutiny would be used than now in determining its solvency. We only look for redemption when distrust arises, so redemption would only be sought when the producers pledged were of greater benefit than the utility of their credit representative. Such notes could have as full credit in a voluntary association – the Patrons of Industry for instance {32} – as those now issued by a bank. Further, such use of credit could not lead to a panic, for it would not be in inverse proportion to its security, nor create a speculative demand to possess the wealth pledged for the purpose of hoarding, for under free competition, which free exchange implies, houses, machinery, or other products retained form use would be as valueless as water “hoarded” in a well in a wet season. In the present system the basis is both fluctuating and inadequate; in the other it would tend to stability and be unaffected by fears.

A specie basis, besides arousing doubts as to the solvency of its representative, during speculative reactions, by the necessity of meeting the exactions of interest and desire for profits, creates a speculative credit where what is pledged bears but an infinitesimal proportion to the exchanges effected, and carrying with it as a fatal consequence the fact that any degree of prosperity invariably incites to larger operations, based upon this swollen credit, until the limit of confidence is passed and caution again leads to doubt and doubt to panic. The stability of the basis bears no relation to the enormous superstructure credit has sought to raise upon it, and thousands fall yearly in the struggle. On the contrary, voluntary cooperation under free exchange organizing credit upon a mutual basis, wherein all labor products not quickly perishable would constitute the basis pledged, the only inflation that could result would be that of wealth, as will be seen hereafter when considering details.

Opportunity for credit being open to labor under free competition, its cost, like insurance, would speedily determine current rates. What might result opens a very broad field, but one not legitimately included within the scope of the application of our fundamental principles. Why it has not resulted we may readily see to be the continued survival of the militant superstition that men need governmental “direction” in matters where self-interest alone might seem competent to guide without resorting to either barbaric or twilight schemes of repression. How such organization could be introduced and command confidence we have yet to consider. To those who still believe that in the political pool the government leopard may be cleansed of its spots I commend these words of Jeremy Bentham: {33}

“What a government ought to do is a mysterious and searching question, which those may answer who know what to means; but what other men ought to do is a question of no mystery at all. The word ought, if it means anything, must have reference to some kind of interest or motives ; and what interest a government has in doing right, when it happens to be interested in doing wrong, is a question for the schoolman. The fact appears to be, that ought is not predicable of governments. The question is not why governments are not bound to do this or that, but why other men should let them if they can help it. The point is not to determine why the lion should not eat sheep, but why men should not eat their own mutton of they can.”

To which we may add the words of a far clearer and broader thinker, Auberon Herbert:{34}

“Has any race of men ever fairly tried even the humblest experiment of freedom and found it fail?

“Have not the human faculties grown in every field just as freedom has been given to them?

“Have men ever clung to protection and restraint and officialism without entangling themselves deeper and deeper into evils from which there was no outlet?”