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 The money question .. 
 
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 Library 
 
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 tine Cornell University Library. 
 
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 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31 92401 381 631 3 
 
The 
 Money Question 
 
 By 
 
 Arthur Kitson 
 
 i$ 
 
 London 
 
 Grant Richards 
 
 48 Leicester Square, London, W.C. 
 
 1903 
 
Copyrighted 1894 
 
 by 
 
 Arthur Kitson 
 
 ALL 
 
 RIGHTS 
 
 RESERVED 
 
CONTENTS. 
 
 Review by the " Philadelhia Bulletin" 
 
 Preface to the English Edition 
 
 Preface to the First American Edition . 
 
 Introduction 
 
 Chapter I. The Money Question 
 
 Chapter II. The Factors of Production 
 
 Chapter III. Wealth 
 
 Chapter IV. Exchange-Barter 
 
 Chapter V. Value 
 
 Chapter VI. Standard of Value 
 
 Chapter VII. Purchasing Power 
 
 Chapter VIII. Money 
 
 Chapter IX. Gresham's Law 
 
 Chapter X. The Material Existence of Money 
 
 Chapter XI. Price 
 
 Chapter XII. Cause of General Rise and Fall in 
 Prices and its Remedy — Development of Value 
 and Price from Barter 
 
 Chapter XIII. Money Supply and Demand 
 
 Credit — The Cause of Financial 
 
 Chapter XIV 
 Panics 
 
 Chapter XV. 
 
 Chapter XVI. Interest 
 
 Chapter XVII. Conclusion 
 
 Rational anO Irrational Banking 
 
 Page 
 V. 
 
 ix. 
 
 xvii. 
 
 xxiii. 
 
 I 
 
 33 
 
 41 
 
 55 
 
 58 
 
 69 
 
 91 
 
 96 
 
 119 
 
 126 
 
 133 
 
 139 
 143 
 
 155 
 173 
 i8g 
 212 
 
REVIEW BY THE 
 " PHILADELPHIA BULLETIN " 
 
 March 29th, 1895 
 
 Here is a book which disturbs classifications, which is 
 unorthodox, which sets aside some very widely received 
 opinions as of little worth, and which presents its own side of 
 certain vital questions with a persistency and logical force 
 from which it is hard for an unprejudiced reader to escape. 
 
 Despite the fact that we have long since learned to 
 discredit the school of Adam Smith and Ricardo, we cling 
 desperately to certain fallacies which lie at the base of their 
 systems. We perceive that Adam Smith enunciated theories 
 which, whether true or not at his time and under the 
 conditions which he had in mind, are utterly false as applied 
 to the United States to-day. Yet we continue to regard 
 Adam Smith with a sort of filial piety as the father of 
 political economy, whose every utterance bears the stamp of 
 inspiration. We know perfectly well that Ricardo's Theory 
 of Rent is as untenable as Malthus' Theory of Population ; 
 yet we hesitate to relegate both to the same limbo. 
 Tradition is nowhere more powerful than in that 
 experimental bundle of theories which we misname the 
 Science of Political Economy, yet it is of the first importance 
 that tradition be not suffered to blind us to the invaluable 
 results of experience. 
 
 It is against tradition that Mr. Kitson squarely sets his 
 argument. He sees — what many of us have been seeing for 
 a long while— that the great source of traditional error is in 
 the conception of the nature of value. If he had done 
 nothing more than point out the broad distinction between 
 the terms value and purchasing power, he would have 
 deserved well of a long-suffering people. And even here, 
 we think, he stops a little short of the truth, for not only is it 
 true that value is a mere relation established by a process ot 
 exchange, while purchasing power exists independently of it, 
 but (as has been previously insisted upon in this column) the 
 
purchasing power of a commodity is wholly a utility, so that 
 its relation to value is not only different, but opposite. 
 The power of a dollar to purchase bread is as truly 
 a utility as is the power of the bread to sustain life. 
 When once we have grasped this truth, the theory of money 
 becomes enormously simplified. The idea that a dollar 
 must embody value to the extent of a dollar vanishes into 
 thin air, because it is seen that the dollar derives its 
 purchasing power from circumstances having nothing to do 
 with the value of the commodity of which it happens to be 
 composed. Moreover, that money becomes the best money 
 which is not complicated with the question of commodity 
 values. It is this latter fact which leads Mr. Kitson to 
 announce the utter fallacy of what is called "Gresham's 
 Law." It will be remembered that Sir Thomas Gresham, 
 founder of the Royal Exchange, seeing that a less costly 
 currency always drove out a more costly one, laid down the 
 principle that " bad money always drives out good money." 
 
 What he meant was that a cheap currency drives out a 
 dear one, which is a simple fact of observation. His error 
 lay in the use of the terms "good" and "bad." For, as a 
 matter of fact, that currency which is least complicated with 
 the question of commodity values is the nearest to an ideal 
 currency ; that is to say, it comes nearest to being a simple 
 title to wealth, and not wealth itself. This line of argument 
 leads to the admission that paper is a " better " money than 
 gold. And, theoretically, this is true", just as the deed to a 
 house is a "better" deed when written on parchment than 
 when engraved on a gold plate. 
 
 Remembering always that money is merely a title to 
 wealth, we are forced to the conclusion that it should not 
 lock up or contain within its substance wealth itself : because 
 in the latter case the fluctuations in value which pertain to 
 all articles of wealth affect the purchasing power of the 
 money, and so disarrange the primary conditions of trade. 
 
 But what is equally to be remembered — though 
 Mr. Kitson has not been equally eager to point it out — is 
 that the argument here advanced presupposes ideal 
 conditions. The money which is advocated in the volume 
 
under notice is ideal money. Theoretically, we believe the 
 argument to be a sound one ; the condition which it 
 presupposes is one towards which we ought to strive — 
 towards which legislation should tend. But it becomes a 
 question of grave moment how far we may safely go in 
 reducing theory to immediate practice. Just now the 
 mercantile community is deeply perturbed over the struggle 
 of mono-metallism and bi-metallism. That struggle 
 would sink into nothingness the moment we realised 
 Mr. Kitson's ideal of a paper currency bottomed solely upon 
 public confidence and redeemable in the general wealth of 
 the nation. The ratio of silver to gold would speedily settle 
 itself if both were demonetised ; and, after all, does not the 
 fact that the legislative power can establish an arbitrary 
 ratio for the coined metals prove conclusively that their 
 purchasing power as money is something wholly apart from 
 their value as commodities ? This is the very point which 
 Mr. Kitson seeks to establish. Of course, the answer which 
 the practical man of affairs always makes to the theorist is 
 the answer which Mr. Kitson must expect to receive to his 
 very pertinent queries, and it is this : " While it is perfectly 
 true that an irredeemable paper currency* is the ideal 
 medium of exchange in a society of the highest civilisation, 
 yet the civilisation to which we have attained is not the 
 highest conceivable one ; we have not yet reached the point 
 where public confidence will remain unshaken after the 
 outward and physical wealth behind a currency is removed. 
 Of course it ought to ; of course the locking up of millions of 
 specie in order that millions of paper promises may circulate 
 is an absurdity ; of course the specie locked in a vault makes 
 us not richer, but poorer, than if it were released. But we 
 
 *The writer of this review, who has evidently intended and 
 endeavoured to do justice to the work, has failed to understand the 
 proposals suggested in this book for an Ideal Monetary System. The 
 Author has not advocated the issuance of irredeemable currency. On 
 the contrary, he has insisted that money must be backed by wealth, and 
 his objection to our present monetary system is that it compels commerce 
 to use credit and substitutes for money, at the back of which there is not 
 sufficient security. (See chapter on Rational and Irrational Banking. ) 
 
must take men as we find them, and that is just what the 
 theorists do not always do. The utmost that we can 
 accomplish is to point out the way, and trust to advancing 
 education to bring pubhc opinion to a just conception of the 
 facts as they exist. 
 
 Mr. Kitson's several chapters treat of " Economics and 
 Ethics," "The Factors of Production," "Wealth," "Exchange- 
 Barter," "Value," "The Standard of Value," "Purchasing 
 Power," " Money,'' " Gresham's Law," " Price," " Currency," 
 " Credit," and kindred topics. But the end and aim of his 
 whole argument is to build up a theory of money upon the 
 lines of a purely mathematical induction. He follows 
 Professor Jevons in the endeavour to show that all the terms 
 with which political economy deals involve the consideration 
 of quantities. But he diverges from Jevons at the point 
 where the latter becomes illogical : for, indeed, it is illogical 
 to define value as a " ratio of exchange," and then to talk 
 about "a standard unit of value." It is manifest that we 
 cannot have a "standard unit" of a "rktio." The notion that 
 such a thing is possible is responsible for the theory that gold 
 and silver can be at once a standard of value and a medium 
 of exchange. When economists get rid of that theory the 
 community will get rid of panics — not before. " Values are 
 ideal creations, and can only be properly expressed in terms 
 of the ideal — numbers." Such is Mr. Kitson's remarkable 
 announcement, and it is one which entitles him to a front 
 rank in economic discussion. His volume will be pooh- 
 poohed by the orthodox philosophers, and all the fogies will 
 hold up their hands in horror. But Mr. Kitson has got hold 
 of the truth, and his theory cannot be permanently subverted. 
 He has only to wait till education shall bring men up to 
 his own level of thought, and so make it possible to conform 
 practice to theory. 
 
PREFACE 
 
 TO THE ENGLISH EDITION 
 
 MOST of the matter contained in this book was written in 
 Philadelphia during the years 1893 and 1894 — a time which 
 will long be remembered as one of the most disastrous in the 
 history of American Commerce. A radical departure from 
 what had hitherto been the financial policy of the United 
 States was inaugurated, and from this date commenced the 
 period of a restricted monetary system with its make-believe 
 gold basis, accompanied — as it must inevitably be — by a base- 
 less credit system. This was also the commencement of the 
 present era of Combines and Trusts, and it was largely 
 through the new pohcy that what is now called "Morganism " 
 became possible. 
 
 It will be interesting to review briefly the events which 
 led up to this period, and culminated in such a series of 
 disasters. 
 
 In 1892 Grover Cleveland was elected President of the 
 United States on practically a Free Trade platform. The 
 great issue between the two parties at that time was the 
 protective measure known as the McKinley Bill. In fact 
 the fundamental difference then existing between the 
 Republican and Democratic parties, related to the Tariff. 
 Both parties endorsed bi-metallism. The Republicans had 
 passed the Sherman Silver Purchasing Bill, and "pointed 
 with pride " to this measure as one of the great accomplish- 
 ments of the Harrison administration on behalf of the 
 country's business interests. 
 
 Up to that time, business in the United States had been 
 fairly prosperous, and the monthly addition of several 
 millions of dollars to the currency, provided by the Sherman 
 Silver Purchasing Act, increased the facilities required by 
 the nation's growing industries. But these facilities were 
 viewed with great disfavour by the banks, since they served 
 to lessen the demand for bank credit — upon which bankers 
 thrive. To their complaints and direful prophecies the 
 
business community paid little heed, since the Treasury 
 Silver notes were circulating as readily as Gold notes. 
 From neither of the two great political parties could the 
 banks expect any sympathy or support. One course only 
 remained, and that was to capture the successful candidate 
 for the Presidency and depend upon his influence to procure 
 the necessary legislation. 
 
 Mr. Cleveland was elected by a considerable majority as 
 a rebuke to the high Protection party. It was expected 
 that immediately after his inauguration in March, 1893, 
 the President would convene Congress to repeal the 
 obnoxious McKinley Bill. In obedience to the wishes 
 of the people, Congress was indeed summoned, but to 
 the amazement of Republicans and Democrats alike, the 
 President's message was confined entirely to the Money 
 question, and Congress was told that the measure fraught 
 with the greatest possible danger to the nation was not the 
 McKinley, but the Sherman Bill — a measure that had 
 scarcely been honoured with discussion during the campaign! 
 The Democrats had a majority in both Houses, and it was 
 soon evident that since no better measure favourable to silver 
 would receive the President's sanction, there was no likeli- 
 hood of the Sherman Bill being repealed. It was discovered 
 that the President was at issue with nine-tenths of the 
 members of his own party on this question, and that nothing 
 short of a " scare " would give the President the majority in 
 Congress that he needed. The next step, therefore (which 
 it is believed was devised by certain New York bankers 
 to give the country an " object " lesson), was to hold a 
 convention of representatives of the leading banks of the 
 country, and arrange to restrict loans and call in those 
 existing. Treasury notes " were also collected and 
 presented for payment, for which gold was demanded, 
 and the gold reserve — usually maintained at $100,000,000 
 — was steadily reduced. No attempt was made by the 
 new Administration to stop this drain by refusing to 
 pay the notes wholly in gold — a legal privilege which the 
 Secretary of the Treasury held. Up to this time the 
 Government had always used its discretion as to whether it 
 
should redeem Treasury notes in gold or silver, and the 
 bankers knew perfectly well that there was no law to 
 compel the redemption of these notes entirely in one metal. 
 It was plain that the " capture " of the Administration 
 had been accomplished. This sudden shrinkage of the 
 gold reserve, accompanied by the curtailment of banking 
 accommodation, produced, needless to say, the necessary 
 "scare." The effect was probably the most serious 
 the nation had ever witnessed. Thousands upon thousands 
 of manufacturers and merchants were ruined. Depositors 
 were unable to withdraw their funds, and business 
 was conducted by means of Clearing House cheques. 
 Business men naturally sought to learn the cause of 
 so sudden and unexpected a disaster. The informa- 
 tion was volunteered by certain inspired newspapers 
 that the trouble was due to the Sherman Silver Bill, and 
 citizens were told that if they desired things to bfe restored to 
 their normal condition they must write to the Members of 
 Congress requesting them to vote for a repeal of this Bill. 
 The plan succeeded, and when Congress again met, the Presi- 
 dent had little difficulty in getting the Bill repealed. It took 
 the American people with all their natural resources four or 
 five years to recover from this blow. 
 
 Whether the events which have since transpired as a 
 natural sequence were or were not foreseen by the panic 
 organisers it is impossible to say, but the consolidation of 
 capital — which before 1892 was a somewhat difficult problem 
 — became very simple under the so-called gold-standard 
 regime. With the Government no longer a competitor, 
 the banks rapidly combined for purposes offensive and 
 defensive, and for all practical purposes the control of the 
 currency under a single head became a possibility. Having 
 the ability to employ so vast a power, the exploitation 
 of the industries of America was readily accomplished. 
 Undoubtedly the simplest and surest way for obtaining 
 control of the industries of a country is to first get control 
 of its currency. For the blessings or evils (whichever view 
 one chooses to take) resulting from the formation of the 
 great Trusts, we must credit the financial policy of 
 
President Cleveland. In addition to having placed the 
 nation's industries at the mercy of the bankers, another 
 result of this policy was to indefinitely postpone the Free 
 Trade era which was about to dawn upon the United States. 
 
 When the low tariff Wilson measure finally replaced 
 the McKinley Bill, public interest in that question had 
 disappeared, and was centred on the much more important 
 one of finance, which afterwards became the main issue 
 between the two parties.* 
 
 It is but fair to say that President Cleveland had no 
 conception of the results that would follow the policy he 
 inaugurated, for no one has denounced the system of 
 Monopolies and Trusts more strongly than he, who was 
 instrumental in creating that greatest of all — the Money 
 Monopoly. 
 
 One beneficial result achieved by the panic of 1893 is yet 
 to be mentioned — namely the exposure which was made of 
 the dangers attending Monopolistic Banking. If the disasters 
 of 1893 could be produced by a small body of men acting 
 conjointly for a definite end, at a time when competition was 
 keener than it is now, how infinitely greater are our present 
 dangers, and how much easier to engineer a panic ! 
 But apart from the increased dangers to which commerce is 
 now subjected by artificially created panics, periodic failures 
 are inherent in our monetary system itself. As I have 
 endeavoured to show in this work, the commercial world is 
 forced into liquidation once every decade. Another serious 
 financial panic is now imminent! and, under our present 
 system, as inevitable as the rising and setting of the sun. 
 
 It is unnecessary to seek an explanation of panics in the 
 theory of the solar system or the appearance of sun spots ! 
 The application of simple arithmetic is quite sufficient. 
 Those who have given this subject careful and intelligent 
 
 * It will doubtless surprise many to learn that this was the only time 
 when the question of Protection v. Free Trade was submitted to the 
 people of the United States during the past twenty years as a single 
 direct issue — unaccompanied by any other disturbing question — with 
 the result that Protection was defeated. At every other Presidential 
 Election during this period the issue has been confused by questions 
 such as bi-metallism, the negro franchise, etc. 
 
study must admit that our monetary systems cannot safely 
 support the world's expanding trade and commerce 
 for a much longer period. A breakdown is inevitable. 
 One has but to examine the foundation supporting a build- 
 ing to realise its degree of stability or instability, and it 
 surely needs no gift of prophecy to predict that the man 
 who undertakes liabilities ten or twenty times greater than 
 the total available assets procurable within the time of the 
 maturity of his obligations, must fail. The same is true of 
 nations. The obligations undertaken by governments and 
 municipalities, and by the industrial and commercial world 
 exceed to an almost incredible degree the total available 
 material in which these obligations have to be redeemed ! ! 
 
 Neither mono-metallism nor bi-metallism will save the 
 world from financial disturbances. Those who have the 
 patience to follow the reasoning in the succeeding chapters 
 of this book will see that nothing short of the abandonment 
 of the theories and heresies which now pass current, and upon 
 which the world's financial systems are built, will put an end 
 to these disasters. 
 
 The experience of the past ten years which have 
 followed the period above referred to, emphasizes most 
 strongly the necessity for reconsidering the laws governing 
 the monetary systems of the civilized world. This subject 
 must necessarily become the most important with which 
 political parties will have to deal in the near future. 
 
 The principal part of this work was written after a careful 
 study of all the books and treatises on the subject available, 
 and was originally published under the somewhat pretentious 
 title of " A Scientific Solution of the Money Question." Its 
 reception was much better than I had reason to expect, 
 and the press dealt with it in a far more tolerant spirit 
 than is usual where established customs and traditions are 
 challenged and radical innovations proposed. 
 
 Certain critics, however, objected to the introductory 
 chapters as irrelevant to the subject matter which occupies 
 the main portion of the work. They described the discussion 
 of the theories and statements of Adam Smith, John Stuart 
 Mill, and Jevons as " the threshing of old straws." 
 
One critic remarked that " the author seems to be 
 ignorant of the fact that economics has become a new science 
 during the past twenty years." 
 
 I am quite aware that the discussion of the assumptions 
 upon which Pohtical Economy is based is not new, and that 
 these have been the subject of attack again and again. 
 
 I am also aware of the fact that many new and ingenious 
 arguments have recently been furnished by Economists to 
 shew the necessity for existing institutions, and the 
 impossibility of preventing financial and industrial crises and 
 ridding society of the scourge of poverty. But so far as its 
 fundamental principles and assumptions are concerned. 
 Political Economy stands where it did in the days of Adam 
 Smith. 
 
 Another critic charges me with asserting that existing 
 social evils are directly attributable to the Economists, and 
 remarks that "it would be just as rational to charge the 
 Geologists with being responsible for earthquakes ! " This 
 critic has failed to grasp my meaning, and the analogy is not 
 well taken. 
 
 If the phenomena with which geology deals could be 
 changed by human actions so as to affect beneficially or 
 disastrously the human race — if earthquakes were the direct 
 result of human operations — then Geologists would surely 
 incur a grave responsibility by failing to point out what those 
 acts were that caused such disasters, and how they might be 
 averted. 
 
 Unfortunately, most writers on Political Economy regard 
 poverty, financial panics and industrial crises as the inevitable 
 result of natural laws, and as uncontrollable as earthquakes, 
 or the motion of the heavenly bodies. 
 
 I have taken the objects of the science to be those 
 propounded by its great exponent — Adam Smith. He 
 says : " The science proposes two distinct objects, first, to 
 supply a plentiful subsistence for the people — or more 
 properly to enable them to provide such a revenue or 
 subsistence for themselves ; secondly, to supply the State or 
 Commonwealth with a revenue sufficientfor the public services. 
 It proposes to enrich both the people and the sovereign 
 
My main contention in the first chapter is that the science 
 as it has been and is now taught in the educational 
 institutions of the world, has not fulfilled those objects, and is 
 therefore a failure. 
 
 To overestimate the importance to social life of 
 Political Economy (of which money is a special branch) 
 seems impossible, since it deals with the distribution of 
 those material things that go to support life, and our aim 
 should be to raise thjs study— if possible — to the position of 
 an exact science, an accomplishment which will do more to 
 rid society of the scourge of poverty than all the poor laws 
 and philanthropic schemes ever devised. 
 
 Just now urgent appeals are being made throughout 
 Great Britain on behalf of the unemployed. England is 
 again afflicted with business depression, and able-bodied 
 men tramp the streets daily begging for assistance — a 
 condition similar to that prevailing in the United States 
 when this work was originally written. 
 
 These afflictions will continue to reappear in spite of all 
 our philanthropic measures until a general public interest is 
 created leading to an intelligent study of this science in all 
 its branches. 
 
 It is a deplorable fact (and one to which is accountable the 
 continuance of a system which has been a failure many 
 times during the past century) that not one person in ten 
 thousand has any really intelligent idea of the science of 
 money — a subject which is usually treated as one of 
 profound mystery, and which only a banker is capable of 
 understanding. 
 
 To one not blinded by custom and prejudice, the money 
 question is quite comprehensible. But because of the 
 prevalence of false and contradictory theories, students 
 find the subject hopelessly involved in ambiguities and 
 intricacies. 
 
 It is with the hope that it may evoke a spirit of inquiry 
 leading to a clearer understanding of this most important 
 subject that I am encouraged to republish this work. 
 
 London, January, 1903. A. K. 
 
"IF this so-called science Political Economy, did not 
 ' busy itself with that with which all juridical sciences are 
 concerned, — with furnishing an apology for violence, — it 
 could not fail to overlook the strange phenomenon that the 
 distribution of wealth and the exploitation of some men by 
 others are dependent upon money, and that only by 
 means of money do some people command the labor 
 of others nowadays, — that is, to enslave them. 
 
 " In antiquity, with its frequent conquest of nations 
 and the absence of human equality, personal slavery 
 was the most wide-spread method of subjugating men. 
 
 " In the Middle Ages the feudal system, — that is, 
 landed property and the accompanying serfdom, — par- 
 tially supplants personal slavery, and the centre of 
 gravity of subjugation is transferred from the person 
 to the land. 
 
 " In modern times, since the discovery of America 
 and the development of commerce, with the overflow 
 of gold made the universal money token, the money- 
 tribute has become, with the strengthening of govern- 
 mental authority, the chief means of the subjugation 
 of men, and by it are determined all the economic 
 relations of men." 
 
 Count Leo Tolstoi. 
 
PREFACE 
 
 TO THE FIRST AMERICAN EDITION 
 
 IT is almost a quarter of a century since Professor 
 jevons gave to the world his now celebrated work, "The 
 Theory of Political Economy," in which he demonstrated 
 the possibility of treating economics as a purely 
 mathematical science. He showed how all the terms 
 with which it deals involve the consideration of 
 quantities — are, in fact, strictly quantitative terms- 
 such as utility, value, capital, interest, supply, demand 
 and so on. 
 
 His treatment of the very ambiguous and hitherto 
 mysterious subject of value, was the beginning of a new 
 era in economic , science, and it is to Professor Jevons 
 that we are indebted for having rescued this most 
 important subject from what seemed to be utter chaos, 
 and for having brought the two terms, utility and value, 
 into some sort of coherency. Notwithstanding the im- 
 portance of his contributions to theory, however, his 
 labors do not appear to have conferred any practical 
 benefit upon the social affairs to which they relate, — to 
 money, trade and industry ; to those things which it is 
 the aim of the science to both elucidate and facilitate. 
 Nor do I believe any better showing can be made — 
 anything of what Lord Bacon called "fruit" will be 
 found — from all the labors of economists in this science 
 during the past twenty years. 
 
 And yet there is nothing of more importance to the 
 human race, nothing that stands in greater need of the 
 light of science, than the subject of exchanges. Society 
 is as much divided, and the opinions of the learned 
 are as contradictory upon commercial and financial 
 questions, as they were when Jevons commenced his 
 famous work. 
 
 In spite of the able and voluminous contributions 
 to the theory of Value, the Money Question— which is 
 indissolubly associated with it, and depends almost wholly 
 
for its solution upon a correct interpretation of this 
 word — remains in the same unsettled, unsatisfactory 
 condition as it did prior to the rise of the modern English 
 and Austrian Schools. 
 
 The question arises, then, is the science of economics 
 incapable of solving the all-important social problems 
 with which it deals? 
 
 Is the science to begin with and end in mere 
 theories — theories which apart from the mental exercise 
 they afford, have no practical bearing upon the affairs 
 of life? I think not. I beheve that a true science of 
 economics can and must answer satisfactorily and con- 
 clusively all the riddles that have been for ages pro- 
 pounded by the social sphinx. I believe such a science 
 will enable mankind eventually to abolish want and the 
 fear of it ; to create such an abundance of wealth that 
 all will have enough and to spare ; a condition where 
 over-production will mean a profusion of wealth, and its 
 antidote will be found in satiety instead of starvation. 
 I see no reason why economics should not do for trade 
 and industry what the science of mechanics has done 
 for the mechanical arts, or medicine and surgery for 
 human life. 
 
 In the following pages I have attempted to sketch 
 the direction in which a true science of wealth must 
 inevitably lead, as well as the foundation upon which 
 it must be built. 
 
 Although dealing mainly with what I believe to be 
 the greatest problem of this age, — the Money Question, 
 — I have digressed somewhat in the opening chapters, 
 in order to enunciate a few leading principles to which 
 the science must of necessity conform. I have also 
 pointed out where, in my judgment, economists have 
 invariably gone astray — a fact which explains the cause of 
 the barrenness of the science, and its failure to bear tangible 
 fruit. One error which prevented Jevons from developing 
 his theory of value into a practical reform of the highest 
 importance, I may be allowed to touch upon in this 
 preface. 
 
After defining value as the "ratio of exchange," and 
 showing that it can be expressed only in terms of the 
 ideal — numbers — he commits an almost unpardonable 
 solecism in writing of "a standard unit of value" as 
 " a fixed quantity of some concrete substance defined by 
 reference to the units of weight or space." What " a 
 fixed quantity of some concrete substance " has to do 
 with a " ratio," and how a substance can become a 
 standard "ratio," are questions that Professor Jevons 
 failed to answer. The truth is that in spite of the clear 
 definitions with which he set out, he afterwards confused 
 his subject by employing the word "value" in a double 
 sense : first, as the ratio of exchange ; second, as pur- 
 chasing power. Thus when speaking of a " standard 
 unit of value," he evidently means purchasing or exchange 
 power, i.e. the power conferred upon a commodity 
 whereby it can be exchanged for a certain quantity of 
 some other article of utility. 
 
 Again, how can "a fixed quantity of some concrete 
 substance" represent a power not possessed by, nor 
 residing in any substance, but merely conferred upon 
 certain objects by human desires — a power that varies 
 and fluctuates, that appears and disappears with those 
 desires ? To my mind there is only one way in which 
 a commodity can be rationally considered to represent 
 a unit of "value," i.e. purchasing power. We may select 
 a given quantity of a certain commodity, 25 grains of 
 gold, for example, and say that whatever the purchasing 
 power of this amount of gold happens to be upon a 
 certain day, or at a given time, shall represent the unit 
 of purchasing power. But this is a very different thing 
 from selecting 25 grains of gold as a permanent unit. 
 No fixed quantity of any substance — not even gold — re- 
 presents a fixed quantity of purchasing power for any 
 length of time. It is only at any given instant that we 
 may consider a commodity to have a certain amount of 
 exchange power. If then, we follow the variations in 
 the exchange relations of commodities from any given 
 instant, having first priced them all at that time in 
 
terms of the commodity selected as a standard, we have 
 an absolutely correct and scientific system by which 
 fluctuations in values may be registered with mathe- 
 matical exactness, and which will be independent of the 
 fluctuations in gold or any other single commodity.* 
 
 The mistake of Jevons and other economists was in 
 omitting the element of time from their definition of a 
 standard unit— an error similar to that in disregarding 
 the degree of temperature at which the metallic bar 
 that serves as the standard of length is to be taken. 
 Of course the introduction of time destroys all hope of 
 our ever possessing a material unit of value or purchas- 
 ing power — a thing to which altogether too much im- 
 portance has hitherto been given. Values are ideal 
 creations and can only be properly expressed in terms 
 of the ideal — numbers. In Chapters V to VIII, as 
 well as XI and XII, I have dealt fully with this question 
 of the ideal, and have shown how an absolutely invariable 
 ideal unit of' purchasing power may be obtained, and 
 how impossible and unnecessary it is to employ "a fixed 
 quantity of some concrete substance" as a unit. 
 
 ' The difficulty that the monometallists and bimetallists 
 are vainly contending against, but which they are unable 
 to perceive, is, attempting to do with the material what 
 can, from the very nature of things, only be performed 
 by the ideal, viz., express and register fluctuations in values. 
 To those who may think the conclusions arrived at 
 in this work visionary or impracticable, I would say 
 that so far as the use of an ideal monetary unit is 
 concerned, we already possess one, and fully 999 out of 
 every 1000 persons use money to-day in this ideal sense. 
 Probably not one per cent, of the population could tell 
 what the dollar or the pound sterling represents in 
 bullion. What everybody does know, however, is that a 
 dollar and a sovereign represent just so much purchasing 
 power, and that this is not due to the metal they contain, 
 but solely on account of the credit of the issuer, and 
 of the fact that the exchange relations of all goods are 
 * See illustration on page 94 (Purchasing Power). 
 
expressed in pounds, shillings and pence, dollars and 
 cents, or some similar ideal units. 
 
 The universal employment of token coins, paper money, 
 etc., is an unanswerable argument to those who believe 
 an ideal monetary system impracticable. 
 
 It may be thought by some that I have explained 
 certain points with unnecessary prolixity, and the criticism 
 of repetition may likewise be urged with a certain amount 
 of justice. My answer to this is, that as far as I know, 
 my treatment of this question is in the main entirely 
 novel, and the subject one of an exceedingly abstract 
 nature ; and in striving to make the subject clear and 
 intelligible to the average reader, I have preferred in- 
 curring the charge of repetition to that of ambiguity. The 
 reiteration of a truth will harm no one. The evil to be 
 avoided, especially in a subject of this nature, is 
 obscurity. 
 
 The title of the book may seem somewhat pretentious.* 
 I do not wish it to be inferred that I am vain enough 
 to believe this work to contain anything more than an 
 indication or suggestion of the direction in which we 
 must necessarily look for the final solution of this problem, 
 which has been the great social riddle for centuries. 
 
 In this discussion I have endeavored to show the 
 necessity for dealing with the question wholly from a 
 scientific standpoint. As a general rule its discussion has 
 hitherto been confined to those who may be regarded 
 merely as representatives of private interests — advocates of 
 certain schemes, monometallists, bimetallists, free-silverites, 
 green-backers, etc. — whose labors consist in attempts to 
 create a science that shall harmonize with pre-organized, 
 pre-arranged institutions. My aim has been simply to 
 arrive at the truth, irrespective of any interests which it 
 may favor or condemn. 
 
 If this work should in any way lead to a reconsidera- 
 tion of the laws under which the greatest and most 
 dangerous monopoly of the age is maintained, and by 
 
 * The original title was " A Scientific Solution of the Money 
 Question." 
 
which millions of men are doomed to suffer inevitable 
 failure — if it should assist in freeing money — that most 
 useful and ingenious of all human inventions for facilita- 
 ting commerce, — from legislative restraints, and thereby 
 emancipate industry from the bondage into which legis- 
 lators have placed it, the object for which this book was 
 written will have been fully accomplished. 
 
 Arthur Kitson. 
 Philadelphia, August x^th, 1894. 
 
INTRODUCTION 
 
 ** For my part, I have siuorn Jidelity to my -work of 
 demoiition, and I nvill not cease to pursue the truth 
 through the ruins and rubbish" — Proudhon. 
 
 THE period commencing with the year 1890 and 
 extending to the present time* will long be remembered 
 as one of almost unparalleled business disaster throughout 
 the civilized world. No nation has escaped the .wave 
 of industrial depression which, commencing with the 
 failure of a London banking house, a few years ago, 
 has swept over the entire globe. And nowhere have 
 the effects been more severe ' than in the United States. 
 " No other country," says a magazine writer, t " has 
 ever incurred in so short a time such an amount of 
 financial and industrial disturbance and disaster." Mills, 
 factories and workshops have closed, banks have 
 suspended, and thousands have been suddenly reduced 
 from affluence to poverty, whilst hundreds of thousands 
 of wage-earners have been cast adrift to beg, starve, 
 or join the ranks of those numerous bands of malcontents 
 who, from almost every State in the Union, are now 
 marching towards Washington.'}: This period has been 
 marked by no extraordinary natural calamities, such as 
 famines, fires or floods, which occasionally precipitate whole 
 communities into destitution. The factors in the production 
 of wealth have been as prolific and as responsive as during 
 any previous years of industrial prosperity. Men have 
 been none the less eager to labor, machinery none the 
 less efficient, and nature has not failed to respond as 
 readily to the call of labor with bountiful harvests of 
 wealth. There never was a period in the world's history 
 when the factors of production were, as a whole, more 
 efficient, when so much wealth could be created in so 
 
 * This was originally written in 1893. See Preface to English 
 Edition. 
 
 t David A. Wells, in " The Forum." 
 J Coxe's Army. 
 
short a space of time and with so little expenditure of 
 human energy, as now. Notwithstanding all this, we are 
 to-day experiencing calamities greater in degree and more 
 extensive than any that nature has ever produced. Millions 
 of the world's inhabitants have been reduced to a condition 
 as bad as though the fruits of their labor had been 
 suddenly swept out of existence, or pestilence and famine 
 had held undisputed sway. Although severer and more 
 universal in its ravages, the present panic belongs to 
 the same order as those of previous years. Appeal to 
 those whose business it should be to investigate and 
 interpret this class of phenomena, discloses a rather 
 humiliating state of things, for the opinions of statesmen, 
 financiers and economists are as diverse regarding the 
 cause of financial panics as it is possible to imagine. Be 
 the cause, however, what it may, the fact remains that 
 after more than a century's experience, during which 
 there have been not less than ten severe panics, no 
 scientific explanation has yet been offered by either 
 statesmen or economists for these decennial commercial 
 crises, nor has a satisfactory remedy for their recurrence 
 been suggested. 
 
 Since the trouble evidently does not arise in the 
 production of wealth, we may reasonably expect to 
 find it somewhere in the mechanism of distribution. 
 Complicated as is the machinery of modern commerce, 
 it requires but the least reflection to perceive that 
 the money question is the mainspring of the industrial 
 world. That panics are known as financial panics is 
 indicative of the fact that these troubles originate from 
 disorganization of the mechanism of exchange. Panics 
 never arise in the industrial world tmless precipitated 
 by financial disorder. In other words, instead of finance 
 being the servant of industry, industry is the tool of 
 finance, and the entire production and exchange of wealth 
 is now controlled by those who control the money of 
 the world. Startling as it may seem, it is nevertheless 
 true that the power to paralyze industry is in the 
 hands of a comparatively few individuals, amongst whom 
 
concerted action can be effected at any time. This is a 
 serious and menacing condition of things, and so long 
 as it exists the lives and fortunes of almost the entire 
 human race are virtually at the mercy of these men. The 
 manner in which this condition of things has been brought 
 about is largely due to two or three fallacies underlying 
 the world's monetary systems — fallacies which have become 
 strongly intrenched by law, and with others equally false, form 
 the basis of the present so-called science of economics. To 
 fully perceive these errors we must examine them in both 
 root and branches. I shall therefore first of all briefly 
 discuss a few of the premises and assumptions of the 
 present system of political economy. Following that I shall 
 proceed to a discussion of the money problem. 
 
 Let us at the outset clearly understand what the money 
 problem is. Fundamentally it is merely a question of com- 
 mercial equity. It is the establishment of a system by 
 which justice shall be meted out to wealth-producers. The 
 great and pressing demand for money which has been so 
 acute during the past century, is due to the specialization 
 of industry. Few men at the present day are employed 
 in making goods for their own consumption. Speaking 
 generally, all production is now carried on by individuals for 
 society, and the great function of money is to register the 
 proportion which each producer's commodity bears to the 
 total quantity of goods brought to market. It is likewise a 
 certificate, entitling him to receive that same proportion 
 of wealth in any form he may desire. 
 
 Here, for instance, is an engine builder. He and his 
 men devote themselves to the manufacture of a machine 
 for which they have no personal use. To society the 
 engine is indispensable. In order that engine building 
 may continue, it is necessary that those so engaged 
 shall receive food, clothes, shelter, and all the necessaries 
 and comforts of life — products which others are engaged 
 in furnishing for exchange. Engines are sent to market 
 to exchange for these other forms of wealth. 
 
 The question that really concerns the engine builder 
 is, in what relation do his engines stand to all those 
 
things which he needs ? How much of ' them will they 
 purchase? This proportion is determined -by the law of 
 supply and demand, a law which under free conditions 
 makes for justice. A scientific monetary system should 
 register these exchange proportions of commodities faith- 
 fully, without affecting the natural law of supply and 
 demand in the slightest degree. 
 
 In the following chapters I shall endeavour to describe 
 a method by which the proportion of each man's produce 
 to the whole mass of wealth may be determined. This 
 system is nothing more than a numerical system. It 
 ranges all commodities, one above another, in terms of 
 a common denominator. It furnishes a neutral price 
 scale upon which the fluctuations in the supply of and 
 demand for goods are accurately recorded. 
 
 I shall shew that no commodity can possibly 
 perform these functions, and that financial disasters are 
 the inevitable results of endeavouring to substitute the 
 material for the ideal. 
 
 Let us proceed at once with our task. 
 
Cbapter L 
 THE MONEY QUESTION 
 
 "It is surely a sad symptom for a science, when, in developing 
 itself according to its own principles, it reaches its object just in time to 
 be contradicted by another ; as for example : when the postulates of 
 political economy are found to be opposed to those of morality, for I 
 suppose morality is a science as well as'political economy. What, then, 
 is human knowledge, if all its affirmations destroy each other, and on what 
 shall we rely ? " — System of Economical Contradictions : Proudhon. 
 
 ' ' That which is altogether just shalt thoM follow, that thou mayest 
 live and inherit the land." — Deut. xvi . 20. 
 
 " In proceeding towards any given point, there is always one line 
 which is the shortest — the straight ; so in the conduct of human affairs 
 there is always one course which is best — the just." — Anon. 
 
 MODERN civilization, which, as we are taught to 
 believe, transcends that of any period in the world's 
 history, may be said to be entirely the result of 
 modern scientific thought. Nothing serves to illustrate 
 so well the difference between the civilization of 
 ancient Greece, for instance, and our own, as to compare 
 the mental attitude of the Platonists toward the sciences, 
 with that of the nineteenth century philosophers. By 
 the former, science was studied not for the purpose of 
 adding to the material comforts of life, nor to satisfy the 
 vulgar appetites or wants of man, but to exalt the mind 
 to the contemplation of " pure truth " and of things 
 "which are to be perceived by the intellect alone." To 
 bring science to the aid of manufacture was supposed to 
 
THE MONEY 
 
 degrade what was regarded as a purely intellectual 
 pursuit. Inventions were despised as beneath the 
 dignity of philosophy and fit only for craftsmen. 
 Hence we learn that Archytas, who "had framed 
 machines of extraordinary power on mathematical 
 principles," was persuaded by his friend Plato to 
 abandon mechanics as unworthy the attention of a 
 philosopher. So we read that Archimedes considered 
 geometry degraded by being employed in the pro- 
 duction of anything useful, and " was half ashamed of 
 those inventions that were the wonder of hostile 
 nations." 
 
 The high esteem in which science to-day is held is 
 wholly on account of what the ancients termed its 
 " vulgar utility." We prize mathematics, not because 
 it leads to the contemplation of " the immutable 
 essence of things," but because it enables us to solve 
 problems connected with the industrial arts and the 
 ordinary affairs of life ; so, too, with all other sciences. 
 The age of speculation has given place to the age of 
 practice. What to the ancients was the end of 
 learning, viz., cultivation of the intellect and strength- 
 ening of the memory, is to us but a means to an end, 
 and that end is human happiness. 
 
 In judging the merits of any science we are 
 accustomed to inquire " What is its use ? " " To what 
 purpose is it applicable ? " And our respect for it 
 depends upon its demonstrated utility. 
 
QUESTION 3 
 
 Of modern sciences none stands more dis- 
 credited than political economy, nor have the 
 claims of any branch of knowledge to rank as 
 science been more persistently opposed. Trans- 
 cendently important to human life as are the 
 phenomena with which it deals, it is questionable 
 whether any branch of knowledge is less generally 
 understood, or commands in the popular mind so 
 little respect.* Nor shall we be greatly surprised 
 at this if we critically and fearlessly examine its 
 doctrines in the light of existing science. 
 
 For many years past the civilized world has 
 been confronted with problems which it is the 
 professed aim of political economy to solve. And 
 what do we find? Nothing but discord, disagree- 
 ment and uncertainty among its doctors.! 
 
 The diagnoses of its various schools are contra- 
 dictory. One school tells us the cause of industrial 
 crises is " over production " ; another " under-con- 
 sumption " ; another says it is due to the credit 
 
 * After enumerating certain reforms that political economy has 
 effected, Walter Bagehot says : " Notwithstanding these triumphs, the 
 position of our political economy is not altogether satisfactory. It lies 
 rather dead in the public mind. Not only it does not excite the same 
 interest, but there is not exactly the same confidence in it. Younger 
 men either do not study it, or do not feel that it comes home to them, 
 and that it matches with their living ideas. They ask often, hardly 
 knowing it, will this ' science,' as it claims to be, harmonize with what 
 we now know to be science, or bear to be tried as we now try science ? 
 And they are not sure of the answer." 
 
 + '* Every country," says S. Laing, " has a political economy of 
 its own." 
 
4 THE MONEY 
 
 system, whilst another holds the tariff responsible. 
 Their prescriptions are found to be similarly antago- 
 nistic. One class prescribes greater freedom of trade, 
 another greater restriction. This professor suggests 
 the free coinage of silver, and that one denounces 
 it; whilst with regard to Trusts, Trade Unions 
 and similar combinations, an equal number of 
 economists may be found supporting opposite, antago- 
 nistic views. With such diversity of opinion, we 
 can hardly wonder that the science stands in such 
 bad repute. 
 
 Political economy deals with the production and 
 distribution of wealth, and its main object is to 
 discover those laws and principles, guidance by 
 which will tend to the material well-being and 
 prosperity of the human race. "Considered as a 
 branch of the science of a statesman or legislator, 
 political economy," says Adam Smith, "proposes 
 two distinct objects: First, to supply a plentiful 
 subsistence for the people, or more properly to 
 enable them to provide such a revenue or subsis- 
 tence for themselves ; secondly, to supply the State 
 or Commonwealth with a revenue sufficient for the 
 public services. It proposes to enrich both the 
 people and the sovereign." 
 
 How happens it, then, that in spite of so many 
 miracles of industry science and art, comfort and 
 culture have not become the inheritance of all ? How 
 happens it that in Paris and London, centres of 
 
QUESTION 5 
 
 social wealth, poverty is as hideous as in the days 
 of Caesar and Agricola ? * 
 
 Look, for instance, at the condition of the 
 wealthiest nation on earth, — England. Here — the 
 birthplace of modern political economy — statesmen 
 and legislators have been largely guided by its 
 teachings. It is said that the " Wealth of Nations " 
 revolutionized the opinions of England's ministers 
 and caused them to enter upon a new policy in 
 accordance with the doctrines propounded by the 
 great English economist. Clubs were formed for 
 the study of economic questions, and statesmen 
 vied with each other in seeking to bring the com- 
 mercial laws of England in conformity with those 
 of the new science. According to the judgment of 
 one of England's foremost statesmen and economists, 
 the great work of political economy has been 
 achieved. 
 
 " The controversies which we now have in poli- 
 tical economy," said the Rt. Hon, Robert Lowe, 
 many years ago, " although they offer a capital 
 exercise for the logical faculties, are not of the 
 same thrilling importance as those of earlier days. 
 The great work has been done." Let us now look 
 at the results. Bearing in mind that the object of 
 the science is " to provide a plentiful revenue or 
 subsistence for the people, and supply the State with 
 
 * This question, asked by Proudhon more than half a century ago, 
 is still unanswered. 
 
6 THE MONEY 
 
 a revenue sufficient for the public service," let us 
 take a brief survey of "the great work" that 
 Robert Lowe said "has been done." 
 
 " In the wealthiest nation in the world," says 
 John Rae, " every twentieth inhabitant is a pauper ; 
 one-fifth of the community is insufficiently clad ; the 
 agricultural laborers and large classes of working 
 people in towns are too poorly fed to save them 
 from what are known as starvation diseases ; the 
 great proportion of our population lead a life of 
 monotonous, incessant toil, with no prospect in 
 old age but penury and parochial support; and 
 one-third, if not indeed one-half, of the families of 
 the country are huddled six in a room, in a way 
 quite incompatible with the elementary claims of 
 decency, health or morality." 
 
 " Our exports during the past quarter of a 
 century," wrote Professor Fawcett, "have advanced 
 from ;^5o,ooo,ooo to more than ^^250,000,000, and 
 our imports have increased to a still greater amount ; 
 yet, incredible as it may on first consideration 
 appear, it can, I believe, be proved that whilst 
 there has been this unprecedented increase of wealth, 
 the remuneration of labor has in many instances 
 scarcely advanced at all." 
 
 Speaking of the industrial condition of Scotland's 
 greatest city, Matthew Arnold said: "Who that 
 has seen it can ever forget the hardly human 
 horror, the abjection and uncivilizedness of Glasgow?" 
 
QUESTION 7 
 
 " Nothing is more certain," wrote Professor Caimes, 
 "than that, taking the whole field of labor, real 
 wages in Great Britain will never rise to the 
 standard of remuneration now prevailing in new 
 countries, a standard which, after all, would form 
 but. a sorry consummation as a final goal of im- 
 provement for the masses of mankind. . . . The 
 exertion of labor and capital produce 5, 10, 20 or 
 100 times more than it did 100 years ago. Yet 
 wages have not increased in any such ratio, and it is 
 even questionable whether profits have risen. . . . 
 The large addition to the wealth of the country 
 has gone neither to profit nor to wages, nor yet to 
 the public at large, but to swell a fund ever growing, 
 even while its proprietors sleep — the rent-roll of the 
 owners of the soil." 
 
 Here it is apparent that political economy has 
 faUed to achieve what its chief apostle designated 
 to be its special mission, nor do we find in turning 
 to other nations with their several schools a much 
 better state of things. "Any one," wrote Professor 
 Huxley, in his " Social Diseases and Worse 
 Remedies," "who is acquainted with the state of the 
 population of all great industrial centres, whether in 
 this or other countries, is aware that amidst a large 
 and increasing body of that population, la misfere 
 reigns supreme. I have no pretensions to the 
 character of a philanthropist, and I have a special 
 horror of all sorts of sentimental rhetoric; I am 
 
8 THE MONEY 
 
 merely trying to deal with facts, to some extent 
 within my own knowledge, and further evidenced by 
 abundant testimony, as a naturalist ; and I take it 
 to be a mere plain truth that throughout industrial 
 Europe there is not a single large manufacturing city 
 which is free from a vast mass of people whose con- 
 dition is exactly that described, and from a still 
 greater mass who, living just on the edge of the social 
 swamp, are liable to be precipitated into it by any 
 lack of demand for their produce. And with every 
 addition to the population, the multitude already 
 sunk in the pit, and the number of the host sliding 
 towards it, continually increase." 
 
 " In the United States," says a well-known 
 author,* "squalor and misery and the vices and 
 crimes that spring from them, everjrwhere increase 
 as the village grows to the city, and the march of 
 development brings the advantages of the improved 
 methods of production and exchange. It is in the 
 older and richer sections of the Union that pauper- 
 ism and distress among the working classes are 
 becoming most painfully apparent." 
 
 " I have been told," says a clergyman t who 
 witnessed the recent great railroad strike, " that 
 the average wages paid by the Pullman Company 
 are $1*87 per day. I doubt it much. It is claimed 
 
 * Henry George, in " Progress and Poverty." 
 
 t Rev. Mr. Cawardine, Methodist minister at Pullman, 111. 
 
QUESTION 9 
 
 that the men are not receiving 'starvation wages.' 
 I know many of which this is true, but they are 
 the exception and not the rule. I know a man 
 who has had, after paying $14.50 rent for four small 
 rooms and seventy-one cents for water rent, but 
 seventy-six cents a day left to feed and clothe his 
 wife and children. When we remember that this is 
 an average case, that it is on the basis of fuU time, 
 then in the name of all that is just and right, I 
 say God help that man if his dependents be many 
 or if sickness invade his home," 
 
 This is a description of what exists in America's 
 so-called " model town." " It is," says the same 
 gentleman, "a civilized relic of old-world serfdom. 
 To-day we behold the lamentable and logical out- 
 come of the whole system." 
 
 During the recent great coal miners' strike 
 throughout this country the following press despatch 
 appeared in all the newspapers : "I have never 
 seen such a discouraged set of men as the miners 
 of this neighborhood have been since the last 
 reduction was made. They know it matters not 
 how steady they work, they cannot make enough 
 money to keep a small-sized family in the necessary 
 food, and they have concluded that if they have to 
 starve, they prefer doing it at once and not by 
 degrees." 
 
 Here in the two wealthiest and most civilized 
 nations, we find labor leading a miserable existence. 
 
10 THE MONEY 
 
 in a chronic state of warfare against capital, and 
 periodically striking for "living" wages. Under 
 the regime of institutions considered necessary by 
 this so-called science, society presents us with the 
 two extremes of vast wealth and wretched poverty 
 side by side; of the wealth-producer doomed 
 to a poor existence, and the non-producer born to a 
 life of luxury. With such results drawn from ex-- 
 perience, what other judgment can we pronounce upon 
 a system which works out so difFerently from what 
 is desired, than that of being false and unscientific ? 
 What faith can we place in a "science" the object 
 of which is "to enrich both the people and the 
 sovereign," that fails so completely in its main object ? 
 But the question arises, " Have the principles of 
 political economy had free play in any industrial 
 community where poverty still exists ? " " Have 
 those nations in which poverty progresses with 
 wealth been governed by its precepts ? " The 
 patient who neglects to follow his physician's advice 
 cannot justly hold him responsible for failure ta 
 regain health. So far as England and the United 
 States are concerned there can be little doubt that 
 in all essentials the laws of each nation have been, 
 in the main, favorable to the workings of its^ 
 respective school — schools which, while differing in 
 matters pertaining to foreign trade, agree in almost 
 every other branch. There can be no question that 
 the production of wealth during the past century 
 
QUESTION ti 
 
 has been enormously in excess of any, within a 
 similar period, that the world has ever known. But 
 with the production of wealth, economics has had 
 comparatively little to do. This growth of pro- 
 .duction has been du6 to invention, discovery, and the 
 physical sciences. It is with the distribution of 
 wealth the science is chiefly employed, and it is in 
 this particular where it has failed. In each country 
 we find wealth distributed amongst the various 
 factors, in rent, interest and wages, according 
 to the laws governing these respective institutions. 
 We find supply and demand governing the prices of 
 all commodities, even the factors themselves. 
 Exchange is carried on by the methods and rules 
 approved by leading economists. Money is regarded 
 by merchants in the same light as the highest 
 authority on finance regards it, and gold has 
 become — thanks to economists and legislators — the 
 universal basis for currency. The doctrines of 
 Malthus are found to work like a charm, and the 
 man for whom capital has no employment, finds no 
 plate set for him at nature's banquet. In our 
 dealings with each other we have imbibed the 
 supreme principle of political' economy — selfishness, 
 and the three cardinal virtues, abstention, deception 
 and avarice are universally practised. 
 
 So closely has the fundamental law of this 
 science — to gratify one's desires with the least 
 expenditure of energy — been followed, that a 
 
12 THE MONEY 
 
 considerable percentage of the race have devised 
 schemes for living without the expenditure of any 
 energy at all — on their part. We have acquired not 
 only the art of buying in the cheapest, and selling 
 in the dearest markets, but modern ingenuity has 
 discovered a plan for controlling the markets them- 
 selves, thus making goods cheap or dear at 
 pleasure. 
 
 In conformity with economic teachings we have 
 abolished the duty of alms-giving — a system which 
 served to mitigate to a considerable extent the 
 miseries to which the laboring classes were ex- 
 posed during mediaeval times — and have enacted 
 tramp and vagrancy laws, thus making poverty a 
 crime. We have learned to treat labor absolutely 
 as a commodity and have made it entirely sub- 
 servient to the laws of supply and demand, not- 
 withstanding our high pretensions regarding the 
 immorality of slavery. In short, our modem com- 
 mercial and industrial system seems to conform 
 entirely to the principles and teachings of ortho- 
 dox economists. So far, then, it is fair to say that 
 the principles of political economy have had 
 reasonably free play in the countries we have been 
 considering, and therefore we are warranted in 
 passing judgment upon the system which bears 
 such fruit. But it will be contended that though 
 conditions are bad, they are better than they were 
 and are continually improving; that although labor 
 
QUESTION 13 
 
 is admittedly in a "dim-eyed, narrow-chested con- 
 dition," it is slowly but surely gaining in health 
 and happiness. 
 
 For instance, we are told by an optimistic 
 economist, Mr. W. H. Mallock, that "the poorer 
 classes as a body have advanced and are advancing 
 enormously."* Another writer informs us that the 
 pauper of to-day enjoys comforts and privileges 
 unknown to even the nobility of a few centuries ago. 
 Against the statements of Mr. Mallock, however, we 
 have that of Prof. Thorold Rogers : "I have pro- 
 tested against that complaisant optimism which 
 concludes because the health of the upper classes 
 has been greatly improved, because that of the 
 working classes has been bettered, and appliances 
 unknown before have become familiar and cheap, 
 that therefore the country in which these improve- 
 ments have been effected must be considered to 
 have made for all its people regular and continuous 
 progress." And again, " relatively speaking, the 
 working man of to-day is not so well off as he was 
 in the 15th century." He adds, "the freedom of 
 the few was bought by the servitude of the many."f 
 
 We have also the statements of both Professors 
 Fawcett and Cairnes before quoted. We have 
 likewise the evidence gained from experience in all 
 
 * " Property and Progress." 
 t "Work and Wages." 
 
14 THE MONEY 
 
 new countries of the inevitable growth of poverty 
 with the progress of wealth. But outside of any 
 opinion, the fact remains that after a century's 
 unprecedented growth of wealth, the one human 
 factor in production still remains as a class, within 
 sight of starvation, and unable to face, unaided, 
 what are known as "hard times." 
 
 If we look within the realm of the science itself, 
 we find it affording far greater cause for wonder 
 and amazement than food for instruction. Starting 
 originally with the intention of discovering laws by 
 which the greatest amount of wealth can be pro- 
 duced and enjoyed by society, it concludes by 
 showing how wealth can best be conserved by con- 
 trolling and limiting the production of human beings. 
 The problems which were originally propounded have 
 become inverted. Acquisition of the means of 
 wealth-production is set forth as the end of social 
 existence. Instead of wealth being produced for the 
 benefit of mankind, the right to life, by the majority 
 of beings, is regarded solely from the standpoint of 
 their ability to create wealth, whilst often this 
 right is denied. Listen to the following passage 
 from Malthus : " A man who is born into a world 
 already occupied, his family unable to support him, 
 and society not requiring his labor, such a man, I 
 say, has not the least right to claim any nourish- 
 ment whatever ; he is really one too many on the 
 earth. At the great banquet of nature there is no 
 
QUESTION IS 
 
 plate laid for him. Nature commands him to take 
 himself away, and she will not be slow to put her 
 order into execution." 
 
 The least intelligent person can hardly fail to 
 perceive that under those laws which economists 
 declare essential to social progress, nine-tenths of 
 the people are the servants or slaves of the other 
 tenth, whilst the whole of society is dominated by 
 and subordinated to the things it produces. 
 
 " Although labor is the starting point in pro- 
 duction," writes Prof. Jevons,* " and the interests 
 of the laborer the very subject of the science, yet 
 economists do not progress far before they suddenly 
 turn around and treat labor as a commodity which 
 is bought up by capitalists. Labor becomes itself 
 the object of the laws of supply and demand, 
 instead of those laws acting in the distribu- 
 tion of the products of labor. Economists have 
 invented, too, a very simple theory to determine 
 the rate at which capital can buy up labor. The 
 average rate of wages, they say, is found by 
 dividing the whole amount of capital appropriated 
 to the payment of wages, by the number of the 
 laborers paid ; and they wish us to believe that 
 this settles the question." 
 
 In the branch known as exchange we find the 
 same remarkable inversion of the natural order of 
 
 * " Theoiy of Political Economy.'' 
 
i6 THE MONEY 
 
 things. The mechanism for distributing wealth has. 
 become the highest form of wealth. Money, instead 
 of remaining the medium or tool of exchange, has 
 become its ultimate object, and commodities, al- 
 though produced for consumption, are regarded 
 mainly from the standpoint of their ability to- 
 produce that which should function solely as a 
 means for exchanging them. In place of finance 
 serving industry we find industry the slave of 
 finance. Universally good harvests and general 
 increase in production and manufactures are regarded 
 with dismay by producers as leading to over- 
 production and consequent starvation, whilst a 
 wholesale destruction of wealth by fire, flood or 
 war is hailed as a boon to the masses.* In fact, 
 regarded from a rational standpoint, the whole 
 commercial and industrial world appears to be 
 standing upon its head. 
 
 Whilst recognizing wealth as essential to social 
 life, orthodox political economy demonstrates that 
 the conditions favorable to its growth do not 
 conduce to social health. The laws that lead to- 
 wealth production lead to starvation. Over-production 
 
 * Since writing the above, I have out the following from the 
 Philadelphia Inquirer, Aug. 6th, 1894 : " The reports of serious damage 
 to the corn crop have advanced the price of that grain five cents a bushel, 
 making an advance of eight cents in two weeks. The grain is now seven 
 cents a bushel higher than at this time last year ; and yet it does not 
 appear that the crop wilt be any less in 1894 than it was in 1893. The 
 higher price at which the grain is now quoted thus tneans prosperity to 
 a very large and important consuming element in the population. " 
 
QUESTION 17 
 
 and want go hand in hand. The self-same laws 
 that govern distribution of the means of existence, 
 are continually urging man towards destruction. 
 Life and death are inextricably mixed up in all 
 its prescriptions. 
 
 The original problem was " How can wealth be 
 controlled to serve the best interests of society ? " 
 To-day the problem is " How can nine-tenths of 
 society be controlled to serve the interests of ex- 
 isting wealth ? " 
 
 Viewing it from an ethical standpoint we shall 
 find still further grounds for astonishment. "Po- 
 litical economy generally," says Professor Smart, 
 " is based on the analysis of economic conduct." * 
 Yet we find economic conduct to be utterly 
 irreconcilable with any standard of right conduct. 
 Not only so, but economists have not hesitated 
 to proclaim economics and ethics as irreconcilable. 
 " Moral considerations have nothing to do with 
 political economy," says John Stuart Mill. "The 
 economic ' want ' is not necessarily a rational or a 
 healthy want," says Prof. Smart. 
 
 Prof. Caimes writes : " I am unaware of any 
 rule of justice applicable to the problem of dis- 
 tributing the products of industry ; and any attempt 
 to give effect to what are considered the dictates 
 of justice, which should involve as a means towards 
 
 * Introduction to "The Theory of Value." 
 
«8 THE MONEY 
 
 that end, a disturbance of the fundamental assump- 
 tions on which economic reasoning is based, more 
 €specially those of the right of private property and 
 the freedom of individual industry, would, in my 
 opinion, putting all other than material considerations 
 aside, be inevitably followed by the destruction or 
 indefinite curtailment of the fund itself, from which 
 the remuneration of all classes is derived." He adds, 
 "As to the amount of truth or morality which these 
 several maxims of political economy embody, I am 
 not concerned here to enquire. My business with 
 them has reference exclusively to their efficacy as 
 rules for regulating the production and distribution 
 of wealth." 
 
 So might the navigator say, "As to the cor- 
 rectness or incorrectness of the ship's compass I 
 am not concerned to enquire. My business is 
 simply to sail the ship." 
 
 So the metaphysician might say, " As to the 
 truth or correctness of my premises, I am not 
 concerned to enquire. My business with them is 
 simply to arrive at logical conclusions." 
 
 To my mind there is something amazing in 
 these statements of Mill and Cairnes. How they 
 could believe they were building a science governing 
 human actions — for the production and distribution 
 of wealth is entirely regulated by human actions— 
 without any regard to that science which governs 
 right conduct, is to me inexplicable. 
 
QUESTION 19 
 
 With Proudhon we may remark : " It is surely 
 a sad symptom for a science, when, in developing itself 
 according to its own principles it reaches its object 
 just in time to be contradicted by another." 
 
 We now pass to a consideration of the premises 
 upon which the science is built. Economists assert 
 that wealth is the resultant of three factors : land, labor 
 and capital. Allowing, for a moment, the assertion, 
 we must recognize that this classification places all 
 human exertion under one heading, viz. : labor. 
 Hence there is but one human factor in production ; and 
 since, in order to maintain and properly develop them, 
 the factors must be properly nourished and replenished 
 from wealth produced, in the absence of anything 
 to the contrary, reason would suggest that all wealth 
 should be divided among them in proportion to 
 their needs ; i.e. the land should be properly 
 fertilized and irrigated, capital replenished and the 
 balance should go to labor. This would seem to 
 harmonize with the principles of ethics. To parody 
 a political adage we may justly say " to the factors 
 belong the spoils." 
 
 But what do economists say ? " The products of 
 industry," say they, "are divided into three parts. 
 One part goes for use of land and is termed rent ; 
 another to labor and is called wages; and another 
 to capital and is known as interest." Instead of 
 rent going to the land, then, it goes as payment 
 for use to a landlord and interest is similarly 
 
20 THE MONEY 
 
 paid to a capitalist. But to what purpose are 
 these portions of wealth, which are paid to land- 
 lords and capitalists, applied ? To fertilizing land 
 and repairing capital? Not necessarily. The main 
 disposition of this wealth is used to support the 
 landlords and capitalists themselves, rather than 
 maintain the factors that they represent. With this 
 question, however, economists do not bother themselves. 
 There is here, evidently, some gross error, something 
 entirely misleading and wholly unscientific. Beginning 
 with three factors in production, one of which is human, 
 economists end by distributing wealth among three 
 factors, all of which are human. As factors in pro- 
 duction, landlords and capitalists do not appear. On 
 what basis, then, do they appear as factors in distribu- 
 tion ? " Rent," they say, "is for the use of land." Now 
 the natural payment to land for its use is labor. 
 There is no just reason to exact payment for use unless 
 the thing is used. To use land is to work upon it, — ^to 
 labor. Without such labor there can be no return, for 
 nature gives only to labor; hence, the payment 
 nature demands is labor. To use is to employ, and 
 to say that land is an agent in production, and the 
 use of land an agent, is one and the same thing. In 
 other words, land as a factor necessarily means its 
 use, and the natural payment for use is labor. 
 Labor is, in fact, nature's rent. To pay rent 
 to a landlord, therefore, means a double tribute. 
 But land is nature's product, and her rent 
 
QUESTION 21 
 
 there is not the slightest possibility of evading. 
 What part, then, does the landlord furnish ? 
 Where is his quid pro quo? To these questions 
 political economy gives but evasive answers ; and 
 yet, if it be a science it must answer them, and 
 answer satisfactorily. 
 
 Again, interest we are told is the reward for 
 abstinence.* Now although the term "reward" is 
 sometimes used as meaning natural result, it is more 
 often used to signify a gift, donation or present, i.e. 
 something given to a person which does not naturally 
 result from his labor or services. The reward of 
 labor is the term as used more often in the first sense, 
 whilst a reward for bravery is used in the second. 
 In which sense, then, is the term interest — the reward 
 ior abstinence — used ? Let us see. 
 
 * " The claim to remuneration, founded on the possession of food 
 available for the maintenance of laborers, is of another kind — remunera- 
 tion for abstinence, not for labor. If a person has a store of food, he 
 has it in his power to consume it himself in idleness, or in feeding others 
 to attend on him, or to fight for him, or to sing or dance for him. If, 
 instead of these things, he gives it to productive laborers to support 
 them during their work, he can, and naturally will, claim a remunera- 
 tion from the produce. He will not be content with simple repayment ; 
 if he receives merely that, he is merely in the same situation as at first, 
 and has derived no advantage from delaying to apply his savings to his 
 own benefit or pleasure. He will look for some equivalent for this 
 forbearance." "Principles of Political Economy," Book I, chap, i: 
 John Stuart Mill. 
 
 [The absurdity of this statement is exposed by economists them- 
 selves. For wealth becomes capital only by employment. Wealth 
 must be used and consumed in order to become productive. It is use, 
 Bot abstinence, that is productive. — Author.] 
 
22 THE MONEY 
 
 If I abstain from the practice of certain vices I 
 escape the pain and misery that I should otherwise 
 suffer. This is the "reward" or natural result of 
 abstinence. If, on the other hand, I abstain from 
 eating and drinking for a long time, I become weal< 
 and faint, and if abstinence is continued sufHciently 
 long, I shall die. This is also the " reward," or rather 
 the penalty of abstinence. Now by abstaining from 
 the consumption or use of a thing, I can do no more 
 than preserve it for a certain length of time, whereas 
 by using or consuming it I deprive myself of its 
 future use. Things do not grow, nor enlarge, nor 
 develop by mere abstinence. " You cannot have your 
 cake and eat it. Of course not ; and if you don't 
 eat it, you have your cake — providing the mice do 
 not get at it during the night — but not a cake and 
 a half."* On the contrary, things deteriorate without 
 use. Iron will rust, wood decay, stone perish, cloth 
 become moth-eaten, food will rot, metals oxidize, in 
 fact all of man and nature's products undergo 
 dissolution sooner or later. There is no such thing as 
 unchangedbleness in wealth. The natural result of 
 abstinence is seldom more than temporary preservation 
 of a thing we abstain from using or consuming ; 
 and in very many cases things are preserved longer 
 by use than by withholding them from use, such as 
 factories, houses, machinery, etc. In some cases use 
 
 * Ruskin. 
 
QUESTION 23 
 
 improves the condition of things. A machine will 
 become more efficient after employment, owing to 
 the reduction of friction. A horse improves with 
 judicious exercise. A steamship is not considered 
 as safe when first built as after several voyages. 
 
 The result then is this : Unemployed wealth in 
 some cases gradually deteriorates, and in others 
 perishes utterly and instanter. In no case does mere 
 abstinence create increase. 
 
 Consideration of political economy from all sides, 
 shews us that it is unscientific. It does not 
 accomplish what it professes, it fails to solve the 
 problems with which it deals, it refuses to har- 
 monize with established science, it is incoherent, 
 illogical, irrational. When we consider how dif- 
 ferent are the results of the operations of many 
 of its teachings from those predicted, we shall see 
 that it has, on the whole, not even reached the 
 stage of undeveloped science, i.e. qualitative pre- 
 vision. In fact, political economy, as taught and 
 practised, is simply in the elementary stage of em- 
 piricism. Whilst there must necessarily be serious 
 incompleteness in all sciences in their formative 
 stages, still we can hardly conceive that system to 
 be scientific which, in proportion as it is developed, 
 becomes more and more opposed to some other 
 branch already established. The question then 
 arises, is political economy incapable of develop- 
 ment into an exact science ? Admitting as we 
 
24 THE MONEY 
 
 must do, the comparative worthlessness of the 
 present "incoherent ensemble of theories to which 
 the name of political economy has been officially 
 given for more than a century," must we despair 
 of raising it to the utility of the physical sciences ? 
 I think not. I purpose demonstrating the cause 
 of past failure, and showing the utter futility of 
 endeavouring to build a science on the lines pre- 
 scribed by economists. I shall also endeavour to 
 point out what, in my judgment, is the right road 
 to success. 
 
 Let us at the outset clearly understand what 
 political economy is, and what it deals with. Its 
 object will then be apparent. 
 
 The term " economy " comes from the Greek, 
 "oikos," a house, and "nomos," the law. Hence 
 "economy," the law regulating the household — a 
 term which to the Greeks signified all the goods 
 in possession of the family. " Political " comes from 
 " polls," the state. Political economy, therefore, 
 signifies the law or laws governing the goods in 
 the possession of the state or of society ; or as 
 we would now say, the laws governing social wealth. 
 The term wealth is of Saxon origin, and means 
 literally "weal" or "well-being." Political economy 
 deals then with the production and distribution of those 
 things that tend to social weal or well-being. It 
 will now become evident that a true science of 
 economics must necessarily be a moral science, and 
 
QUESTION 25 
 
 any system of wealth production and distribution 
 that is contrary to the principles of justice cannot 
 be a system of social economy at all, but one of 
 extravagance and wastefulness. 
 
 Moral conduct is that line of human action, 
 conformity to which tends to promote the life, 
 happiness and well-being of society and its members. 
 And as we have seen, economics deals with the 
 production and distribution of those material things 
 that tend to the life, happiness and well-being of 
 society and its members. Hence the same test 
 that is applied to ethical teachings must be applied 
 to the teachings of Political Economy. 
 
 Do they tend to the maintenance of a complete 
 social life for the time being ? And do they tend 
 to the prolongation of social life to its full extent ? 
 To answer yes or no to either of these questions 
 is implicitly to pronounce these teachings true or 
 false.* To say that " moral considerations have 
 nothing to do with economics " is to imply that 
 economic conduct is not necessarily moral conduct. 
 Then it may be immoral conduct. And to say that 
 immoral conduct is conducive to the economic 
 production and distribution of wealth is to say 
 that immoral conduct tends to promote human 
 happiness, which is contrary to the definition. 
 Consideration of the conditions favorable to the 
 
 * See Data of Ethics. Spencer, chap. 6, § 31. 
 
26 THE MONEY 
 
 growth of wealth will further demonstrate the fact 
 that economics is necessarily a moral science, for 
 the growth of wealth is dependent upon maintaining 
 the efficiency of the factors of production, and the 
 degree of efficiency is proportional to the degree 
 of equity shown in distributing the products of 
 industry. In communities where a man's property 
 is insecure, or where the fruits of his toil are 
 taken entirely from him, where labor goes un- 
 rewarded, where the land does not receive its due 
 return of nitrogenous matter, where capital is sub- 
 jected to raids, wealth does not increase, but nations 
 continue in a low state of living. As Spencer 
 has shown, it is where the regime of status is 
 superseded by the regime of contract, where militancy 
 gives place to industry, where men reap and can 
 retain the fruits of their labor, that wealth becomes- 
 most abundant, and this condition is most favorable 
 to the growth of morals. 
 
 In fact " the recognition of the right of property 
 is originally recognition of the relation between 
 effort and benefit."* 
 
 The law of nature which implies the survival 
 of the fittest, "that individuals of most worth shall 
 have the greatest benefits, and inferior individuals 
 shall receive smaller benefits or suffer greater evils,"' 
 is the law to which a scientific system of economics 
 
 * "Justice.'' Spencer. 
 
QUESTION 27 
 
 must necessarily conform. Now the ethical in- 
 terpretation of this law is, "that each individual 
 ought to be subject to the effects of his own 
 nature and resulting conduct," * and the economical 
 and ethical teachings are summed up in the 
 Christian declaration, " If any man will not work, 
 neither shall he eat." And this is the law of 
 justice, t 
 
 That benefits received should be proportional to 
 merits, is as essential to a sound economic system 
 of wealth distribution as to the development of 
 species. 
 
 Although economists professedly ignore the moral 
 aspect of economic questions, and notwithstanding 
 that when considered as a whole the present system 
 is opposed to morality, yet, in one or two of its 
 branches, theoretically speaking, ethics plays an 
 important part. Representation of an exchange 
 transaction, for instance, recognizes the principle of 
 equity. A simple exchange is represented by the 
 sign of equality, thus : 
 
 Commodity A = Commodity B. 
 
 As J. B. Say remarks : " In all fair traffic, there 
 occurs a mutual exchange of two things, which are 
 worth one the other at the time and place of 
 exchange." Again, the economic importance of the 
 moral qualities is unquestionably great. " The 
 
 * Herbert Spencer, "Justice." t Ibid. 
 
28 THE MONEY 
 
 moral qualities of the laborers," says J. S. Mill, 
 " are fully as important to the efficiency and worth 
 of their labor, as the intellectual."* 
 
 Speaking of other branches, Herbert Spencer 
 writes : " While one of the settled conclusions of 
 political economy is that wages and prices cannot 
 be artificially regulated with advantage, it is also 
 an obvious inference from the law of equal freedom 
 that regulation of them is not morally permissible. 
 On other questions, such as the hurtfulness and 
 tamperings with banking, the futility of endeavours 
 to benefit one occupation at the expense of others, 
 political economy reaches conclusions which ethics 
 independently deduces." 
 
 To the peculiar nature of its phenomena and its 
 relation to human life, we may attribute in a grea 
 measure the present chaotic condition of the science.! 
 
 For the greater part of the world's history, of 
 which we have knowledge, the commonest method 
 of distributing wealth was for the strong to forcibly 
 seize that belonging to the weak. This was the 
 system that the ancient states of Greece and Rome 
 practised, with such appalling results. As long as 
 slavery existed, as long as the right of might alone 
 was recognized, so long was it impossible to start 
 
 * " Principles of Political Economy," Book I, chap. 7. 
 
 + Professor Jevons makes the confession that "one hmidred years 
 after the first publication of the ' Wealth of Nations,' we find the state 
 of the science to be almost chaotic." 
 
QUESTION 29 
 
 with premises based upon existing conditions with 
 any assurance of establishing a science of economy. 
 
 Now it is from the customs and privileges 
 recognized by an age when slavery was legitimized, 
 when brute force was supreme, and mankind in a 
 state of savagery, that orthodox economy takes its 
 assumptions. Take, for instance, the system of land- 
 ownership. " The course of nature," says Spencer, 
 " red in tooth and claw, has been, on a higher plane, 
 the course of civilization. Through ' blood and iron ' 
 small clusters of men have been consolidated into 
 larger ones until nations have been formed. This pro- 
 cess, carried on everywhere and always by brute force, 
 has resulted in a history of wrongs upon wrongs ; 
 savage tribes have been welded together by savage 
 mesins. We could not if we tried trace back the 
 acts of unscrupulous violence committed during 
 these thousands of years ; and could we trace them 
 back we could not rectify their evil results. Land- 
 ownership was established during this process. 
 . . . The remote forefathers of living Englishmen 
 were robbers who stole the lands of men who were 
 themselves robbers, who behaved in like manner to 
 the robbers who preceded them." * 
 
 But while we may be powerless to rectify these 
 evil results of the past reign of " blood and iron," 
 t is not necessary to make them the basis of a 
 
 * Appendix to "Justice." 
 
30 THE MONEY 
 
 science of economy, nor to regard land-ownership 
 as a permanent and indestructible institution. 
 This is the falseness of the present science. It 
 asserts that what ought to be, is; or, as Prof. 
 Cairnes puts it, " political economy is a more or less 
 handsome apology for the present order of things." 
 
 Here we see the need of — and what in my 
 judgment is the first requisite before we can hope 
 to establish economics as an exact science — an ideal 
 standard, an absolute economic standard, analogous 
 to that recognized by ethics. Before we can deter- 
 mine whether this or that measure is economically 
 right or wrong, before we can know in what 
 direction our efforts for a better economic system 
 are to be turned, we must have a standard by 
 which we may judge. 
 
 The science of ethics recognizes an ideal standard 
 of right conduct which cannot under present con- 
 ditions be fully realized.* So with other sciences, 
 ideal conceptions or assumptions are considered not 
 only allowable but absolutely essential. Political 
 economy, however, is remarkable by an absence of 
 any analogous conceptions. Attempts to create an 
 ideal standard have been ridiculed and dubbed with 
 the euphemistic term " Utopia " ; and yet it is from 
 analogous ideals that other sciences have passed 
 from empiricism to rationalism. Even jurisprudence, 
 
 * See chapter on "Absolute Ethics" in Data of Ethics. — Spencer. 
 
QUESTION 31 
 
 that "compilation of the rubrics of legal and official 
 spoliation," has its ultimate ideal standard from 
 which laws have been from time to time referred. 
 
 The vast importance of such a standard will be 
 found in solving problems that heretofore have been 
 regarded as insolvable, in explaining phenomena 
 and clearing away the mysteries and ambiguities 
 with which the problems of life have been enveloped, 
 as well as in furnishing a guide for social progress, 
 and for the material and moral welfare and 
 happiness of mankind. 
 
 To sum up then. Consideration of the present 
 so-called science of Political Economy demonstrates 
 that its results are not those originally aimed at ; in 
 its development its problems have become inverted ; 
 it has not arrived at the state of qualitative prevision ; 
 it is illogical and ambiguous ; and lastly, it is out of 
 harmony with the science of ethics. The cause of 
 this is its fundamental assumptions, which recognize 
 as permanent and as absolutely necessary certain 
 institutions established under the reign of " blood 
 and iron." 
 
 No true science of Political Economy is possible 
 based upon injustice. It is necessarily a moral 
 science, hence its principles and premises must be 
 just. In championing private interests economists 
 have entirely missed the goal towards which the 
 science should naturally tend, viz., the well-being of 
 society. Political Economy is not a science for 
 
32 THE MONEY QUESTION 
 
 enriching individuals at the expense of society. To 
 rebuild scientifically, the first requisite is the 
 establishment of a system evolved, not from the 
 reign of "blood and iron," but from fundamental truths 
 derived from experience and observation, and guided 
 by the reasoning faculties. For as Herbert Spencer 
 says : " No scientific establishment of relative truths is 
 possible until the absolute truths have been 
 formulated independently."* Only in this way can 
 economics evolve from empiricism to rationalism, 
 by knowledge of what ought to be, and this- 
 presupposes an ideal standard. 
 
 Our present system, as I have shown, starts on a 
 false basis by dividing society into classes whose 
 interests are antagonistic. A true system will make 
 society a unit in production and a unit in distribution. 
 
 In short, Political Economy should teach mankind 
 how " to produce incessantly, with the least possible 
 amount of labor for each product, the greatest 
 possible variety and quantity of wealth, and to 
 distribute it in such a way as to realize for each 
 individual the greatest amount of physical, moral 
 and intellectual well-being, and for the race the 
 highest perfection and glory." 
 
 * Data of Ethics. Chapter on " Absolute Ethics." — Spencer. 
 
Cbapter II. 
 
 THE FACTORS OF 
 
 PRODUCTION 
 
 ALTHOUGH economists treat production and con- 
 sumption as separate and independent operations, 
 in reality they are merely two steps in one 
 complete process or cycle. The terms are, in 
 fact, correlative. We cannot well think of the 
 production of wealth without having in mind 
 the end for which it is produced, viz., consumption. 
 Similarly, as consumption is impossible without the 
 means, these terms imply each other. Production 
 is made possible only by consumption, which, as far 
 as humanity is concerned, must necessarily precede 
 production. As the means of human subsistence do 
 not arise spontaneously, self-created, physical exer- 
 tion is obligatory, and by the law of equivalence 
 the power must be provided before the work can 
 be accomplished. Further, continued physical exer- 
 tion necessitates continued renewal of physical 
 energy. 
 
 Everything with which we are familiar that enters. 
 into and goes to maintain human life is strictly 
 limited in quantity. Even the sun, the fountain 
 and source of all earthly life, is limited, and astro- 
 nomers tell us its heat is being dissipated at an 
 enormously rapid rate; but with the uncontrollable 
 forces of nature economics has nothing to do. It 
 is with the material things which we can control. 
 
34 THE FACTORS 
 
 which lend themselves to human desires and purposes, 
 and whose usefulness we have power to dissipate 
 or preserve, such as the soil, coal, forests, oil, gas, 
 minerals, fish, game, etc., that this science is 
 -concerned. All these things we have power to 
 preserve or waste, and it is the limited amount of 
 such necessaries that makes it essential for humanity 
 to practise economy. But now, economy, as I shall 
 presently show, does not necessarily involve self- 
 denial or abstinence. Far from urging abstinence, 
 economy dictates ihe use of wealth; for whilst the 
 quantity of the productive agents is actually limited, 
 we shall find that consumption does not necessitate 
 destruction or exhaustion of these agents; on the 
 contrary, consumption is a necessary part of repro- 
 duction, for without it production must cease. 
 
 It is useless consumption that economy opposes, 
 that is, consumption without reproduction. Nature 
 has shown in many of her operations her 
 marvellous recuperative powers. In the process of 
 evaporation and rain-storm we have a complete 
 system of production and consumption continually 
 going on ; similarly with animal and plant life. Plants 
 owe the carbon and hydrogen of which they are 
 largely composed to the carbonic acid and moisture 
 in the air and earth. Now carbonic acid gas is 
 exhaled by animals through the expenditure of 
 -carbon contained in the blood and oxygen from the 
 atmosphere, and this carbon is furnished by the 
 
OF PRODUCTION 35 
 
 consumption of vegetation. Here we find. a continual 
 process of consumption and- production, or rather 
 reproduction, being carried on ; consumption of vege- 
 tation and air, and reproduction of carbon and 
 oxygen in the form of carbonic acid, which is 
 decomposed by the action of the solar rays. 
 
 In the formation and combustion of coal and 
 wood we can likewise trace a similar cycle, for the 
 products of combustion emitted to the atmosphere 
 go to form trees and plants which furnish both 
 wood and coal — the latter after possibly many 
 thousands of years' imprisonment beneath the earth's 
 surface. Human life, so far as the consumption of 
 food is concerned, is in all respects similar to the 
 rest of the animal kingdom. The products of con- 
 sumption of human beings and animals contain 
 the elements necessary to replenish the soil, to 
 enable it to reproduce the means of subsistence ;■■■ 
 so that, whilst it is true that the soil is limited, 
 nature discloses a method by which food for the 
 human race may be considered practically limitless. 
 The same is true as regards clothing. Clothing 
 consists of vegetable and animal matter, and the 
 
 * " Thus the matter of life, so far as we know it, breaks up in con- 
 sequence of that continual death which is the condition of its manifesting 
 vitality, into carbonic acid, water and ammonia, which certainly possess 
 no properties but those of ordinary matter. And out of these same 
 forms of ordinary matter, and from none which are simpler, the vege- 
 table world builds up all the protoplasm which keeps the animal 
 world a-going. Plants are the accumulators of the power which animals 
 distribute and disperse." — Pkof. Huxley, " Physical Basis of Life." 
 
36 THE FACTORS 
 
 fertilizing agents requisite for reproducing such 
 matter is furnished by the animals themselves; but 
 observe that consumption is here a necessary part 
 of the process, a necessary step in the process of 
 reproduction. 
 
 Consumption therefore, instead of being a luxury 
 to be moderately indulged in, is an essential part 
 of reproduction. Use/itl consumption and not abstinence 
 is the motto of economics. But these processes involve 
 human labor ; these various forms of matter which 
 serve to produce lifersustaining material have to 
 be brought together, to be transported from place 
 to place. For this work nature depends upon 
 human agency, and here we can see what part 
 human energy takes in the work of production. 
 " If we examine any case of what is called the 
 action of man upon nature," says John Stuart MiU, 
 " we shall find that the powers of nature, or in other 
 words the properties of matter, do all the work, when 
 once objects are put in the right position. This 
 one operation of putting things into fit places for 
 being acted upon by their own internal forces, and 
 by those residing in other natural objects, is all 
 that man does or can do with matter. He only moves 
 one thing to and from another. He moves a seed 
 into the ground and the natural forces of vegetation 
 produce in succession a root, a stem, leaves, flowers 
 and fruit. He moves an axe through a tree and it 
 falls through the natural forces of gravitation, 
 etc. . . . Labor, then, in the physical world, is 
 
OF PRODUCTION 37 
 
 always and solely employed in putting objects in 
 motion ; the properties of matter, the laws of nature, 
 do all the rest." * 
 
 To the average person the terms production and 
 consumption are synonymous with creation and 
 annihilation, and the way in which many economists 
 use them serves to confirm this impression. But in 
 what does the creation of wealth consist? Merely 
 the combining, separating, shaping and moving of 
 matter. We do not create matter in the creation 
 of wealth. Nor do we create force. We can neither 
 create nor annihilate a single atom of matter nor a 
 single unit of force. All we can do is to effect 
 such movement in matter as will cause nature to 
 carry on desirable operations, such as the trans- 
 formation of one form of energy into another. One 
 of the grandest triumphs of modern science is 
 demonstration of the fact " that forces, unceasingly 
 metamorphosed, are nowhere increased or decreased." 
 If, then, neither force nor matter are consumed, 
 what is meant by consumption ? Physically speaking, 
 consumption of wealth consists merely in the 
 metamorphosis of force and matter, in altering and 
 effecting new combinations of elements, in changing 
 the forms of things. Economically speaking, it is 
 the consumption of utility. In reality it is labor — 
 human exertion — that is consumed.t 
 
 * " Principles of Political Economy." 
 
 t Adam Smith's assertion that "Labor is the ultimate price paid 
 for everything " is in this sense strictly true. For utilities reappear only 
 at the expenditure of labor. 
 
38 THE FACTORS 
 
 - As wealth is in reality the product of consumption, 
 consumption: should be carried on towards this 
 end. Practically considered, such consumption is, 
 of course, only attainable to a certain degree. Were 
 we able to unlock nature's secrets and learn by 
 what mysterious alchemy the plants take the 
 substances — carbonic acid, water and ammonia — to 
 form protoplasm ; if we knew how to crystallize 
 carbon into the diamond ; if we could collect all 
 the atoms dissipated in consumption ; if we could 
 repeat exactly all of nature's processes, practice might 
 be made to conform to theory, and our ideal economic 
 standard might be realized. 
 
 Now although in very many instances we have 
 not yet discovered nature's secrets, science has taught 
 us sufficient to enable us to provide human life 
 incessantly with the commonest necessaries of life, — 
 food, clothing and shelter. With free access to 
 the soil, with a scientific system of cultivation, with 
 a proper return to the land of all the human and 
 animal products of consumption, with a proper use 
 of natural forces, it is quite possible for the human 
 race to exterminate poverty and starvation. 
 
 What, then, are the teachings of nature regarding 
 this subject of production and consumption ? That 
 wealth produced should be consumed productively, that it 
 should be a necessary step in the process of reproduction. 
 Like the phoenix, it should give birth to the means 
 
OF PRODUCTION 39 
 
 for its reappearance, and from the ashes of 
 consumption new wealth should spring. This is 
 the province of invention and discovery — to show 
 how, from the dry bones, to reproduce life — to reproduce 
 wealth from the products of consumption, In this 
 way the means of subsistence become practically 
 limitless. Instead, then, of regarding nature as 
 niggardly, and her resources as limited, we must see 
 that conformity to, and knowledge of her laws furnishes 
 us with never-ending supplies. /- 
 
 We have seen that wealth consumed productively 
 means that its equivalent in labor must be furnished. 
 Here we find, as shewn in the introduction, economics 
 pointing in the same direction as ethics. To eat the 
 bread of idleness is as much opposed to a scientific 
 system of economy as it is contrary to morality ; 
 likewise the duty of finding useful employment, of 
 cultivating industrious habits is as much a socially 
 economic necessity as it is a moral duty. 
 
 Nature warns society against perpetuating a system 
 that permits a large class to consume wealth -without 
 contributing to reproduction. Prof. Cairnes has 
 not failed to see this. He says : " A formidable 
 obstacle to economic laws is a body of rich non- 
 producers. It is important on moral, no less than 
 economic grounds, to insist upon this, that no public 
 benefit of any kind arises from the existence of an idle 
 rich class." 
 
 We have already considered several processes 
 
4° The Factors of Production 
 
 in the economy of nature, and hence we may safely 
 consider this as an economic standard to which the 
 laws of distribution should conform. 
 
 A perfect economic cycle involves, therefore, two 
 operations, consumption and reproduction. Starting 
 with a limited quantity of wealth, our aim must be 
 to utilize this wealth in such a way as to not only 
 reproduce it, but if possible increase it, for wealth 
 is capable of enormous increase. Productive labor 
 always produces a surplus; thai is, wealth produced by 
 labor is more than sufficient to replenish the energy consumed 
 in production. Were this not so, human life would have 
 ceased long since, for labor has had to support not only 
 itself, but a vast army of non-producers. 
 
Chapter III. 
 WEALTH 
 
 THE maintenance of human life may be said to 
 depend wholly upon human exertion. The earth, 
 from which man draws his subsistence, furnishes 
 only the raw materials which, though containing 
 the necessary elements of life, are not in a 
 form suitable for consumption. The harvests of 
 wheat, of oats, of potatoes, the various forms of 
 animal and vegetable life which he consumes, 
 are not the spontaneous offerings of nature. Man 
 must dig, plough, sow. plart, prune and reap 
 continuously, in order that he and his species may 
 live; and this labor is a perpetual legacy entailed 
 upon mankind. So long as man labors, and so 
 long only, can he maintain his right to life. A few 
 days' cessation from toil would suffice to destroy 
 the world's inhabitants. Although by means of 
 machinery, labor's hardships are being continually 
 lessened, no discovery has yet been made by which 
 labor can be wholly dispensed with. From a 
 condition where his entire physical powers were 
 employed in obtaining subsistence, man has grad- 
 ually raised himself to a point where a portion of 
 society is able to produce sufficient to support, not 
 only themselves, but a large and constantly in- 
 creasing number of non-producers. In place of 
 labor's produce being barely sufficient for its own 
 support, it now produces a large and increasing 
 
42 WEALTH 
 
 surplus. Nevertheless, the laws of nature prevent 
 us from either hoping or expecting that the need 
 for toil will absolutely cease, for the productions 
 of men are destined to perish. Whether it be his 
 food, wearing apparel, works of art, machines or 
 buildings, all are doomed to decay, disintegration 
 and final destruction. From the moment of their 
 birth their dissolution sets in. 
 
 This law of' dissolution has therefore entailed 
 upon the human race a perpetual condition of labor. 
 Labor is the supreme condition of life. The original 
 factors in production are man and nature — nature com- 
 prising all that exists outside of man, such as land, 
 water, air, sunshine, natural forces, etc. From the co- 
 operation of these two original agents arise all that we 
 eat, drink, wear, use, consume and enjoy. These pro- 
 ducts of man and nature that go to satisfy wants 
 are termed commodities or wealth, a correct 
 definition of which has been the subject of con- 
 siderable dispute. The importance of a right 
 conception of wealth cannot be overestimated, since 
 its economic production and equitable distribution 
 is the subject matter of political economy, and without 
 a proper conception the whole science becomes per- 
 verted. Wealth is the subject-matter of exchange. 
 It is that which the entire human race is constantly 
 pursuing. It is that which shapes and directs the 
 activities of mankind ; it determines the destinies 
 of nations. Consider what this means. 
 
WEALTH 43 
 
 By placing human beings in the same category 
 as commodities, their pursuit and capture was for 
 ages regarded as a legitimate form of wealth pro- 
 duction. By making labor a commodity, slavery 
 in a far more extensive form has been established.* 
 In the 1 2th century, conspicuous for its professions 
 of piety, some very peculiar things were included 
 under this term. A contemporary French writer 
 enumerates among articles of merchandise found 
 in the market of Landit, besides shoes, clothing, 
 agricultural implements, etc., " femmes folles de 
 leurs corps." 
 
 It was the prevalence of false ideas of wealth 
 that brought about the ruin of Spain, and was the 
 cause of endless destructive wars during the i6th, 
 17th and 1 8th centuries. With the incalculable 
 evils that the mercantile theory created, which made 
 gold and silver the incarnation of wealth, economists 
 have already familiarized us. In defining the term. 
 
 * " Rome abolished slavery, America abolished it and we did it, 
 but only the words were abolished, not the thing. Slavery means, the 
 freeing themselves, by some, of the necessity of labor, for the satisfaction 
 of their needs and the throwing of this labor upon others by means of 
 physical force ; and where there is a man who does not labor because 
 another is compelled to work for him, there slavery is. And where, as 
 in all European societies, men by force exploit the labor of thousands 
 of men and regard it as their prerogative ; while the latter submit to 
 force and regard it as their duty, there we have slavery in terrible pro- 
 portions. Slavery exists. Qur moujiks have long known that with the 
 rouble it is possible to deal more painful blows than with the stick ; 
 only the political economists cannot see it." — " Essay on Money," by 
 Count Leo Tolstoi. 
 
44 WEALTH 
 
 writers seem to have labored under considerable 
 difficulty, judging from their writings. "To be 
 wealthy," says Mill, "is to have a large stock of 
 useful articles." Water is an indispensably useful 
 article. One may acquire an inexhaustible stock 
 of it without adding one iota to his wealth. This 
 definition is evidently indefinite. " Wealth," says . 
 Adam Smith, "consists not in the inconsumable 
 riches of money, but in the consumable goods 
 annually reproduced by the labor of society." A 
 much more comprehensive definition, but still 
 incomplete. " To create objects which have any 
 kind of utility, is to create wealth," says Say. A 
 definition requiring another, viz., that of utility, 
 which is given as follows : " To this inherent fitness 
 or capacity of certain things to satisfy the various 
 wants of mankind, I shall take leave to affix the 
 name of Utility." John Ruskin, not a professional 
 economist, but a true philosopher, says, " There 
 is no wealth but life. Life, including all its powers 
 of love, of joy, and of admiration. That country 
 is the richest which nourishes the greatest number 
 of noble and happy human beings." Beautiful as 
 this definition is, it does not answer to the descrip- 
 tion of that which is the subject of exchanges. 
 It is, rather, a description of the end to which the 
 use of wealth should tend. Life is not, economi- 
 cally speaking, wealth, but wealth is that which 
 supports and nourishes life. 
 
WEALTH 45 
 
 The definition which finds most favor with 
 economists, and the one generally employed, is that 
 which has "power in exchange," or "power in 
 purchasing." The ancient, as well as modern 
 writers, made exchangeability the sole test of 
 wealth. " For that," says Ulpian, " is wealth 
 which can be bought and sold." And John Stuart 
 Mill says, " Everything, therefore, forms a part of 
 wealth which has a power of purchasing." The 
 sense of making exchangeability the test is apparent. 
 Human life requires for its maintenance and happi- 
 ness a variety of products, such as food, clothing, 
 shelter, etc., and in order to maintain life a man 
 must acquire these necessaries, and to acquire them 
 he must produce them directly himself or procure 
 them from others. Under economic conditions labor 
 becomes specialized, and each man is compelled to 
 devote himself solely to the production of but one 
 commodity or a special class of commodities. 
 This specialization or division of labor has been one 
 of the greatest factors in the creation of surplus 
 wealth of modern times. Such a division of labor 
 is a system of co-operation by which a producer 
 produces not only for himself, but for other members 
 of society, just as they produce for him. Such a 
 system necessitates, therefore, a plan of distribution 
 or exchange whereby everyone may obtain some of 
 < the various products of others in exchange for his 
 own. In order to support himself a man's produce 
 
46 WEALTH 
 
 must be exchangeable, i.e. acceptable to others 
 whose produce he needs. Exchangeability is, there- 
 fore, a sine qua non of wealth, for it is a con- 
 tradiction in terms to say that a man is possessed 
 of wealth and not the means for supporting life or 
 procuring subsistence. The possessor of gold or 
 gems would be as poor as a beggar without the 
 power of exchanging them. 
 
 Wealth, however, has usually been defined and 
 treated from the individual rather than the social 
 point of view, to the confusion and detriment of the 
 science. What under our present inequitable con- 
 ditions is wealth to the individual, is not necessarily 
 wealth to society. Bonds, taxes, mortgages and 
 judgment notes are a source of wealth to thousands, 
 but not to society. They are rather a source of 
 what Ruskin calls " Illth," in contradistinction to 
 wealth. Lotteries have afforded immense revenues 
 to individuals, but none to the world at large. 
 Exchangeability is, therefore, not the sole test of 
 social wealth, although it is, commercially speaking, 
 of individual wealth.* Under the slave system 
 
 * No writer has done so much to expose the weakness of this defi- 
 nition of wealth, and the gross absurdities to which it may logically 
 lead, as Macleod, although this exposure is evidently unperceived by 
 him. He actually shows that by this definition, debts — mere promises- 
 to-pay, rights of action-at-law, — form part of a nation's wealth. 
 Whence it follows that successful blackmailing which results in 
 " promises-to-pay," is a form of wealth production, and those laws that 
 create taxation, and so create rights of action by the State against its 
 citizens, create wealth. And since the science of economics is to guide 
 
WEALTH 47 
 
 human beings were made exchangeable, and con- 
 stituted a large portion of the wealth of their owners. 
 Did the Emancipation Act destroy this wealth ? 
 Yes, so far as their owners were concerned ; no, as 
 regards the nation. On the contrary, society was 
 admittedly the gainer.f Here, then, we find a 
 destruction of private wealth attended by society's 
 gain. Again, a definition that includes the factors 
 with their products, is clearly unscientific. This is 
 what the definition of mere exchangeability does. 
 It includes both man and land, the two prime agents 
 of production. To classify man as wealth, is to 
 
 mankind in the production and exchange of wealth, blacltmailing and 
 taxation should, from the economic point of view, be encouraged ! ! 
 See his "Theory of Credit," Vol. I, chap, a, especially where he en- 
 deavours to prove that wealth can be produced from nothing ! 1 
 (page 50.) 
 
 t It is generally conceded that the abolition of slavery has greatly 
 benefited the South by compelling the white population to personally 
 engage in production and in labor that formerly was left to the colored 
 race. Slavery is not and cannot be an economic system of wealth pro- 
 duction for any society, for it keeps out of production the most intelli- 
 gent, and places industry in the hands of those who have no interest 
 in it, — who labor not to improve the method of production, but from 
 compulsion. At the same time it can scarcely be doubted that by 
 abolishing personal slavery, and establishing the wage system, a large 
 portion of the laboring people are in a worse condition than they would 
 be as actual slaves. By replacing in the category of wealth persons 
 with their labor, capitalists achieve all they want without the expense 
 and responsibility that slavery involves. When men's persons are 
 owned, their well-being, health and strength are a matter of solicitude 
 on the part of their owners. Not so under wage slavery. It is only 
 their labor that coimts. If their labor is poor by reason of sickness or 
 ill health it makes no difference to their employer. He pays only for 
 what he gets and can replace the sick with healthy men at any time. 
 Count Tolstoi, comparing the present condition of the Russian peasants 
 
48 WEALTH 
 
 degrade him to the level of his works, and such a 
 system ends by making him their slave. The buying 
 and selling of labor is traffic in human beings. It 
 is wealth, or, as it is most generally termed, capital, 
 that exploits labor ; in other words, since capital is 
 the product of labor, man's works have become his 
 master. He is bought and sold by his own pro- 
 ductions. This classification has, in fact, inverted 
 the order of things. Wealth, like the Sabbath, is 
 made for man. "Wealth consists of consumable 
 things," says Smith. Man is the consumer, not the 
 thing consumed, yet we find capital employing labor, 
 instead of labor employing capital. Again, to cate- 
 gorize land as wealth is likewise unscientific, for wealth 
 consists of definite quantities of things possessing 
 definite qualities, the result of definite human exertions. 
 But land, comprising as it does the soil and all beneath 
 
 with their condition of serfdom, says : " Before the serfs were emanci- 
 pated, I could force Vanka to do any kind of a job ; and if Vanka refused 
 I sent him to the local judge, who whipped him till he became tractable. 
 At the same time, if I forced Vanka to overwork himself, if I did not 
 give him land and food, the matter was reported to the authorities, and 
 I had to answer the charge. Now the people are free ; but I can force 
 Vanka and Petrushka and Sidorka to do any kind of a job for me, and 
 if one refuses, I give him no money to pay his taxes, and they whip him 
 till he submits ; moreover, I can force Germans, Frenchmen, Chinese 
 to work for me, punishing them for disobedience by withholding the 
 money which they need to lease land or buy bread ; if I force them to 
 work without food, above their strength, if I kill them with work, no- 
 body will say a word to me ; and if, in addition, I am well read in 
 politico-economic books, I may be firmly assured that all men are free, 
 and that money does not conduce to slavery ! " — " Essay on Money," 
 Tolstoi. 
 
WEALTH 49 
 
 it, is an indefinite, indeterminable quantity of matter 
 of unknown qualities. It is a factor of indeterminable 
 power. Land in its totality comprises the earth ; but 
 the earth stands in no exchange relation to any 
 product. In other words, land is not an economic 
 quantity, and therefore it cannot, scientifically speaking, 
 form a part of wealth. " Land is the mother and labor 
 the father of wealth," says Rodbertus. Other con- 
 siderations shew, too, the impropriety of classifying 
 the factors in production with the products themselves. 
 Wealth is created for use and consumption, and the 
 existence of society depends upon its continued and 
 incessant production and consumption. It is 
 naturally and inevitably perishable. It is born to 
 die. Reproduction can only continue so long as the 
 factors are operative, hence the safety of society 
 and of the entire human race depends upon keep- 
 ing them at all times in a condition free and fit 
 for use. To class them with wealth is to class them 
 with consumable things, and with things capable of 
 being destroyed, reproduced or substituted by other 
 things. Whilst man reproduces his species, land 
 cannot be increased beyond the boundaries of the 
 globe. Being incapable of destruction and increase, 
 and not a product of labor, land is not, strictly 
 speaking, a part of wealth. 
 
 By classifying the agents of production with 
 produce, they become the subjects of exchange, and, 
 therefore, of private property. The right of private 
 
so WEALTH 
 
 property is the right to use and to prevent others 
 from using. The Roman law defined property as 
 the right to use and abuse one's own, within the 
 Umits of the law : "jus utendi et dbutendi re sua, 
 quatenus Juris ratio patitur." The power to withhold 
 or limit one of the factors of production from society 
 by individuals, is a continual menace and danger to 
 its stability. It permits the individual to divert 
 land to uses opposed to social welfare. Under such 
 a system future production is an uncertain quantity, 
 since the extent of the agents devoted to production 
 depends upon the caprice or pleasure of individuals, 
 and by limiting the amount of productive land the 
 number of human producers becomes also limited. 
 
 It should also be noticed that land, being as 
 necessary an agent as man, there is no good 
 economical reason why, if one is properly the subject 
 of exchange, the other should not be. If as Mill 
 says, " Moral considerations have nothing to do 
 with political economy," man is as properly an 
 article of merchandise as land. Slavery is quite 
 as justifiable as private ownership of the soil. 
 Wealth, then, as we saw in a previous chapter, consists 
 of those things of human production, the use of which 
 tend to social weal. It is a contradiction in terms 
 to classify that as economic wealth which tends 
 to society's destruction. Exchangeability does not 
 determine this. Hence the need of a definition of 
 wealth in its absolute or positive sense — in terms 
 
WEALTH SI 
 
 of social welfare. That is the highest form of 
 wealth, the use of which fulfils, to the highest 
 degree, the end for which it is created, viz., the 
 prosperity and happiness of society. These defini- 
 tions exclude both labor and land from the 
 category of wealth. 
 
 It is impossible to specify every commodity 
 that answers to the above definition. Human 
 experience alone can determine, in many instances, 
 what is beneficial to society and what is not. 
 This, however, is no discredit to the definition, 
 for the object of the science is to act as a guide, 
 and furnish a standard, by following which society 
 will grow happier and more prosperous, until the 
 economic goal of civilization — -viz., the abolition of 
 poverty — shall have been achieved. 
 
 The mere transference of wealth from the pocket 
 of one individual to that of another, for instance, 
 is not wealth-production. Hence gambling, pocket- 
 picking and taxation are not systems for creating 
 wealth. So far I have endeavored to show the 
 need of a definition of wealth that harmonizes at 
 all times with what must rightly be considered the 
 true aim of the science, viz., human well-being. 
 
 Having determined what wealth is, in its 
 original and true meaning, we must now discuss 
 it from the standpoint of exchange. The branch 
 of political economy known as the science of ex- 
 change deals solely with quantities, and we shall 
 
52 WEALTH 
 
 find that the terms it employs are all quantitative 
 terms; hence it becomes, strictly speaking, a 
 mathematical science. In practice, exchangeability 
 is made the sole test of wealth. This excludes 
 all things which nature provides in abundance, 
 and which require no human effort to obtain, such 
 as air, sunshine, water, etc. The term commodities 
 comprises all those things which are properly 
 classed as wealth, a single one or unit of which 
 is a commodity. A commodity presents itself as 
 a definite quantity of something possessing definite 
 qualities. If it be a material thing it is so many 
 pounds, tons, gallons, yards, or bushels of a sub- 
 stance. It is a measurable thing. The qualities 
 of things are primarily what make them desirable 
 by administering to our comforts; such as the 
 strength of iron, conductivity of copper, transparency 
 of glass, combustibility of coal, etc. It is the 
 quality of a thing that makes it useful. Now 
 all commodities are useful things, but all useful 
 things are not exchangeable, hence all useful things 
 are not commodities. In this sense, therefore, 
 utility alone, i.e. ability or capacity to satisfy 
 certain wants, does not make a commodity ex- 
 changeable. A product must first be useful to be 
 exchangeable, but something else is necessary to 
 ensure its exchangeability. This something else, 
 we shall hereafter see, is scarcity or limitation of 
 supply, as compared with the demand, whether 
 
WEALTH S3 
 
 limited by nature or artificially. Since the qualities 
 of things are primarily what make them useful, 
 utility is principally confined to the qualitative 
 aspect of things. It is true that when supplied 
 in excessive or minute quantities, certain things 
 which would otherwise be useful, become useless, 
 still our choice of a thing is determined first by 
 its quality. The names by which commodities are 
 known designate their qualities. Thus gold, wheat, 
 wine, wool, are terms that at once convey to us 
 qualitative ideas, and therefore utilities. In speaking 
 of commodities in a general way, we distinguish 
 between them by such qualitative names as above. 
 In speaking of exchangeable commodities, however, 
 we always define them quantitatively, such as one 
 ton of iron, one, bushel of wheat, one quart of wine, 
 etc. It is with quantities that the science of 
 exchange deals ; it is not concerned with the 
 qualities of things. It is the exchange relationship 
 of commodities that economics seeks to investigate, 
 and this relationship we shall find is purely a 
 relation of quantities. Quantities are expressed 
 numerically, and hence are commensurable. I shall 
 shew hereafter, at greater length, that the relation- 
 ship of exchangeable commodities finds expression 
 in numbers, and numbers only. To sum up then : 
 commodities, when considered objectively, are re- 
 garded as definite quantities of things having 
 different qualities ; but economics deals with them 
 
54 WEALTH 
 
 only in their quantitative aspect. Considered sub- 
 jectively, exchangeable commodities are useful things. 
 As useful things they present themselves principally 
 in their qualitative aspects ; and as exchangeable 
 things, we deal with them from their quantitative 
 standpoint. 
 
Cbapter IV. 
 EXCHANGE-BARTER 
 
 IN the early stages of civilization the satisfaction 
 of human wants is usually accomplished by 
 exchanging one kind of commodity for another 
 without the intervention of any material medium. 
 Thus, corn is exchanged for cattle, wine for silver, and 
 so on. Such transactions are termed barter. For 
 many ages and among many people the only form of 
 exchange was that of barter, pure and simple. Econo- 
 mists tell us how impossible it would be for commerce 
 to exist without the aid of money. Whilst admitting 
 the great assistance that this intervention is, it 
 must not be forgotten that commerce existed long 
 before money was known. It must not be supposed, 
 as some writers assert, that absence of the medium 
 of exchange prevents the possibility of satisfactory 
 exchanges. The fact of an exchange taking place, 
 providing the conditions are free, evidences satis- 
 faction, since this is its natural result. Neither is 
 it true that without a material medium it would be 
 impossible to compute the proportion or ratio in 
 which two different commodities should exchange. 
 This computation of ratios, which will be considered 
 more fully in another chapter, undoubtedly accom- 
 panied every act of barter by man in the primitive 
 stage. Products were not exchanged for products 
 without some regard to the cost of production, or 
 difficulty of attainment. Thus we learn that there 
 
56 EXCHANGE-BARTER 
 
 are African tribes who compute the value of things 
 by a purely ideal system. "They calculate the 
 values of things in a sort of money of account called 
 ' macutes.' They say one thing is worth ten macutes, 
 another fifteen, another twenty. There is no real 
 thing called a macute, it is a conventional unit for 
 the more convenient comparison' of things with one 
 another."* It is unnecessary to shew the incon- 
 venience that would naturally arise in striving to 
 carry on exchange without the intervention of money. 
 Endless examples are given in the various works 
 treating of this siibject. A formal expression of a 
 single barter transaction is an equation, as follows : 
 
 Commodity A = Commodity B. 
 
 The sign of equality is generally used in expressing 
 such a transaction, and means " will exchange for," 
 or " exchanges for." A single exchange involves two 
 dissimilar commodities. It constitutes the exchange 
 of one kind of utility for another. Men do not ex- 
 change commodities for like, but for unlike commodi- 
 ties. It also involves two persons, and therefore two 
 distinct desires, or two distinct classes of desires. 
 Further, since the exchange is brought about by the 
 desires of two persons to acquire each what the 
 other possesses, "an exchange evidently requires a 
 
 * J. S. Mill, " Political Economy." 
 
EXCHANGE-BARTER 57 
 
 concurrence of two minds."* The cause of barter or 
 exchange may, therefore, be defined as reciprocal 
 desires ; and since its object is to satisfy these 
 desires, the effect of a complete exchange is recip- 
 rocal satisfaction ; and as commodities are those 
 products that by their nature or operation satisfy 
 human desires, we may say that the test of a complete 
 exchange transaction is reciprocal satisfaction. The im- 
 portance of this test will be fully realized only when 
 we come to discuss the subject of money. 
 
 * Macleod, ' ' Theory of Credit. ' 
 
Cbapter V. 
 VALUE 
 
 "Value is the corner-stone of the Economic edifice."— Proudhon. 
 
 WE have now to consider the most important, 
 ambiguous and perplexing conception with which 
 economics deals, viz.. Value. When we remember 
 the warfare that has been waged and the vast 
 amount of literature produced on this subject during 
 the past few years, we read with amusement 
 John Stuart Mill's remark, made nearly fifty years 
 ago, that " Happily there is nothing in the laws of 
 value which remains for the present or any future 
 writer to clear up ; the theory of the subject is com- 
 plete."* So far was this statement from the truth, 
 that since it was written an entirely new economic 
 school has been established, founded upon a wholly 
 different conception from that propounded by Mill, 
 and the school of Adam Smith. 
 
 It is true, however, as Mill says, that "Almost 
 every speculation respecting the economical interests 
 of a society implies something of value, and the 
 smallest error on that subject infects with corre- 
 sponding error all our other conclusions ; and anything 
 vague or misty in our conception of it creates con- 
 fusion and uncertainty in everything else."t This 
 is doubly true when considered in its relation to the 
 
 * " Principles of Political Economy." 
 t Ditto. 
 
VALUE 59 
 
 rnoney question. In fact, we might almost say 
 that the solution of this question depends upon the 
 interpretation put upon the word "value." This 
 term is so indissolubly bound up with the word 
 "utility" or usefulness, that we cannot treat one 
 without regard to the other. 
 
 Every commodity presents itself to us in two 
 ways. When we think of consuming or enjoying 
 a thing, we have regard to its usefulness. When 
 we contemplate disposing of it, we have in mind what 
 we can get in return for it. We may for con- 
 venience imagine every commodity possessing two 
 faces. To the consumer it appears as something 
 useful, something to eat, drink, wear or use. To 
 the seller it appears as an object of value, something 
 to exchange. These two different aspects of goods 
 were noticed by Aristotle more than 2000 years ago. 
 
 " Of everything which we possess," he says, 
 "there are two uses, both belonging to the thing 
 as such, but not in the same manner; for one is 
 the proper and the other the improper or secondary 
 use of it. For example, the shoe is used for wear, 
 and it is used for exchange; both are uses of the 
 shoe."* The connection or relation between these 
 two aspects has been the ground of contention among 
 economists for years. Adam Smith used the word 
 " value '' in the two senses, prefixing the words " use " 
 
 * "Politics." 
 
60 VALUE 
 
 and "exchange" according to its application. He 
 says: "The word value has two different meanings, 
 and sometimes expresses the utility of some particular 
 object, and sometimes the power of purchasing other 
 goods which the possession of that object conveys. 
 The one may be called ' value in use,' the other 
 'value in exchange.' The things which have the 
 greatest value in use, have frequently little or no 
 value in exchange ; and on the contrary, those which 
 have the greatest value in exchange, have frequently 
 little or no value in use. Nothing is more useful 
 than water, but it will purchase scarce anything ; 
 scarce anything can be had in exchange for it. A 
 diamond, on the contrary, has scarce any value in 
 use, but a very great quantity of goods may frequently 
 be had in exchange for it."* 
 
 The unfortunate application of the same term 
 to these two aspects of commodities, viz., utility 
 and exchange, is entirely responsible for the great 
 confusion and ambiguity into which this question 
 has been brought. The term use-value is becoming 
 obsolete, and the much better word utility or 
 usefulness has taken its place. Smith employs the 
 word utility in a positive sense. Certain things 
 are known to be absolutely essential for the sup- 
 port of life, and are termed the " necessaries " of 
 life. The utilities of such, Smith and his school 
 
 * "Wealth of Nations." 
 
VALUE 6r 
 
 regarded as inherent properties. Hence, water was 
 regarded as very useful, and "yet will purchase 
 scarce anything," whilst a diamond, having scarce 
 any value in use, will purchase a very great 
 quantity of goods. Value and usefulness or utility 
 were therefore considered to be independent quali- 
 ties. Modern economists employ the term utility 
 in a very much wider sense, viz., capacity to 
 satisfy a desire or serve a purpose, irrespective of 
 the nature of the desire or purpose. Thus, Pro- 
 fessor Jevons says : " Anything which an individual 
 is found to desire and to labor for, must be 
 assumed to possess for him utility." So Professor 
 Smart writes : " The economic ' want ' is not 
 necessarily a rational or healthy want." * 
 
 The Austrian school divides value into two 
 parts : subjective or personal value, and objective 
 value. In treating these two divisions, Professor 
 Smart says : " Value in the subjective sense we 
 may call, generally, the importance which a good 
 (commodity) is considered to possess with reference 
 to the well-being of a person. In this sense a 
 good is valuable to me when I consider that my 
 well-being is associated with the possession of it — 
 that it ' avails ' for my well-being." 
 
 "Value in the objective sense is a relation of 
 power or capacity between one good and another 
 
 * Introduction to the " Theory of Value." 
 
62 VALUE 
 
 good. In this sense a good has value when it has 
 the power of producing — or, ' avails ' towards — 
 some objective efifect. There are, consequently, as 
 many objective values as there are objective effects. 
 Thus while the subjective value of coal to me is 
 the amount of good I get from the fire, its 
 objective value is the temperature which it main- 
 tains in the room, or the amount of steam it can 
 raise in the boiler, or the money it brings me if 
 I sell it. This kind of value is very much 
 synonymous with the word ' power ' or ' capacity '; 
 it is as common to speak of ' heating power ' 
 as of 'heating value.'"* 
 
 Economics, however, deals not with the "powers" 
 and " values " of objects which are purely physical, 
 such as the power of steam or the heating value 
 of coal. It is merely exchange values and pur- 
 chasing powers that the science deals with — that 
 is, the relation of commodities to the wants and 
 desires of men. 
 
 According to this same school, value depends 
 upon utility, and it is the " utility on the margin 
 of economic employment," or what is termed its 
 " marginal utility," that determines the value of a 
 commodity. We may put the matter in this way. 
 The ability of commodities to satisfy human 
 wants and appetites creates a desire to possess 
 
 * Introduction to the "Theory of Value." 
 
VALUE 63 
 
 them. This abiUty to satisfy wants is termed 
 utiUty or usefulness. The desire for possession 
 prompts men to undergo exertion and make 
 sacrifices, in order to obtain the means for 
 satisfying wants. They are wilHng to give some- 
 thing, either labor 01 some commodity, to possess 
 what they want. Now the quantitative relationship 
 which men, in their desire to obtain possession 
 of them, establish among commodities, is termed 
 value.* It is expressed by the ratio of the quan- 
 tity of one thing that men are willing to exchange 
 for a given quantity of another thing. Thus, both 
 utility and value , are merely relations. They are 
 neither qualities nor properties of things. They 
 are not inherent, but merely " accidents of a thing 
 arising from the fact that someone wants it." f 
 And it is the proportion of the number and 
 degree of urgency of these wants for a thing, to 
 its available supply, that determines its value relation. 
 In fact, the difference between the useful and the 
 valuable is a quantitative one. When things are 
 abundant, like air, water, sunshine, etc., no matter 
 how necessary they may be to life, value does 
 not appear. Value arises only where things are 
 limited in quantity, that is, among things where 
 economy is necessary. 
 
 Economic value is, therefore, purely a quantitive 
 
 * Objective exchange value is all we are now considering. 
 t Prof. Jevons. 
 
64 VALUE 
 
 term. "Value," says Le Trosne, "consists in the 
 ratio of exchange, which takes place between such 
 and such a product, between such a quantity of 
 one product and such a quantity of another." 
 
 " Hence it is clear,'' says Macleod, " that value 
 
 a ratio.'' 
 
 " Value in exchan L^xpresses nothing but a 
 ratio," says Prof. Jevons ; " and the term should 
 not be used in any other sense." And again, 
 " Every act of exchange thus presents itself to us 
 in the form of a ratio between two numbers. The 
 word ' value ' is commonly used, and if, at current 
 rates, one ton of copper exchanges for ten tons of 
 bar iron, it is usual to say that the value of copper 
 is ten times that of iron, weight for weight." 
 
 The foregoing definitions would be ordinarily 
 sufficient to give the reader a perfectly clear idea 
 of what economists mean by this term. But 
 unfortunately its misuse is so general that one finds 
 it difficult, even after acquiring the correct idea, 
 to avoid its misuse. For instance, how difficult 
 it is to refrain from saying, " this thing has value,'' 
 or " that object possesses great value." And yet 
 it is very evident that if the definitions above given 
 are correct, it is wrong to speak of anything possessing 
 value. Prof. Smart says : " But it is almost 
 impossible to use the term without suggesting an 
 inherent property. Value always implies a relation." 
 The economists themselves, after clearly defining the 
 
VALUE 65 
 
 word, often fall into its popular misuse, with 
 the inevitable result of mixing up themselves and 
 their readers in inextricable confusion. Take Prof. 
 Jevons, for instance, whose definition has already 
 been given. He says : " But value, like utility, is 
 no intrinsic quality of a thing ; it is an extrinsic 
 accident or relation. We should never speak of 
 the value of a thing at all without having in our 
 minds the other thing in regard to which it is valued." 
 Further on he says : " Bearing in mind that value 
 is only the ratio of quantities exchanged, it is certain 
 that no substance permanently bears exactly the 
 same value relatively to another commodity," etc. In 
 another place he adds : " A student of economics 
 has no hope of ever being clear and correct in his 
 ideas of the science if he thinks of value as at all a 
 thing or an object, or even as anything which lies 
 in a thing or object. People are thus led to speak 
 of such a nonentity as intrinsic value." 
 
 In spite of these clear and comprehensive defini- 
 tions, he says in another chapter : " Since money 
 has to be exchanged for valuable goods, it should itself 
 possess value, and it must therefore have utility as 
 the basis of value." How can a thing possess " an 
 extrinsic accident or relationship " ? In the same 
 chapter he says: "It might seem that money does 
 not really require to have substantial value." If 
 value "is an extrinsic accident or relation," what 
 is the meaning of the expression that " Money does 
 
66 VALUE 
 
 not really require to have substantial extrinsic 
 accident or relation " ? 
 
 Macleod, after defining value as " The ratio in which 
 any two quantities will exchange," says in another 
 part : " The value of anything is always something 
 external to itself." But a ratio is the relation of 
 two numbers to each other, it involves two quantities. 
 Again he says : " Value is an affection of the mind." 
 Is a ratio an " affection of the mind " ? 
 
 With such a confusion in the use of terms 
 it is not surprising that this subject has been 
 so long submerged in ambiguity. The idea of value 
 in economics arises only in connection with the 
 qiumtities of things. It is expressed in the question, 
 " How much of this commodity must I give for so 
 much of that ? " It has, therefore, nothing to do 
 with substances or qualities.* 
 
 It has wholly to do with the quantitative relationship 
 
 * " If a ton of pig-iron exchanges in a market for an ounce of stand- 
 ard gold, neither the iron is value nor the gold, nor is there value in. 
 the iron nor in the gold. The notion of value is concerned only in the 
 fact or circumstance of one exchanging for the other. Thus it is scien- 
 tifically incorrect to say that the value of the ton of iron is the ounce of 
 gold ; we thus convert value into a concrete thing ; and it is of course 
 equally incorrect to say that the value of the ounce of gold is the ton of 
 iron. The more correct and safe expression is, that the value of the 
 ton of iron is equal to the value of the ounce of gold, or that these 
 values are as one to one." — Jevons, "Theory of Political Economy." 
 
 [It seems to me that this expression is as incorrect as the other. If 
 value is a ratio, what sense is there in saying that " the ratio of the ton 
 of iron is equal to the ratio of the ounce of gold " ? The proper ex- 
 pression would be, the value of iron to gold is one ton to one ounce. It 
 must be remembered that we are dealing here entirely with objective 
 exchange value. — Author.] 
 
VALUE 67 
 
 of commodities to each other. Since all commodities 
 are exchangeable in certain proportions, in units of their 
 respective measurements, these proportions or ratios are 
 termed values. Value is a term somewhat analogous to 
 distance. It is a relation between two objects. We 
 cannot say a thing possesses distance or equality. A 
 single point cannot express, define or measure 
 distance. Two points are essential to convey the 
 idea. The standard unit of length, for instance, is 
 the distance between certain two points or knobs. 
 Similarly, value is not expressed or defined by a single thing. 
 Two quantities are necessary to express valtte, just as two lines 
 are required to express an angle. " Hence," says 
 Macleod, " a single object cannot have economic 
 value. A single object cannot be equal or distant. 
 If an object is said to be equal or distant, we must 
 ask equal to what ? Distant from what ? So, if any 
 quantity is said to have value, we must ask, value in 
 what ? And as it is absurd to speak of absolute or 
 intrinsic equality, or absolute or intrinsic distance, so it 
 is equally absurd to speak of absolute or intrinsic value." 
 The correct definition of value, as used in the 
 science of exchanges, is, therefore, the exchange 
 relationship existing between two commodities, and 
 it is expressed by the ratio in which the two quantities 
 exchange. There seems to be the need of a word 
 that expresses the idea we desire to convey when 
 we speak of a thing "having" value. Karl Marx 
 suggested the use of the Saxon word "worth." 
 
68 VALUE 
 
 We frequently say that a thing of value has " worth," 
 or is "worth "so much. The 17th century writers, 
 however, used " worth " for utility.* In this work, 
 I have employed the term "purchasing power" in 
 this sense. A thing has purchasing power when 
 it has power to procure some other thing in exchange. 
 The measure of a commodity's purchasing power 
 is whatever it will exchange for. 
 
 * One great difficulty economists labor under is in striving to carry 
 two distinct ideas under one term, viz., ratio and purchasing power. 
 Whether we define value as a relation oi powers or of quantities, it can 
 only be expressed by a ratio between the two quantities of the comTnodities 
 exchanged. Thus, referring to the foot-note on page 66, whilst it is 
 incorrect to say the value of one ton of iron is an ounce of gold, it is 
 quite correct to say the purchasing power of one ton of iron is an ounce 
 of gold. I have dev6ted a succeeding chapter to this part of the subject. 
 
Cbapter VI. 
 STANDARD OF VALUE 
 
 AFTER the previous definition of value, the reader 
 will be at a loss to comprehend the meaning of 
 the expression " standard of value." Value being 
 a relation between two powers or quantities 
 expressed by a numerical ratio, what possible 
 connection can there be between the words 
 " standard " and " ratio " ? What sense is there 
 in the term " standard ratio " ? Let us first see 
 what is popularly understood by the term. Professor 
 Jevons says : " It is essential, in the first place, 
 to decide clearly what we mean by a standard 
 unit of value. This must consist of a fixed quantity 
 of some concrete substance, defined by reference to 
 the units of weight or space." Macleod also says : 
 " Those economists who want an invariable stand- 
 ard of value want to discover and fix upon some 
 single commodity by which they can compare the 
 value of other things in all countries and ages." 
 
 Edward Atkinson, in a recent article entitled 
 " The Unit of Value in all Trade," says : " The 
 higher law of commerce, laid deep in human nature, 
 has established gold and gold only as the unit or 
 standard of value." And again ; " There is a unit 
 of value. It exists without regard to legislation, 
 treaty or agreement. It is gold. To that standard 
 of value the monetary system of every commercial 
 state must be adjusted. A given weight of gold is 
 
7° STANDARD 
 
 the standard of value everywhere, etc."* The so- 
 called standard unit of value of this country f is a 
 certain weight, viz., 23.21997 grains of gold con- 
 tained in a dollar. 
 
 A standard of value, as above defined, is therefore 
 essentially a material substance. Now we have already 
 seen that value is a relation between two powers 
 expressed by a numerical ratio, and is therefore 
 immaterial. We have seen also that value is not 
 the property of anything. How, then, can a " fixed 
 quantity of some concrete substance " be a standard 
 or measure of the immaterial? Professor Bowen 
 remarks that " a measure must be homogeneous with 
 the thing measured." In order to be consistent in his 
 advocacy of a standard of value, he is forced to assume 
 that value is a natural property of things. He says : 
 " As that which measures length or capacity 
 must itself possess length and capacity, so that 
 which measures value must have value in itself, or 
 intrinsic value." It must follow, as the night the 
 day, that since value is an " accidental relationship 
 between two things," and is not the property of any 
 thing, no single thing can he a standard of value. 
 
 A difference should here be noted between the 
 terms " standard " and " measure." The two are 
 frequently used synonymously. A standard is some- 
 thing fixed, invariable, established by law or custom- 
 
 * " Engineering Magazine." 
 t United States. 
 
OF VALUE 71 
 
 A standard of measurement is necessarily a measure, 
 but a measure is not necessarily a standard. There 
 may be many measures, but there can only be one 
 standard. Several writers acknowledge the impos- 
 sibility of the existence of a standard, but recognize 
 the existence of a measure of value. Thus Macleod 
 says : " But though a standard of value is im- 
 possible by the very nature of things, there may 
 be a measure of values." * 
 
 What has been said relative to the absurdity of 
 the term " standard of value " applies with equal force 
 against a " measure " of value, if by measure is 
 meant " a fixed quantity of a certain concrete sub- 
 stance." Gold is no more a measure of values than 
 it is a standard of values. Gold is not homogeneous 
 with that which it is said to measure. The unit 
 weight of gold can function as a measure of other 
 quantities of gold, but it cannot measure iron, or silver 
 or wheat, or any other commodity. Again, Professor 
 Jevons states that the value of gold fell 46 % between 
 1789 and 1809; that from 1809 to 1849 it appreciated 
 145 %, while between 1849 and 1874 it fell again at 
 least 20 %. To talk of a standard, subject to such 
 fluctuations, is the height of absurdity. "So 
 palpable is this objection " writes Francis A. 
 Walker, "that some writers, who still cling to the 
 term ' measure of value,' abandon that of a standard 
 
 * "Theory of Credit." 
 
72 STANDARD 
 
 of value." And again he says: "Value is a relation 
 and, therefore, cannot be measured, but only 
 expressed or stated." * 
 
 Macleod says : " It is as well to explain what these 
 economists mean who are searching for an invari- 
 able standard of value. If we had a British yard 
 and any foreign measures of length before us, we 
 could at once perceive the difference between them; 
 and if we were told the measurement of any foreign 
 buUdings, however remote in age and country, we 
 could, by a very simple calculation, reduce them 
 to the standard British measurement, and compare 
 them with the size of our own buildings. Those 
 economists who want an invariable standard of 
 value, want to discover and fix upon some single 
 commodity by which they can compare the value 
 of other things in all countries and ages." 
 
 " But the least reflection will show that such 
 a standard is absolutely impossible by the very 
 nature of things. ... If a quantity of gold were 
 placed beside a number of other things, no human 
 sense could discern what their value would be. And 
 the most violent changes in their values might take 
 place in the market without there being any visible 
 sign of such a thing." 
 
 "Values are not perceptible by ocular demon- 
 stration, but they must be declared by the com- 
 
 " Money, Trade and Industry." 
 
OF VALUE 73 
 
 munication of minds. Moreover, it is not possible 
 to ascertain the different values of different quantities 
 of gold obtained in different ages and countries." 
 . . . " The only test of value is an exchange, 
 and unless we can effect an exchange there can be 
 no value. How can we exchange an ounce of gold 
 in the year A.D. i88 with one in the year A.D. 1588, 
 or with one in the year A.D. 1888 ? " * 
 
 Bailey also says : " Value is a relation between 
 contemporary commodities, because such only admit 
 of being exchanged with each other ; and if we 
 compare the value of a commodity at one time 
 with its value at another, it is only a comparison 
 of the relation in which it stood at these different 
 times, to some other commodity. It is not a com- 
 parison of some intrinsic, independent quality at 
 one period with the same quality of another period, 
 but a comparison of ratios, or a comparison of the 
 relative quantities in which commodities exchanged 
 for each other at two different epochs. ... It 
 is impossible for a direct ratio of value to exist 
 between A in 100 and A in 1800, just as it is im- 
 possible for the relation of distance to exist between 
 the sun at the former period and the sun at the latter 
 period."! 
 
 Macleod further observes : " An invariable 
 standard of value . . . is in itself absolutely 
 
 * "Theory of Credit." 
 
 f " Theory of Credit," Macleod. 
 
74 STANDARD 
 
 impossible by the very nature of things. Because value 
 is a ratio, and a single quantity cannot be the 
 measure of a ratio. A measure of length or capacity 
 is a single quantity, and measures other single 
 quantities such as different lengths, or bodies of 
 capacity. But value is a ratio, and it is impossible 
 in the nature of things that a single quantity can 
 measure a ratio. It is impossible to say that 
 a : b : : X. It is manifestly a;bsurd to say that 
 4 : 5 : : 8 : without saying as 8 is to what, just 
 as it is absurd to say that a horse gallops at 
 the rate of twenty miles without saying in what 
 time." 
 
 But the question may be asked, " How do you 
 account for the very general employment of the term 
 ' standard of value ' ? " The answer, Macleod thinks, 
 is to be found in the cause that gave rise to the 
 use of the unfortunate term " intrinsic value," viz., 
 a belief that value is a property or quality of 
 commodities. It is, he says, owing to the general 
 acceptance of the erroneous doctrine that labor is 
 the cause of value, and that the value of a thing 
 is, therefore, the quantity of labor contained in it, or 
 exerted in obtaining it. To quote once more : " That 
 unfortunate confusion of ideas between value being 
 the quantity of another commodity which anjr quantity 
 will purchase, and the quantity of labor embodied 
 as it were in the commodity itself, which is chiefly 
 due to Smith and Ricardo, has not only led to that 
 
OF VALUE 75 
 
 mischievous expression ' intrinsic value,' the source of 
 endless confusion in economics, but also to the search 
 for something which very slight reflection would have 
 shewn to be impossible in the very nature of things, 
 viz., an invariable standard of value." * A commodity 
 when considered alone and apart from all others, gives 
 no idea of value, nor can any conception of value arise 
 until it is confronted with another commodity ; just as 
 a point in space can convey no idea of distance until 
 a second point is taken. 
 
 Now since there can in reality be no such thing 
 as a standard of value, and since a relationship exists 
 among commodities, the question arises in what way 
 is this relationship shewn, defined and expressed ? 
 I have said that the arguments used to prove the 
 absurdity of a " standard of value " apply with equal 
 force against the term " measure of value," if by 
 measure is meant " a fixed quantity of a certain 
 concrete substance." No substance can " measure " 
 values. Commodities present themselves to us under 
 two aspects — of quality and quantity. The primary 
 distinction between commodities is a qualitative one, 
 such as the material of which they are composed, 
 iron, wood, wheat, gold, etc., or their shapes or 
 forms, such as tables and chairs; or their physical 
 properties, such as glass, sugar, salt, etc. 
 
 Now it is these various properties possessed by 
 
 * "Theory of Credit." 
 
76 STANDARD 
 
 commodities that make them useful to mankind 
 and serve to create in the minds of men a desire 
 to possess them. It is physically impossible to 
 bring the properties of things to the terms of one 
 denomination. No common denominator for the 
 physical qualities of things has yet been dis- 
 covered. Whatever the relationship among com- 
 modities may be, it is impossible to express it in 
 terms of their qualities. Gold is a qualitative term, 
 designating a certain substance possessing certain 
 characteristics. No relationship of dissimilar com- 
 modities can, therefore, be expressed in terms of 
 gold. Values being relations or ratios, are only 
 capable of numerical expression and cannot be 
 expressed by any substance. But commodities are 
 also definite quantities of things, and it is with these 
 quantities that the science of economics deals. It 
 treats of the laws which govern the relations of 
 exchangeable quantities, and has nothing whatever to 
 do with the qualities of things. These furnish matter 
 for a separate and special study entirely apart 
 from economics. 
 
 Now, whilst no meaning can be attached to 
 such an expression as silver = gold, by affixing 
 definite quantities before each term the equation 
 becomes perfectly intelligible, thus : 20 oz. silver 
 = I oz. gold. The value relationship is expressed 
 by the numbers 20 and i, thus i oz. of gold is to 
 1 oz. of silver as 20 is to i. 
 
OF VALUE 77 
 
 Or again. Consider the expression 15 bushels 
 of wheat=2 yards of silk. The value relationship 
 is expressed by the numbers 15 and 2, thus i 
 bushel of wheat is to i yard of silk as 2 is to 15. 
 The only form of expression for the relationship between 
 commodites is that of two or more numbers representing 
 exchangeable quantities in terms of their respective 
 units. It will be noticed that each commodity is desig- 
 nated by three terms : Jirst, substances, as wheat, silk ; 
 second, the units of quantity, as bushel, yard ; 
 and thirdly, the numbers of such units as 15, 2. 
 The only term cominon to both is that of number. 
 No relationship is expressible in terms of the 
 substance, wheat or silk, nor in such dissimilar units 
 of measurement as bushels and yards. Therefore the 
 only language in which commodities can give expression 
 to their social relationship is that of numbers. Suppose, 
 for instance, the following commodities to exchange 
 in these proportions : — 
 
 Five pounds butters three bushels wheat ; one coat 
 =twelve bushels wheat ; two pairs shoes=one coat ; 
 three and one-half gallons whiskey=one pair shoes ; 
 one cow=sixty bushels wheat ; fifty ounces silver= 
 one cow ; and one ounce gold=twenty ounces silver. 
 
 We can readily express their relationship numeri- 
 cally by putting them all on an equality. 
 
 From the exchange values above given we may 
 conveniently tabulate the commodities as follows : — 
 
78 
 
 STANDARD 
 
 Butter 
 in 
 lbs. 
 
 Wheat 
 
 in 
 bush. 
 
 Coats. 
 
 Whiskey 
 
 in 
 
 gals. 
 
 Cows. 
 
 Silver 
 in 
 oz. 
 
 Gold 
 in 
 oz. 
 
 Shoes 
 
 in 
 pairs. 
 
 lOO 
 
 60 
 
 S 
 
 3S 
 
 I 
 
 SO 
 
 2% 
 
 10 
 
 The common language through which butter, 
 wheat, coats, shoes, etc., express to us their relation- 
 ship, is by the numbers 100, 60, 5, etc. The 
 number of pounds of butter of equal exchange power 
 to bushels of wheat, is expressed by these numbers 
 directly, thus, 100 : 60; whilst that of butter in 
 pounds in terms of wheat in bushels is inversely as 
 the numbers, thus 60 : 100, and so on with the 
 remaining commodities. The relation of butter to 
 whiskey as 35 : 100 ; of cows to gold in ounces as 
 2j : I, etc. This is the only expression of values possible. 
 
 But it may be argued that since the above 
 commodities are all of equal exchange power, they 
 may all be expressed in terms of one. Thus : — 
 
 100 lbs. butter, 
 60 bush, wheat, 
 5 coats, 
 10 pairs shoes, etc. , 
 
 -=: 2}^ oz. gold. 
 
 ; 
 
 This is said by economists to be bringing com- 
 modities to their money form. Gold is thus said to 
 be the money form of commodities. In this way it 
 is argued that gold becomes a " measure of value " 
 because all commodities can be equated into definite 
 quantities of gold, and the standard unit of gold is 
 
OF VALUE 79 
 
 a standard with which to measure these quantities. 
 John Stuart Mill says : " We may define a measure 
 of value to be something by comparing with which 
 any two other things, we may infer their relation 
 to one another." 
 
 But a moment's thought will lead to the con- 
 clusion that the exchange relations are expressed 
 not in terms of gold, but in the numbers indicating 
 the quantities that are equally exchangeable. To 
 say that gold is the measure is as sensible as 
 declaring the material boxwood to be the standard 
 or measure of length — because yard-sticks are made 
 of it. 
 
 Suppose one horse exchanged for ten ounces of 
 gold, and one mule for one ounce of gold; then 
 the value of horses to mules is as ten to one. It 
 is, therefore, not the gold that expresses the value, 
 but the ratio of the numbers of ounces. In other 
 words, it is the relation of the two quantities irrespec- 
 tive of the substance.''- The price of horses in terms 
 of mules can never be determined by bringing a 
 unit of gold near them. It is obvious that the 
 function here served by gold can be served by 
 anything else, providing it is exchangeable. Thus, 
 in place of ten ounces of gold, we might write 
 three hundred bushels of wheat, and in place of 
 
 * ' ' But the theory of money has proved that, far from being the 
 measure of values, specie is only their arithmetic, and a conventional 
 arithmetic at that." — " System of Economic Contradictions, "Proudhon. 
 
8o STANDARD 
 
 one ounce gold, thirty bushels. The value of horses 
 to mules is then expressed, not in terms of wheat, 
 but by the numbers 300 : 30. 
 
 The use of a commodity such as gold, is con- 
 venient merely in arranging other commodities one 
 above another at a particular time. But this does 
 not constitute gold a " standard of value." It is merely 
 a standard commodity at the time at which the arranging 
 occurred. No commodity can continue to act as a 
 standard commodity for long without disorganizing 
 from time to time the entire range of prices, since 
 no commodity is or can be itself free from fluctua- 
 tions. Hence a comparison of prices at two 
 different periods gives no indication whether the 
 commodity — in terms of which prices are expressed — 
 has fluctuated, or the commodities whose prices are 
 compared. 
 
 The mistake economists make, is in suppos- 
 ing that the commodity which was selected for 
 comparing at a particular time all others, is a 
 perpetual standard at all times and places. What 
 was originally required of a standard commodity 
 was to enable society to express values numerically. 
 Thus, when it was found that commodities would 
 exchange for certain weights of gold, it was extremely 
 easy and convenient to express the relations of com- 
 modities, and range them one above another, using the 
 numbers representing weights of gold merely as their 
 arithmetic. But having once accomplished this, gold 
 
OF VALUE 8i 
 
 became no longer necessary. The language of com- 
 modities was created as soon as their relationship was 
 ascertained in terms of the quantities (either by weight 
 or volume) of any one commodity, whether gold, silver, 
 wheat, or what not ; and if from that instant prices 
 had been reckoned without retaining the standard 
 commodity for successive comparisons and valuations, 
 we should have had an accurate method by which 
 the variations in the prices of each and every com- 
 modity would have been correctly registered, including 
 the variations in the standard commodity itself. 
 
 A commodity can only be considered as a standard 
 at one particular instant. Between this hour and the 
 next, a change in its supply or demand may occur, 
 and consequently its relation to all others changes. 
 An illustration will serve to make this clearer. 
 Imagine a number of balloons moving upward and 
 forward, their motions being irregular, so that their 
 relative positions are constantly changing. If we 
 desire to trace the respective movements of each, we 
 must do so from some fixed point on the earth's 
 surface. If we attempt to describe such movements 
 from a moving standpoint — a railroad car for instance — 
 it would be impossible to do so with any degree of 
 accuracy; and if we were in one of the balloons 
 and made this the standard of observation, we should 
 be doing practically what the commercial world is 
 now doing, in tying money to a particular commodity. 
 We should be unable to determine whether our 
 balloon was advancing, or another receding. 
 
82 STANDARD 
 
 It has been thought by many that a fixed stand- 
 ard of exchange power is impossible. Gold having 
 been selected, economists imagined that the evils of a 
 fluctuating currency were reduced to the lowest 
 possible point by adopting that commodity which 
 was least subjected to variations ; but the mistake, 
 as I have said, was in supposing it was necessary 
 to have a commodity that should be per se at all 
 times a standard. 
 
 If gold was taken as the standard commodity on 
 December 31st, 1894, the exchange powers of com- 
 modities would all be expressed in numbers which 
 represented so many grains of gold on that particular 
 day. No matter how gold might fluctuate thereafter, 
 it could not possibly affect the prices of other 
 commodities. Its own fluctuations would be 
 registered in money based upon such a system. 
 
 The question at issue with the advocates of a 
 " standard of value," rnay be thus stated : " Is value 
 an inherent property of commodities, or is it merely an 
 abstract relation between them and human desires ? " 
 If the former, gold may rightly be considered 
 a "standard of value." If it be true — as all 
 economists assert — that value is merely a relation 
 between exchangeable things established by human 
 wants and desires, then it can be expressed only 
 in terms of the abstract, viz., numbers. 
 
 To sum up, then, a material standard or measure 
 of values is a physical impossibility. First, because 
 
OF VALUE 83 
 
 values are ideal, and can only be expressed in 
 terms of the ideal. Second, because value can only 
 be expressed by two numbers representing quantities. 
 A single number or quantity is, therefore, incapable 
 of expressing the relation. Third, value being the 
 exchange relation between commodities, and this 
 relation being a quantitative one, values can only 
 be expressed by numbers, and not by substances. 
 
 In spite of the already too-lengthy discussion 
 on the subjects of " standard and measures of values," 
 I must, at the risk of taxing the reader's patience 
 to the utmost, touch once more on a phase of the 
 question virhich some may be still in doubt over. 
 Recent experience upon the platform convinces me 
 that the fallacy underlying the specie basis is not 
 to be destroyed by a sudden or unexpected assault, 
 nor by an exposure of merely one phase of the 
 question. It must be exposed from all sides in 
 order to destroy it in both root and branch. 
 
 In the writings of the most advanced thinkers, 
 I find the statement made again and again, that 
 money is inconceivable unless based upon some 
 commodity selected as a permanent "standard of 
 value," as it is called ; and there seems to be a general 
 agreement regarding gold as the " natural standard." 
 
 In order to demonstrate the difficulty under 
 which these writers labor, I will repeat an illustra- 
 tion previously given; but before doing so let us 
 
84 STANDARD 
 
 fully comprehend what the money problem is. 
 Economists often fall into an error by supposing 
 a society in which commerce and exchanges are 
 about to commence and where the exchange relations 
 of commodities, being unknown, must be discovered 
 by selecting one commodity and comparing all 
 others with it, i.e. " measuring " them by the stand- 
 ard selected. This I have already shewn to be 
 impossible. Exchange relations are not discovered 
 by bringing one thing alongside another. It is the 
 wants and desires of society that establish these 
 relations, and no single commodity can possibly 
 do so. 
 
 We must remember that the system of barter 
 existed prior to the use of money, and this 
 invention is to get rid of the difficulties attending 
 barter. 
 
 We must suppose that at the time money is 
 introduced, the exchange relations of commodities 
 are already established through the system of barter. 
 The prime function of money is to express these relations 
 as it finds them and to intervene merely as a medium 
 of exchange. Suppose, then, we find the follow- 
 ing goods exchanging in the proportions named : — 
 
 Five quarts milk for one pound butter. 
 
 One yard cloth for twenty-five quarts milk. 
 
 Two ounces silver for one yard cloth, and so on. 
 
 The advocates of a standard assert that these 
 commodities must all be brought to the terms of 
 
OF VALUE 85 
 
 the denomination of some one commodity in order 
 to ascertain and express their values. On the 
 contrary, I assert that it is physically impossible 
 to bring commodities themselves to terms of any 
 common denomination. It is merely their exchange 
 relations that can be expressed in terms of a 
 common language, and that language is numbers, 
 and numbers only. Standard advocates fall into 
 the error of supposing value to be "possessed by" 
 or to " inhere in " commodities, and imagine that 
 all goods contain various quantities of this thing 
 or substance called "value," of which a given 
 weight of the standard contains a fixed amount; 
 and yet, when defining value, they are careful to 
 speak of it as being only a relation between two 
 quantities or powers. But let us see what the use 
 of a standard commodity achieves. From the relations 
 of the goods given above, we may raise them to an 
 equality with the highest, viz., one yard cloth, thus : 
 
 Twenty-five quarts milk = five pounds butter = 
 one yard cloth = two ounces silver. 
 
 Now let us select silver as our standard of 
 comparison. 
 
 Then we have : — 
 
 25 quarts Milk 
 5 pounds Butter 
 I yard Cloth 
 
 2 ounces Silver. 
 
 If we imagine one ounce silver divided into 
 
86 STANDARD 
 
 loo equal parts, we have the following prices for 
 our commodities : — 
 
 8 
 
 I quart Milk = or 8 cents. 
 
 loo 
 
 4° 
 
 I pound Butter = or 40 cents. 
 
 100 
 
 200 
 
 I yard Cloth = or 200 cents. 
 
 100 
 
 All that we have accomplished by this com- 
 parison is to find a common denomination for the 
 exchange relations of these goods; and this we 
 see is a numerical expression. 
 
 Now the dividing line between ourselves and 
 the advocates of a commodity standard begins at 
 this point. The latter contend that these numbers 
 stand for certain pieces or weights of silver ; and 
 hence a certain definite weight of silver or gold may 
 constitute a permanent standard of value or pur- 
 chasing power. On the other hand, I contend that 
 these numbers represent merely the purchasing 
 powers contained by, or rather conferred upon certain 
 weights of silver at the particular time the com- 
 parison is made. 
 
 Suppose that in place of the silver we substitute 
 a commodity that is not like silver, divisible — 
 say a vase or a painting. The exchange relations 
 will then be expressed as follows : — 
 
 25 quarts Milk 
 S pounds Butter }- = i Vase 
 I yard Cloth 
 
OF VALUE 87 
 
 Hence — 
 
 I quart Milk = — th Vase = = 8 cents. 
 
 25 100 
 
 I 40 
 
 I pound Butter = — th Vase = = 40 cents. 
 
 5 100 
 
 200 
 
 I yard Cloth = i Vase = = 200 cents. 
 
 100 
 
 It will surely not be contended that the material 
 of which the vase is made is in any sense a 
 "standard of value," or that these numbers refer 
 to portions of the vase. To attempt to divide it 
 into fragments would destroy its worth ; and yet 
 this vase which cannot be divided and which may 
 not even be duplicated has as much to do with 
 expressing values as silver. The fractions ^\-th and 
 ith, do not mean fractional portions of the vase, 
 but fractional parts of its exchange or purchasing 
 power. 
 
 Neither an ounce of silver nor an ounce of 
 gold contain a " fixed quantity of value." They 
 merely have conferred upon them, by reason of 
 their utilities, powers of purchasing other com- 
 modities, but these powers vary continually accord- 
 ing as their marginal utilities vary from time to 
 time. 
 
 Referring to our former example : Suppose we 
 regard the term dollar as the equivalent of the 
 purchasing power of one ounce of silver at the 
 time this comparison or price list was arranged, 
 
88 STANDARD 
 
 but make it in no wise dependent upon the com- 
 modity, silver, thereafter ; the dollar becomes an ab- 
 solutely invariable unit of purchasing power, viz., the 
 equivalent of that exchange power which happened to 
 be attached to an ounce of silver at one particular 
 time and place. And no matter how silver may 
 fluctuate thereafter it cannot affect the purchasing 
 power of this ideal unit-— the dollar. 
 
 My contention is that the purchasing power of 
 a definite quantity of any commodity, say 25 grains 
 of gold on a given day, say January ist, 1894, 
 may be taken as equal to the unit of purchasing 
 power, from which to start prices, but the 
 purchasing power of this quantity of gold cannot, 
 scientifically speaking, be recognized as the unit 
 in July, 1894, o"^ January, 1895, °^ '^^ ^^^^ ^^ ^.ny 
 time thereafter, since definite and invariable powers 
 are not associated with definite weights or quan- 
 tities of commodities. 
 
 Purchasing powers, like values, are abstract 
 relations not concrete magnitudes. They are purely 
 ideal, and vary as our wants and desires regard- 
 ing all objects of utility vary. To measure our 
 desires for things generally, seems at first sight 
 impossible, yet it is possible to give numerical 
 representation to them by the differences in the 
 quantities of the things we are willing to give for 
 those we desire. A desire for a certain thing at 
 one particular time may be represented by i, and 
 
OF VALUE 89 
 
 for some other thing at the same time by 2, and 
 so on. Thus we may establish a numerical rela- 
 tionship among all commodities, our unit being the 
 desire we had for a given thing at a given instant of 
 time. But the desire is not possessed by the 
 thing itself, nor is the intensity of the desire for 
 the thing the same for all time. The numerical 
 relationship being once established, our monetary 
 system should be such that prices can be affected only 
 by changes in the demand for and supply of com- 
 modities themselves, and not by reason of any change 
 in money. 
 
 In asserting the necessity for connecting the 
 element of time with any concrete standard that 
 may be chosen as the unit of purchasing power, 
 we are only asserting what everybody recognizes as 
 an essential condition with all standard units of 
 measurement, viz., invanabUness. The English stand- 
 ard of length, for instance, is the distance between 
 the centres of two gold plugs in a certain bronze 
 bar, the bar being at a particular temperature, viz., 
 62° F. The one element or condition to which 
 metals are unavoidably exposed which causes varia- 
 tions in their volume, viz., temperature, must be 
 taken at some arbitrarily fixed point. Similarly 
 with purchasing powers. These fluctuate in the 
 course of time from supply and demand, and as we 
 are unable to fix the conditions under which values 
 remain invariable, all we can do is to make our 
 
90 STANDARD OF VALUE 
 
 unit or standard the equivalent of the purchasing 
 power of a certain quantity of some commodity at 
 a given time from which to start prices, as previously 
 explained, r The introduction of this element of 
 time abolishes the permanent commodity-standard 
 at once, and gives us an invariable ideal unit, in 
 terms of which the fluctuations of all commodities 
 can be registered or expressed with mathematical 
 exactness. 
 
Cbapter VIL 
 PURCHASING POWER 
 
 THE terms " value " and " purchasing power " 
 have hitherto been used synonymously, much to 
 the confusion of the science, notwithstanding the 
 fact that they embrace wholly different concep- 
 tions. Value is the relationship existing between 
 two exchangeable commodities, and is expressed 
 by a simple ratio of two numbers or quantities. 
 Purchasing power is the power of a commodity in 
 exchange, and is expressed by a single number or 
 quantity. Value can be expressed only by two 
 numbers ; purchasing power is expressed by one. 
 There cannot be an invariable unit of value ; there 
 can be an invariable unit of purchasing power. 
 Nothing possesses value, but all commodities may 
 be said to have purchasing power. A man's credit 
 is his purchasing power ; we do not speak of it as 
 his value. 
 
 We may. trace an analogy between purchasing 
 power and potential as used in mechanics. A 
 body is said to have potential energy when it is 
 placed above other objects, i.e., it has potential 
 power with regard to any object or point below 
 it. A stone thrown upwards gradually loses its 
 initial energy imparted to it by the force that 
 projected it upwards; but this actual energy is 
 
92 
 
 PURCHASING 
 
 gradually converted into potential energy, the latter 
 increasing with the loss of the former until the 
 initial energy is transformed wholly into potential, 
 at its highest point. Thus potential energy is 
 advantage of position. Now in the commercial 
 world commodities occupy different relations to each 
 other, relations which are constantly changing. 
 Commodities are continually rising and falling in 
 price, changes which are analogous to change of 
 altitude in mechanics. With every fall there is a 
 loss, and with every rise a gain in purchasing 
 power. Purchasing power, unlike value, is capable 
 of expression in units, which may be any number 
 arbitrarily selected. Value, on the other hand, 
 corresponds to distance, which is expressed by the 
 relative positions of the two bodies. 
 
 Unit of Purchasing Power. 
 Referring to the illustration on page 78, I 
 shewed how the exchange relationship of com- 
 modities received definite expression by ratios. 
 These relations are expressed as follows : — 
 
 Butter 
 
 in 
 
 lbs. 
 
 Wheat 
 
 in 
 bush. 
 
 Coats. 
 
 Shoes 
 
 in 
 pairs. 
 
 Whislcey 
 
 in 
 
 gals. 
 
 Cows. 
 
 Silver 
 in 
 oz. 
 
 Gold 
 in 
 oz. 
 
 100 
 
 60 
 
 S 
 
 10 35 
 
 I 
 
 50 
 
 2K 
 
 Now in order to find the purchasing power of 
 each of these commodities, it will be convenient 
 
POWER 
 
 93 
 
 to find their least common multiple, and then range 
 them according to their powers. This multiple is 
 5250. Dividing this by each number, we obtain 
 the following results : — 
 
 Butter 
 in 
 
 lbs. 
 
 Wheat 
 
 in 
 bush. 
 
 Coats. 
 
 Shoes 
 
 in 
 pairs. 
 
 AA^iskey 
 
 in 
 
 gals. 
 
 Cows. 
 
 Silver 
 in 
 oz. 
 
 Gold 
 in 
 oz. 
 
 52- S 
 
 87.5 
 
 1050 
 
 S^S 
 
 ISO 
 
 5250 
 
 loS 
 
 2100 
 
 These numbers represent the proportion in 
 which the purchasing powers of the above com- 
 modities stand to each other, and we may con- 
 veniently suppose each number to represent the 
 number of units of purchasing power which is 
 conferred upon each unit of quantity of the different 
 commodities. Thus, supposing one pound of butter 
 to represent 52-1 units of purchasing power, then 
 one bushel of wheat will represent 87J units, one 
 coat 1050 units, one cow 5250 units, and so on. 
 Units thus selected are invariable ; they are expressions 
 of a power which, whilst it fluctuates in each and every 
 commodity in quantity, does not vary in intensity. 
 For instance, if the demand for butter should decrease 
 one-half, its purchasing power might decline to an 
 equal extent. Its purchasing power would probably 
 fall to below 30. But whilst it lost in number of units, 
 the units themselves remain invariable. A unit of this 
 nature is, therefore, an invariable unit and measure of 
 
94 PURCHASING 
 
 purchasing power. Now all commodities at any given 
 time and place stand in some definite relation to 
 each other, i.e. have certain amounts of purchasing 
 power which are capable of numerical expression 
 similar to the above example. In other words, all 
 commodities are of equal exchange power when taken 
 in certain proportions. The market reports give these 
 exchange relations, and indicate their fluctuations from 
 day to day. 
 
 It is only necessary to tabulate commodities as 
 above, commencing at any given time and place, and 
 bring the numbers that indicate their exchange 
 relationship to a common multiple. 
 
 The following analogy will make this subject 
 clearer. Imagine a number of balloons. A, B, C, and 
 D, at different altitudes, and suppose we wish to 
 trace the variations in their relative positions from 
 time to time. All that we know of their positions 
 is that the distance between A and B is twice 
 that between A and the earth, and that A to C 
 is equal to three times A to B, whilst C to D is 
 twice B to C. How are we to determine their 
 positions ? The problem is a very simple one and 
 is analogous to tracing changes in values. Suppose 
 A to the earth represented by x and is unknown. 
 Then A to B = 2x ; A to C = 6x ; therefore, B to 
 C = 4x, and C to D = 8x. By following the variations 
 in the altitudes of each balloon, in terms of x, we 
 can always determine their relative positions. It 
 
POWER 95 
 
 is not necessary to know what x is : so long as we 
 can express distance in powers of x, these relations 
 can always be determined, x may be said to cor- 
 respond to our ideal unit of purchasing power, 
 and it is not necessary to know the dimensions 
 of this unit in absolute terms. All we desire is 
 to be able to trace the fluctuations in the purchasing 
 powers of commodities in terms of x, either as 
 multiples or fractions. 
 
 To avoid any possible misunderstanding, it may 
 be well to point out that the above numbers represent- 
 ing the relative purchasing powers of the commodities 
 enumerated, could have no significance and can 
 convey no meaning outside of the exchange circle in 
 which they are employed. For instance, to say that 
 one coat is worth 1050 units, conveys no idea of the 
 expensiveness of the coat, unless we know the relation 
 of the unit to all other commodities. When, however, 
 we know that 5250 of these units represent the 
 purchasing power of one cow, 105 units one ounce of 
 silver, 2100 units one ounce of gold, and so on, the 
 price of the coat, expressed in these units, becomes 
 intelligible. We have therefore only to apply to 
 these units some distinguishing term, such as dollar, 
 franc, pound, yen or rouble, in order to make the 
 system generally intelligible. 
 
(Tbapter VIII. 
 MONEY 
 
 " Money, the only power that all mankind falls down before. 
 Butler's " Hudibras." 
 
 WHENEVER we are brought into a discussion 
 of the money question, we are confronted with 
 one great obstacle — a superstition — which has 
 become strongly intrenched in the popular mind, 
 what may be termed the fetichism of gold and 
 silver. So accustomed are we to associate things with 
 their functions, there finally grows in our minds the 
 idea of a personality belonging to the object itself, and 
 we unconsciously ascribe to it human qualities and 
 tendencies. Thus we hear daily the expressions 
 " good money," " bad money," an " honest " and a 
 " dishonest " dollar. Gold is called " cowardly," and 
 is said to " refuse " to circulate, and the very acme 
 of fetichism is contained in the expression " money 
 talks." 
 
 It is precisely this superstition which renders the 
 money question so difficult of comprehension by 
 the average man. Accustomed all his life to handle 
 coins which perform the money function, the metal 
 to him is money itself, just as to a mechanic the 
 idea of force is contained in the conception of a steam 
 engine. To him the engine becomes synonymous 
 with the invisible force, instead of the instrument 
 through which force is manifested. To thoroughly 
 grasp the science of money, we must distinguish 
 
MONEY 97 
 
 between it and the material by which it becomes 
 manifest. 
 
 The money question is the practical side of the 
 value question, and it remains to be seen whether 
 the theory of value, as propounded in the foregoing 
 part of this work, admits of practical application or 
 not. In science, theory and practice must always 
 agree, and when this is the case, the results of such 
 practice must be those sought after. The present 
 monetary systems of the world may be briefly 
 described as follows : — - 
 
 In order to facilitate the exchange of goods, one 
 commodity is selected as a standard to which all others 
 are compared, and the " values " of all are expressed 
 in terms of this one. Gold is the standard commodity 
 selected by the civilized world, and is the basis of all 
 or nearly all the world's monetary systems. Money is 
 therefore defined as a commodity, and is said to perform 
 the functions of ( i ) a medium of exchange ; (2) a common 
 measure of value ; (3) a standard of value ; and (4) a 
 standard of deferred payments. The advantage of 
 money as thus constituted, is stated to consist in 
 avoiding the inconveniences of barter, viz., "the 
 improbability of coincidence between persons wanting 
 and persons possessing ; the complexity of exchanges, 
 which are not made in terms of one single substance ; 
 and the need of some means of dividing and distribut- 
 ing valuable articles." Money is said to overcome 
 
 * Prof. Jevons. 
 
98 MONEY 
 
 these difficulties by acting as a common denominator 
 of values. 
 
 Innumerable discussions have taken place regard- 
 ing the true nature and functions of money, but 
 nearly all our modern economists agree in regarding 
 money as a commodity. Now I have already shewn 
 that there is no such thing as a material standard 
 or measure of values, that the very terms involve an 
 absurdity, and their existence is impossible by the 
 very nature of things. Money is, therefore, not 
 a standard nor a common measure of values, and it 
 will be unnecessary to deal further with these two 
 so-called functions. We will now investigate the 
 true origin, nature and functions of money, and then 
 endeavour to solve the problem as to whether a commo- 
 dity can perform the functions of money. The origin of 
 money can be traced to the inconveniences which the 
 system of barter gave rise to. These inconveniences 
 arose from the very nature of things exchanged, viz., a 
 want of divisibility. Were all commodities easily 
 and alike capable of division and sub-division, they 
 might be exchanged in any and every proportion. 
 The difficulty of making all commodities proportionally 
 exchangeable gave rise to the need of a means of 
 reckoning and expressing these exchange proportions. 
 
 Thus, if a horse dealer desired fifty bushels of 
 corn, and the corn merchant wanted a horse, an 
 attempt to barter a horse for corn would be made. 
 The dealer considers, and the merchant agrees that 
 
MONEY 99 
 
 the horse is worth 200 bushels. Now, since it is im- 
 possible to divide a horse and still utilize his services, 
 if the exchange takes place the horse dealer has 150 
 bushels of corn that he has no use for. If he takes 
 but fifty bushels, the merchant owes him 150 bushels 
 or its equivalent. 
 
 There at once arises a debt, and from this inequal- 
 ity in exchange originates the need for money. Now 
 we have already seen, in discussing the subject of 
 value, that the proportional relation in which com- 
 modities exchange with each other is termed value. 
 Hence, a system that is to avoid the inconveniences 
 attending barter must be to express values. I have 
 shewn that values are only capable of numerical 
 expression. A monetary system must, therefore, he a 
 numerical system. 
 
 Let us, in thought, transport ourselves to an age and 
 place where material money is unknown. The business 
 and commerce of such a place ■vfrill consist of the 
 direct exchange of various products lietessary , to 
 life and happiness. A farmer will seiid' his corn to 
 market and barter it in various amounts for the 
 different things he may need. So the sheep-grazier 
 will barter his sheep with the vintner for wine, the 
 weaver his cloth with the hunter for game, and so on. 
 
 But certain inconveniences arise. Occasionally 
 the farmer, who needs wine, finds the vintner is not 
 in need of corn, and as corn is all he has to pay with 
 he is at loss to know what to do. The farm-laborer 
 
loo MONEY 
 
 who engages with the farmer on the basis of receiving 
 a certain percentage of the crops for his labor, finds 
 himself in need of boots, clothes and various other 
 things. He cannot always exchange his com directly 
 for what he needs. The physician who has served 
 the sheep-grazier does not care for mutton, hence 
 sheep are not desirable to him. How will the sheep- 
 grazier repay the physician ? Again, the carpenter, 
 who has built a house for the vintner, finds that if 
 he accepts wine in return for the house he will have 
 enough to last him 200 years, should he live so long. 
 As he cannot live wholly on wine, he does not wish to 
 accept payment solely in that commodity. 
 
 Here the necessity arises for some plan or 
 system by which the industry and commerce of 
 the community can be carried on without these 
 difficulties arising. The community is in need of 
 an inventor, with brains enough to devise a means 
 for overcoming these inconveniences. Two plans 
 may be suggested. The one which has been most 
 generally adopted we will describe first. " In 
 process of time," says Macleod,* " all nations hit 
 upon this plan : they fixed upon a certain material 
 substance which they agreed to make always 
 exchangeable among themselves, to represent the 
 amount of debt." 
 
 The substance selected was one which Professor 
 
 * " Theory of Credit." 
 
MONEY loi 
 
 Jevons says, "seems designed by nature for the 
 very purpose," viz., gold. " Since it can be melted, 
 divided and sub-divided, is homogeneous, portable, 
 cognizable, indestructible and stable, it appears the 
 most appropriate substance for this purpose." 
 
 The various merchants, farmers, sheep-raisers, 
 etc., would, therefore, have to go to the goldsmith 
 and arrange with him as best they may for a 
 supply of gold pieces. Having first agreed among 
 themselves to accept these pieces in exchange for 
 their several products in certain ratios, the business 
 of the community would at once proceed, and 
 obstacles previously encountered would be removed 
 —providing always that these traders had power at 
 all times to command gold with their commodities. 
 Failure on the part of the goldsmith to part with 
 any more pieces, would simply throw the community 
 back into its original barbaric state. Were the 
 nventor of such a scheme a nineteenth century 
 operator, he would, prior to propounding such a plan 
 for facilitating exchange, proceed to get control of all 
 the gold and gold mines of the community. He 
 would then persuade the government of the com- 
 munity to pass a law making gold the legal tender, 
 and fixing as an arbitrary standard of value a 
 certain weight of gold. Having accomplished these 
 things, he could consider himself as rich " beyond 
 the dreams of avarice." Having safely established 
 the system for facilitating exchange, and assisted the 
 
102 MONEY 
 
 community, by loaning them gold, he need only 
 close his mines and hoard his treasure, in order to 
 shortly have a substantial portion of the wealth of 
 our imaginary society fall under his control. By 
 controlling the medium of exchange, he would control 
 the entire commerce of the community. 
 
 Now, whilst the use of this substance, gold, 
 would (so long as the gold merchants permitted it) 
 facilitate exchange and avoid the complications 
 before pictured, the system would still be a system of 
 barter. The exchange of corn for gold is as much 
 barter as if exchanged for wine or anything else. 
 It is the exchange of one product directly for 
 another. There is here no appearance or conception of 
 money. Let us now suppose that gold and silver 
 and precious metals were unknown to our imaginary 
 community. The inventor hits upon this plan. 
 He first finds the proportion in which all the 
 various products stand to each other. Thus, he 
 finds that the farmer and vintner exchange one 
 bushel of corn for one gallon of wine ; the sheep- 
 raiser and farmer, one sheep for twenty bushels 
 of corn; the weaver and vintner, one yard of cloth 
 for two gallons of wine, and so on. He then 
 tabulates all commodities in their exchange relations, 
 thus : — 
 
 Bushels of 
 
 Gallons of 
 
 Number of 
 
 Yards of 
 
 Corn 
 
 Wine 
 
 Sheep 
 
 Cloth 
 
 20 
 
 20 
 
 I 
 
 10 
 
 Arranging all commodities from the least to the 
 
MONEY 103 
 
 most valuable, their exchange relations are thus 
 expressed by their respective quantities. By dividing 
 their least common multiple by each number respec- 
 tively, we find their exchange relation. Thus : — 
 
 20 Corn Wine Sheep Cloth 
 
 20 zo , I 10 ^ I I 20 2 
 
 Corn Wine Sheep Cloth 
 
 By taking the integer one as a unit, com- 
 modities can be ranged one above another, thus : 
 One bushel of corn would be equivalent to one 
 unit of purchasing power, and one sheep to twenty 
 units, and so on, at this particular time and place. 
 
 Taking this unit to represent a unit of purchas- 
 ing power, our inventor would suggest the printing 
 on pieces of durable paper of convenient size, 
 single units and multiples of units representing 
 such purchasing power. Such units may be termed 
 macutes, francs, dollars, or pounds. 
 
 These notes might be issued by a bank 
 established by the community or by its leading 
 merchants. This bank would be a mutual co- 
 operative association for the purpose of exchanging 
 individual for the bank's credit, a small charge 
 being made for insurance and running expenses. 
 Thus, in the case of the farmer and his assistant, 
 instead of giving him, say ten per cent, of his 
 crops, or perhaps one thousand bushels of corn 
 for his services, he would, by consulting his table 
 or market report (which would be published daily 
 
104 MONEY 
 
 as now, giving the fluctuations in the various com- 
 modities), find corn marked, say ten units of 
 purchasing power per bushel, and having exchanged 
 his personal credit for that of the mutual bank 
 he will then pay him notes to the extent of ten 
 thousand units. Similarly the sheep-raiser would 
 give the physican notes to the extent of thirty or 
 forty units, and so on. If the community be a 
 small one and each member agrees to accept the 
 notes of another, such notes can be issued 
 individually ; otherwise the mutual bank of the com- 
 munity collectively would issue them. Here we have 
 the true and scientific form of money. In the first case, 
 as we saw, money does not exist. It is merely 
 the bartering of all commodities for one particular 
 commodity. In the last example, the medium of 
 exchange is not a commodity. The exchange of corn 
 for so many arbitrary units expressed on pieces 
 of paper, is not the exchange of one commodity 
 ' for another, but for a right or power to demand 
 services or commodities at any future time. The 
 only requisite that such notes need to constitute 
 money is, that the members of the community 
 shall agree to accept them in exchange for products. 
 Consider, for instance, the transaction between 
 the farmer and the farm-laborer. Entitled to ten 
 per cent, of the crops, the latter finds himself un- 
 able to utilize the produce in the way he desires. 
 The farmer owes him, as we saw, one thousand 
 
MONEY los 
 
 bushels of corn ; but the laborer wants shoes, 
 clothes, hats, and a variety of commodities. Now 
 suppose the farmer pays him the price of the corn 
 in gold. He is as badly off as if he were paid in 
 corn, unless the gold be more generally acceptable 
 than the corn, since it is not the gold he wants, 
 but what it will procure. The payment of the 
 notes, or, in other words, the money, is the ac- 
 knowledgment on the part of the farmer of a 
 debt equivalent to one thousand bushels of corn 
 at that particular time and place. The notes are 
 orders upon any and every member of the com- 
 munity to render this man goods and services 
 equivalent to the one thousand bushels of corn, 
 and if the notes be issued by the farmer, the 
 community looks to him to redeem them in corn. 
 If issued by the community collectively, they may 
 be redeemable by the government of the com- 
 munity by taxation, or remain in circulation. The 
 payment of the notes or money is not an exchange 
 of two products, such as in the case of a gold 
 medium. The farm-laborer has exchanged his pro- 
 duct, viz., services, for an order or right to demand 
 an equivalent of one thousand bushels of corn. 
 Being socially recognized and acceptable, and expressed 
 in terms in which the purchasing power of all com- 
 modities are commensurable, this paper serves as a 
 means of expressing values, and is therefore, strictly 
 and scientifically speaking, money. 
 
io6 MONEY 
 
 "The true nature of money is now apparent. It 
 is simply a right or title to demand some product 
 or service from someone else. Now when a per- 
 son accepts money in exchange for products or 
 services rendered, he can neither drink it nor 
 clothe himself with it ; nor is it any species of 
 economic satisfaction for the service he has done. 
 He only agrees to accept it for the service he 
 has rendered because he believes, or has confi- 
 dence, that he can purchase some satisfaction 
 which he does want at any time he pleases. 
 Money is therefore what is termed credit." * 
 
 The term " medium of exchange," would indi- 
 cate a distinction in the very nature of that which 
 serves as a medium and that of the things 
 exchanged. The transaction known as selling is 
 not a barter nor a complete exchange transaction. 
 
 It is not the exchange of one product for another ; 
 it is what is termed a demi-exchange. The 
 exchange is but half completed ; it is only 
 complete when we have purchased what we need with 
 the money. Then, and only then, is the exchange 
 completed, and reciprocal satisfaction effected. 
 
 " A sale of goods for money," t says Francis A. 
 Walker, " is only half a transaction ; the other half 
 takes place when the money itself is sold for the 
 
 * Macleod, "Theory of Credit." 
 t " Money and Trade." 
 
MONEY 107 
 
 goods." The medium of exchange must there- 
 fore not be regarded as a commodity, nor must it 
 be subjected to the same influences. 
 
 It must be absolutely neutral, since it must 
 express accurately the exchange relations of com- 
 modities to each other. 
 
 The idea of money originates in the desire to effect 
 an exchange, when two commodities of unequal ex- 
 change power confront each other. Thus, referring to 
 our former illustration : supposing the vintner desired 
 of the farmer 1000 bushels of corn, and agreed to 
 exchange at the ratio of 1000 bushels of corn = 
 1000 gallons of wine, but the farmer needs only 
 one gallon of wine, and cannot use more. The 
 vintner, therefore, would owe the farmer the 
 equivalent of 999 bushels of corn, viz., 999 gallons 
 of wine, in such a transaction. The farmer 
 requires substantial evidence of this debt on the 
 part of the vintner to him, and in such a form that 
 he can transfer it to others for the things that 
 he desires to procure, and which they possess. 
 In order to make such evidence available, it must 
 be socially recognized and generally acceptable. 
 Suppose under the first system of exchange the 
 vintner pays the farmer the difference in gold. In 
 the absence of any legal tender act, or any govern- 
 mental interference, has the vintner discharged 
 the debt ? This would depend upon whether the 
 farmer accepted the gold in the final discharge of 
 
io8 MONEY 
 
 the debt, and his acceptance would depend upon 
 whether society would do the same. He would 
 accept it, therefore, only as a medium, a means of 
 providing what he needed. But now, observe the 
 difference in the result between a commodity 
 medium and true money, such as I have described. 
 In the" use of gold, such a medium is recognized 
 to be the equivalent per se of the commodities 
 purchased. It is given in final discharge of the 
 debt or obligation. Now, no one believes that gold, 
 functioning as a means of exchange, is of any 
 special benefit; it yields no comfort or happiness 
 outside of its acquired money functions ; it gives 
 no economic satisfaction ; it is not wanted. 
 Hence, the gold-medium as gold is simply useless. 
 It is of no greater utility than the paper upon 
 which the number of units of purchasing power 
 is engraved. It does nothing more than any 
 material which performs the functions of rnoney. 
 Suppose the vintner pays the difference in a 
 note representing his debt, is the debt finally 
 discharged ? No, not until the note is redeemed in 
 goods. He owes the equivalent of 999 bushels of 
 corn, that is, 999 gallons of wine, and if society 
 agrees to accept his note, it looks to him for its 
 redemption. In this case society would get 999 
 gallons of wine, a useful and desirable article, 
 instead of several pieces of gold, which, as money, 
 are of no more use than paper. The use of metallic 
 
MONEY 109 
 
 or commodity-money, therefore, deprives society of a 
 number of useful commodities, and substitutes that 
 which is, comparatively speaking, useless. We have, 
 therefore, this principle : The use of commodity-money 
 entails a loss upon society equal to the cost of producing 
 the amotmt of the commodity so used. By placing money 
 on a scientific basis and making it redeemable in all 
 commodities, instead of in one, and that one a 
 comparatively useless one, the gain to the world 
 would be incalculable. When I speak of gold as 
 comparatively useless, I mean that if it were 
 suddenly and completely dissociated with money, it 
 would become almost a drug upon the market, 
 and fall in price as silver has recently done. 
 Although economists admit that the seller has 
 not received satisfaction until he has exchanged 
 the money for some desirable products, still they 
 regard the transaction as complete, and the debt 
 finally discharged, as soon as the money is paid ; 
 hence, there is an economic exchange without 
 reciprocal satisfaction, which is scientifically im- 
 possible. Now we saw when treating of barter 
 that the test of a complete exchange was re- 
 ciprocal satisfaction. Both parties to the trans- 
 action must receive satisfaction, by an exchange 
 of desirable commodities, utilities. The exchange 
 of a commodity for commodity-money is an 
 absurdity. It asserts discharge of the obligations 
 of the one to the other, with but one satisfaction. 
 
110 MONEY 
 
 It declares the transaction to be complete when it 
 is incomplete. The exchange is said to be com- 
 plete without accomplishing the natural results 
 of an exchange. As a final discharge of obligation, 
 the commodity takes precedence, and declares the 
 exchange transaction completed. As money it asserts 
 itself as being the medium of exchange ; not the thing 
 desired but merely its representative, a means to an 
 end, the middle thing, the mechanism of exchange; 
 hence, the contradiction. Therefore we are compelled 
 to barter our goods for one particular commodity, 
 which we do not want, in order to acquire the means 
 by which we can ultimately acquire the commodity we 
 do want. Money is said to express values, and is 
 also called a common denominator of values. Thus, 
 Francis Walker says : * " Value, economists are pretty 
 much agreed, is a relation, and for the purpose of 
 the present discussion we may so take it. But 
 surely a relation, a ratio, cannot be measured ! 
 You do not measure the relation of a mile to a 
 furlong; you express it as 8:i. You use a common 
 language for the two quantities. You take a 
 common term or denominator for the two dis- 
 tances and thus set them in immediate comparison 
 with each other. Were you, for example, to say 
 that a mile is 63,360 inches, and a furlong one 
 twenty-fourth part of a league, the untechnical 
 
 * " Money, Trade and Industry." 
 
MONEY m 
 
 and unskilled hearer would form no idea of the 
 relation between a mile and a furlong. Instead 
 of this, you take one quantity, the furlong, as 
 unity, and state the other in terms of it, and the 
 least learned and least practised hearer at once 
 apprehends the relation. This is precisely what is 
 accomplished by money." 
 
 Nothing can be clearer or less ambiguous than 
 this description of the function of money. After this 
 exposition of the matter, it is astonishing to find this 
 writer, further on, falling into the very error he is 
 warning others against. He says : * " Given the fact 
 of a general desire of one article of uniform quality, 
 which is susceptible of easy and exact division, we 
 have all the requirements of a common denominator 
 in exchange satisfied." But what, in the name of 
 common sense, has " a general desire " for an article 
 to do with " a common denominator in exchange " ? 
 We exchange dissimilar things, one kind for another 
 kind. We do not exchange things of the same 
 denomination for each other. For instance, we 
 exchange wheat for butter and butter for gold ; not 
 butter for butter or gold for gold. How can there 
 be a common denominator for things of unlike 
 denomination ? The statement is an absurdity. Now 
 the exchange relation is capable of expression in a 
 common language. Whilst the commodities themselves 
 
 * " Money, Trade and Industry." 
 
112 MONEY 
 
 cannot be brought to terms of one denomination, 
 their exchange relations can, and these relations are 
 their values. What has desire to do with ratio ? 
 Values, as we have seen, are relations of quantities, 
 ratios of quantities, and can be expressed in numbers. 
 A common denominator of values is, therefore, a 
 common denominator of numbers ; or, in other words, 
 it is a common denominator of quantities, not of 
 qualities. Here, for instance, are two commodities 
 whose value relation is as follows : i lb. sugar : 
 I lb. coffee : : 2 : 25 ; which shows that 25 lbs. sugar 
 exchanges for 2 lbs. coffee. What is the common 
 denominator for this expression of value ? The 
 value of sugar to coffee is as 2 : 25. Since these 
 are integers, they are commensurable with unity ; 
 therefore unity is the common denominator of their 
 values. The common language of values is numbers. 
 They cannot express themselves through a medium 
 of gold, silver, or corn, any more than a man can 
 express his thoughts through the medium of his clothes. 
 > A " general desire for one article " has no more to do 
 with a common denominator of values than a demand 
 for clothes has to do with language. In fact, it would 
 be as sensible to talk of expressing the relation of a 
 furlong to a mile by " an article " for which there was 
 a "general desire," as to talk of expressing values, 
 or constituting a common denominator of values, 
 by the same thing. " You do not measure the relation 
 of a mile to a furlong ; you express it thus, 8:1. You 
 
MONEY 113 
 
 use a common language for the two quantities. You 
 take a common term or denominator for the two 
 distances and thus set them in immediate comparison 
 with each other," says Professor Walker. Precisely 
 so ! and this is exactly what you do with values. 
 " You use a common language for the two quantities," 
 and any article of uniform quality, " for which there 
 is a general desire," is as incapable of measuring or 
 expressing the exchange relations of commodities as 
 it is incapable of expressing the ratio of a furlong to 
 a mile. Both are quantitative relations, and both 
 can only be expressed numerically. The long and 
 somewhat skilful argument by which Professor 
 Walker endeavours to overthrow the errors of the so- 
 called " Hard Money " advocates, is founded upon a 
 fallacy as great as those he seeks to expose. When 
 he writes of money as " expressing values " and as the 
 " value denominator," he is writing correctly and 
 scientifically. When, however, he writes of money 
 as an " article of uniform quality, susceptible of easy 
 and exact division," he is treating money as a 
 commodity, and from the standpoint of a legalized 
 institution. Scientifically speaking, it would be just 
 as sensible for a government to pass a law declaring 
 that there shall be two sunsets every twenty-four hours, 
 or black shall be white, as to declare that 25 8/10 
 grains of gold shall be a "standard of value," and 
 that money is a commodity. Legislators declare 
 money to be a commodity ; science says it is not and 
 
114 MONEY 
 
 cannot be. And so in trying to reconcile two 
 opposing and contradictory theories, Professor Walker, 
 in common with Macleod and many other able 
 economists, misses the goal towards which the science 
 of economy unerringly points. Approach the subject 
 from whatever standpoint you may, providing it is 
 in the true scientific spirit, and the only solution to 
 the money question is found in releasing money from 
 its association with a commodity. This is not the first 
 occasion that the laws of nations have conflicted 
 with those of science. 
 
 The pranks played by this association of money 
 with a commodity are the strangest possible. It has 
 led economists into a perfect labyrinth of mystery and 
 confusion, until the science of exchanges resembles a 
 Chinese puzzle. 
 
 It has led Francis Walker, one of the cleverest 
 economic thinkers, to conclusions directly opposite 
 to those he should logically have reached; similarly 
 with Macleod, the mathematical economist. It 
 made the former condemn paper money, after 
 having satisfactorily and conclusively proved it to 
 be capable of performing perfectly well the money 
 functions, because it did not, forsooth, possess the 
 functions of a commodity; and yet he starts with 
 the definition " Money is that money does, that is, 
 money ; all that is money ; only that is money, 
 which performs a certain office." As well might 
 he condemn a horse for not possessing wings, or 
 
MONEY 115 
 
 a cow for not raising wool. That which satis- 
 factorily performs the money functions is good 
 money, just as a steam-engine that performs the 
 work required of it is a good engine. Again he 
 says ; " Money is that which passes freely from 
 hand to hand, throughout the community in final 
 discharge of debts and foil payment for commodities." 
 
 In another place he says, that " When a man 
 accepts money in payment for the product of his 
 labor, he parts with that which, presumably, was 
 capable of gratifying his own tastes and bodily 
 needs, and takes instead, something which he does 
 not intend or desire personally to consume or enjoy, or 
 use in any other way than as the means or medium of 
 securing later or elsewhere that which shall satisfy his 
 individual wants." And again, " A sale of goods 
 for money is only half a transaction," * How can 
 both parties to a transaction be considered as 
 " finally discharged " of debt, and " full payment " 
 for commodities declared to have been made, if 
 the transaction is only " half a transaction " ? 
 
 I have dwelt at length upon the commodity 
 aspect of money, because it is this association 
 which is the cause of most of the world's financial 
 troubles. It is the conflict of two opposing forces 
 that unsettles industry periodically. Money is 
 constantly seeking to perform its functions as the 
 
 * These quotations are all taken from Prof. Walker's book, 
 " Money, Trade and Industry." 
 
"6 MONEY 
 
 medium of exchange, and is every now and then 
 hindered and restrained by the commodity govern- 
 ing it, and as a general thing the commodity is 
 master of the situation. It insists upon asserting 
 itself. It causes the money, or rather the material 
 by which money is known, to leave the country, 
 to stay at home, to circulate, to be hoarded, to 
 be plentiful or scarce, as seems most profitable 
 and desirable to its owners. Commodity-money 
 only facilitates exchange when it is more profitable 
 for its controllers to do so than not. " The coinage 
 of this specie basis," says William A. Whittick, 
 in his admirable little pamphlet on the money 
 question, " constitutes a world-wide monopoly of 
 money which exploits industry to an appalling 
 extent. It alternately stimulates and paralyzes 
 industry ; it is, in the hands of its owners, both the 
 life and death of business enterprise. So far as it 
 goes, and that is but a little way, it is life, but its 
 limit is paralysis. We carry on our business enter- 
 prises until the money gives out; but the limit 
 should be labor and material. How the discoveries 
 of gold in Australia and California in 1847 stimu- 
 lated the world's industries ! ! And yet the basic 
 factors of that industry existed before these gold 
 discoveries." 
 
 To sum up then : We have now discovered the 
 true origin, nature and functions of money. It is 
 an ingenious invention to avoid certain difficulties 
 
MONEY 117 
 
 and inconveniences brought about by unequal 
 exchanges. It represents the inequalities in these 
 exchanges, or, in other words, debts. In order to 
 do this satisfactorily, it must be capable of 
 representing and expressing precisely the exchange 
 relationship of one commodity to another, or, in other 
 words, values. Since values are the exchange relations 
 between different quantities expressed numerically, 
 it follows that the money must consist of some 
 system of numbers by which these ratios are 
 expressed. By bringing all commodities to an ex- 
 changeable equality, we find the numbers represent- 
 ing their exchange proportions. By finding the 
 least common multiple for these numbers, and dividing 
 it by each, we get the value expressions of all com- 
 modities in simple numbers. Since these are whole 
 numbers, unity may be adopted for the common 
 unit, and we have at once the relations of the 
 purchasing powers of all commodities in terms of 
 an invariable unit. The general adoption of this 
 plan will enable anyone, at a glance at the daily 
 market reports, to see the prices of any commodities. 
 These units recorded fractionally, singly and in 
 multiples on paper, issued for debt and made 
 redeemable in all commodities, constitute money in 
 the strict scientific sense. It thus becomes, in truth, 
 the medium of exchange, not the end. Its units 
 being invariable, it becomes a perfectly safe and 
 scientific standard by which to reckon deferred 
 
"8 MONEY 
 
 payments. A commodity is the end desired by ex- 
 change ; money is only a means to that end, the 
 mechanism by which exchanges are eiFected. A 
 sale of commodities for money is, therefore, not an 
 exchange. Exchange is then only in a transitional 
 state; it is incomplete. It is completed only when 
 a purchase of goods for the money takes place. A 
 purchase is the complement of a sale. The two 
 acts, by the same person, with the same money, is 
 a complete exchange. The end sought in exchange is, 
 therefore, the acquisition of commodities, not money. 
 
Cbapter IX. 
 GRESHAM'S LAW 
 
 IF evidence be required to demonstrate the un- 
 scientific thought responsible for our monetary 
 systems, we find abundant proof in the importance 
 given to what is known as the Gresham Law during 
 the past two centuries. No theory in this branch 
 of economic science is more frequently quoted, or more 
 often appealed to, and yet its existence is entirely due to 
 the fallacy which I have endeavoured to expose in the 
 previous chapter, that money is a commodity. The 
 Gresham Law contains about as much truth as 
 the astronomical theories of the Rev. Mr. Jasper. 
 Sir Thomas Gresham, the founder of the Royal 
 Exchange, in the sixteenth century, observed that 
 new coins rapidly disappeared from circulation, 
 especially when the bulk of the coinage in circula- 
 tion was light in weight. He discovered that in 
 exporting the precious metals, money changers 
 invariably selected the new full weight coins; hence 
 the light weight ones remained in circulation. The 
 persistency with which this occurred led Sir Thomas 
 to formulate what has ever since been known as 
 Gresham's Law, viz., "Bad money drives out good 
 money, but good money gannot drive out bad 
 money." Consideration of this law makes one 
 
I20 GRESHAM'S 
 
 wonder whether monetary science is a branch of 
 knowledge which conflicts with the fundamental 
 law of natural philosophy, viz., the survival of the 
 fittest. Let us consider the subject closely. If we 
 analyze a coin we shall find it composed of a 
 certain quantity of metal, moulded into a certain 
 form and stamped with an inscription on each 
 side. As a piece of metal it is merely a com- 
 modity. The inscription gives it the credit of 
 the bank or government. Wherein does the money 
 consist ? In the nation's credit or in the metal 
 contained in the coin ? What causes it to be generally 
 received, to circulate throughout the community ? 
 If I take a hammer, and, avoiding the loss of any 
 of the metal, I deface the inscription so that it is 
 unrecognizable, the coin will not circulate. No one 
 will receive it on the same terms as before the 
 inscription was defaced, notwithstanding that as a 
 piece of metal it remains of precisely the same 
 worth. I am compelled to send it to the mint and 
 have the inscription renewed, or sell it to a gold or 
 silver merchant as a commodity. The effacement of 
 the inscription has reduced the coin to a mere commodity. 
 The money is destroyed. Does anyone doubt thi^ 
 fact ? If so, let him take a piece of gold of the same 
 quantity, quality and shape, as a five dollar gold piece 
 or sovereign, and omitting the inscription, let him try to 
 use it as money. He may put even more gold into it 
 than is in the coin. No one but a gold merchant will 
 
LAW 121 
 
 accept it, and then only as a commodity.* He will buy 
 it just as he would buy tea, coffee or any other 
 commodity. What, then, is the meaning of the 
 phenomenon, viz., the disappearance of the largest 
 and fullest weight coins ? Merely this, that the 
 tendency of commerce and of industry is towards 
 cheapness, towards the destruction or abolition of 
 value — as used in the commercial sense, f It is 
 founded upon the economic law that men seek to 
 gratify their wants with the least expenditure of 
 energy, a law that corresponds to the line of least 
 resistance in mechanics. Consequently, of two 
 things, both equally well adapted to fulfil a certain 
 function, the cheaper one will be selected. For 
 this reason iron has superseded brass and wood. 
 
 * ' ' Counterfeiters are flooding Cincinnati with spurious dollars of 
 silver. The curious feature of this illegal act is, that the counterfeit is 
 said to be pure silver, and, therefore, of a better quality than the govern- 
 ment furnishes as a legal tender. The present market price of silver 
 enables the counterfeiter to manufacture this superior coin and yet 
 obtain for his labor a handsome profit." — Philadelphia Ledger, 
 March loth, 1894. 
 
 ' * An undergraduate of the University of Pennsylvania, who con- 
 siders himself a practical joker, recently placed a five dollar gold piece 
 on the tracks of the Reading Railroad, and after a train had passed 
 over it, hammered it out of all shape, removing every trace of the die. 
 Then he took it around to purchasers of old gold, who tested it by 
 weight and acid, and told him how much they would give for it. The 
 highest offer he received was seventy-five cents." — Philadelphia Record, 
 Feb. 7th, 1894. 
 
 t I have dealt more fully with this subject in the Chapter on Value, 
 viz. , the constant tendency of industry — when free from governmental 
 interference — to reduce the "valuable " to the merely useful. 
 
122 GRESHAM'S 
 
 and steel has taken the place of iron in many of 
 the arts. For this reason iron itself will be dis- 
 placed as soon as mankind finds a cheaper material 
 capable of performing the same duties. For this 
 reason, too, coins of short weight stay at home, 
 and those of full weight go abroad. For this 
 reason, were it not for the interference of govern- 
 ments, and for legislative enactments, gold and 
 silver would be relegated to the arts to which they 
 properly belong, and the cheapest and best form 
 of money, paper, would be universally adopted. 
 The Gresham Law is a thorough demonstration 
 of the fact that the ability of money to perform its 
 duties is a function which a commodity is incapable, 
 as a commodity, of performing. In commerce, as in 
 mechanics, the utility of an invention is determined 
 by its ability to discharge the functions for which 
 it was invented. As Francis Walker says : " Money 
 is that money does." 
 
 Now, knowledge of the fact that when two kinds 
 of coins were put in circulation, the one circulated 
 freely whilst the other refused to do so, would lead 
 to the inevitable conclusion that that which circulated 
 was the better money, i.e., better adapted for the 
 work required; for what is the work required of 
 money unless to circulate freely ? Money is to trade 
 what wheels are to a car, a means of facilitating its 
 progress. Of what possible use would a wheel be to 
 a car that refused to revolve ? And yet we are gravely 
 
LAW 123 
 
 informed that money which will not circulate is the 
 best money ! Gresham's Law is, therefore, an absurd 
 and ridiculous fallacy. Good money will always drive out 
 bad money. The cause of the " picking and culling " 
 of gold and silver coins is this, that when coins 
 function as money, they are not, properly speaking, 
 commodities ; as metals, they are ; and coins, 
 like everything else, obey the highest law of 
 their being. This law is that they seek the sphere 
 wherein they can perform the functions of that office 
 for which they are best adapted ; and this is the law 
 of the survival of the fittest, a law which Gresham's 
 theory contradicts. As coins, they are of less value 
 than mere commodities. Their money functions are 
 subordinate to their commodity function. But now, 
 it may astonish " Greshamites " to learn that, as a 
 matter of fact, money never goes abroad. It is the 
 commodity that emigrates. Coins- are sent abroad as 
 bullion, not as money. They are sent to foreign mints 
 and re-coined or sold to exchangers. We may sum 
 up the matter as follows : Commodity-money is the 
 subject of two powers, one governing it as a medium 
 of exchange, the other as a commodity. The question 
 as to whether a coin will perform the money function 
 well or ill, whether it will circulate or not, is 
 dependent upon whether its commodity worth is 
 greater or less than its money worth. Any money that 
 is tied to a commodity is, therefore, bad money, in the 
 sense of not being reliable in performing the money 
 
124 GRESHAM'S 
 
 functions when it is needed. Good money is of 
 that nature that at all times it obeys the law of its 
 being and is subjected to no other law. 
 
 Gresham's Law shows further that the natural 
 tendency of money is to dissociate itself from 
 the commodity. A coin short in weight circulates 
 where the full weight one cannot. The commodity 
 begins to disappear from the moment a coin is started 
 on its course. Either it disappears per saltum, or else 
 it is gradually worn away by abrasion. The loss 
 from use is in itself evidence of the unwisdom of 
 allowing money to carry the wealth of which it should 
 be merely the representative, with it. It is handi- 
 capped from the start. 
 
 We can now see the absurdity of striving to make 
 money a commodity, or in associating it with a 
 commodity. Subjected as it must be to two conflicting 
 forces, it cannot well perform the money function so 
 long as it is exposed to the force acting upon it as a 
 commodity. Gresham's Law shows that as com- 
 modities, gold and silver refuse to perform the money 
 function ; they will not serve as money. It is only 
 when their commodity forms disappear, are lost sight 
 of, that they properly fulfil the function of a medium 
 of exchange. Gresham's Law should, therefore, be 
 amended, in order to become truthful, as follows : 
 " Cheap money is the best money and drives out dear 
 money," which means that the cheaper the material 
 of which the money is composed, the better. 
 
LAW "5 
 
 Of course, in order to be money, it must properly 
 fulfil the duties required. Cheap money, therefore, 
 does not mean poor money, i.e. inability to discharge 
 the money function. Iron is cheaper than gold, 
 but an iron bridge is infinitely preferable to one of 
 gold. A locomotive constructed of steel, iron and 
 brass, is cheaper than one built of gold and silver, 
 but no one need be told that the former makea a 
 better locomotive. So long, then, as it performs 
 satisfactorily the money work, cheap money is 
 the best money, and must of necessity drive out 
 dear money. 
 
Cbapter X. 
 
 THE MATERIAL EXISTENCE 
 
 OF MONEY 
 
 ECONOMISTS tell us that the precious metals 
 seem to be specially designed by nature as the 
 material out of which to coin money. Thus Prof. 
 Jevons says, " some of the metals seem to be 
 marked out by nature as most fit of all substances 
 for employment as money. Accordingly, we find that 
 gold, silver, copper, lead and iron have been more or 
 less extensively in circulation in all ages. In almost 
 all respects gold is perfectly suited for coining." * 
 
 Nevertheless, he confesses that when used in a 
 pure state they are too soft and rapidly wear away. 
 " When quite pure, indeed, gold is as soft as tin." 
 Hence alloys are formed, and these so-called " precious " 
 metals, specially designed by nature for man's use as 
 a medium of exchange, need adulterating to render 
 them at all serviceable. In other words, nature seems 
 to have made a bad job in her attempt to furnish 
 mankind with a satisfactory medium of exchange, 
 and man has had to bring his art to her assistance. 
 But the combined forces of art and nature have failed 
 to make a perfect metallic medium, for this alloy 
 is not proof against the gradual disintegration and 
 death of the coin. From the time a coin starts upon 
 its journey its dissolution commences. If there be 
 
 * "The Mechanism of Exchange." — Prof. Jevons. 
 
The Material Existence of Money 127 
 
 any purpose or design in nature regarding the precious 
 metals, it would seem to point to their final destruction, 
 in common with man. 
 
 Gold and silver are no more ordained by 
 nature to serve as money than a man's body is 
 ordained to perpetual life. " Every year," says the 
 governor of the Bank of England, " a fresh class of 
 sovereigns become too light. The class which one 
 year passes with full weight, loses enough by wear 
 and tear to draw the scales next year against it. 
 During their currency coins wear away, some more 
 and others less. Name and substance, nominal weight 
 and real weight, begin their process of separation. 
 Coins of the same denomination become different in 
 value because they are different in weight. The weight 
 of gold, fixed upon as the standard of prices, deviates 
 from the weight which serves as the circulating medium, 
 and the latter thereby ceases any longer to be a real 
 equivalent of the commodities whose prices it realizes. 
 The history of coinage during the middle ages, and 
 down into the i8th century, records the ever renewed 
 confusion arising from this cause." * 
 
 The natural tendency of circulation to convert 
 coins into the mere semblance of what they profess to be, 
 and to reduce the weight of metal they are officially 
 supposed to bear, is recognized by modern legisla- 
 tion, which fixes the loss of weight sufficient to 
 
 * " The Mechanism of Exchange."— Prof. Jevons. 
 
128 THE MATERIAL 
 
 demonetize a gold coin, or to make it no longer legal 
 tender. " It is the theory of the present English law," 
 says Professor Jevons, "that every person weighs 
 a sovereign tendered to him, and assures himself, 
 before accepting it, that it does not weigh less than 
 122 5-10 grains. In former days, it was not un- 
 common for people to carry pocket scales for weighing 
 guineas, and such scales may be seen in the old 
 curiosity shops. But we know the practice has been 
 entirely given up, and that even the largest receivers 
 of coin, such as the banks and railway companies, 
 and even the tax offices, post office, etc., do not pay 
 the least regard to the law. Only the Bank of 
 England, its branches, and a few government offices, 
 weigh gold coin in England. The result is that 
 a large part of the gold coinage is now below the 
 least current weight, and all persons of experience 
 avoid paying old sovereigns into the Bank of England. 
 Only ignorant and unlucky persons or else large 
 banks and companies, which cannot otherwise get 
 rid of hght coin, suffer loss. The quantity of light 
 gold coin withdrawn by the Bank, did not many years 
 exceed half a million a year ; during the last few it 
 has varied from ^"700,000 to ;£'95o,ooo. As the 
 average amount of gold coined annually is four or five 
 millions, and the coins melted or exported are for 
 the most part new and of full weight, it follows 
 necessarily that the currency is becoming more and 
 more deficient in weight." He also says: "In 1869 
 
EXISTENCE OF MONEY 129 
 
 I ascertained, by a careful and extensive enquiry, 
 that 31 1-2% of the sovereigns, and nearly one-half 
 of the los. pieces were then below the legal limit." * 
 
 Was there ever a more complete exposure of the 
 failure of a thing to perform its functions ? And yet 
 the writer thinks he sees, in the supply of gold, an 
 all-wise provision of nature for supplying man with 
 a medium of exchange ! This substance specially 
 prepared by nature, and assisted by the art of man, 
 bolstered by legislative enactments, supported by 
 authority of the State, fails to carry out what it is 
 decreed to do, and the loss caused by its failure is 
 allowed to fall upon the "ignorant and unlucky." 
 Well does John Stuart Mill write : " But though 
 governments or nations can in some measure deter- 
 mine what institutions shall be established, they 
 cannot arbitrarily determine how these institutions 
 shall work." Apart, therefore, from the fluctuations 
 in exchange power, gold and silver are physically 
 unfitted to be used as money. Macleod says : " But 
 when we consider the purposes for which money 
 is required, it is easily seen that no substance 
 possesses so many advantages as a metal. The use 
 of money being to preserve a record of services due 
 its possessor for any future time, it is clear that 
 money should not alter by time. All civilized nations, 
 therefore, have adopted a metal as money; and of 
 
 * " Money the Mechanism of Exchange." 
 
130 THE MATERIAL 
 
 metals, gold, silver and copper have been chiefly 
 preferred." * If the chief use of money is to preserve 
 the record of services due to its possessor, nothing would 
 appear so serviceable as good parchment paper. One 
 fact alone should, however, suffice to convince us of the 
 unsuitableness of using gold and silver for money, viz., 
 their extreme cost. Prof. Jevons has computed the 
 cost to England involved by the use of gold, silver 
 and bronze money. He says: "The cost of the 
 currency is made up of four principal items : the loss 
 of interest upon the capital invested in the money, 
 the loss by the abrasion of the gold coin, the expenses 
 of the mint, and lastly the casual loss of coins. The 
 last item is of wholly unknown amount." He 
 estimates these items as follows : — 
 
 Three and one-half per cent, on gold coin 
 in circulation, bullion in Bank of England, 
 silver and bronze coin, total - ;^i3i, 125,000 
 Loss of interest .. . ... £^,1^1,000 
 
 Wear of coin ... ... 48,000 
 
 Mint estab. ... ... 42,000 
 
 Total ... ... ... ;^4,352,ooo 
 
 This, however, is only one part of the loss. If gold 
 and silver were relegated to the arts, where they 
 properly belong, the demand for them would im- 
 mediately decline, and a vast amount of labor now 
 employed uselessly, would be released to follow more 
 productive channels. I have, however, shewn in 
 
 * "Theory of Credit." 
 
EXISTENCE OF MONEY 131 
 
 discussing the Gresham Law, that the cheapest 
 substance (providing it is suitable and will perform 
 satisfactorily the work) is the best substance for 
 money uses as for everything else. 
 
 In the arts, we do not use silver when copper 
 will answer our purpose as well, nor brass when 
 iron is as serviceable. A sewing-machine, con- 
 structed of nickel and bronze, would not be any 
 more useful than one of cast iron and steel ; and 
 this steel pen with which I write is quite as useful 
 as one of gold. Now experience has demonstrated 
 that paper is the most serviceable of all substances 
 for money purposes. It combines all the so-called 
 advantages of a metal currency, and has none of 
 its disadvantages. It is cheap, useful, durable, 
 easily engraven, made cognizable and portable, can 
 represent any denomination of value, is not sub- 
 jected to loss by abrasion, nor to commodity 
 fluctuations, is readily and inexpensively replaced 
 when lost, and finally is not liable to resolve itself 
 into a commodity and leave the country when it 
 is most needed. 
 
 The vast importance paper money has been to 
 the world, it would be impossible to over-estimate. 
 As Macleod says : " Paper money has had incom- 
 parably more influence in the world than all the 
 gold and silver. Credit and paper now form 
 the great circulating medium or currency of the 
 world, and amounts to at least fifty times the 
 
132 The Material Existence of Money 
 
 quantity of specie in this country." In the United 
 States, at least 98 per cent, of the entire business 
 and commercial transactions of the country is done 
 upon a credit and paper basis, without the inter- 
 vention of specie. Experience, therefore, unites with 
 the great law of philosophy in declaring cheap money 
 to be the best money. The nearer it approaches 
 the ideal, the more perfectly will money perform its 
 functions. " So long as nations continue in a low 
 state of civilization, all the money or credit is made 
 of some material substance. But when they advance 
 in civilization, they make use of credit in another 
 form." * 
 
 * H. Speijcer, " Social Statics." 
 
Chapter XI. 
 PRICE 
 
 PRICE is defined by economists as the " money 
 value" of commodities. Francis Walker defines it 
 as the " power a thing has to purchase money.'' 
 He, however, in common with most other writers, 
 uses the term value as synonymous with purchasing 
 power. I have already pointed out the differ- 
 ence between these two terms. The definition 
 above given, viz., "the power a thing has to 
 purchase money," whilst in one sense a correct 
 one, conveys the idea that the price of a thing 
 varies, not only with the demand for the thing 
 itself, but with the demand for money. In other 
 words, by this definition the idea is implied that 
 money is a commodity, and therefore is subject to 
 the law of supply and demand. We have seen that 
 money is the expression of values of commodities. But 
 how is it possible to accurately express values by a 
 medium which is itself subjected to independent 
 influences ? 
 
 Imagine a thermometer, the scale of which is 
 composed of a highly expansive substance, and 
 so situated that it is acted upon by an artificial 
 heat, to which the bulb is not exposed. It is 
 evident that such conditions would render the 
 thermometer altogether worthless. We should have 
 a scale whose graduations measured 1-32 of an 
 inch one day, i-i5 of an inch another, 1-8 another. 
 
134 PRICE 
 
 and so on, according to the degree of artificial heat to 
 which it is exposed. Hence, without any change of 
 atmospheric temperature, we should find the scale 
 registering, say, 60° one minute, 70° another, 80° 
 another, and so on. 
 
 This is precisely analogous to what happens in 
 our monetary system with commodity-money. 
 
 The bulb or mercury corresponds to commodities ; 
 the atmospheric heat to supply and demand to 
 which commodities are subjected. The scale repre- 
 sents money and the expansive substance is gold. 
 The artificial heat bearing upon the scale is the 
 supply and demand of money. Now it is very certain 
 that so long as money, or its commodity, is subjected 
 to the law of supply and demand, it becomes quite 
 impossible for it to register, even with an approxi- 
 mation to truth, the actual variations in the values 
 of commodities. As a means of accurately expressing 
 values, such a system must, from the nature of 
 things, be a total failure. And when we reflect 
 that this scale — money — is controlled by a class of 
 speculators whose interests it is to be continually 
 changing it, — first enlarging and then diminish- 
 ing its graduations, — changing the purchasing 
 powers of dollars and sovereigns by manipulating 
 their supply, — how unreliable such a monetary 
 system is, how false it must be in its mission, 
 how dangerous to commerce and industry, how 
 menacing to the welfare of society, the slightest 
 consideration will make evident. 
 
PRICE 135 
 
 I have already shewn that all commodities may 
 be considered to have special purchasing power, 
 whilst money is general purchasing power. I should, 
 therefore, define price as the special purchasing 
 power of commodities, expressed in terms of general 
 purchasing power. The price of a thing is its special 
 purchasing power expressed in units of general 
 purchasing power. The immense advantage which 
 an invariable medium of exchange affords to 
 commerce we may readily see, as well as the 
 disadvantages arising from a variable one. With 
 money as an invariable medium, there can be no such 
 thing as a general rise or general fall in prices. This 
 phenomenon occurs whenever money is affected by the 
 law of supply and demand. With a scarcity of money 
 prices go down, and with a glut of money prices 
 advance. By following to its termination a complete 
 exchange, we shall best perceive the serious evils 
 arising from the use of a variable medium. A 
 complete exchange transaction is accomplished only 
 after the money received for the sale of one commodity 
 is used to purchase some other. For example, let 
 A represent a commodity for sale, M the medium 
 of exchange (money), and B another purchasable 
 commodity. Now the sale of A is represented by 
 A=M ; but as money is only a means to an end 
 — an intermedium — the exchange operation is but 
 half performed. It is completed as soon as the 
 money is used to purchase something else. M=B 
 
136 PRICE 
 
 represents, therefore, the second half of the exchange 
 transaction, which is wholly represented by A=M=B, 
 which represents exactly the true functions of money. 
 It shows that A is exchanged for B through the 
 intervention of M. M should, therefore, merely 
 record the relations existing between A and B, and 
 in order to do this, it must be, per se, neutral. 
 
 Whilst economists recognize the variations to 
 which commodity-money is subjected, they argue 
 that these variations do not work injustice, since 
 they affect all commodities proportionately. Thus 
 if M increases in volume and affects the price of 
 A, it affects B to the same degree, and, therefore, 
 the relation of A to B is expressed as accurately 
 as if M had remained constant. Thus, John Stuart 
 Mill says : " The relations of commodities to one 
 another remain unaltered by money ; the only new 
 relation introduced is their relation to money itself, 
 how much or how little money they will exchange 
 for; in other words, how the exchange value of 
 money itself is determined." Now, it is true that 
 " the relations of commodities to one another remain 
 unaltered by money," providing that the complete 
 exchange takes place at the same instant and in the same 
 place ; but if between the time of selling A and purchas- 
 ng B an interval elapses, during which M has changed 
 its relation to A and B, then it is certain that the 
 use of M does alter the relations of commodities to one 
 another; and this is what generally happens. It 
 
PRICE 137 
 
 is seldom that a man finds it convenient the instant 
 he sells his goods, or receives money, to purchase 
 other commodities. He finds it necessary, as a 
 rule, to store it for a time when he will need certain 
 things. Under our present system of credit, goods 
 are invariably sold upon time, 30, 60 and 90 days. 
 The prices for which such goods are sold are those 
 ruling at the time of the sale. If, therefore, a 
 change occurs in the supply and demand for money, 
 during the time given for payment, it is very certain 
 that an injustice may be done to the seller by this 
 disturbance, since the relation of commodities to 
 each other has been changed by reason of the 
 change in the purchasing power of money.* With 
 
 * " If all prices were altered in like proportion, as soon as money 
 varied in value, no one would lose or gain, except as regards the coin 
 which he happened to have in his pocket, safe or bank balance. But, 
 practically speaking, as we have seen, people do employ money as a 
 standard of value for long contracts ; and they often maintain payments 
 at the same invariable rate, by custom or law, even when the real value 
 of the payment is much altered. Hence, every change in the value of 
 money does some injury to society. " 
 
 " It might be plausibly said, indeed, that the debtor gains as much 
 as the creditor loses, or vice verm, 50 that on [the whole the community 
 is as rich as before ; but this is not really true. A mathematical analysis 
 of the subject shows that to take any sum of money from one and give it 
 to another will, in the average of cases, injure the loser more than it 
 benefits the receiver. A person with an income of one hundred pounds 
 a year would suffer more by losing ten pounds than he would gain by 
 the addition of ten pounds, because the degree of utihty of money to 
 him is considerably higher at ninety pounds than it is at one hundred 
 and ten. On the same principle, all gaming, betting, pure speculation, 
 or other accidental modes of transferring property, involve, on the 
 average, a dead loss of utility. The whole incitement to industry and 
 commerce and the accumulation of capital depends upon the expectation 
 of enjoyment thence arising, and every variation of the currency tends 
 in some degree, to frustrate such expectation and to lessen the motives 
 for exertion." — " Money and the Mechanism of Exchange," Jevons. 
 
138 PRICE 
 
 a medium of exchange liable to experience all the 
 fluctuations to which other commodities are subjected, 
 by reason of variations in supply and demand, by 
 "corners," gambling and speculation, is it any 
 wonder that success in trade and commerce seems 
 to be a mere matter of chance and good luck, rather 
 than the natural results of conforming to certain 
 scientific laws and steadfastly working along their 
 prescribed lines ? Here, then, we find another 
 proof of the absurdity and perniciousness of basing 
 money upon a particular commodity, already de- 
 monstrated in discussing the Gresham Law. 
 
Chapter XII. 
 
 CAUSE OF GENERAL RISE AND 
 
 FALL IN PRICES AND ITS 
 
 REMEDY.— DEVELOPMENT OF 
 
 VALUE AND PRICE FROM 
 
 BARTER 
 
 THE statement made in the previous chapter that 
 "with money as an invariable denominator of 
 values there can be no such thing as a general 
 rise or general fall in prices," appears so startling 
 that a complete elucidation of the matter is desirable. 
 As this demonstration will be made by a con- 
 sideration of the price form of commodities, I 
 shall first shew how this form is developed from 
 simple barter. 
 
 Barter is the direct exchange of commodities 
 with each other; thus, if two pounds of cheese are 
 exchanged directly for one bushel of wheat, we 
 have simple barter. If, however, money be introduced 
 and two pounds of cheese be sold for a certain sum 
 of money, and this money be used to purchase the 
 bushel of wheat, this is said to be selling cheese 
 and buying wheat. The two transactions are 
 identical in results, providing they both take place 
 at the same place and at the same time. An interval 
 between selling the cheese and buying the wheat 
 may, however, cause the results to be widely different. 
 Referring to the illustration given on page 102 of 
 
140 PRICES 
 
 the chapter on Money, we saw how the relations of 
 commodities were expressed. Take the following 
 commodities as equivalents in exchange : 
 
 (Butter] f Coffee] (Potatoes] (Cloth] (Gold 
 in IBs. (" = 1 in lbs. f = j in lbs. f = 1 in bush, r == J in yds. [■ = j in oz. 
 
 Barter or Exchange Form. 
 
 Sugar ' 
 400 ) 
 
 Now since values are inversely proportional to 
 the quantities in which goods exchange, we can 
 arrive immediately at the value form by dividing^ 
 their least common multiple by each quantity. Thus r 
 
 400, 
 
 400 
 Sugar 
 
 5° 
 Butter 
 
 40 20 
 Coffee Potatoes 
 
 Cloth 1 
 
 I 
 I Gold 
 
 which 
 
 becomes : 
 
 Value Form : 
 
 
 
 Sugar 
 as I 
 
 : Butter : 
 : 8 : 
 
 Coffee : Potatoes : 
 10 : 20 
 
 Cloth : 
 16 : 
 
 Gold: 
 
 400 
 
 We have seen that price is the money form of 
 commodities. It follows, therefore, that the price 
 form is evolved directly from the value form by 
 merely applying a common denominator to the 
 latter. 
 
 This common denominator can be any number 
 arbitrarily selected. All whole numbers being simple 
 multiples of unity we will select one as our common 
 denominator. In the above example it will be seen 
 that I happens to be the equivalent, or the expression 
 of the purchasing power of i pound of sugar at this 
 
PRICES 141 
 
 particular time. But it is likewise the expression 
 of the purchasing powers of i-8th pound of butter, 
 i-ioth pound of coffee, i-4ooth ounce of gold, etc., 
 and represents one just as much as another. Hence 
 this unit being in nowise based or dependent upon 
 any one commodity, it is absolutely invariable. All 
 we need do is to apply the decimal system and we 
 at once arrive at a method by which the purchasing 
 powers of all commodities may be expressed and 
 their daily fluctuations registered with mathematical 
 fidelity and precision. 
 
 Taking i as the denominator and applying it to 
 the value form we obtain the following : 
 
 Price Form : 
 
 Sugar I Butter I Coffee I Potatoes I Cloth | Gold 
 , I I 8 I 10 I 20 I 16 I 400 
 
 1. 00 
 
 which means, that if sugar be i unit per pound, 
 butter is worth 8 units, coffee 10 units, and so on. 
 Here we have traced the development of price from 
 the exchange relations of commodities. We are 
 now in a position to ascertain the cause of a general 
 rise or fall in prices, and having discovered the 
 cause the remedy will become apparent. Taking 
 the price form, let us write down the values of 
 several commodities. 
 
 Suppose tea to be selling for 60 cents per pound ; 
 wheat 75 cents per bushel ; iron $25 per ton ; silver 
 go cents per ounce ; whiskey $2.50 per gallon ; gold 
 
142 PRICES 
 
 §20 per ounce. Remembering that the common 
 denominator of values is $i, the price form of the 
 above commodities becomes : 
 
 Tea I Wheat I Iron I Silver I AAThiskey I Gold 
 60 I 75 I 2Scx> I 90 I 250 I 2000 
 
 1. 00 
 
 Now, it is quite evident that any variation in 
 the denominator affects all the numerators propor- 
 tionately. Thus, if the denominator be doubled, 
 the effect is the same as if all the numerators 
 were halved. Similarly, halving the denominator 
 is the same thing as doubling the numerators. 
 Since these fractions constitute the prices of the 
 various commodities {i.e. tea being 60-100 dollar 
 per pound ; wheat 75-100 dollar per bushel), it 
 follows that variations in the denominator of values 
 causes variations in the prices of commodities ; and 
 since all commodities have for their denominator 
 some commodity monetary unit — the dollar, or 
 sovereign, or franc — it is evident that any change in 
 money causes a corresponding change in the 
 prices of commodities. An increase in the denominator 
 results in a decrease in prices, and a decrease in the 
 denominator causes an increase in prices. 
 
 The cause, therefore, of a general rise or a general 
 fall in commodities, is the use of a variable denominator 
 of values. 
 
Cbapter Xlli. 
 
 MONEY SUPPLY AND 
 
 DEMAND 
 
 AS a necessary consequence of regarding money 
 from the commodity standpoint, economists have 
 found themselves confronted with all sorts of un- 
 answerable problems. For instance, if money is 
 a commodity, how can we prevent it from fluctuating 
 in obedience to the law of supply and demand ? 
 And if it is continually varying, how can money 
 be a common denominator of values, or a standard 
 of deferred payments ? Will not every variation 
 in the supply and demand interfere with its 
 functions as an invariable denominator ? And why 
 should not this commodity be governed by the law 
 governing other commodities, and its production tend 
 to cheapness and low cost instead of dearness and 
 high cost ? I have already shewn, when dealing 
 with the subject of price, how a variable denomina- 
 tor disorganizes the whole world of exchange 
 transactions by raising and lowering prices. Under 
 these conditions, instead of facilitating exchange, this 
 v^ue denominator becomes a hindrance and an 
 obstruction, and in place of functioning as the mere 
 medium of exchange, it dominates and controls it. 
 Economists shew very clearly how the purchasing 
 power of money rises and falls with every diminution 
 and increase in its supply, the demand remaining con- 
 stant. " The value of money," says John Stuart Mill, 
 
144 MONEY SUPPLY 
 
 " other things being the same, varies inversely as its 
 quantity ; every increase in quantity lowering its value, 
 and every diminution raising it in a ratio exactly 
 equivalent." * 
 
 The result to which economists are naturally led 
 involves an extraordinary contradiction, viz., that 
 exchanges must be limited to the supply of money. 
 This is what is implied by the expression " over- 
 trading." This is surely a reversal of the natural 
 order of things. What would be said of a theory 
 which propounded that the amount of land cultivated 
 should be governed by a certain limited production 
 of agricultural implements, or the volume of railway 
 traffic by the production of locomotives, or the road 
 transportation of the country by an artificially 
 regulated supply of horses ? And yet, such proposi- 
 tions would be wisdom itself compared ' to that of 
 allowing commerce to adjust itself to a legally 
 restricted supply of money. Experience has taught 
 us the wisdom of allowing the production of commodi- 
 ties to be limited only by the wants and needs out of 
 which their production arises. Thus, the production of 
 agricultural implements is governed by the demand 
 which arises from the cultivation of land, and the 
 production of locomotives is controlled by the demand 
 arising from transportation, and so on. Since all 
 industries are dependent for their existence on money, in some 
 
 * "Principles of Political Economy.' 
 
AND DEMAND U5 
 
 form or other ^ the amount of money issued should he governed 
 wholly by the demand arising from trade and commerce. 
 
 We are now in sight of the shoals and quicksands 
 where the commodity-money advocates inevitably 
 founder. They stand between two horns of a 
 dilemma, each involving a contradiction. For the 
 claim that money is a commodity means the surrender 
 of money to the influences governing commodities, 
 such as supply and demand, under which it must 
 fluctuate and cannot therefore be a standard. It is 
 incapable of registering fluctuations in the values of 
 other commodities. 
 
 On the other hand, in order to save money from 
 such fluctuations and preserve it as a standard, it 
 is necessary to shield it from supply and demand 
 influences, and this takes it at once out of the realm 
 of commodities. 
 
 In other words, when treated as a "standard of value " 
 or of deferred payments, money is no longer a commodity ; 
 and when treated as a commodity, it is no longer money. 
 Nothing is more amusing than to witness the alarm 
 and consternation into which the "hard " or commodity- 
 money people are thrown the moment their theories 
 are seriously and intelligently discussed. If you try 
 to shew them what money really is, in its scientific 
 aspect, they talk about the impossibility of carrying 
 on commerce without " a standard of value." If you 
 take them on their own ground and insist upon 
 treating money as a commodity, and strive to shew 
 
146 MONEY SUPPLY 
 
 them that the inevitable tendency of industry is 
 towards cheapness in the production of commodities,, 
 and the necessity therefore of cheapening the produc- 
 tion of this commodity by the free coinage of silver, 
 etc., they become frightened, and talk of the ruin of 
 the country, the disorganization of prices, etc. 
 
 Consider for a moment virhat money really is. 
 Commencing with Aristotle, who had probably the 
 most marvellous mental perception of any man of 
 ancient times of whom we have knowledge. He 
 says, " but with regard to a future exchange (if we 
 want nothing at present, that it may take place when 
 we do want something) money is, as it were, our 
 security. For it is necessary that he who wants it 
 should be able to get what he wants." 
 
 F. Cradocke, a London mercjiant in the time of 
 
 the commonwealth, says : " it is to be observed 
 
 that money itself is nothing but a kind of security, 
 which men receive, when parting with their com- 
 modities, as a ground of hope or assurance that they 
 will be repaid in some other commodity, since no 
 man will either sell or part with any, for the best 
 money, but in hopes thereby to procure some other 
 commodities or necessaries." Bishop Berkeley asks 
 in his Querist, "whether the true idea of money, 
 as such, be not altogether that of a ticket or 
 counter ? And whether money be not in truth, 
 tickets or tokens for recording and conveying such 
 power? and whether it be of consequence what 
 material the tickets are made of ? " 
 
AND DEMAND ^47 
 
 Henry Thornton says, "money of every kind is 
 an order for goods." Adam Smith says, " a guinea 
 may be considered as a bill for a certain quantity 
 of necessaries and conveniences upon all the tradesmen 
 in the neighborhood." So Bastiat speaks of money 
 as "an acknowledgment or title, an order of the 
 state, a token, etc." Baudeau says, "it is a kind 
 of bill of exchange or order payable at will of the 
 bearer, etc." 
 
 " It is one of the special merits of the econo- 
 mists," says Macleod, "that they clearly saw the 
 true nature of money." 
 
 If, then, money is merely a ticket, a token, a 
 mark, a counter, an order, how can it be a com- 
 modity? Why should it be subjected to the laws 
 of supply and demand? Tickets, counters, marks, 
 are not subjected to any such laws. When I pur- 
 chase a ticket for a theatrical performance, or for 
 a railroad journey, I pay a fixed sum arranged by 
 the theatrical manager or the railroad company. 
 The ticket is merely the evidence of a debt or 
 obligation on their part to render me a certain 
 service. This ticket is not a commodity, it is but 
 a piece of paper. It is of no worth pev se, and 
 is subject to no fluctuations. This transaction 
 means, that in paying them a certain sum of 
 money I have given them an order on society, a 
 note or coin possessing general purchasing power, 
 which entitles the holder to any product or service 
 
148 MONEY SUPPLY 
 
 desired, to the extent of the denomination of the note 
 or coin. 
 
 In return they have given me an order on 
 themselves, entitling me to a seat at the theatre 
 at a particular time, to witness a performance, or 
 to proper conveyance to a certain place. Now 
 the only difference, in reality, between money and 
 a theatre ticket or railroad ticket is, that the former 
 is a general order on society, the latter are special 
 orders on particular persons or companies. Their 
 nature is otherwise precisely similar. In pur- 
 chasing such tickets we never think for a moment 
 of the material of which the ticket is composed, 
 nor, in fact, of the ticket at all, apart from what 
 it represents. In itself it is a piece of cardboard, 
 which we should not trouble to pick up were it 
 not for what it represents Further, we should 
 consider an agent insane who made his tickets of 
 gold or silver. We should call it the most wanton 
 form of extravagance. Again, these tickets are not 
 issued on any notion of maintaining the " value " 
 of the tickets. The number of seats sold or persons 
 carried is not governed by the number of tickets 
 issued ; on the contrary, the number of tickets 
 printed is governed by the number of people 
 desiring to travel, or by the capacity of the theatre. 
 A theatre ticket or a railway ticket is merely a 
 convenient means of recording a debt, and this 
 is precisely what money is. An individual issues 
 
AND DEMAND 149 
 
 one to society as an order on him to fulfil a 
 certain pledge or obligation of a special nature. 
 Society issues the other to individuals as an order 
 on it to fulfil its pledges or obligation of any 
 nature. The absurdity of limiting the amount of 
 money issued, in order to maintain it at a certain 
 " value," is equivalent to that of a railroad company 
 limiting the number of tickets printed in order to 
 maintain a certain fare. What should we say if 
 such a company issued tickets based upon a per 
 capita calculation of the population of the towns 
 through which it ran, and insisted that the traffic 
 should be limited to this number? The disastrous 
 effects of this limitation in the supply of money 
 we shall hereafter see. The question, therefore, as 
 to the amount of money^ needed by a nation, is one 
 which no man can possibly answer, nor is it 
 important that we should be able to do so. The 
 supply of money, like the supply of anything useful, 
 must be governed by the transactions out of which its 
 need arises, and its issuance must be made as free as 
 the transactions themselves. 
 
 In answering the question, " Can there be an 
 over-issue of money ? " two things must be considered. 
 If by issue is meant the mere printing of certificates 
 or notes, the answer is that no harm is done beyond 
 the slight loss in paper. 
 
 On the other hand, if by " issue " is meant the 
 paying out of money by the government or individuals. 
 
ISO MONEY SUPPLY 
 
 in exchange for commodities and services, it is 
 evident that there can be over-issues, just as a 
 railroad company can sell more tickets than its 
 carrying capacity, or a theatre manager more than 
 his theatre will accommodate. Money represents 
 debts which society or individuals agree to redeem, 
 and since there is a limit to the productive power 
 of every one, there is also a limit to every one's 
 ability for settling debts; hence, there must be a 
 limit to the issuance of money. This limit, however, 
 is only governed by the wealth or productive power 
 of those issuing it. Money must necessarily be 
 backed by wealth, and so long as it does not exceed 
 the purchasing power of the wealth behind it, there 
 can be no danger of over-issue. 
 
 When treating of wealth I shewed that a com- 
 modity was something useful and was exchangeable 
 for some other useful thing. Now money, as we 
 have seen, is not a commodity ; it is the medium 
 between commodities by which they are proportioned 
 and exchanged. It is a very useful invention for 
 facilitating and assisting commerce. But the question 
 arises, if money is useful and exchangeable, does 
 it not answer to the definition of a commodity, just 
 given ? Is not money a useful invention, and is it 
 not exchangeable for commodities ? When discussing 
 the subject of exchange, we saw that the test of a 
 complete exchange was reciprocal satisfaction. The 
 exchange of commodities for money [i.e. a sale) 
 
AND DEMAND 151 
 
 does not afford reciprocal satisfaction. As Francis 
 Walker says, " men take it (money) not for its own 
 sake, but for what it will bring them ; they hold it 
 not to enjoy it, but to be ready for the moment 
 when they shall part with it to obtain that which 
 they will enjoy." 
 
 Macleod also says, "the use of money, being to 
 preserve the record of services due to its possessor 
 for any future time, etc." 
 
 So Thornton says, " money of every kind is an 
 order for goods." "There is," says Le Trosne, "this 
 difference between an exchange and a sale ; that in 
 an exchange everything is consummated or completed 
 for each party. They possess the thing which they 
 desired to procure, and they have only to enjoy it. 
 In the sale, on the contrary, it is only the purchaser 
 who has attained his object, because it is only he 
 who is in a position to enjoy. But everything is not 
 ended for the seller." 
 
 For this reason a sale is, as we have seen, a 
 demi-exchange, or, as Francis Walker says, "only 
 half a transaction." Money, therefore, is not itself, in 
 the economic sense, an exchangeable commodity. 
 Money is not the thing itself exchanged ; it is the 
 medium of exchange, the middle thing, the symbol of 
 satisfaction. 
 
 It is a "ticket," an "order," or "counter." A 
 ticket for a theatre is a very useful institution, and 
 is given to the purchaser for money; but nobody 
 
IS2 MONEY SUPPLY 
 
 regards the acquisition of this mere ticket as of any 
 account apart from what it represents. Deprive it 
 of its significance, and it is nothing but a piece of 
 paper, utterly useless and valueless ; the same is true 
 of money. Stripped of the power with which society 
 has clothed it, it is worthless. "There cannot, in 
 short," says Mill, "be intrinsically a more insignificant 
 thing, in the economy of society, than money, except 
 in the character of a contrivance for sparing time 
 and labor. It is a machine for doing quickly and 
 commodiously what would be done, though less 
 quickly and commodiously, without it." 
 
 Apart from its function as the medium of exchange, 
 money is, therefore, nothing. In fact, it is absolutely 
 essential, from the very nature of things, that money should 
 he nothing apart from its exchange functions. Money 
 is the common denominator of values, and values 
 can be expressed only by numbers. Now a denomina- 
 tor of numbers has no existence apart from the 
 numerator. Its raison A'Hre is to qualify the 
 numerator ; it disappears with it. 
 
 Since money is created simply to fulfil a special 
 function, it can have no independent commodity 
 existence. The values which it expresses do not 
 reside in money, nor are they a part of it. They 
 are the attributes of the wealth that is behind it 
 as guarantee of its redemption, and which cause it 
 to circulate. Money is not itself wealth, but merely 
 its representative or symbol. Like the denominator 
 
AND DEMAND iS3 
 
 of a fraction, money expresses the value of the 
 numerator, and disappears with it; or, like the sign 
 of equality, it expresses the relation of two things, 
 but is, apart from those things, meaningless. 
 
 The question of the supply of money may,* 
 therefore, be thus summed up. There should be 
 an abundance, in order to meet all the requirements 
 of business, and the supply should be governed by 
 these demands instead of allowing business to adjust 
 itself to a fixed supply. Money, when issued on 
 a scientific basis, obeys but one law. In order to 
 do this, it must be, per se, neutral. The substance 
 chosen should be most plentiful, so that it could not 
 possibly be monopolized. Value arises only where 
 scarcity exists — ^where the supply is limited ; hence 
 gold is the worst possible material of all for 
 monetary purposes. 
 
 We have also seen that so-called commodity- 
 money is subjected to two conflicting forces, the 
 stronger of which it is bound to obey. As a 
 commodity it is subjected to the law of supply and 
 demand, and seeks that field where it can realize 
 for itself the best returns. Now it is only as a 
 commodity that money is capable of being exploited. 
 It is in this capacity alone that money brokers and 
 bankers are able to extort interest. Money is a 
 source of profit to those who deal in it, only so 
 far as it is controlled by the laws of supply and 
 demand. Hence, with the adoption of an invariable 
 
154 Money Supply and Demand 
 
 ideal unit of purchasing power, and with freedom 
 to monetize all forms of wealth alike, interest or 
 payment for the use of money would die a natural 
 death, since the supply of money would always 
 equal the effective demand. The first attack upon the 
 unjust privilege accorded money by legislation was 
 made by Adam Smith, who showed that it was not the 
 highest form of wealth. He strove to reduce it to 
 the level of other commodities. The death-blow to 
 privilege will be by reducing money to its natural 
 basis — which is beneath that of commodities — to the 
 condition of a mere medium, or tool of commerce. 
 
Cbapter XIV. 
 
 CREDIT— THE CAUSE OF 
 
 FINANCIAL PANICS 
 
 WHEN a merchant accepts money for his goods, 
 he receives it believing he can exchange it again 
 for other goods he may need. He accepts it in 
 expectation of its future redemption. Here the 
 element known as " credit " enters. Credit is 
 defined as " expectation of future payment for 
 property transferred or promises given."* The 
 person who sells goods expecting a future return 
 is said to sell on credit. The seller is termed a 
 creditor and the buyer a debtor. The amount due 
 the seller is to him a credit, and to the purchaser a 
 debt. Credits and debts are merely two aspects of 
 the same thing. Every credit is a debt, and every 
 debt a credit. Whenever a transaction occurs, in 
 which one party receives satisfaction and the other 
 does not, the latter is said to receive credit in place 
 of satisfaction. This credit entitles him to satisfaction 
 at some future time. We may define credit, therefore, 
 as the expectation or anticipation of satisfaction. 
 Credit and debt are merely the two poles of satisfac- 
 tion, credit being the positive and debt the negative 
 pole. Thus, if we estimate a man's wealth we place 
 the plus or positive sign in front of every credit 
 and the minus or negative in front of every debt. 
 
 * Webster. 
 
156 CREDIT— THE CAUSE OF 
 
 Every commercial transaction must necessarily take 
 one of two forms, either the barter or credit form. 
 Goods are exchanged for goods or for credit; the 
 direct exchange of one commodity for another is 
 barter ; and wherever this does not take place, credit 
 takes the place of one or other commodity. Practi- 
 cally, all the commerce and trade of the civilized world 
 is done upon a credit basis. Credits may be divided 
 into two classes : stationary and circulating. Circu- 
 lating credit is money, but it is customary to apply 
 the term credit exclusively to the stationary class. 
 Thus, if in exchange for goods supplied, a man gives 
 me his promissory note, payable six months hence, 
 and I am unable to use it to purchase other goods, 
 or get others to accept it in payment of debts owing 
 by me, the note remains with me until mature ; it is 
 stationary. Such a note whilst in my possession is 
 simply a credit note, it is not money. If, on the 
 other hand, I can pass it to obtain the satisfaction 
 I desire, the note, being current, is currency or money. 
 Credit is purchasing power. Now, purchasing power 
 may be special or general ; it is general whenever 
 it is generally transferable and acceptable. Thus, 
 legal tender represents general purchasing power; 
 i.e. it is generally accepted throughout the country 
 by all people in payment of all debts. On the other 
 hand, a mere promissory note which is not generally 
 negotiable, is an example of special purchasing power. 
 It is given to a particular person in payment of a 
 
FINANCIAL PANICS ^57 
 
 special debt, and cannot be used by that person until 
 maturity, owing to his inability to pass it on. All 
 commodities have special purchasing power, and the 
 exchange of commodities for money is the transforma- 
 tion of special purchasing power into general 
 purchasing power. Circulating credit is, therefore, 
 general purchasing power, and stationary credit is 
 special purchasing power. For instance, railway 
 and theatre tickets are credit notes representing 
 special purchasing power. They are redeemable in 
 railway journeys and admissions to theatrical 
 performances; and since they are not negotiable,. 
 and cannot be used to purchase other commodities, 
 they are stationary credits. Although it is 
 customary in trade to distinguish between money and 
 credit, yet, as we have seen, they are of precisely 
 the same nature. Strictly speaking, credit is the 
 general term of which money is a species. One often 
 hears a so-called cash business contrasted with a 
 credit business, as though the two were of opposite 
 character ; the truth being that cash is only a higher 
 and more general form of credit. 
 
 "They are each a right or title to demand 
 something to be paid or done by someone else. No 
 one can compel another to sell him anything for 
 money or credit. When, therefore, any person has 
 voluntarily taken money in exchange for anything, 
 it is in reality only credit ; because he only takes it 
 in the belief that he can exchange it away again." 
 (Macleod.) 
 
158 CREDIT— THE CAUSE OF 
 
 The attempts of governments and legislators to 
 make of money a commodity, is nothing more nor less 
 than an attempt to destroy the chief function of money. 
 The idea that money must be " something valuable," 
 "something having intrinsic value" in order to 
 constitute " honest " money, shows a complete miscon- 
 ception of money and it functions ; for if money is a 
 valuable commodity, if it is, pev se, an equivalent for the 
 goods purchased, it cannot represent a credit or a debt. 
 If in return for goods I give their equivalent in " full 
 value," there is no element of credit whatever; the 
 transaction is a barter transaction. Now money does 
 not enter into barter. Instead of an exchange of 
 present satisfactions, the use of money involves the 
 exchange of an immediate satisfaction for a deferred 
 satisfaction. All commodities represent immediate 
 satisfaction ; i.e. they themselves satisfy human wants 
 and desires. Money and credit are merely the symbols 
 of or rights to satisfaction ; hence, when the commo- 
 dity appears, satisfaction accompanies it, like a man 
 and his shadow ; it is no longer deferred, it is present. 
 Therefore, "commodity-money" is a contradiction 
 in terms. Hence gold and silver coins of " full value " 
 are not, scientifically speaking, money ; they are not 
 representatives of debt. The worth of the gold and 
 silver which they contain cancels the debt which, as 
 money, they represent. 
 
 We have now to see the effect of the credit system 
 upon commerce. By far the greater part of the 
 
FINANCIAL PANICS 159 
 
 world's commerce is done on a credit, as distinguished 
 from a cash basis. A report from a representative 
 house, referred to by Macleod, shews that " specie did 
 not enter into their transactions for little more than 2^." 
 This was on transactions of upwards of ;^i,ooo,ooo. 
 
 " A similar investigation instituted by some bankers, 
 resulted in the fact that specie only entered into 
 their operations to the amount of 4 per thousand." 
 
 It has been estimated that the amount of credit 
 in use in Great Britain is at least ;^5,ooo,ooo,ooo, 
 the amount of coin and notes being about 
 ;^i2o,ooo,ooo. In the United States not more 
 than 2% of the business done is on a cash 
 basis. The creation of this enormous volume of credit 
 — stationary credit*- — has been caused by the absurd 
 restrictions which governments have placed upon 
 the issuance of money. Industry, which is always 
 naturally ahead of finance, demands a greater 
 volume of currency than exists anywhere ; and 
 since money is scarce, industry calls credit into 
 play. In fact, were it not for the credit system, 
 commerce and industry would decline to where it 
 was a century ago. 
 
 John Law said : " The introduction of credit 
 augments the quantity of money more in one year 
 
 * It will be understood that when speaking of credit in contra- 
 distinction to money I mean stationary-credit, money being circulating- 
 credit. The former is usually inseciue and not properly backed by 
 Euflficient wealth. It is this form of credit which is so uncertain, so 
 dangerous. 
 
i6o CREDIT— THE CAUSE OF 
 
 than a prosperous commerce would do in ten." 
 It has been shown by J. S. Mill and others, that 
 the effect of credit upon prices is the same as an 
 increase of the volume of the circulating medium. 
 Since credit affects the supply and demand of money, 
 just as an increase in the amount of money would 
 do, it is obvious that prices must be affected to the 
 same extent. " In a state of commerce in which much 
 credit is habitually given," says Mill, "general prices, 
 at any moment, depend much more upon the state of 
 credit than upon the quantity of money. For credit, 
 though it is not productive power, is purchasing power ; 
 and a person who, having credit, avails himself of 
 it in the purchase of goods, creates just as much 
 demand for the goods, and tends just as much to 
 raise their price, as if he made an equal amount of 
 purchases with ready money." 
 
 So Macleod says : " It is the enormous creation 
 of credit in modern times, in the form of banking 
 credits and mercantile credits, which has so pro- 
 digiously raised the prices of products, and diminished 
 the rate of interest, in the last two centuries, in 
 this and many other countries. It is the quantity 
 of credit in modern times which chiefly deter- 
 mines the price of products; and variations in 
 the quantity of credit produce more changes in the 
 prices of products than any variations in the quantity 
 of gold and silver; and it is the abuses of credit 
 which produce these terrible calamities, termed 
 
FINANCIAL PANICS i6i 
 
 commercial crises and monetary panics, which we shall 
 have to investigate afterward." 
 
 The cause of these calamities, however, as I shall 
 hereafter prove, is quite the opposite of what Mac- 
 leod and other economists would have us believe. 
 It is not the abuse of credit that creates these 
 calamities, it is the scarcity of money. It is the 
 interference of legislators and governments with 
 natural operations, that causes financial trouble ; 
 the attempt to compel people to do the impossible, 
 viz., to transact the entire business of a nation 
 upon a single commodity basis. It is the result of 
 attempting to redeem credits in one particular com- 
 modity, instead of in all ; it is the attempt to drive 
 the camel through the eye of the needle. 
 
 In the chapter on Price, I have shewn the cause 
 of the phenomenon known as a general rise and 
 general fall of prices, which is due to the fluctua- 
 tions in that which is used as the denominator of 
 values. Referring to the example there given : tea 
 is seUing for 60 cents per pound, wheat 75 cents 
 per bushel, iron 25 dollars per ton, silver 90 cents 
 per ounce. Now, since the dollar is the common 
 denominator of values, the price form of these com- 
 modities is as follows : — 
 
 Tea Wheat Iron Silver 
 
 in pounds in bushels in tons in ounces 
 
 0.60 0.75 2S.CO 0.90 
 
 1. 00 (one dollar) 
 
i62 CREDIT— THE CAUSE OF 
 
 It is apparent that the values of these fractions 
 vary inversely with the denominator. If by 
 artificially restricting the supply, the value of one 
 dollar should increase to two dollars, the above 
 fractions are changed as follows : — 
 
 Tea Wheat Iron Silver 
 
 .60 .75 25.00 .90 
 
 The price of tea is now 60-200 cents, or 30 cents 
 per pound, instead of 60 cents. So the price of 
 wheat has fallen from 75 cents per bushel to 37 1-2 
 cents. Iron has also fallen 50J in price, viz., from 
 $25 per ton to §12.50 per ton, etc. 
 
 Thus the effect of increasing the purchasing power 
 of the denominator, is to decrease the price of all 
 commodities ; and if the denominator is increased ioo||' 
 there is a general fall in prices of 50^. And conversely, 
 a fall in the value of the denominator results in a general 
 rise in prices. Now, to the general public, there is 
 never apparently any change in the value of money ; 
 a dollar is always a dollar, it is never two dollars. 
 Hence, to the average mind, a general fall or rise in 
 prices is as mysterious as a shooting star, and is 
 popularly regarded as one of those "inscrutable 
 mysteries of Providence." If the denominator de- 
 creases, prices rise, and this is supposed to be the result 
 of a favorable " dispensation " ; if the denominator 
 increases, prices fall, and this is a judgment, "the 
 result of the Almighty's displeasure !" 
 
FINANCIAL PANICS 163 
 
 The effect of monopolizing and restricting the 
 supply of money is, however, precisely the same, so 
 far as it affects the purchasing power of money in 
 relation to some one commodity, as the monopolization 
 of that commodity. And as the "honest" money 
 advocates make of money a commodity, the results 
 are the same. A bushel of wheat is always a bushel 
 of wheat, it is never two bushels. Yet we know 
 that at one time we can purchase two bushels for 
 the same sum that at another time we pay for o'ne 
 bushel. This is precisely the same with dollars. 
 Whilst one dollar never becomes two dollars, the 
 purchasing power of a dollar, at a particular time, 
 has frequently been equivalent to the purchasing 
 power of two dollars at another time ; so that whilst 
 the denominator of values, the dollar, is nominally 
 invariable, its purchasing powev varies, and the effect 
 on prices is exactly the same as contraction or 
 inflation. Here is the insidiousness of our present 
 monetary system. If money were expressed in units 
 of purchasing power, possessed by it at one particular 
 time and place, in reference to all commodities, such 
 a system would register variations in the commodity 
 which circulates as money. Then the general rise 
 or fall of prices would be shown in the denominator. 
 But as the dollar or sovereign is the standard at all 
 times, its fluctuations are registered in commodities, 
 and instead of the dollar rising and falling, to the 
 public it appears that it is commodities that are 
 
i64 CREDIT— THE CAUSE OF 
 
 fluctuating, and that these fluctuations are due to 
 the commodities themselves. 
 
 In the price form, therefore, the denominator is 
 always apparently constant. It is always repre- 
 sented by one dollar, or numerically i.oo. It is 
 the numerators, the commodities that are seen to undergo 
 the change. Thus, tea drops from 60 cents to 30 
 cents per pound, and wheat from 75 cents to 37'i- 
 cents per bushel, whereas, as a matter of fact, 
 these commodities have probably never changed one 
 iota under the influence of supply and demand. 
 
 Instead of the price-form, appearing, as shewn 
 on page 162, where the purchasing power of the 
 dollar has increased, thus: — 
 
 Tea 
 
 Wheat Iron 
 
 Silver 
 
 .60 
 
 ■ 75 25.00 
 
 .90 
 
 
 2.00 
 
 
 it is always 
 
 represented thus : — 
 
 
 Tea 
 
 Wheat Iron 
 
 Silver 
 
 •30 
 
 37% 1250 
 
 ■45 
 
 Now the determinant of value is, as we saw 
 when discussing the subject of value, the relation 
 of supply to demand; and the causes of variations 
 in the values of commodities, are variations in the 
 supply of or the demand for commodities themselves. 
 Where the demand for a thing increases, the supply 
 remaining constant, the exchange power increases; 
 where it decreases, its exchange power decreases. And 
 vice versa, when the supply increases, the demand 
 
FINANCIAL PANICS 165 
 
 remaining constant, the exchange power decreases; 
 and when the supply decreases, the exchange power 
 increases. 
 
 Where the supply is kept always in excess of 
 the demand, there is no variation. Where the supply 
 is unlimited in comparison to the demand, values 
 disappear. » 
 
 Under our present system dollars and pounds 
 are commodities, and are influenced by the laws 
 of supply and demand. When the supply of dollars 
 is constant and the demand increases, the purchasing 
 power of dollars increases, and vice versa. . When 
 the supply of dollars is dim.inished by hoarding or 
 by " cornering " gold, the purchasing power of dollars 
 increases. Now money, being a species of credit, 
 the artificial restriction of the supply of money 
 naturally tends to bring into use personal credit. 
 The natural wants of mankind are not to be 
 suppressed or confined by any artificial restriction, 
 such as a " specie basis," or a " legal tender " act ; 
 hence, through the limitation of that which should 
 be unrestricted, a substitute is adopted and " enormous 
 amounts of credits are piled up." The effect of 
 this substitute is the same as an increase in the 
 volume of money, and its tendency is to lessen its 
 purchasing power. Further, the destruction of credit, 
 which occurs every now and again, is precisely 
 similar in its effects to the destruction or the 
 " cornering " of money, the purchasing power of 
 
i66 CREDIT— THE CAUSE OF 
 
 which instantly rises. The result is analogous to 
 that which would occur by discovering a substitute 
 for any commodity. The destruction of credit is 
 similar in its effect to dumping into the ocean so 
 much coin. The contraction of credits of three 
 thousand millions of dollars is as disastrous to 
 commerce and industry as the loss of that amount 
 of money ! Statesmen worry when gold leaves the 
 country, but regard the contraction of credits with 
 but little anxiety. The great concern of govern- 
 ments appears to be to facilitate the importation 
 of gold in order to increase the volume of currency ; 
 but they are stupidly unconcerned when that which 
 fills its place, and which is, after all, the main factor 
 in facilitating exchange, is reduced or impaired. 
 
 It will be convenient at this place to point out 
 the manner in which personal credit, although 
 apparently a competitor with money, is made "its 
 partner and associate in crime." 
 
 We have seen the effect of variation in supply 
 and demand upon values. The greater the demand 
 and the more restricted the supply, the greater the 
 purchasing power of any commodity. The objects 
 sought after in trade are, therefore, these two, 
 viz. : — 
 
 I St. To create a demand for a commodity. 
 
 2nd. To control its supply. 
 
 Now, decreasing the supply of a thing, when 
 demand is constant, has the same effect upon its 
 
FINANCIAL PANICS 167 
 
 purchasing power as increasing the demand when 
 the supply is constant, and vice versa. But if the 
 demand can be increased and the supply suddenly 
 decreased, the effect is enormously augmented. For 
 instance, suppose the demand for an article, at one 
 time, to be represented by loo, the supply being 
 also 100; and suppose by means of an artificial 
 substitute, demand and supply be increased to 
 10,000. Now by suddenly cutting off the artificial 
 substitute, the supply is at once knocked down to 
 100, the demand still remaining at 10,000. The 
 appreciation in the purchasing power of that com- 
 modity can be better imagined than described ! 
 
 This is precisely the effect of credit upon money. 
 Credit is the artificial substitute for money. (I of 
 course refer now entirely to our present monetary 
 system. Under a scientific system, money and 
 credit would be synonymous.) 
 
 The demand for money is always far in excess 
 of the supply ; hence, its substitute is called into 
 existence, the first and immediate result of which 
 is to lessen the demand for money. Interest is 
 less, prices are raised, and the effect similar to that 
 of one competing commodity with another. But 
 the commodity merchant always regards his com- 
 petitor jealously and with impatience. He is ever 
 ready to place obstacles in his path. Not so the 
 commodity-money merchant ; he looks ahead. He 
 will even assist in "the piling up of these vast 
 
i68 CREDIT— THE CAUSE OF 
 
 amounts of credit," notwithstanding that his interest 
 is temporarily cut down by doing so. So long as 
 these credits are built upon the specie basis, he 
 knows that as surely as the sun rises, they can be 
 swept out of existence as completely as if they had 
 never existed. The greater their amount the greater 
 the disproportion between the actual supply and 
 the money demand, and consequently the greater the 
 harvest will the money merchant reap when the 
 crash comes. 
 
 These credits being redeemable in specie, are 
 found too enormous for redemption. There is not 
 enough specie in the world to redeem them with. 
 And now the operation of driving the camel through 
 the eye of the needle begins. All that does not pass 
 through the needle's eye, falls into the hands of the 
 drivers. 
 
 The makers of credit find themselves in the 
 position of the Israelites, who were compelled to 
 make bricks without straw. 
 
 They are driven to despair. The holders of 
 specie carefully put it under lock and key, thereby 
 increasing an already enormous deficiency. The 
 demand remaining what it was when credits were 
 in existence, the supply is cut down to less than 
 that existing before the substitute was created. 
 
 The effect of credit is, therefore, to greatly increase the 
 purchasing power of money whenever credit is shaken. 
 
 Credit is the fertilizer that serves to ripen the 
 
FINANCIAL PANICS 169 
 
 fruit which the money monopolists shake into their 
 own hats. It produces a harvest which money 
 alone could never produce. Credit changes the 
 value of the denominator to an enormously greater 
 degree than specie could possibly do. 
 
 Take the credits of Great Britain, estimated at 
 from five to six thousand millions of pounds, whilst 
 the legal tender in circulation is only about 120 
 million pounds. Supposing that only 10 per cent, 
 of the credit is redeemable in money. There are 
 then 600 million pounds of credit, and but 120 
 million pounds, or one-fifth the amount required, 
 to redeem it with. Now, so long as credit is 
 unassailed and remains intact, everything works 
 smoothly. Credits are redeemed with credits, exten- 
 sions given, and a small amount of money serves 
 to do a vast amount of work by circulating rapidly 
 and by making credits redeemable at different times. 
 But let the public confidence once become shaken, 
 or fear become general through some cause, no 
 matter how trivial, and there is an immediate 
 desire to have credits redeemed. Instead of redeem- 
 ing them with credits, or granting extensions, 
 every creditor insists upon cash redemption. The 
 demand for money, heretofore satisfied with credit, 
 is now centred on gold and will be satisfied with 
 nothing else. Gold rises enormously ; multitudes of 
 persons are obliged to sell their goods at a sacrifice. 
 Down come prices. Industry is paralyzed and 
 
170 CREDIT— THE CAUSE OF 
 
 parliamentary and congressional committees are 
 appointed to enquire into the causes of the disaster. 
 Those whose system is the cause of all the 
 trouble are consulted. With learned ignorance they 
 propound such theories as " over-production," " over- 
 trading," "abuse of credit," "state-bank currency," 
 "reduction of the tariff." 
 
 Their theories are seriously considered and acted 
 upon. The country pulls itself together, and once 
 more commences its sisyphean task of building 
 another gigantic pyramid with its apex for a base. 
 Such, in brief, is a synopsis of the financial panics 
 that periodically afflict the world and which have 
 puzzled legislators for the past two centuries, as 
 completely as Haley's comet puzzled Popes Callixtus 
 and Pius II. 
 
 Such results are wholly attributable to building 
 industry upon an insufficient and false foundation. 
 Panics are not the results of "over-production," 
 nor of " over-trading," nor of the " abuse of credit." 
 Panics arise because the gold basis is too narrow 
 and too contracted on which to build the world's 
 industries. The building becomes top heavy. It 
 is pushed into a position of unstable equilibrium 
 by those who control the base, and down it comes. 
 To say that there is general over-production or over- 
 trading, is to say that people have more than they 
 want, and that they are trading for amusement. 
 
 Human wants are the cause of trading, and 
 
FINANCIAL PANICS 171 
 
 because of the insufficient supply of the medium 
 of exchange, men are actually compelled to make 
 industry top heavy and unstable. 
 
 I have shewn that money is, from the scientific 
 standpoint, circulating credit, and credits that are 
 not circulating are termed stationary credits. Now 
 the channel of circulation is filled with these forms 
 of credit, and in order that trade and commerce 
 should be facilitated, it is essential that the material 
 with which the channel is filled, be kept in 
 circulation. 
 
 Like blood in the human body, it must circu- 
 late freely and unhindered to keep trade in a 
 healthy condition. 
 
 The effect of legislation restricting monetary 
 issues by taxation or otherwise, is tOt increase the 
 amount of that class of credit which may be 
 termed sluggish or stationary. It is circulated 
 slowly and with difficulty. The demand for money 
 being greater than the supply, recourse is had 
 naturally to the medium of personal credits, which 
 are essentially sluggish. Hence the channel of circu- 
 lation becomes choked, and circulation is hampered 
 or entirely stopped. 
 
 We have thus a further illustration of legislation 
 defeating its own ends. Ostensibly, legal tender 
 acts and specie bases are for the protection of 
 society; to provide the people with what the 
 newspapers are fond of terming " honest " money. 
 
172 Credit-the Cause of Financial Panics 
 
 In suppressing State and private bank issues by taxa- 
 tion, the Government compels society to have recourse 
 to a system of credit far more precarious than any 
 State or private bank systems that ever existed. The 
 loss occasioned by a sudden shrinkage of public credit, 
 results in much greater evil and misery than any mere 
 over-issues of bank notes would produce. 
 
 The end to be sought by those who would 
 prevent a repetition of the financial and monetary 
 disasters of the past, is to free money from the 
 artificial and burdensome restraints with which it 
 is encompassed; to allow the people to attend to 
 and satisfy their own wants in regard to money 
 as with everything else. The more plentiful the 
 money supply, the less a baseless credit system 
 will be used, until with an adequate supply, the 
 system finally disappears. The solution is not 
 to make the industrial and commercial structure 
 less bulky, but to broaden the foundation ; to make 
 the base proportional to the edifice. To use our 
 former illustration, we must stand the pyramid on 
 its base if we would make it stable. Those who 
 control the apex may then do their worst, they 
 can never overturn business. 
 
 Commerce thus assumes its rightful position and 
 becomes absolutely safe. 
 
Cbapter XV. 
 
 RATIONAL AND 
 
 IRRATIONAL BANKING 
 
 "The peculiar essence of our banking system is an unprecedented 
 trust between man and man, and when that trust is much weakened by 
 hidden causes, a small accident may greatly hurt it, and a. great 
 accident for a moment may almost destroy it." 
 
 Walter Bagehot, in "Lombard Street." 
 
 THE practice of modern banking may be instanced 
 as further proof of the contention made in the 
 preceding chapters regarding the falseness of our 
 current theories of finance. A system founded upon 
 unsound theories must — sooner or later — create trouble, 
 and conversely a system which periodically fails may 
 be said to have a false basis. 
 
 A nation's industries necessarily depend upon its 
 banking facilities, and it is impossible to form a just 
 estimate of the banking system of any country without 
 considering its effects upon and its relation to the 
 industries and trade of that country. If ever a true 
 history of modern banking is written it will be found to 
 consist largely of a record of industrial failures and 
 business disasters. There is not a bank in the world — 
 established for any considerable period — that has not 
 experienced difficulties threatening its stability and 
 existence, and if custom did not prevent us from seeing 
 things in their true light, modern banking would be 
 regarded as both crude and dangerous in the extreme. 
 Banking has been facetiously termed " the great confi- 
 dence game," and has been odiously compared to the 
 
174 RATIONAL AND 
 
 art of jugglery — and certainly there is some foundation 
 for such criticism, for when public confidence is shaken 
 and creditors demand fulfilment of obligations, banks 
 close their doors, since their obligations greatly exceed 
 their powers of redemption. It is safe to say that any 
 business man who attempted to carry on an industrial 
 pursuit on the same principles as those followed by 
 ordinary banks would be considered foolhardy. Take 
 for instance a bank of deposit where deposits are 
 received from one class of customers and loaned to 
 another class ; a comparatively small percentage of 
 currency is retained as a reserve fund. Now, deposits 
 are received on the understanding that they are payable 
 on demand — on the other hand loans are made for 
 definite periods, lo days, 30 days, 60 days, and even 
 longer. So long as depositors are satisfied to leave 
 their deposits, all goes well, but a mere rumour or 
 flurry is often quite sufficient to lead to a sudden 
 demand for withdrawal, and then the unsafety of 
 modern banking becomes apparent. Even the Bank 
 of England, which is regarded as a Gibraltar of financial 
 security, and upon the solvency of which England's 
 commerce depends, is removed but a few degrees above 
 the danger line upon which all other banks conduct 
 their business. In his excellent work called "Lombard 
 Street " Walter Bagehot says : — 
 
 " English trade has become essentially a trade on 
 borrowed capital, and it is only by this refinement of 
 our banking system that we are able to do the sort of 
 
IRRATIONAL BANKING 175 
 
 trade we do, or to get through the quantity of it." . . 
 " There never was so much borrowed money collected 
 in the world as is now collected in London. If any 
 large fraction of that money really was demanded, our 
 banking system and our industrial system too, would 
 be in great danger." ..." We see then that the 
 banking reserve of the Bank of England — some 
 ^10,000,000* on an average of years now, and formerly 
 njuch less — is all which is held against the liabilities of 
 Lombard Street ; and if that were all we might well be 
 amazed at the immense amount of our debts payable 
 on demand, and the smallness of the sum of actual 
 money which we keep to pay them if demanded. But 
 there is more to come. Lombard Street is not only a 
 place requiring to keep a reserve, it is itself a place 
 where reserves are kept. All country bankers keep 
 their reserve in London. They only retain in each 
 country town the minimum of cash necessary to the 
 transaction of the current business of that country 
 town. Long experience has told them to a nicety how 
 much this is, and they do not waste capital and lose 
 profit by keeping more idle. They send the money 
 to London, invest a part of it in securities, and keep 
 the rest of it with the bankers and the bill brokers. 
 The habit of Scotch and Irish bankers is much the 
 same. All their spare money is in London and is 
 
 * Since this was written the reserve of the Bank of England has 
 been greatly increased. Considering its enormous responsibilities the 
 present reserve even now is surely insufficient for all contingencies ! ! 
 
176 RATIONAL AND 
 
 invested as all other London money now is ; and there- 
 fore the reserve in the banking department of the 
 Bank of England is the banking reserve not only of 
 the Bank of England, but of all London— and not only 
 of all London, but of all England, Ireland and Scotland 
 too." And again, " In consequence all our credit 
 system depends upon the Bank of England for its 
 security. On the wisdom of the Directors of that one 
 joint stock company it depends whether England shall 
 be solvent or insolvent. This may seem too strong, 
 but it is not. All banks depend on the Bank of 
 England, and all merchants depend on some banker." 
 In another place he says, " So far from our being able 
 to rely on the proportional magnitude of our cash in 
 hand, the amount of that cash is so exceedingly small 
 that a bystander almost trembles when he compares 
 its minuteness with the immensity of the credit which 
 rests upon it." No greater condemnation of a system 
 upon which the entire commerce and wealth of a nation 
 is built could possibly be made ! ! 
 
 A comparison has been drawn between banking 
 and the system upon which life insurance companies 
 conduct their business. It is said that a bank of 
 deposit is quite as secure as a life insurance company, 
 and that the objection above raised regarding the 
 dangers of modern banking apply with equal force to 
 insurance companies. If more than a certain pro- 
 portion of the holders of insurance policies should die 
 within a given period, the effect on the companies would 
 
IRRATIONAL BANKING i77 
 
 be similar to a run on the bank, and insolvency would 
 result. But consideration will shew that there is no 
 proper analogy between the two systems. The 
 natural love of life induces members to avoid unneces- 
 sary danger and prompts them to use every means for 
 prolonging existence. But it is this very desire for self- 
 preservation that often precipitates bank failures. The 
 moment depositors believe their money to be in danger 
 they seek to withdraw it. 
 
 It is a strange anomaly that finance, which is the 
 life blood of trade and industry, should be conducted 
 upon rules the very opposite of those that govern the 
 industrial arts. In the construction of a bridge, a 
 vessel, or a machine, provision is made that it shall 
 withstand the greatest strains and the roughest usage 
 to which it may be subjected, and a margin known as 
 the " factor of safety " is allowed. Our financial 
 system, however, seems to be based upon the opposite 
 theory. In banking, the margin appears entirely on 
 the other side, and may with justice be termed the 
 " factor of unsafety." A banker's success is usually 
 shewn by the smallness of the reserve he keeps on 
 hand in proportion to the amount of his liabilities, 
 since this is in reality the measure of his profits. In 
 fact this " margin of unsafety " is, under our present 
 system, unavoidable ; for the direct object pursued by 
 the directors of a bank is to make profits for their 
 shareholders, and these profits are made by lending the 
 money of depositors to whom it is returnable on 
 
178 RATIONAL AND 
 
 demand. For a bank to hold a reserve at all commen- 
 surate with its liabilities is pronounced a waste of 
 capital and an unprofitable policy to shareholders, and 
 all that is necessary — it is claimed — is to maintain 
 the confidence of customers by making them believe 
 that their claims can be satisfied whenever presented. 
 The art of banking is, therefore, similar to the well- 
 known stage device of representing an army marching. 
 A few men, by marching in an endless chain across 
 the stage and behind the scenes, complete the illusion ; 
 and just so long as one does not venture behind the 
 scenes, the illusion can be maintained. So with banking. 
 A small amount of money is made to do duty for 
 heavy liabilities. The banker is therefore "between 
 the devil and the deep sea." To make his position 
 secure and satisfy depositors he must retain a reserve 
 equal to his liabilities, in which case his profits are nil. 
 To satisfy his shareholders he must earn dividends, and 
 thus endanger the safety of depositors. What are 
 known as " safe " banks strike a medium between the 
 two and trust to luck ! 
 
 It has already been shewn that our currency laws 
 restricting the volume of currency to the amount of 
 gold available necessitates the creation of a substitute 
 in the shape of credit which consists in promises to 
 pay gold, promises which at all times are precarious, 
 and in times of trouble become impossible of fulfil- 
 ment. And when Gold Standard advocates extol 
 the English currency system they ignore altogether 
 
IRRATIONAL BANKING 179 
 
 the credit system which is its necessary partner, and 
 without which English trade could not possibly be 
 carried on. 
 
 The money of the country, scientifically speaking, 
 includes not merely legal tender, but all forms of credit, 
 bills of exchange, promissory notes, cheques, etc., all of 
 which perform the money function, and it is only by 
 viewing the question from this standpoint that we can 
 adequately grasp the enormous risks to which trade 
 and commerce are now subjected ! 
 
 In reading works on banking the student cannot 
 fail to notice the absence of all reference to the prin- 
 cipal functions of money. Instead of treating money 
 as the medium of exchange it is regarded merely as a 
 loanable commodity. To the banker money is a com- 
 modity to be bought and sold and let out on hire. And 
 the scarcer the supply in relation to the demand the 
 higher the price of the loan. Hence dear money is a 
 condition sought by the money-lender just as eagerly 
 as the farmer desires high-priced wheat or the butcher 
 dear meat. This is the natural result of regarding 
 banking as a "trade" and money as a commodity. 
 The dividends made by banking institutions are of 
 much greater importance to the banker than the 
 growth of commerce, and there is far more commotion 
 over the loss of ;^ioo,ooo by the failure of a bank than 
 the loss of a hundred millions by failures in trade'. 
 The evils arising from this system are simply incalcu- 
 lable. It is the parent of industrial troubles, stagnation 
 
i8o RATIONAL AND 
 
 and bankruptcy. That banking should be subordinate 
 to trade and to its necessities does not seem to have 
 occurred to writers on this subject, and yet this is its 
 true and proper position. A rational banking system 
 would be adjustable and subservient to the needs of 
 commerce, but our present system is quite the reverse. 
 Commerce is compelled to adjust itself to certain rigid 
 rules formulated a generation ago, when business was 
 a very insignificant affair compared to what it is to-day. 
 The question then naturally arises, can a banking 
 system be devised which will facilitate commerce, and 
 enable business to proceed without the possibility of a 
 panic arising to endanger its stability ? Can such a 
 system be established which will enable wealth pro- 
 ducers to exchange their products fairly and without 
 the dangers and evils enumerated ? Unquestionably 
 yes. Ricardo has said, " On extraordinary occasions a 
 general panic may seize the country when every- 
 one becomes desirous of possessing himself of the 
 precious metals as the most convenient mode of realiz- 
 ing or concealing his property — against such panics 
 banks have no security on any system." And this 
 undoubtedly is true so long as laws give to the precious 
 metals the sole and supreme privilege of functioning as 
 legal tender. As we have already seen, panics arise 
 from knowledge of the fact or fear that banks have 
 undertaken obligations which they are unable to fulfil, 
 and it is this knowledge or fear which leads depositors 
 to seek to withdraw their holdings. The following 
 
IRRATIONAL BANKING i8i 
 
 principles should underlie sound banking : first, bank 
 notes should be issued against wealth and not against 
 debt ; second, banks should not undertake obligations 
 which they cannot always perform ; third, banks should 
 be established and operated for the convenience and 
 assistance of commerce, not for enriching bankers and 
 shareholders. These conditions are admirably ful- 
 filled in what is known as the Mutual Banking System. 
 A mutual bank is one established by commercial men 
 for the purpose of issuing notes or paper money against 
 satisfactory credit, or wealth, and for the sole purpose 
 of facilitating trade. There is no bank stock, and 
 there are therefore no dividends. Any member of a 
 community can become a member of the bank, provid- 
 ing his credit is good and he has wealth suitable for 
 monetization. No regular rate of interest is exacted 
 for monetizing wealth or for borrowed money, but 
 charges sufficient to defray the running expenses of the 
 bank, and for insurance, are made. 
 
 Every member of the bank agrees to accept its 
 notes in payment for services and goods. In case of 
 loans, the bank is forbidden to lend more than a fixed 
 proportion of the wealth pledged— say 25 per cent. 
 — leaving an ample margin for fluctuations. The notes 
 are made returnable within a definite period, and if 
 desired they can be again issued after a further valua- 
 tion of the property has been made. Return of the 
 bank notes releases the property pledged. Such notes 
 issued against wealth and with a proper margin for 
 
i82 RATIONAL AND 
 
 fluctuations in price, are a perfectly safe form of money, 
 and it is evident that no panic can arise under such a 
 system. For the bank is merely the holder of wealth 
 pledged for the return of notes issued. Mutual Bank- 
 ing is exceedingly simple and by no means new — it 
 was proposed by Beck in England, Proudhon in 
 France, and Col. Greene in the United States, many 
 years ago. Beck suggested the application of what is 
 known as "credit in account," whilst Proudhon 
 advocated generalizing the " bill of exchange " and using 
 this as the money token, but neither of these advocates 
 were allowed to put their ideas into practice for a 
 time sufficient to demonstrate their practicability. 
 Proudhon's system was peremptorily stopped by the 
 French Government, and its author thrown into prison 
 (a simple and summary method adopted by Govern- 
 ments for demonstrating the impracticability of 
 economic innovations). The unsafety of modern 
 banking is in fact wholly due to the restrictions and 
 interference of Governments in matters which properly 
 belong to the industrial and commercial branch of 
 society. 
 
 The monetary system advocated by Col. Greene, 
 in a pamphlet published by "The New England 
 Labour Reform League," contains, however, a very 
 serious fallacy, which if practised would lead to all the 
 disasters already enumerated. Col. Greene insists 
 that a given weight of some commodity (gold or 
 silver) must be employed as a "standard of value," 
 
IRRATIONAL BANKING 183 
 
 and that paper money issued by the mutual bank must 
 always bear a fixed relation to this amount of specie. 
 The contention of Col. Greene and his disciples is, 
 .that the evils of a specie currency result from the specie 
 basis, i.e. agreeing to redeem paper money in specie. 
 They contend that a promise of specie redemption is 
 not necessary in order to maintain mutual notes at a 
 parity with gold or silver. In other words, they insist 
 upon retaining the so called " standard " and abolish- 
 ing the basis. But it is evident that the one necessitates 
 the other. To say that a paper dollar is on a par with 
 gold is merely another way of stating that this piece 
 of paper will exchange in the market for the legally 
 fixed weight of gold which is made equivalent to the 
 dollar, viz., 23-22 grains. And it remains at par only so 
 long as this exchange can be effected at the desire or on 
 demand of the holder of the paper dollar. But what 
 guarantee has the holder of a mutual bank note that 
 it will always remain at par with gold ? Col. Greene 
 maintained that the mere agreement of the members 
 of the bank to accept its notes always in lieu of gold 
 would be sufficient to maintain the parity. 
 
 Now mutual banking — to be successful — must 
 provide for the accommodation of the members of all 
 branches of industry, including jewellers and dealers in 
 specie. A guarantee from this class would therefore be 
 needed to always accept mutual notes at a fixed 
 ratio with gold. In other words, it would involve 
 a promise of redemption in gold on the part of 
 
i84 RATIONAL AND 
 
 its dealers. The only difference then between 
 Greene's Bank and a specie paying bank, is that 
 in the latter the bank promises gold redemp- 
 tion, in the former individuals would be required 
 to do so. But why should gold merchants agree 
 to accept mutual notes always at a fixed ratio 
 with their commodity, any more than the butchers, 
 bakers, farmers, and other producers at some 
 predetermined ratio for their products ? The idea 
 is preposterous. On the other hand, assuming that 
 the mutual bank excludes specie dealers from its 
 field of operations, what sense is there in requiring 
 members to agree to accept notes in lieu of and as 
 an equivalent for a certain commodity which — as 
 Col. Greene intimates — they do not need? 
 
 The demand for money is one thing. The demand 
 for a commodity is another. And why people should 
 seek to tie together totally different, independent 
 desires is incomprehensible. 
 
 The purchasing power of gold is due to two causes. 
 These are, first and principally the privilege accorded 
 it by law of functioning as legal tender and as a debt- 
 discharging instrument, and secondly, its utility in the 
 arts. The demand for a debt-paying instrument is 
 an almost unlimited demand and is now centred 
 upon gold, solely because laws have been passed 
 by many nations giving it this privilege and giving 
 it to no other commodity. The demand for this 
 instrument is wholly independent of the material 
 
IRRATIONAL BANKING 185 
 
 of which it is composed, and hence paper 
 functions as a substitute for gold — a sufi&cient 
 demonstration of the fact that gold is altogether 
 unessential for currency purposes, and that but for 
 laws, it would never be used outside of the Arts. 
 , The demand for gold in the Arts is quite distinct 
 from the demand for it as legal tender. The former 
 demand is due solely to natural causes, and can be 
 satisfied by no artificial substitute, such as paper. It 
 is in the Arts that the qualities of gold — ductility, 
 malleability, non-corrosivene^s, etc., — lead to a 
 genuine demand for this particular metal, since it 
 can be satisfied only by something possessing these 
 qualities. But a debt-paying instrument requires no 
 such qualities as those pertaining to gold. " General 
 purchasing power " is the only attribute that is needed 
 to make an instrument effective as money. The funda- 
 mental error of Greene and his followers, is in regard- 
 ing value as a positive quantity, and as having an 
 objective existence. This fallacy pertains to the 
 " intrinsic value " theory, a theory long since 
 exploded. Had Col. Greene perceived that value 
 is merely a relation of quantities — expressed by a 
 numerical ratio — he would have realised the absurdity 
 of the expression "standard of value." Considering 
 that the world's present stock of gold held for coinage 
 purpose is sufficient to supply the demand in the 
 Arts — at the present rate — -for more that 50 years, 
 it is quite certain that the high price of gold is due 
 
i86 RATIONAL AND 
 
 almost entirely to its legally acquired money 
 functions. 
 
 Take an analogy. Supposing a substitute for 
 wheat was discovered which could be furnished for 
 i/iooth part of its cost, a substitute which proved 
 as nutritious, as healthful, and as palatable as 
 wheat. It is certain that the price of wheat would fall 
 so low as to make its production an unprofitable 
 industry. But if a law were passed compelling every 
 adult to eat so much wheaten bread per day — in spite 
 of the cheapness and efficacy of the substitute — the 
 price of wheat could be maintained at a very high 
 level. 
 
 It is strange that the one system which, above all 
 others, requires the co-operation of all the members of 
 society for its very existence, should have been so 
 overlooked by the organisers of co-operative societies. 
 These societies have been engaged for many years in 
 the production and distribution of commodities, and 
 with very satisfactory economic results ; but the 
 control of the medium of exchange has been left in 
 the hands of private institutions which exist and are 
 conducted entirely for personal gain, although their 
 stock-in-trade is furnished wholly by the community. 
 Far greater benefits are to be derived by co-operative 
 societies adding the function of banking to their 
 businesses — that is, the function of issuing paper 
 money against wealth as here suggested in the form of 
 a mutual bank. Naturally many objections will be 
 
IRRATIONAL BANKING 187 
 
 raised to the introduction of such a system — those 
 who Hve on usury and the sale of credit will obviously 
 object to any plan which would rob them of their 
 gains. The dangers of a paper currency will be 
 pointed out, and the well-known examples of 
 " Lawism " and the " French Assignats " cited as 
 warnings. Those who make use of these illustrations 
 forget that the disasters resulting from such paper- 
 money experiments have been due to promises or 
 attempts to redeem such paper in specie, in seeking 
 to maintain a parity between the paper and gold or 
 silver, or in issuing it without any basis of wealth. 
 The money of a mutual bank requires no redemption, 
 as it is issued against wealth itself. The wealth is to 
 be redeemed by the return of the notes. Moreover, 
 there would be no demand to maintain paper at any 
 fixed ratio with any single commodity. The ex- 
 istence of baseless credit money is due almost entirely 
 to the " gold standard " theory and the laws restricting 
 the issuance of sound currency. The baneful effects 
 of this credit money are far greater and more 
 pernicious than all the fpaper that was ever issued 
 under Law's system. 
 
 One question will naturally arise, viz., how 
 international banking is to be carried on in the event 
 of the mutual system being established. It is 
 believed by many that the gold coinage provides an 
 international currency, and that if this were abolished 
 international commerce would cease. International 
 
1 88 Rational and Irrational Banking 
 
 commerce is a system of barter pure and simple, and 
 there is no such thing as an international currency. 
 Gold is used as a commodity to adjust balances, and 
 there is no reason why a mutual bank in one country 
 should not balance accounts with a foreign bank 
 in specie, as is done at the present time. There is no 
 fixed ratio of exchange between the money of any two 
 countries, whether they use the gold " standard " or 
 not. Gold is bought and sold by weight, and does not 
 function as money internationally. Money is always 
 local in its circulation, never universal, and when one 
 exchanges the money of one country for that of 
 another one is simply practising barter. Whilst the 
 establishment of a universal currency would in many 
 ways be a convenience, it is not an absolute necessity, 
 and there is no greater reason for establishing an 
 international currency than an international postage 
 stamp, or an international system of weights and 
 measures. 
 
Cbapter XVI. 
 INTEREST 
 
 NO subject within the field of Economic Science 
 has excited so prolonged, so universal, or such 
 bitter contention as that with which we have now 
 to deal, nor have the effects of any Economic 
 system upon social life and civilization been more 
 marked. 
 
 Originally denounced as immoral by the founders 
 of the Christian Church, and legally prohibited for 
 many centuries, it has become the very foundation 
 upon which our so-called Christian Civilization is 
 built. The practice of charging for the loan — formerly 
 termed Usury — was expressly forbidden among the 
 Jews by the laws of Moses. Permission to exact 
 usury from the Gentiles was, however, granted— a 
 permission of which the Jews were not slow to avail 
 themselves, and to which is attributabl'e more than to 
 any other cause the terrible persecutions they under- 
 went during the Middle Ages, as well as in later times. 
 
 Usury, or, as it is now designated, Interest, was 
 condemned by ancient writers like Plato and Aristotle, 
 the Mahommedan Koran forbade it, and under the 
 Christian Church's influence the severest penalties 
 were inflicted by States against usurers. Even now 
 the system is controlled in most countries by special 
 legislation which limits the percentage which may be 
 charged for the loan. 
 
 Notwithstanding that interest is now legitimised 
 
igo INTEREST 
 
 universally, there still remains considerable prejudice 
 and a feeling that it is based upon injustice. 
 
 Quite recently, during the trial of a famous libel 
 suit in the Courts of France, an eminent advocate 
 (for the defence) spoke as follows : — 
 
 "St. Gregory of Nyssa, the immortal thinker of 
 the fourth century, wrote these lines : — 
 
 " ' He who would give the name of robbery or 
 ' parricide to the iniquitous invention of interest would 
 ' not be very far from the truth. What, indeed, does 
 ' it signify if you have made yourselves masters of the 
 'wealth of another by scaling walls or by killing 
 ' passers-by, or if you have acquired what belongs to 
 ' you by the merciless method of the loan ? ' 
 
 " If anyone had prophesied to St. Gregory as fol- 
 lows : — 
 
 " ' A day will come when what thou treatest as 
 ' robbery and assassination will become the law of 
 ' the world, and when an Attorney- General will 
 'indict in an assize court the writers who share thy 
 ' opinion. The whole of society wUl be founded upon 
 ' usury. They will build a temple which they will call 
 ' a Stock Exchange. This temple will fill the place of 
 ' thy cathedrals, even as thy cathedrals have filled the 
 ' place of the temple of Venus or Jupiter. The priests 
 'serving in this new temple will be called bankers, 
 'stockbrokers and financiers. They will swindle 
 ' others out of all the gold that will insure to them 
 'omnipotence. They will buy everything that is 
 
INTEREST 191 
 
 ' buyable, and some of the things that are not. And 
 ' vain revolts against their frightful empire will serve 
 ' only to make more manifest its terrible solidity ! ' 
 
 " If anyone had prophesied that to St. Gregory, 
 St. Gregory, who believed in God, would have joined 
 his hands and cried : ' Lord, deliver us from such a 
 ' moral malady ! ' 
 
 " The malady has run its course."* 
 
 The problem of interest is clearly stated by the 
 Austrian Economist, Professor Bohm-Bawerke, in his 
 great work on Capital and Interest (I quote from 
 Professor William Smart's translation) : — 
 
 " It is generally possible for anyone who owns 
 capital to obtain from it a permanent net income, 
 called Interest. 
 
 "This income is distinguished by certain notable 
 characteristics. It owes its existence to no personal 
 activity of the capitalist, and flows in to him even 
 where he has not moved a finger in its making. 
 Consequently it seems in a peculiar sense to spring 
 from capital, or, to use a very old metaphor, to be 
 begotten of it. It may be obtained from any capital, 
 no matter what be the kind of goods of which the 
 capital consists ; from goods that are barren as well 
 as from those that are naturally fruitful; from 
 perishable as well as from durable goods ; from goods 
 that can be replaced, and from goods that cannot be 
 replaced; from money as well as from commodities. 
 
 * M. de St. Audan's Defence of Jean Grave. 
 
192 INTEREST 
 
 And, finally, it flows in to the capitalist without ever 
 exhausting the capital from which it comes, and 
 therefore, without any necessary limit to its 
 continuance. It is, if one may use such an expression 
 about mundane things, capable of an everlasting life. 
 
 " Thus it is. that the phenomenon of interest, as a 
 whole, presents the remarkable picture of a lifeless 
 thing producing an everlasting and inexhaustible 
 supply of goods. And this remarkable phenomenon 
 appears in economic life with such perfect regularity 
 that the very conception of capital has not infrequently 
 been based on it. 
 
 "Whence and why does the capitalist, without 
 personally exerting himself, obtain this endless flow 
 of wealth ? 
 
 "These words contain the theoretical problem of 
 interest." 
 
 After exposing every theory hitherto advanced in 
 favor and against interest to the most searching and 
 merciless criticism, he concludes that interest is just, 
 because " The loan is a veal exchange of present goods 
 against future goods. Present goods invariably possess 
 a greater value than future goods of the same number 
 and kind, and therefore a definite sum of present goods 
 can, as a rule, only be purchased, by a larger sum of 
 future goods. Present goods possess an agio in future 
 goods. This agio is interest. It is not a separate 
 equivalent for a separate and durable use of the 
 loaned goods, for that is inconceivable ; it is a part 
 
INTEREST 193 
 
 equivalent of the loaned sum, kept separate for 
 practical reasons. The replacement of the capital 
 plus the interest constitutes the full equivalent." 
 
 In short, a loan transaction may be represented 
 thus: A = (A + aA) t, where A = the sum loaned = 
 present goods : t = time of maturity of loan. 
 AA = increment of A = interest. 
 
 In spite of the elaborate defence of interest by the 
 great Austrian Economist, I do not think the last 
 word has been said on this subject, nor do I believe its 
 apologists have yet rendered the system invulnerable to 
 attack. The main contention they make as shewing 
 the justice of interest, is that capital assists in 
 production, rendering labor more productive, and hence 
 capital is clearly entitled to a return for its use. And 
 since in the hands of the owner it is likewise productive, 
 and he is enabled to get a return (called natural 
 interest) by using it himself, he is naturally justified 
 in demanding a return equivalent to this. At first 
 sight this seems plausible enough ; but loans are not 
 made from capital which its owners can themselves use 
 profitably. It is surplus wealth that is usually put out 
 at interest. 
 
 Consideration of certain examples given by 
 Economists to illustrate the origin of interest will 
 make this clearer : take for instance the well-known, 
 oft- quoted, illustration of Bastiat. 
 
 The story concerns two carpenters, James and 
 William, one of whom, at the expense of ten days' 
 
194 INTEREST 
 
 labor, produces capital in the shape of a plane. The 
 other, for some unaccountable reason, instead of 
 making a plane, borrows his neighbour's, proposing 
 at the end of twelve months to return him a new one. 
 To this James, the capitalist, objects, on the ground 
 that by lending it he deprives himself of the advantage 
 its use affords in lightening his toil, and for which he 
 is entitled to compensation over and above the return 
 of a new plane. He demands, additional to the new 
 plane, a plank. The agreement is concluded, and at 
 the end of the year James receives a plane and a plank. 
 He lends the plane again for another year, receiving 
 another plane and plank, and continues to lend, year 
 after year, until his son becomes possessed of the 
 plane, and he in turn acts the part of capitalist by 
 lending the plane on interest. This annual gift of a 
 plank is called by economists a natural and just 
 remuneration for the " power which exists in the tool 
 to increase the productiveness of labor." William, 
 the borrower, is said to be no worse off than if he had 
 not borrowed the plane, since its use has made his labor 
 more productive. This is substantially the celebrated 
 argument of Bastiat, that has been cited thousands of 
 times as a clinching demonstration of the justice of 
 usury. 
 
 The answer which the opponent of interest would 
 naturally make to this illustration is that it lacks 
 probability. Why should James lend the only plane 
 he has ? He made it to use. What is he going to 
 
INTEREST 195 
 
 do without it ? Make another ? Then who supports 
 him while he is making planes ? Again, William is 
 also a plane maker, since he must make and return a 
 new one at the end of the year. Why does he not 
 make one at the beginning of the year and avoid 
 borrowing? Why cannot William turn capitalist? 
 The illustration seems absurd on its very face. Men 
 do not lend that for which they have themselves 
 immediate use. It is stirplus wealth that is converted 
 into capital, not that necessary for immediate 
 consumption. To make the story analogous to that 
 which it is intended to illustrate, James should have at 
 least two or more surplus planes, in which event his 
 demand for a plank in compensation for the loss of 
 advantage which the use of a plane affords him, is 
 nonsense. He is merely lending that which he has 
 no use for; hence, the act of lending entails neither 
 loss, deprivation, nor inconvenience of any sort. He 
 gets a new plane back, and is no worse off at the end 
 of the year for having made the loan. On the contrary, 
 he is much better off— better in several ways. First, 
 in receiving a new plane he preserves his wealth, which 
 is naturally perishable. Were he to refuse to lend it, 
 it would eventually deteriorate. The wood might 
 warp and split, the steel rust, and ultimately the plane 
 become useless. Secondly, by lending, he helps William. 
 William is a member of society, just as James is, and 
 the condition of society is dependent upon its members. 
 The more William advances the better for society. 
 
196 INTEREST 
 
 and the better for James. The condition 6i individuals 
 affects society, and the condition of society reacts on 
 all its members. This fact many writers have hitherto 
 been blinded to, notwithstanding its vast economic 
 importance. Current political economy seems to lose 
 sight of the fact that under the terms capital and labor, 
 it is really dealing with flesh and blood, and not with 
 machines. 
 
 It is the contention of Economists that if interest 
 were abolished the production of capital would be 
 curtailed — a contention that appears to me unsound. 
 The contrary seems to me to be true. The great 
 desire on the part of mankind is to escape from that 
 condition which renders labor obligatory. Now the 
 system of interest offers a means by which producers 
 may retire from the field of production. 
 
 Universally, there is a struggle on the part of 
 wealth producers to put by sufficient capital, the 
 interest upon which will enable them to live 
 comfortably without work. The higher the rate of 
 interest, the less capital it is necessary to create to 
 achieve this end, and vice versa. Therefore, the lower 
 the rate of interest, the fewer will be those able to 
 retire from wealth production, and the greater will be 
 the production of capital. If interest were abolished, 
 the desire to escape the irksomeness of toil would be 
 none the less keen, and since this escape would depend 
 upon the creation of sufficient wealth for support by 
 the consumption of principal, it seems to me apparent 
 
INTEREST 197 
 
 that the incentive to wealth production would be 
 greater without interest than with it. 
 
 It is also taken for granted that loans would cease 
 if interest were abolished. Why should a man lend 
 his wealth without having some benefit over and 
 above the mere return of the wealth loaned ? The 
 answer to this is that wealth is perishable. If we 
 confine ourselves to the consideration of commodities — 
 omitting those forms of wealth included under land, 
 natural opportunities, money, bonds and legal claims — 
 we shall see that wealth is naturally and inevitably 
 perishable. The vast bulk of wealth is consumed 
 soon after it is produced. Imagine, for the sake of 
 argument, a society where the capitalist's wealth 
 consisted wholly of perishable commodities. Knowing 
 that such wealth would decay and disappear within a 
 certain time, would not an offer to take it and return 
 its equivalent at some future time, or say in instal- 
 ments paid regularly at the end of certain periods, be 
 readily accepted without interest ? In fact, would not 
 such an offer meet with, and merit, a reward ? Surely 
 the man who saves for me wealth which otherwise 
 would perish, is entitled to a remuneration. Under 
 modern conditions the loan, however, takes a very 
 different form. 
 
 By virtue of certain legal enactments, wealth is, 
 as stated by Professor Bohm-Bowerke, immortalised. 
 By a system of exchange a man's surplus commodities 
 are converted into money, and when capital is 
 
198 INTEREST 
 
 borrowed it usually takes the money form, so that 
 perishable wealth is transformed into an order on 
 wealth producers at all future times to reproduce 
 wealth in any form, and at any time the holder may 
 choose. To negotiate a loan the modern industrian 
 has recourse to the bank, and it is in this direction 
 that our present investigation must be conducted. 
 
 When a merchant seeks to negotiate a loan of 
 money from a bank he must first provide security, 
 either in the form of collateral or personal credit for 
 the return of the money, so that the element of risk is 
 eliminated ; in fact, it is customary for banks to exact 
 a deposit of collateral of much greater worth than 
 the amount of the loan. Having provided sufficient 
 wealth to guarantee the return of the sum borrowed, 
 he has further to agree to pay a percentage as interest. 
 Let us take a special case. A manufacturer, having 
 been informed that there was likely to be a strike 
 amongst the coal miners, and, in consequence, the 
 price of coal would advance, he determined to lay in 
 a good supply. He applied to his bank for the loan 
 of ;£'5,ooo for six months. He offered as security for 
 the loan, a mortgage worth _^io,ooo on an improved 
 property in a neighbourhood where rents were 
 advancing ; the loan was made, and at the end of the 
 six months he returned the ;^5,ooo, plus ;^ioo interest. 
 The information regarding the strike proved to be 
 erroneous, and in place of the price of coal advancing 
 as he expected, it actually declined, and he found he 
 
INTEREST 199 
 
 had paid ;^5oo more than if he had waited and bought 
 it as required. He therefore lost not only this amount 
 and the interest on the loan, but had to pay for the 
 storage of some of the coal during this period. The 
 question arises, what did the bank give in exchange 
 for the ;^ioo ? It made no sacrifice, nor underwent any 
 risk, since it held the power to convert the amount 
 covered by the mortgage into currency. The wealth 
 of the bank was not decreased by one penny in making 
 the loan. What justification was there in asking a 
 sum for the loan of the money ? This is the real 
 interest problem under modern industrial conditions. 
 
 Economists would say that the bank was deprived 
 of the use of the money during the six months which 
 it might have profitably invested to bring a return. 
 It is customary in giving illustrations and examples 
 on this subject for writers to say that the borrower 
 gained considerably by the use of the loan, and then to 
 add that the bank might have placed the money in the 
 same investrtient, and made all the profit, and that the 
 payment of interest is only fair, since without the loan 
 the borrower could not have made the profit. But 
 the instances of such investments being unprofitable 
 are by no means uncommon — ^in fact, it is questionable 
 whether fully one-half are not so, and, if tl?.e bankers 
 undertook to direct the investment, it is doubtful 
 whether they would be any more successful than the 
 average merchant and manufacturer. 
 
 The correct answer as to why interest is chargeable 
 
200 INTEREST 
 
 and obtainable on loans of the nature similar to the 
 example given, is because the demand for money is 
 practically always in excess of the supply — a condition 
 existing by virtue of special legislation. The purchase 
 of commodities and the payment of debts are effected 
 in the legalised medium of exchanges, and mortgages 
 are not legalised means of payment, whilst bank notes 
 and coin are, and so the holder of mortgages and every 
 other form of wealth except gold and government or 
 bank money, is unable to pay his debts unless he can 
 exchange his wealth for money by means either of 
 a sale or the loan. The loan is really an exchange of 
 stationary for circulating credit, of special for general 
 purchasing power, and interest is a tax for the privilege of 
 converting the one into the other. All the bank has done 
 was to enable the manufacturer to fluidize his wealth. 
 Governments having conferred this privilege upon one 
 form of wealth, gold, has thus given the power of 
 those controlling this metal to exact a tax upon all 
 other wealth. Interest is therefore the price of a legally 
 created monopoly. 
 
 The ijioney loan is not "an exchange of present 
 goods for future goods," but merely an exchange of 
 one form of purchasing power for another. As I have 
 shewn in p|-eviovis chapters, the general purchasing 
 power of legal tender is a legally acquired privilege, 
 whilst purchasing power comes from and is due to 
 Society. It is- not due to anything existing in any 
 met^l or instrument, nor to any quality possessed by 
 
INTEREST 201 
 
 it, except the function granted by legislation of paying 
 debts. Momy is essentially a social instrument, and 
 interest is the price paid by borrowers for the privilege 
 given to gold and bank notes. The merchant who 
 bought the coal would certainly not have paid interest 
 for the ;^5,ooo if mortgages had the same rights of 
 monetisation as gold. 
 
 After all, the judgment which must eventually be 
 passed upon interest as a legalised system will depend 
 upon its social results. Is it socially beneficial or 
 injurious ? Does it make for the prosperity and 
 happiness of nations, or for their misery and destruc- 
 tion ? If the former, why have Governments interfered 
 so often in seeking to control and limit interest 
 charges ? And if five per cent, is a national blessing, 
 why is not ten per cent, a still greater advantage ? 
 Governments have not sought — except in a few 
 isolated cases — to limit rent charges, nor have they 
 stipulated to what extent a merchant may make 
 profits in trade. 
 
 Why has this one system been of so much greater 
 solicitation on the part of governors, rulers, and 
 legislatures, than the other factors of distribution, rent, 
 wages and profits ? Why have the religions of nearly 
 all lands denounced and forbidden it ? 
 
 It seems to me that experience must have taught 
 nations in the past that usury is fraught with danger, 
 and only possible within strictly defined limits. Money 
 is the life-blood of trade, and therefore of wealth 
 
202 INTEREST 
 
 production, and anything that interferes with its free 
 circulation must be as serious a menace to a nation's 
 welfare, as interference with the circulation of the 
 blood would be to the life of a human being. 
 
 Interest is necessarily a tax upon production — for 
 surely, if a nation could procure for its trade a non- 
 interest bearing currency, it would be in a better and 
 more prosperous condition than where a tax is 
 imposed ? Money being the tool of trade, the less one 
 has to pay for the use of this tool the greater the wealth 
 he will be able to secure to himself. The rate of interest, 
 in fact, determines often whether an industry can be 
 worked profitably or not. Nay more, it determines 
 whether nations shall prosper or become bankrupt. 
 
 Startling as it may appear, it is nevertheless an 
 easily demonstrated fact, that under the current rates 
 of interest, the debtor classes of nearly all civilised 
 nations are rushing into bankruptcy. The fact is that 
 the wealth production of nations cannot keep pace 
 for long with their interest charges. In fact, interest 
 as a universal working principle is — at all ordinary 
 rates — an impossibility. Five per cent, interest 
 means a doubling of wealth every twenty years. At 
 compound interest it is doubled in about 14 J years. 
 Let us take a broad survey of this question. 
 
 Suppose the Pilgrim Fathers had invested the 
 little capital they brought from the old world on a 
 five per cent, usury basis, the people of this country* 
 would owe them more than all the wealth they possess. 
 
 * United States. 
 
INTEREST 203 
 
 "Suppose," says Proudhon,* "that a man in the 
 reign of St. Louis had borrowed 100 francs, and had 
 refused— he and his heirs after him — to return it. 
 Even though it were known that the said heirs were 
 not the rightful possessors, and that prescription had 
 been interrupted always at the right moment, 
 nevertheless, by our laws, the last heir would be 
 obliged to return the 100 francs with interest, 
 and interest on interest, which in all would amount 
 to 107,854,010,777,600 francs; which is 2,696 times 
 the capital of France, or more than twenty times 
 the value of the terrestrial globe ! " 
 
 " Suppose, when Virginia was settled in 1607, 
 England had sold to the first settlers the whole of 
 the United States for $1,000 and had taken a 
 mortgage for this sum covering the whole property, 
 but instead of paying the interest yearly at seven 
 per cent., the settlers had agreed to take up their 
 bonds at the end of every six months and add in 
 the interest. Allow the §1,000 and the accruing 
 interest to remain outstanding until i860, and then 
 become due. Although our prosperity has far sur- 
 passed that of any other nation, yet our property of 
 every description would not pay the debt. Interest 
 at seven per cent, doubles the principal in ten years 
 and one month. In 100 years and ten months the 
 debt would have amounted to $1,024,900; and in 
 201 years and eight months to $1,048,576,000. Add 
 
 * "What is Property?" Humboldt Series. 
 
204 INTEREST 
 
 fifty years and five months to 1859, and the sum would 
 amount to $33.554.432,ooo.* 
 
 But it is not necessary to go back so many years 
 to show the impossibility of interest as a universal 
 working principle. Usury is always increasing more 
 rapidly than wealth. It knows no period of depression, 
 no time of stagnation, no failure of crops, no un- 
 fortunate speculations, no condition of ill-health 
 and inability to produce. It takes no holiday, and 
 refuses even to keep the Sabbath. It forever goes on 
 as regular as time, and as relentlessly as gravitation, 
 counting and adding to men's burdens, piling them 
 higher and higher, until the loan becomes too great, 
 and there is a financial crash. No system of 
 production has yet been discovered capable of 
 maintaining this regular, never-failing supply which 
 usury demands. 
 
 All forms of wealth production are fitful, irregular, 
 and subject to fluctuations. One season's harvests 
 are abundknt and the next a failure. This year's fruit 
 crop may prove enormous, and the next spring's frosts 
 may kill all the blossoms. The consequence is that 
 though for a limited period production may make 
 rapid progress, yet, like the hare and the tortoise, 
 usury invariably overtakes and keeps ahead of 
 production. 
 
 " The borrowed capital of the United States," says 
 a writer in the Arena,] " claims more in remuneration 
 
 * "Capital and Interest." Kellogg. 
 1 1. W. Bennett in March No. 1894. 
 
INTEREST 205 
 
 than the country can produce. Every dollar invested 
 in business claims a return called interest. Every 
 dollar representing debts unpaid, claims a like 
 remuneration. This must all be paid out of the 
 production of each year, and from each year's product 
 men must be fed and clothed and sheltered. The 
 wealth of the world must be kept up. Buildings, 
 machinery, everything must be kept in repair ; and 
 improvements for use in the future must be taken 
 from the stock of the present. There is not wealth 
 enough to meet all these obligations, and the business 
 of the world must go into the hands of a receiver 
 every now and then, so that a new start in business 
 may be made. The country, with all its allied 
 industries, is analogous to a mammoth business 
 concern. When it contracts greater liabilities 
 than it can meet it fails, and we have a financial 
 panic. 
 
 "This state of bankruptcy is chronic. Counting 
 everything, the liabilities of the country are always 
 greater than its assets. The industrial world is always 
 in a state of potential bankruptcy, but credit tends to 
 keep it out of the hands of a receiver. Then the same 
 persons are in part debtors and creditors, and this, 
 with our frequent liquidations, aids in keeping us from 
 continual financial panic. Any disturbing of credit 
 precipitates a crisis. 
 
 " An odd proposition, but one capable of mathe- 
 matical demonstration, is that the very foundation 
 
2o6 INTEREST 
 
 principles of our industrial system lead us to recognize 
 obligations which we can never pay. A simple, 
 specific statement of what they are compels us to 
 admit that they are too large to meet. 
 
 " The present wealth of the United States may be 
 placed in round numbers at §72,000^000,000. That 
 fully eighty per cent, of this sum pays interest may be 
 verified by any person who cares to give the subject 
 thought. If any of the money in business bears 
 interest, all money invested in business must likewise 
 bear interest, otherwise nobody would assume business 
 risks. But we may arrive at the same conclusion by 
 a process quite different. 
 
 " Something like eighty per cent, of the wealth of 
 the country is in the hands of about 250,000 persons, 
 or about one two-hundred-fortieth of the population. 
 This excludes the wealth of well-to-do farmers and 
 merchants ; and it goes without saying that nine- 
 tenths of this wealth held by the immensely rich is 
 interest-bearing. Nearly all of it is lent, or if not lent 
 out is invested in some business where interest on the 
 money invested is added to the return or profits of the 
 undertakers. The wealth in the hands of farmers and 
 merchants is paying interest on all that is not used for 
 the personal wants of themselves and their famiUes ; 
 and even many of the homesteads of the country are 
 paying interest. . . . 
 
 " At least one half of such wealth is interest- 
 bearing. An examination of the mortgage lists of the 
 
INTEREST 207 
 
 several States will more than bear out this estimate. 
 We are, then, paying fixed charges, as the railroads 
 put it, on about $55,000,000,000 of the country's 
 wealth. The net rate will average five per cent. ; and 
 taking into consideration commissions and other 
 charges, six per cent, is a low estimate of the gross 
 rate. The interest on $55,000,000,000 at six per cent, 
 is $3,300,000,000 per year. To get the average 
 interest charges for the last decade we must take the 
 average of interest-paying capital, which is about 
 $50,000,000,000. We have, then, an average yearly 
 interest of $3,000,000,000, a sum which more than 
 absorbs the entire yearly increase of wealth in the 
 United States. During the last decade the wealth of 
 this country has increased about $22,000,000,000. 
 
 " During the same period the interest charges were 
 $30,000,000,000. Adding but the single item of 
 interest on personal business obligations to the 
 standing debt of the people, the assets of the country's 
 citizens will, in the short period of ten years, fall 
 $8,000,000,000 below their liabilities. The principal 
 falls due in that time, and the business of the country, 
 if fixed in the hands, would bankrupt in that time. 
 It does actually feel the shock. But the fact that 
 many persons are creditors as well as debtors, and the 
 debtors and creditors change places, puts off the final 
 accounting. The tendency of the enormous fixed 
 charges on business is to amass the wealth of the 
 country in the hands of large property owners, who 
 are almost exclusively creditors. 
 
2o8 INTEREST 
 
 "The mightier the fortune, the more interest it 
 draws and the more exempt it is from the dangers 
 of speculation. 
 
 " Fortunes go on piUng up under the laws of 
 interest, and after all checks and counter-tendencies 
 are allowed for, the country has a panic — becomes 
 bankrupt — every twenty years. 
 
 " There is a well-defined financial flurry of more 
 or less violence, every decade, or even oftener. The 
 fact is that whenever the creditor class demands its 
 money there is a panic, for there is not money enough 
 in the country to satisfy the demand, and all property 
 must be turned over to meet liabilities. Indeed, the 
 cash in the country is principally in the hands of the 
 creditor class, having piled up there under the laws 
 of interest. 
 
 " During times of confidence business is kept 
 moving by a shifting of liabilities, but in times of 
 doubt and uncertainty, from whatever cause brought 
 about, the business of the country finds it impossible 
 to meet its obligations and is obliged to file into bank- 
 ruptcy. The cleverest of speculators cannot long keep 
 up their business by borrowing from one to pay 
 another, unless debts are very small as compared with 
 the capital invested. Just so the business of the 
 country, taken as a whole — the piling up of debts 
 always ends in collapse. It is nonsense to say that 
 want of confidence is the cause. Unless the ground 
 principles of business produce instability, want of 
 
INTEREST 209 
 
 confidence can have no effect. Men realize that the 
 business of the world cannot pay its debts, and there- 
 fore lose confidence." 
 
 Now, a scientific principle is one which is uni- 
 versally applicable to the phenomena with which it 
 deals. The greater the field over which it operates, 
 the more is its truth and exactness established. 
 Interest, as we have seen, becomes impossible as 
 soon as applied universally or over a considerable 
 period. It is only applicable on a small scale or 
 for a limited period. 
 
 Every certain period there is a universal break- 
 down ; panics and bankruptcy become world-wide ; 
 interest-bearing wealth is swept away, and equili- 
 brium is restored only after interest-bearing capital 
 has been greatly reduced. In fact, capital is being 
 constantly devoured to pay interest on other capital. Here 
 is a builder whose vacant house refuses to pay the 
 ground rent; finally the house is seized for the 
 rent. There, a manufacturer, unable to pay the 
 interest on borrowed money, is compelled to assign 
 his machinery, buildings and grounds to the usurer. 
 This is of such ordinary and every-day occurrence 
 that it excites no comments and scarcely any notice ; 
 yet it is only by the continual destruction of capital 
 that rent and interest are maintained. Wealth under 
 usury devours itself. Startling as it may seem, it is an 
 indisputable fact that panics, bankruptcies and failures 
 are absolutely necessary in order to keep the system alive. 
 
210 INTEREST 
 
 Wealth cannot be produced at a sufficiently rapid 
 rate to meet its demands ; hence capital, after devour- 
 ing its own children, devours itself. The first capital 
 sacrificed is that which is the least strongly intrenched. 
 It is the small capitalist who goes under first, then 
 the next, and so on, until the wealth lent on interest 
 is reduced to balance production. The most strongly 
 intrenched is that which absorbs the less powerful. 
 By this means national debts and government bonds 
 bear interest in times of severest panics and business 
 depression ; and this is why they are considered the 
 most desirable and safest kind of investment. Usury, 
 like gravitation, causes large bodies to attract and 
 eventually absorb smaller ones. The small capital 
 of individuals is being constantly absorbed by the 
 greater capital of corporations. This is its inevitable 
 tendency. The forces of attraction and absorption 
 are as strong, constant and relentless in the monetary 
 as in the physical world. 
 
 " Usury," says Lord Bacon, " bringeth the treasure 
 of a realm into few hands." 
 
 Usury is suicidal, and abstinence leads to death. 
 The more abstinence is practised, the more capital is 
 piled up ; the more capital, the greater the amount 
 swallowed by interest; the greater the volume of 
 wealth taken on interest, the heavier the burden on 
 labor ; and the heavier the burden upon labor, the less 
 wealth labor is capable of producing. 
 
 It seems to me therefore, when considered on 
 
INTEREST 2" 
 
 sufficiently broad grounds, interest is not a desirable 
 nor a socially beneficial institution. It leads to bank- 
 ruptcy, and is the parent of those financial disturbances 
 which some writers have ridiculously attributed to 
 sun spots. It forces the industrial world into liquida- 
 tion every few years. It has created and perpetuated 
 an idle rich class, which, as Professor Cairnes 
 asserted, " is a formidable obstacle to economic laws, 
 and from the existence of which no public benefit of 
 any kind arises." 
 
 Finally, as a universal principle it is impossible. 
 
Cbapter xvn. 
 CONCLUSION 
 
 ' ' The time has come for the wise to choose their course, and prepare 
 for reconstruction." — Proudhon. 
 
 WE have still to consider the second object of 
 Political Economy as defined by Adam Smith, 
 viz. : — " To supply the State or Commonwealth 
 with a revenue sufficient for the public services." 
 This subject should properly be treated under 
 the head of taxation, but as this would carry us 
 beyond the immediate scope of our investigation, I 
 shall merely consider it in its bearings on the money 
 question. 
 
 The debts created by Governments throughout the 
 world are so gigantic as to be practically inextinguish- 
 able, and no one can contemplate without a shudder 
 the condition of future generations who must inherit 
 these burdens — resulting from the ignorance and 
 extravagance of past and present generations. 
 
 At the present time the support of the State is 
 maintained by the impost of taxes upon incomes, upon 
 manufactures, upon imports, and in fact upon almost 
 every article, act or process capable of supporting 
 them. And practically the whole burden of main- 
 taining the State is thrown upon wealth producers in 
 such a way as to discourage production. In the event 
 of extraordinary expenses — for waging wars, etc. — re- 
 course is had to the loan, and the nation is bonded. 
 
CONCLUSION 213 
 
 Taxes are payable in currency of the realm — in the 
 very instrument created by the power and sanction of 
 the State. The question will naturally arise, why — ■ 
 since the State has the power of creating legal tender — 
 it does not issue the amount needed year by year and 
 pay its debts, rather than by taking from the volume 
 already in circulation and necessary for business ? 
 The answer is, that so long as Governments insist 
 upon taking the commodity aspect of money, and 
 maintain that money must be made of some particular 
 metal, just so long must they have recourse to the 
 present system of loans and taxes. When stripped of 
 all the delusions surrounding the science, money is 
 seen to be nothing more than a token, the evidence of 
 debt, and there can certainly be no objection to the 
 issue of such an amount as the State is in the habit 
 of collecting annually. Suppose the annual taxes 
 collected by a Government amount to ;^50,ooo,ooo ; 
 why should it not issue this amount in notes and pay 
 its officers and servants, and, in fact, its entire expenses 
 therefrom ? So long as the notes are made receivable 
 in payment of taxes there can be no question as to 
 their passing current. If a Government bond is 
 considered a valuable instrument, if the public debt is 
 a fit and proper subject on which to base the currency, 
 why should not the Government anticipate the debt 
 by issuing paper money, agreeing to accept it in 
 payment of taxes ? If the one is a safe system why 
 should not the other be ? Given the power to collect 
 
214 CONCLUSION 
 
 a certain sum annually, surely a Government can 
 readily draw on this by issuing an equivalent in the 
 form suggested. 
 
 An illustration will make this plainer. It is related 
 that in one of the Channel Island towns, some years 
 ago, the municipality needed a new Market House, 
 and decided to build it without borrowing the money, 
 and thereby creating an annual interest charge. It 
 was proposed that the municipality should issue notes 
 in denominations of £\ and £^ each, making them 
 receivable for taxes. Having the power to impose the 
 tax, the redemption of the notes was a simple matter. 
 Tenders were received, and the successful contractor 
 paid in the notes ; the working men accepted them 
 gladly, finding no difficulty in purchasing with them 
 the necessities of life from the shopkeepers, who in 
 turn received them knowing that they could again 
 transfer them in payment of their taxes. The notes 
 ultimately returned to the City Treasury and were 
 destroyed. In this way, so it is stated, the Market 
 House was built without the payment of one shilling 
 of interest on borrowed money. 
 
 After all, does it not appear utterly indefensible for 
 the State to be compelled to beg for the loan of a 
 certain instrument, the power of creating which it has 
 deliberately given away to certain privileged institu- 
 tions — and often without any sort of compensation ? 
 So long as the amount of money issued by Govern- 
 ments is well within the maximum amount payable in 
 
CONCLUSION 215 
 
 taxes I fail to see why Governments should not take 
 advantage of this power which they possess. The 
 advantages are obvious. In the first place it would 
 avoid the difficulties which now arise by reason of 
 Governments keeping locked up large sums which are 
 taken out of circulation, thereby creating a stringency 
 in the money market. Of late years the Treasurer of 
 the United States has had to go to the assistance of 
 the banks on several occasions, in order to save the 
 nation from serious crises, owing to the large sums 
 withdrawn from circulation by taxation, and locked up 
 in the National Treasury. Apparently the only way 
 in which this could be returned to the people was by 
 the Government purchasing its own bonds before 
 maturity, and for which it had to pay a heavy 
 premium. 
 
 In the second place it would undoubtedly save 
 nations much of their interest charges. 
 
 Lastly, it would, as Dr. Walker has shown in his 
 work on " Money, Trade and Industry," give a " fillip " 
 to business by augmenting the volume of legal tendep. 
 So long as these notes are collected in payment of 
 taxes and so redeemed, they would undoubtedly form 
 a safe currency and fulfil the necessary functions of 
 money. The fact that Governments have in the past 
 abused this practice on occasions is no reason for 
 abandoning it altogether. Within reasonable bounds 
 it can be used, and used to great advantage. 
 
 We have now discussed the rnain objects of 
 
2i6 CONCLUSION 
 
 political economy as defined by one of its founders, 
 and have seen the numerous fallacies underlying 
 certain of its branches, particularly the branch known 
 as finance, which is to-day the most important of all. 
 What then is the remedy for the evils and difficulties 
 described? What solution for the money problem 
 have we to offer ? 
 
 During the course of this investigation, we have 
 seen that the one great obstacle opposing economic 
 advancement, is law. No matter what may be the 
 special branch of our investigation, no matter how 
 much the righteousness and wisdom of a certain line 
 of action may be demonstrated, in our progress we are 
 invariably brought to a final standstill by the law- 
 makers' edict, " Thou shalt not." 
 
 We have seen that the precariousness of sup- 
 porting life, that which causes most of our anxiety, 
 and raises the question in the minds of millions 
 whether life is really worth living — in fact, that which 
 necessitates economy, is the scarcity of subsistence. 
 And we have also seen that the tendency — nay, the 
 economic goal of civilization — is to increase these 
 means, bringing them nearer to Nature's gifts; in the 
 language of Adam Smith, "to enable the people to 
 provide a plentiful revenue for themselves. " In short, 
 the object of economics is to abolish scarcity, so far as 
 the means of living are concerned. We have also seen 
 that the evils of our monetary system may be summed 
 up in that one word, scarcity, a condition arising solely 
 
CONCLUSION 317 
 
 from the operation of restrictive laws — laws which 
 give to the few absolute power over the lives and 
 fortunes of the masses. Commerce is, in fact, con- 
 stantly ground between two millstones, the upper 
 being the law compelling settlement of debts in legal 
 tender, and the lower the law which restricts this tender 
 to a particular commodity or certain quantity wholly 
 insignificant in amount to meet the necessities of 
 business. 
 
 The first step in the solution of this all-important 
 question is to repeal laws which forbid or interfere 
 with free banking, and which make gold or silver or 
 any other commodity or instrument compulsory legal 
 tender. To one who is not blinded by superstition, 
 custom and tradition, it will appear just as unreasonable 
 for governments to prescribe the form or method in which 
 payments shall be made, as to set up a compulsory 
 standard for the manufacture of boots and shoes or 
 any other commodity. That there should be a legally 
 constituted monetary unit — ^for public convenience — 
 similar to the unit of weight, length and capacity — goes 
 without saying. Such a unit could be the purchasing 
 power of a pound sterling, a dollar, a franc, a mark — 
 at a given time. Instead of being or representing a 
 certain weight or mass of a particular commodity, such 
 as gold, it would represent a certain fraction of all the 
 exchangeable wealth at a given time. This fraction 
 may be i/i,ooo,oooth part to-day, and i/i,ooo,ooith 
 part next month, but it would always bear the same 
 
2i8 CONCLUSION 
 
 relation to the same amount of wealth which existed 
 at the time it was first issued. Aa to whether this unit 
 shall be expressed on paper, gold, silver, copper or 
 cabbage leaves, no government should attempt to 
 determine. 
 
 Governments might, with equal justice, enact laws 
 making oil the only illuminant, wood the only fuel, 
 and steel the only material for shipbuilding. . . . 
 The analysis of a coin has already demonstrated that 
 whilst individuals may rightly claim ownership of the 
 material out of which it is made, the exchange power 
 of the coin — that which gives it the function of 
 money — comes entirely from the community or nation 
 at large, and no individual or firm has a right — morally 
 speaking — to claim a monopoly of this. 
 
 To many there may appear no analogy between 
 the issue of money and the issue of postage stamps, 
 and yet if we examine them closely we find several 
 points of resemblance. We must remember that money 
 is essentially a social instrument created by society 
 for facilitating exchange. It is society, not banking 
 houses, that gives to gold and paper their money 
 functions. No individual can create money. For an 
 instrument to be money it must circulate, and in order 
 to circulate it must have exchange power, and this 
 power is created by the members of society accepting 
 it in exchange for commodities and services. Money 
 is but a means to an end, a right to demand satisfaction 
 in commodities or services. A postage stamp is simply 
 
CONCLUSION 219 
 
 evidence of a right to demand the carriage and delivery 
 of a letter. Both are social instruments created by 
 society for its use. Now the purchasing power of 
 postage stamps might have been maintained as 
 readily as the purchasing power of money, had 
 the founders of the system adopted a similar 
 course. For instance: suppose the Government 
 should pass an Act limiting the production of 
 postage stamps to a certain fixed number per annum ; 
 suppose, further, that the right to issue these stamps 
 was given exclusively to a certain firm or company, 
 and that the number of stamps issued was restricted to 
 five per cent, of those required for the distribution of 
 letters. Imagine the effect upon business! And yet 
 it is easily seen that under such a system postage 
 stamps would become exceedingly valuable, and 
 dealing in them a very lucrative business. Or 
 suppose that Rowland Hill had succeeded in getting 
 Parliament to pass an Act prohibiting the carriage and 
 delivery of letters except those to which had been 
 affixed a nickel stamp, each stamp to contain so many 
 grains of nickel. At first the number of letters delivered 
 would have depended upon the amount of nickel 
 available for this purpose and the frequency with 
 which the stamps could be returned and sent out again. 
 The next step would have been to procure an Act 
 allowing the issue of paper stamps to represent the 
 nickel and so save the metal from being lost in transit 
 and from wear and tear by abrasion. The nickel 
 
220 CONCLUSION 
 
 would then have been deposited in vaults, and paper 
 stamps issued corresponding to the number of units of 
 weight of the metal held for this purpose. The effect 
 of this would have been first to hinder the growth of 
 business to an enormous extent by limiting the dis- 
 tribution of letters, and secondly to give to nickel a 
 much greater exchange power than it now possesses. 
 
 It would have led to severe fluctuations in business 
 by reason of the uncertainty of the number of stamps 
 available, and had this system been extended and 
 made universal we should have nickel bars going from 
 one country to another and creating the same dis- 
 turbances in regard to the distribution of the mails 
 that now exists in the money markets by reason of 
 the imports and exports of gold. 
 
 Look at the disturbances to which business is 
 subjected from time to time by the mere announcement 
 of the withdrawal of so many bars of gold from one 
 country to another ! And yet that gold never enters 
 into the production of a single commodity the exchange 
 and distribution of which constitutes the chief part of 
 the business of the world. Some day our descendants 
 will wonder what form of lunacy could have prevailed 
 which permitted men to allow their lives, their fortunes, 
 their very existence to depend upon the possession of a 
 metal they could neither eat, drink, nor wear (except 
 for ostentation), and which for all practical purposes 
 is one of the least useful of all metals ! 
 
 Our laws make no provision for the creation of 
 
CONCLUSION 221 
 
 money proportional to the growth of commerce, and 
 unless fresh gold discoveries are made, credit must be 
 extended to a much greater degree than has ever yet 
 been contemplated. Now we are told by economists 
 that financial crises are due to the creation of excessive 
 amounts of credit, which cannot be redeemed ; and yet, 
 as we have seen in the previous chapter, all this is due 
 to the very system which our bankers advocate, 
 namely a currency based upon and redeemable in gold. 
 The amount of wealth now created and exchanged is 
 infinitely greater than all the gold in the world, and the 
 basis of the exchanges of all this wealth is a com- 
 paratively small and insignificant proportion of it. 
 The result is that the commerce of the world stands, as 
 I have previously shewn, like a pyramid upon its apex, 
 ready to topple and fall at the slightest tremor. 
 Looking at the question broadly one cannot help 
 enquiring what possible connection there can be be- 
 tween the demands of a medium of exchange required 
 by the commercial world and the production of gold ? 
 Why should the world's exchanges be stimulated or 
 debilitated by the accidents of the mining of a metal — 
 one of the least useful of all minerals — a metal that 
 does not enter into the manufacture or production of 
 any of the necessaries of life? It would be just as 
 rational for the directors of a railway to fix the number 
 of cars to be run on their road by the number of 
 shooting stars observed each year, as it is for a nation 
 to limit the amount of currency to the quantity of gold 
 
222 CONCLUSION 
 
 it possesses. And here it may be asked, as a matter of 
 justice, why should freedom to monetize gold be given 
 and the same right denied to other commodities ? 
 
 Why should a privilege be conferred upon the gold 
 miner which is denied to the silver miner, the copper 
 miner, the agriculturist, the builder, or in fact any 
 producer? For the privilege of "fluidizing" his 
 wealth granted to the gold discoverer is purely arti- 
 ficial. He has not to seek a market for his wares for 
 the simple reason that nearly all nations have passed 
 laws allowing the coinage of gold at fixed rates and 
 making such coins legal tender — a right which if 
 granted to any other metal would immediately raise it 
 to a similar position of importance. 
 
 The solution of the money question, like the 
 solution of the tariff question, is to be found in the 
 removal of all restraints which governments have 
 placed upon exchange and its mechanism. It is, in 
 short, but enlarging the field of human liberty. 
 Having acknowledged the right of all men to life, we 
 have to acknowledge their right to support life ; in fact, 
 the one implies the other. But laws that restrict trade, 
 that interfere with the issuance of money, deny this 
 right. "Commerce," says Proudhon, "exists only 
 among free men." We can transpose this aphorism 
 and assert that men are free only where commerce is 
 free; and as we have seen, commerce is only free 
 where the mechanism of exchange is free. 
 
 Those who see in the present system of tariffs the 
 
CONCLUSION 223 
 
 evils, oppression and unjust privileges to which its 
 operation gives rise, and who fail to perceive the 
 inequity in a governmental control of the currency, are 
 strangely blind to principle. Of what benefit is it to a 
 nation to abolish its customs houses, so , long as the 
 medium of exchange is left to the control of a few 
 government-licensed banking houses ? Tariffs are 
 taxes levied upon certain special commodities, and 
 affect special exchanges; but a restricted currency, 
 whether it be limited by the supply of a special com- 
 modity such as gold, or by the arbitrary rulings of a 
 government, is a tax upon all exchanges, a burden 
 placed over the entire field of industry. Unrestricted 
 commerce is impossible with a restricted currency. In other 
 words, free trade is only possible with free banking. 
 
 The prevailing idea that a nation's currency must 
 be restricted in volume, is entirely due to the fallacy 
 that money is necessarily something valuable; or, as 
 it is commonly stated, money must be "intrinsically 
 valuable " — a fallacy which, as we have already seen, 
 is attributable to a false conception of the term value. 
 Money is not, scientifically speaking, a thing of value ; 
 it is not wealth. It is the symbol of wealth, the 
 evidence of debt, a convenient means of expressing 
 the exchange relations of commodities. 
 
 And now let us see the practical result of abolishing 
 laws which maintain the so-called "standard of value." 
 The one great result would be to divorce money from 
 its alliance with the " precious " metals. The plea urged 
 
"4 CONCLUSION 
 
 by economists and legislators for basing money upon 
 specie, is that it is necessary to do so in order that 
 money may perform the function of a " standard of 
 value." Abolition of this so-called function removes 
 at once all necessity and every excuse for the specie 
 basis. The question arises, what then will take its 
 place ? What will the monetary system be ? To begin 
 with, the denomination would be the same. The 
 dollar or pound will still remain the monetary unit ; 
 but instead of being determined by a certain fixed 
 weight of gold, it will simply be an ideal unit of pur- 
 chasing power. It would represent no fixed amount or 
 quantity of any particular commodity. It would, 
 however, represent a certain fixed proportion of all the 
 exchangeable wealth of a community at a given time. 
 Its power would be represented in all commodities. 
 The market reports would be printed in similar terms 
 as now, the only difference being that prices of com- 
 modities would not be subjected to the fluctuations of 
 gold or silver. These metals might be hoarded, 
 exported, imported, cornered or thrown upon the 
 market with the utmost impunity, without affecting the 
 prices of any other commodities in the slightest degree. 
 Every commodity woul^ then stand upon its own 
 base. A general fall or rise in prices would be utterly 
 impossible. Under our present system, the price of 
 every commodity is dependent, first, upon the supply 
 of and demand for commodities themselves; and 
 second, upon the supply of and demand for money. 
 
CONCLUSION 225 
 
 Variations in these two classes may occur sepa- 
 rately or simultaneously, and the fortunes and lives of 
 men are affected far more by the second than the first. 
 The former are controlled by the latter, and bankers 
 control to a large extent the destinies of producers and 
 merchants. To-day, a merchant may find the value 
 of his stock suddenly diminished one-half, without any 
 change having taken place in the cost of production 
 or supply of the goods themselves, merely through 
 the conjoint action of a number of bankers in 
 limiting the supply of money. Consider how absurdly 
 the wealth of nations is made to fluctuate under our 
 present systems. To-day the total wealth of a nation 
 is expressed in terms of so many millions of dollars or 
 pounds sterling. To-morrow, by reason of a flurry in 
 the money market, that same wealth, which has under- 
 gone no physical change whatsoever, may appear at 
 three- fourths of to-day's valuation! Observe, also, 
 how the cornering of gold precipitated the general 
 panic known as Black Friday! The cornering of a 
 commodity could not possibly create a general panic, 
 so long as debts are not made payable in that one 
 particular commodity. 
 
 Under the system I propose, variations in supply 
 and demand of money could have no effect upon prices, 
 because the supply would be always ample to meet the 
 demand. By making all commodities equal — that is, 
 pnitting them on the same footing — all would be alike 
 monetizable. Industry, trade and commerce would 
 
226 CONCLUSION 
 
 then assume their natural position and become inde- 
 pendent of finance. The fortunes of manufacturers 
 and merchants would then cease to be the shuttlecocks 
 of money brokers and speculators. 
 
 A dry-goods merchant would find it as easy to 
 monetize his stock, and the builder his house, as the 
 gold miner his gold. With freedom to monetize all 
 commodities alike, the monopolization of money would 
 be as impossible as the monopolization of all com- 
 modities. Further, the supply of money would be so 
 abundant that interest for the use of money would 
 rapidly disappear. Interest is only possible with a re- 
 stricted currency. 
 
 In the chapter on Purchasing Power, I shewed 
 how the exchange relations of commodities may be 
 expressed. The operation of estimating the relation 
 of all commodities in terms of these units, involved, as 
 we saw, the use of an endless number of figures. By 
 using the present terms this difficulty vanishes. The 
 exchange relations of all goods are now expressed in 
 terms of dollars and cents, pounds, shillings and 
 pence, or some similar monetary terms. But, I am 
 asked, what is a dollar or a pound apart from its 
 gold basis? Simply an arbitrarily selected unit of 
 purchasing power, in simple multiples or fractions 
 of which the exchange relations of all commodities 
 are expressed. Such a dollar is merely ideal. - By 
 selecting any commodity, its power is at once made 
 known by the quantity of the commodity which it 
 
CONCLUSION 227 
 
 will purchase. The ideal dollar is invariable, inas- 
 much as it does not fluctuate, from supply and 
 demand. The gold dollar, the commodity dollar, is 
 continually varying. Although to many this idea of 
 what the dollar should be may seem novel, a few 
 moments' reflection will shew them that almost all 
 people, outside of bankers and money dealers, do, in 
 practice, use dollars and pounds in this ideal sense, 
 although unconsciously. Not one person in ten 
 thousand ever stops to think of what a dollar is, 
 expressed in gold. All they think of is its purchasing 
 power, expressed in the particular commodity they 
 need, and as they do not need gold, they never think 
 of ascertaining the gold equivalent of a dollar. " How 
 much of this can I buy with my dollar, or how much 
 of that ? " is the question that immediately concerns 
 them. 
 
 Evidence of the use of ideal money is furnished 
 from experience, in this and other countries, by the 
 inconvertible note currency. " Governments, " says 
 Francis Walker, " have frequently issued paper money 
 without adequate provision for its redemption in gold 
 and in silver, without such redemption, in fact, taking 
 place, and sometimes without redemption being 
 promised, and yet that paper money has circulated as 
 rapidly as gold or silver would have done, has been 
 taken as freely in exchange for commodities and 
 services, and even in some instances has maintained 
 an actual value equal to that of the amount of the 
 
228 CONCLUSION 
 
 precious metals to which it was nominally equivalent. 
 The paper money of Massachusetts, for the greater 
 part of the period i6go to 1710; the paper money 
 of Russia for the twenty years following 1768; 
 the so-called continental currency of the American 
 Revolution, for a year and more after the first emission ; 
 the paper money of Prussia for no inconsiderable 
 period of time, all circulated freely, even without dis- 
 count in specie. " And again he says : " The so-called 
 greenbacks of the American Civil War, never, from 
 1862 to the close of 1878, lost their currency in the 
 smallest degree. At their price they were always taken 
 readily, eagerly. Men never sought to avoid their use 
 by taking gold at a premium, or by resorting to barter 
 or credit. " This last statement is remarkable, owing 
 to the fact that the United States Government dis- 
 honoured this currency by the famous — or rather 
 infamous — exception clause, refusing to accept it in 
 payment for duties and customs. . . . And now, 
 having dissolved the partnership of bankers with 
 governments, on what basis will banks operate ? How 
 and by whom will money be issued ? The first thing 
 to be said is this : that with the field entirely free from 
 legislative obstructions, there is room for the best 
 possible financial system to develop which will be the 
 natural outgrowth of commerce. The best, most useful, 
 most stable institutions have thriven where there were 
 the fewest artificial restrictions. Such institutions, 
 coming into existence under free and natural conditions. 
 
CONCLUSION 229 
 
 must necessarily be better adapted to the wants of men 
 than those stunted by the artificial hot-house methods 
 of government. 
 
 Good systems of finance, like all good social in- 
 stitutions, are things of growth, and they conform 
 naturally — if let alone by law-makers — to the needs 
 of the people. What those needs will be ten, twenty, 
 fifty years hence no man can foretell. To arbitrarily 
 fix a system of banking which is incapable of variation 
 or adaptation to social growth, is like the Chinese 
 method of keeping their women's feet encased in 
 children's shoes. 
 
 Banking methods should adapt themselves to the 
 requirements of trade, and not trade to the fixed 
 systems of bankers. Banking should exist solely to 
 facilitate commerce. Numerous plans have been 
 proposed to supplant the present system, and there 
 is no question but that experience would soon deter- 
 mine what was best fitted for the conditions. The 
 plan which appears to me the most scientific, most 
 capable of variation and expansion, and in accordance 
 with the principles I have announced, is that already 
 described and known as the Mutual Banking System. 
 In attempting to solve this question, I disclaim any 
 intention of inventing a banking system. 1 claim that 
 the money problem will be solved as soon as govern- 
 ments cease monopolizing and interfering with the 
 currency. Repeal of all laws prohibiting and restricting 
 banking and the issuing of money, would call into 
 
230 CONCLUSION 
 
 existence numerous systems, competition among which 
 would lead to the survival of the fittest, which is the 
 natural solution of the banking and currency question. 
 
 My task is finished. I have endeavoured to point 
 out what I believe to be certain grave errors in the 
 prevailing theories of orthodox political economy, 
 particularly that branch which deals with the subject 
 of money. Much more might be said in connection 
 with this and other branches of the science, but time 
 does not permit of more than cursory treatment of 
 most of the subjects discussed. My desire is to create 
 an interest in this science which will lead others abler 
 than I to the discussion and to a searching investi- 
 gation of the theories which now pass for truth. The 
 money question is by far the most important of all our 
 political questions ; it is not a mere abstract study for 
 scholars, nor does it only concern statesmen and 
 financiers. It affects the lives, fortunes and happiness 
 of every member of society, and must sensibly affect 
 those of future generations. By building our industries 
 on a false foundation, our civilization is in danger of 
 being swept away. 
 
 Let me in conclusion repeat what I have said in 
 the preface. Fundamentally the money question is a 
 question of commercial equity, and our aim should be 
 to establish such a monetary system that justice will 
 be meted out to wealth producers. Such a system 
 would, I believe, be immediately called into existence 
 were all restrictive legislation regarding money and 
 
CONCLUSION 231 
 
 exchange abolished. Notwithstanding the prodigious 
 feats performed by man's inventive genius in the 
 manner of producing wealth, the mechanism of ex- 
 change and the system of distribution — under the fatal 
 ban of legislation—remain as inefficient and inequitable 
 as before the age of modern labor-saving inventions. 
 In demonstrating these assertions I ask a careful and 
 impartial consideration of the ideas herein advanced. 
 For the usual haphazard expressions of opinion from 
 those who believe that whatever is, is right, and of 
 those whose judgments are based upon the sentiments 
 of their favourite newspapers or political leaders, I am 
 prepared. It is not from such that reforms come or 
 are encouraged ; it is not from these that the conditions 
 of life are made better or brighter; it is to the 
 thoughtful men and women whose lives are passed, 
 often painfully, in industrial pursuits, and who feel the 
 grind and friction of the machinery, to whom I appeal. 
 To such — in fact to nine-tenths of the civilized world — 
 this money question is the supreme problem of the 
 hour.