the money question by arthur kitson

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TheMoney Question

ByArthur Kitson

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LondonGrant Richards

48 Leicester Square, London, W.C.1903


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Copyrighted 1894by

Arthur KitsonALL

RIGHTSRESERVED


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CONTENTS.Review by the " Philadelhia Bulletin"Preface to the English EditionPreface to the First American Edition .IntroductionChapter I. The Money QuestionChapter II. The Factors of ProductionChapter III. WealthChapter IV. Exchange-BarterChapter V. ValueChapter VI. Standard of ValueChapter VII. Purchasing PowerChapter VIII. MoneyChapter IX. Gresham's LawChapter X. The Material Existence of MoneyChapter XI. PriceChapter XII. Cause of General Rise and Fall in

Prices and its RemedyDevelopment of Valueand Price from Barter

Chapter XIII. Money Supply and DemandCreditThe Cause of FinancialChapter XIV

PanicsChapter XV.Chapter XVI. InterestChapter XVII. Conclusion

Rational anO Irrational Banking

PageV.ix.

xvii.xxiii.

I

33415558699196119126133

139143

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REVIEW BY THE" PHILADELPHIA BULLETIN "March 29th, 1895

Here is a book which disturbs classifications, which isunorthodox, which sets aside some very widely receivedopinions as of little worth, and which presents its own side ofcertain vital questions with a persistency and logical forcefrom which it is hard for an unprejudiced reader to escape.

Despite the fact that we have long since learned todiscredit the school of Adam Smith and Ricardo, we clingdesperately to certain fallacies which lie at the base of theirsystems. We perceive that Adam Smith enunciated theorieswhich, whether true or not at his time and under theconditions which he had in mind, are utterly false as appliedto the United States to-day. Yet we continue to regardAdam Smith with a sort of filial piety as the father ofpolitical economy, whose every utterance bears the stamp ofinspiration. We know perfectly well that Ricardo's Theoryof 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 thatexperimental bundle of theories which we misname theScience of Political Economy, yet it is of the first importancethat tradition be not suffered to blind us to the invaluableresults of experience.

It is against tradition that Mr. Kitson squarely sets hisargument. He seeswhat many of us have been seeing fora long whilethat the great source of traditional error is inthe conception of the nature of value. If he had donenothing more than point out the broad distinction betweenthe terms value and purchasing power, he would havedeserved well of a long-suffering people. And even here,we think, he stops a little short of the truth, for not only is ittrue that value is a mere relation established by a process otexchange, while purchasing power exists independently of it,but (as has been previously insisted upon in this column) the


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purchasing power of a commodity is wholly a utility, so thatits relation to value is not only different, but opposite.The power of a dollar to purchase bread is as trulya utility as is the power of the bread to sustain life.When once we have grasped this truth, the theory of moneybecomes enormously simplified. The idea that a dollarmust embody value to the extent of a dollar vanishes intothin air, because it is seen that the dollar derives itspurchasing power from circumstances having nothing to dowith the value of the commodity of which it happens to becomposed. Moreover, that money becomes the best moneywhich is not complicated with the question of commodityvalues. It is this latter fact which leads Mr. Kitson toannounce the utter fallacy of what is called "Gresham'sLaw." It will be remembered that Sir Thomas Gresham,founder of the Royal Exchange, seeing that a less costlycurrency always drove out a more costly one, laid down theprinciple that " bad money always drives out good money."What he meant was that a cheap currency drives out adear one, which is a simple fact of observation. His errorlay in the use of the terms "good" and "bad." For, as amatter of fact, that currency which is least complicated withthe question of commodity values is the nearest to an idealcurrency ; that is to say, it comes nearest to being a simpletitle to wealth, and not wealth itself. This line of argumentleads to the admission that paper is a " better " money thangold. And, theoretically, this is true", just as the deed to ahouse is a "better" deed when written on parchment thanwhen engraved on a gold plate.

Remembering always that money is merely a title towealth, we are forced to the conclusion that it should notlock up or contain within its substance wealth itself : becausein the latter case the fluctuations in value which pertain toall articles of wealth affect the purchasing power of themoney, and so disarrange the primary conditions of trade.

But what is equally to be rememberedthoughMr. Kitson has not been equally eager to point it outisthat the argument here advanced presupposes idealconditions. The money which is advocated in the volume


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under notice is ideal money. Theoretically, we believe theargument to be a sound one ; the condition which itpresupposes is one towards which we ought to strivetowards which legislation should tend. But it becomes aquestion of grave moment how far we may safely go inreducing theory to immediate practice. Just now themercantile community is deeply perturbed over the struggleof mono-metallism and bi-metallism. That strugglewould sink into nothingness the moment we realisedMr. Kitson's ideal of a paper currency bottomed solely uponpublic confidence and redeemable in the general wealth ofthe nation. The ratio of silver to gold would speedily settleitself if both were demonetised ; and, after all, does not thefact that the legislative power can establish an arbitraryratio for the coined metals prove conclusively that theirpurchasing power as money is something wholly apart fromtheir value as commodities ? This is the very point whichMr. Kitson seeks to establish. Of course, the answer whichthe practical man of affairs always makes to the theorist isthe answer which Mr. Kitson must expect to receive to hisvery pertinent queries, and it is this : " While it is perfectlytrue that an irredeemable paper currency* is the idealmedium of exchange in a society of the highest civilisation,yet the civilisation to which we have attained is not thehighest conceivable one ; we have not yet reached the pointwhere public confidence will remain unshaken after theoutward and physical wealth behind a currency is removed.Of course it ought to ; of course the locking up of millions ofspecie in order that millions of paper promises may circulateis an absurdity ; of course the specie locked in a vault makesus 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 theproposals suggested in this book for an Ideal Monetary System. TheAuthor has not advocated the issuance of irredeemable currency. Onthe contrary, he has insisted that money must be backed by wealth, andhis objection to our present monetary system is that it compels commerceto use credit and substitutes for money, at the back of which there is notsufficient security. (See chapter on Rational and Irrational Banking.


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must take men as we find them, and that is just what thetheorists do not always do. The utmost that we canaccomplish is to point out the way, and trust to advancingeducation to bring pubhc opinion to a just conception of thefacts as they exist.

Mr. Kitson's several chapters treat of " Economics andEthics," "The Factors of Production," "Wealth," "Exchange-Barter," "Value," "The Standard of Value," "PurchasingPower," " Money,'' " Gresham's Law," " Price," " Currency,"" Credit," and kindred topics. But the end and aim of hiswhole argument is to build up a theory of money upon thelines of a purely mathematical induction. He followsProfessor Jevons in the endeavour to show that all the termswith which political economy deals involve the considerationof quantities. But he diverges from Jevons at the pointwhere the latter becomes illogical : for, indeed, it is illogicalto define value as a " ratio of exchange," and then to talkabout "a standard unit of value." It is manifest that wecannot have a "standard unit" ofa "rktio." The notion thatsuch a thing is possible is responsible for the theory that goldand silver can be at once a standard of value and a mediumof exchange. When economists get rid of that theory thecommunity will get rid of panicsnot before. " Values areideal creations, and can only be properly expressed in termsof the idealnumbers." Such is Mr. Kitson's remarkableannouncement, and it is one which entitles him to a frontrank in economic discussion. His volume will be pooh-poohed by the orthodox philosophers, and all the fogies willhold up their hands in horror. But Mr. Kitson has got holdof the truth, and his theory cannot be permanently subverted.He has only to wait till education shall bring men up tohis own level of thought, and so make it possible to conformpractice to theory.


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business community paid little heed, since the TreasurySilver notes were circulating as readily as Gold notes.From neither of the two great political parties could thebanks expect any sympathy or support. One course onlyremained, and that was to capture the successful candidatefor the Presidency and depend upon his influence to procurethe necessary legislation.

Mr. Cleveland was elected by a considerable majority asa rebuke to the high Protection party. It was expectedthat immediately after his inauguration in March, 1893,the President would convene Congress to repeal theobnoxious McKinley Bill. In obedience to the wishesof the people, Congress was indeed summoned, but tothe amazement of Republicans and Democrats alike, thePresident's message was confined entirely to the Moneyquestion, and Congress was told that the measure fraughtwith the greatest possible danger to the nation was not theMcKinley, but the Sherman Billa measure that hadscarcely been honoured with discussion during the campaign!The Democrats had a majority in both Houses, and it wassoon evident that since no better measure favourable to silverwould receive the President's sanction, there was no likeli-hood of the Sherman Bill being repealed. It was discoveredthat the President was at issue with nine-tenths of themembers of his own party on this question, and that nothingshort of a " scare " would give the President the majority inCongress that he needed. The next step, therefore (whichit is believed was devised by certain New York bankersto give the country an " object " lesson), was to hold aconvention of representatives of the leading banks of thecountry, and arrange to restrict loans and call in thoseexisting. Treasury notes " were also collected andpresented for payment, for which gold was demanded,and the gold reserveusually maintained at $100,000,000was steadily reduced. No attempt was made by thenew Administration to stop this drain by refusing topay the notes wholly in golda legal privilege which theSecretary of the Treasury held. Up to this time theGovernment had always used its discretion as to whether it


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should redeem Treasury notes in gold or silver, and thebankers knew perfectly well that there was no law tocompel the redemption of these notes entirely in one metal.It was plain that the " capture " of the Administrationhad been accomplished. This sudden shrinkage of thegold reserve, accompanied by the curtailment of bankingaccommodation, produced, needless to say, the necessary"scare." The effect was probably the most seriousthe nation had ever witnessed. Thousands upon thousandsof manufacturers and merchants were ruined. Depositorswere unable to withdraw their funds, and businesswas conducted by means of Clearing House cheques.Business men naturally sought to learn the cause ofso sudden and unexpected a disaster. The informa-tion was volunteered by certain inspired newspapersthat the trouble was due to the Sherman Silver Bill, andcitizens were told that if they desired things to bfe restored totheir normal condition they must write to the Members ofCongress 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 tookthe American people with all their natural resources four orfive years to recover from this blow.

Whether the events which have since transpired as anatural sequence were or were not foreseen by the panicorganisers it is impossible to say, but the consolidation ofcapitalwhich before 1892 was a somewhat difficult problembecame very simple under the so-called gold-standardregime. With the Government no longer a competitor,the banks rapidly combined for purposes offensive anddefensive, and for all practical purposes the control of thecurrency under a single head became a possibility. Havingthe ability to employ so vast a power, the exploitationof the industries of America was readily accomplished.Undoubtedly the simplest and surest way for obtainingcontrol of the industries of a country is to first get controlof its currency. For the blessings or evils (whichever viewone chooses to take) resulting from the formation of thegreat Trusts, we must credit the financial policy of


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President Cleveland. In addition to having placed thenation's industries at the mercy of the bankers, anotherresult of this policy was to indefinitely postpone the FreeTrade era which was about to dawn upon the United States.When the low tariff Wilson measure finally replacedthe McKinley Bill, public interest in that question haddisappeared, and was centred on the much more importantone of finance, which afterwards became the main issuebetween the two parties.*

It is but fair to say that President Cleveland had noconception of the results that would follow the policy heinaugurated, for no one has denounced the system ofMonopolies and Trusts more strongly than he, who wasinstrumental in creating that greatest of allthe MoneyMonopoly.

One beneficial result achieved by the panic of 1893 is yetto be mentionednamely the exposure which was made ofthe dangers attending Monopolistic Banking. If the disastersof 1893 could be produced by a small body of men actingconjointly for a definite end, at a time when competition waskeener than it is now, how infinitely greater are our presentdangers, and how much easier to engineer a panic !But apart from the increased dangers to which commerce isnow subjected by artificially created panics, periodic failuresare inherent in our monetary system itself. As I haveendeavoured to show in this work, the commercial world isforced into liquidation once every decade. Another seriousfinancial panic is now imminent! and, under our presentsystem, as inevitable as the rising and setting of the sun.

It is unnecessary to seek an explanation of panics in thetheory 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 timewhen the question of Protection v. Free Trade was submitted to thepeople of the United States during the past twenty years as a singledirect issueunaccompanied by any other disturbing questionwiththe result that Protection was defeated. At every other PresidentialElection during this period the issue has been confused by questionssuch as bi-metallism, the negro franchise, etc.


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study must admit that our monetary systems cannot safelysupport the world's expanding trade and commercefor 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 itsurely needs no gift of prophecy to predict that the manwho undertakes liabilities ten or twenty times greater thanthe total available assets procurable within the time of thematurity of his obligations, must fail. The same is true ofnations. The obligations undertaken by governments andmunicipalities, and by the industrial and commercial worldexceed to an almost incredible degree the total availablematerial in which these obligations have to be redeemed !

Neither mono-metallism nor bi-metallism will save theworld from financial disturbances. Those who have thepatience to follow the reasoning in the succeeding chaptersof this book will see that nothing short of the abandonmentof the theories and heresies which now pass current, and uponwhich the world's financial systems are built, will put an endto these disasters.

The experience of the past ten years which havefollowed the period above referred to, emphasizes moststrongly the necessity for reconsidering the laws governingthe monetary systems of the civilized world. This subjectmust necessarily become the most important with whichpolitical parties will have to deal in the near future.The principal part of this work was written after a carefulstudy of all the books and treatises on the subject available,and was originally published under the somewhat pretentioustitle of " A Scientific Solution of the Money Question." Itsreception was much better than I had reason to expect,and the press dealt with it in a far more tolerant spiritthan is usual where established customs and traditions arechallenged and radical innovations proposed.Certain critics, however, objected to the introductorychapters as irrelevant to the subject matter which occupiesthe main portion of the work. They described the discussionof the theories and statements of Adam Smith, John StuartMill, and Jevons as " the threshing of old straws."


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My main contention in the first chapter is that the scienceas it has been and is now taught in the educationalinstitutions of the world, has not fulfilled those objects, and istherefore a failure.To overestimate the importance to social life ofPolitical Economy (of which money is a special branch)seems impossible, since it deals with the distribution ofthose material things that go to support life, and our aimshould be to raise thjs studyif possibleto the position ofan exact science, an accomplishment which will do more torid society of the scourge of poverty than all the poor lawsand philanthropic schemes ever devised.

Just now urgent appeals are being made throughoutGreat Britain on behalf of the unemployed. England isagain afflicted with business depression, and able-bodiedmen tramp the streets daily begging for assistancecondition similar to that prevailing in the United Stateswhen this work was originally written.These afflictions will continue to reappear in spite of allour philanthropic measures until a general public interest iscreated leading to an intelligent study of this science in allits branches.

It is a deplorable fact (and one to which is accountable thecontinuance of a system which has been a failure manytimes during the past century) that not one person in tenthousand has any really intelligent idea of the science ofmoneya subject which is usually treated as one ofprofound mystery, and which only a banker is capable ofunderstanding.To one not blinded by custom and prejudice, the moneyquestion is quite comprehensible. But because of theprevalence of false and contradictory theories, studentsfind the subject hopelessly involved in ambiguities andintricacies.It is with the hope that it may evoke a spirit of inquiryleading to a clearer understanding of this most importantsubject that I am encouraged to republish this work.London, January, 1903. A. K.


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"IF this so-called science Political Economy, did not' busy itself with that with which all juridical sciences areconcerned,with furnishing an apology for violence,itcould not fail to overlook the strange phenomenon that thedistribution of wealth and the exploitation of some men byothers are dependent upon money, and that only bymeans of money do some people command the laborof others nowadays, that is, to enslave them.

" In antiquity, with its frequent conquest of nationsand the absence of human equality, personal slaverywas 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 ofgravity of subjugation is transferred from the personto the land.

" In modern times, since the discovery of Americaand the development of commerce, with the overflowof gold made the universal money token, the money-tribute has become, with the strengthening of govern-mental authority, the chief means of the subjugationof men, and by it are determined all the economicrelations of men." Count Leo Tolstoi.


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PREFACETO THE FIRST AMERICAN EDITIONIT is almost a quarter of a century since Professorjevons gave to the world his now celebrated work, "TheTheory of Political Economy," in which he demonstratedthe possibility of treating economics as a purelymathematical science. He showed how all the termswith which it deals involve the consideration ofquantitiesare, in fact, strictly quantitative terms-such as utility, value, capital, interest, supply, demandand so on.

His treatment of the very ambiguous and hithertomysterious subject of value, was the beginning of a newera in economic , science, and it is to Professor Jevonsthat we are indebted for having rescued this mostimportant 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, hislabors do not appear to have conferred any practicalbenefit upon the social affairs to which they relate,tomoney, trade and industry ; to those things which it isthe aim of the science to both elucidate and facilitate.Nor do I believe any better showing can be madeanything of what Lord Bacon called "fruit" will befoundfrom all the labors of economists in this scienceduring the past twenty years.And yet there is nothing of more importance to thehuman race, nothing that stands in greater need of thelight of science, than the subject of exchanges. Societyis as much divided, and the opinions of the learnedare as contradictory upon commercial and financialquestions, as they were when Jevons commenced hisfamous work.

In spite of the able and voluminous contributionsto the theory of Value, the Money Questionwhich isindissolubly associated with it, and depends almost wholly


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for its solution upon a correct interpretation of thisword remains in the same unsettled, unsatisfactorycondition as it did prior to the rise of the modern Englishand Austrian Schools.

The question arises, then, is the science of economicsincapable of solving the all-important social problemswith which it deals?

Is the science to begin with and end in meretheoriestheories which apart from the mental exercisethey afford, have no practical bearing upon the affairsof life? I think not. I beheve that a true science ofeconomics 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 sciencewill enable mankind eventually to abolish want and thefear of it ; to create such an abundance of wealth thatall will have enough and to spare ; a condition whereover-production will mean a profusion of wealth, and itsantidote will be found in satiety instead of starvation.I see no reason why economics should not do for tradeand industry what the science of mechanics has donefor the mechanical arts, or medicine and surgery forhuman life.

In the following pages I have attempted to sketchthe direction in which a true science of wealth mustinevitably lead, as well as the foundation upon whichit must be built.

Although dealing mainly with what I believe to bethe 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 whichthe science must of necessity conform. I have alsopointed out where, in my judgment, economists haveinvariably gone astraya fact which explains the cause ofthe barrenness of the science, and its failure to bear tangiblefruit. One error which prevented Jevons from developinghis theory of value into a practical reform of the highestimportance, I may be allowed to touch upon in thispreface.


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After defining value as the "ratio of exchange," andshowing that it can be expressed only in terms of theidealnumbers he commits an almost unpardonablesolecism in writing of "a standard unit of value" as" a fixed quantity of some concrete substance defined byreference to the units of weight or space." What " afixed quantity of some concrete substance " has to dowith a " ratio," and how a substance can become astandard "ratio," are questions that Professor Jevonsfailed to answer. The truth is that in spite of the cleardefinitions with which he set out, he afterwards confusedhis subject by employing the word "value" in a doublesense : first, as the ratio of exchange ; second, as pur-chasing power. Thus when speaking of a " standardunit of value," he evidently means purchasing or exchangepower, i.e. the power conferred upon a commoditywhereby it can be exchanged for a certain quantity ofsome other article of utility.

Again, how can "a fixed quantity of some concretesubstance" represent a power not possessed by, norresiding in any substance, but merely conferred uponcertain objects by human desiresa power that variesand fluctuates, that appears and disappears with thosedesires ? To my mind there is only one way in whicha commodity can be rationally considered to representa unit of "value," i.e. purchasing power. We may selecta given quantity of a certain commodity, 25 grains ofgold, for example, and say that whatever the purchasingpower of this amount of gold happens to be upon acertain day, or at a given time, shall represent the unitof purchasing power. But this is a very different thingfrom selecting 25 grains of gold as a permanent unit.No fixed quantity of any substancenot even goldre-presents a fixed quantity of purchasing power for anylength of time. It is only at any given instant that wemay consider a commodity to have a certain amount ofexchange power. If then, we follow the variations inthe exchange relations of commodities from any giveninstant, having first priced them all at that time in


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terms of the commodity selected as a standard, we havean absolutely correct and scientific system by whichfluctuations in values may be registered with mathe-matical exactness, and which will be independent of thefluctuations in gold or any other single commodity.*

The mistake of Jevons and other economists was inomitting the element of time from their definition of astandard unitan error similar to that in disregardingthe degree of temperature at which the metallic barthat serves as the standard of length is to be taken.Of course the introduction of time destroys all hope ofour ever possessing a material unit of value or purchas-ing powera thing to which altogether too much im-portance has hitherto been given. Values are idealcreations and can only be properly expressed in termsof the idealnumbers. In Chapters V to VIII, aswell as XI and XII, I have dealt fully with this questionof the ideal, and have shown how an absolutely invariableideal unit of' purchasing power may be obtained, andhow impossible and unnecessary it is to employ "a fixedquantity of some concrete substance" as a unit.

' The difficulty that the monometallists and bimetallistsare vainly contending against, but which they are unableto perceive, is, attempting to do with the material whatcan, from the very nature of things, only be performedby the ideal, viz., express and register fluctuations in values.To those who may think the conclusions arrived atin this work visionary or impracticable, I would saythat so far as the use of an ideal monetary unit isconcerned, we already possess one, and fully 999 out ofevery 1000 persons use money to-day in this ideal sense.Probably not one per cent, of the population could tellwhat the dollar or the pound sterling represents inbullion. What everybody does know, however, is that adollar and a sovereign represent just so much purchasingpower, and that this is not due to the metal they contain,but solely on account of the credit of the issuer, andof the fact that the exchange relations of all goods are

* See illustration on page 94 (Purchasing Power).


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expressed in pounds, shillings and pence, dollars andcents, or some similar ideal units.

The universal employment of token coins, paper money,etc., is an unanswerable argument to those who believean ideal monetary system impracticable.

It may be thought by some that I have explainedcertain points with unnecessary prolixity, and the criticismof repetition may likewise be urged with a certain amountof justice. My answer to this is, that as far as I know,my treatment of this question is in the main entirelynovel, and the subject one of an exceedingly abstractnature ; and in striving to make the subject clear andintelligible to the average reader, I have preferred in-curring the charge of repetition to that of ambiguity. Thereiteration of a truth will harm no one. The evil to beavoided, especially in a subject of this nature, isobscurity.

The title of the book may seem somewhat pretentious.*I do not wish it to be inferred that I am vain enoughto believe this work to contain anything more than anindication or suggestion of the direction in which wemust 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 thenecessity for dealing with the question wholly from ascientific standpoint. As a general rule its discussion hashitherto been confined to those who may be regardedmerely as representatives of private interestsadvocates ofcertain schemes, monometallists, bimetallists, free-silverites,green-backers, etc.whose labors consist in attempts tocreate a science that shall harmonize with pre-organized,pre-arranged institutions. My aim has been simply toarrive at the truth, irrespective of any interests which itmay favor or condemn.

If this work should in any way lead to a reconsidera-tion of the laws under which the greatest and mostdangerous monopoly of the age is maintained, and by

* The original title was " A Scientific Solution of the MoneyQuestion."


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which millions of men are doomed to suffer inevitablefailureif it should assist in freeing moneythat mostuseful and ingenious of all human inventions for facilita-ting commerce,from legislative restraints, and therebyemancipate industry from the bondage into which legis-lators have placed it, the object for which this book waswritten will have been fully accomplished.

Arthur Kitson.Philadelphia, August x^th, 1894.


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INTRODUCTION** For my part, I have siuorn Jidelity to my -work ofdemoiition, and I nvill not cease to pursue the truththrough the ruins and rubbish"Proudhon.

THE period commencing with the year 1890 andextending to the present time* will long be rememberedas one of almost unparalleled business disaster throughoutthe civilized world. No nation has escaped the .waveof industrial depression which, commencing with thefailure of a London banking house, a few years ago,has swept over the entire globe. And nowhere havethe effects been more severe ' than in the United States." No other country," says a magazine writer, t " hasever incurred in so short a time such an amount offinancial and industrial disturbance and disaster." Mills,factories and workshops have closed, banks havesuspended, and thousands have been suddenly reducedfrom affluence to poverty, whilst hundreds of thousandsof wage-earners have been cast adrift to beg, starve,or join the ranks of those numerous bands of malcontentswho, from almost every State in the Union, are nowmarching towards Washington.'}: This period has beenmarked by no extraordinary natural calamities, such asfamines, fires or floods, which occasionally precipitate wholecommunities into destitution. The factors in the productionof wealth have been as prolific and as responsive as duringany previous years of industrial prosperity. Men havebeen none the less eager to labor, machinery none theless efficient, and nature has not failed to respond asreadily to the call of labor with bountiful harvests ofwealth. There never was a period in the world's historywhen the factors of production were, as a whole, moreefficient, when so much wealth could be created in so

* This was originally written in 1893. See Preface to EnglishEdition.

t David A. Wells, in " The Forum."J Coxe's Army.


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short a space of time and with so little expenditure ofhuman energy, as now. Notwithstanding all this, we areto-day experiencing calamities greater in degree and moreextensive than any that nature has ever produced. Millionsof the world's inhabitants have been reduced to a conditionas bad as though the fruits of their labor had beensuddenly swept out of existence, or pestilence and faminehad held undisputed sway. Although severer and moreuniversal in its ravages, the present panic belongs tothe same order as those of previous years. Appeal tothose whose business it should be to investigate andinterpret this class of phenomena, discloses a ratherhumiliating state of things, for the opinions of statesmen,financiers and economists are as diverse regarding thecause of financial panics as it is possible to imagine. Bethe cause, however, what it may, the fact remains thatafter more than a century's experience, during whichthere have been not less than ten severe panics, noscientific explanation has yet been offered by eitherstatesmen or economists for these decennial commercialcrises, nor has a satisfactory remedy for their recurrencebeen suggested.

Since the trouble evidently does not arise in theproduction of wealth, we may reasonably expect tofind it somewhere in the mechanism of distribution.Complicated as is the machinery of modern commerce,it requires but the least reflection to perceive thatthe money question is the mainspring of the industrialworld. That panics are known as financial panics isindicative of the fact that these troubles originate fromdisorganization of the mechanism of exchange. Panicsnever arise in the industrial world tmless precipitatedby financial disorder. In other words, instead of financebeing the servant of industry, industry is the tool offinance, and the entire production and exchange of wealthis now controlled by those who control the money ofthe world. Startling as it may seem, it is neverthelesstrue that the power to paralyze industry is in thehands of a comparatively few individuals, amongst whom


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concerted action can be effected at any time. This is aserious and menacing condition of things, and so longas it exists the lives and fortunes of almost the entirehuman race are virtually at the mercy of these men. Themanner in which this condition of things has been broughtabout is largely due to two or three fallacies underlyingthe world's monetary systemsfallacies which have becomestrongly intrenched by law, and with others equally false, formthe basis of the present so-called science of economics. Tofully perceive these errors we must examine them in bothroot and branches. I shall therefore first of all brieflydiscuss a few of the premises and assumptions of thepresent system of political economy. Following that I shallproceed to a discussion of the money problem.

Let us at the outset clearly understand what the moneyproblem is. Fundamentally it is merely a question of com-mercial equity. It is the establishment of a system bywhich justice shall be meted out to wealth-producers. Thegreat and pressing demand for money which has been soacute during the past century, is due to the specializationof industry. Few men at the present day are employedin making goods for their own consumption. Speakinggenerally, all production is now carried on by individuals forsociety, and the great function of money is to register theproportion which each producer's commodity bears to thetotal quantity of goods brought to market. It is likewise acertificate, entitling him to receive that same proportionof wealth in any form he may desire.

Here, for instance, is an engine builder. He and hismen devote themselves to the manufacture of a machinefor which they have no personal use. To society theengine is indispensable. In order that engine buildingmay continue, it is necessary that those so engagedshall receive food, clothes, shelter, and all the necessariesand comforts of lifeproducts which others are engagedin furnishing for exchange. Engines are sent to marketto exchange for these other forms of wealth.The question that really concerns the engine builderis, in what relation do his engines stand to all those


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things which he needs ? How much of ' them will theypurchase? This proportion is determined -by the law ofsupply and demand, a law which under free conditionsmakes for justice. A scientific monetary system shouldregister these exchange proportions of commodities faith-fully, without affecting the natural law of supply anddemand in the slightest degree.

In the following chapters I shall endeavour to describea method by which the proportion of each man's produceto the whole mass of wealth may be determined. Thissystem is nothing more than a numerical system. Itranges all commodities, one above another, in terms ofa common denominator. It furnishes a neutral pricescale upon which the fluctuations in the supply of anddemand for goods are accurately recorded.

I shall shew that no commodity can possiblyperform these functions, and that financial disasters arethe inevitable results of endeavouring to substitute thematerial for the ideal.

Let us proceed at once with our task.


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Cbapter LTHE 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 tobe contradicted by another ; as for example : when the postulates ofpolitical economy are found to be opposed to those of morality, for Isuppose morality is a science as well as'political economy. What, then,is human knowledge, if all its affirmations destroy each other, and on whatshall we rely ? " System ofEconomical 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 shortestthe straight ; so in the conduct of human affairsthere is always one course which is bestthe just." Anon.MODERN civilization, which, as we are taught tobelieve, transcends that of any period in the world'shistory, may be said to be entirely the result ofmodern scientific thought. Nothing serves to illustrateso well the difference between the civilization ofancient Greece, for instance, and our own, as to comparethe mental attitude of the Platonists toward the sciences,with that of the nineteenth century philosophers. Bythe former, science was studied not for the purpose ofadding to the material comforts of life, nor to satisfy thevulgar appetites or wants of man, but to exalt the mindto the contemplation of " pure truth " and of things"which are to be perceived by the intellect alone." Tobring science to the aid of manufacture was supposed to


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THE MONEYdegrade what was regarded as a purely intellectualpursuit. Inventions were despised as beneath thedignity of philosophy and fit only for craftsmen.Hence we learn that Archytas, who "had framedmachines of extraordinary power on mathematicalprinciples," was persuaded by his friend Plato toabandon mechanics as unworthy the attention of aphilosopher. So we read that Archimedes consideredgeometry degraded by being employed in the pro-duction of anything useful, and " was half ashamed ofthose inventions that were the wonder of hostilenations."

The high esteem in which science to-day is held iswholly on account of what the ancients termed its" vulgar utility." We prize mathematics, not becauseit leads to the contemplation of " the immutableessence of things," but because it enables us to solveproblems connected with the industrial arts and theordinary affairs of life ; so, too, with all other sciences.The age of speculation has given place to the age ofpractice. What to the ancients was the end oflearning, 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 areaccustomed to inquire " What is its use ? " " To whatpurpose is it applicable ? " And our respect for itdepends upon its demonstrated utility.


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QUESTION 3Of modern sciences none stands more dis-

credited than political economy, nor have theclaims of any branch of knowledge to rank asscience been more persistently opposed. Trans-cendently important to human life as are thephenomena with which it deals, it is questionablewhether any branch of knowledge is less generallyunderstood, or commands in the popular mind solittle respect.* Nor shall we be greatly surprisedat this if we critically and fearlessly examine itsdoctrines in the light of existing science.

For many years past the civilized world hasbeen confronted with problems which it is theprofessed aim of political economy to solve. Andwhat 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 industrialcrises is " over production " ; another " under-con-sumption " ; another says it is due to the credit

* After enumerating certain reforms that political economy haseffected, Walter Bagehot says : " Notwithstanding these triumphs, theposition of our political economy is not altogether satisfactory. It liesrather dead in the public mind. Not only it does not excite the sameinterest, but there is not exactly the same confidence in it. Youngermen 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, hardlyknowing it, will this ' science,' as it claims to be, harmonize with whatwe 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 ofits own."


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4 THE MONEYsystem, 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 suggeststhe free coinage of silver, and that one denouncesit; whilst with regard to Trusts, Trade Unionsand similar combinations, an equal number ofeconomists may be found supporting opposite, antago-nistic views. With such diversity of opinion, wecan hardly wonder that the science stands in suchbad repute.

Political economy deals with the production anddistribution of wealth, and its main object is todiscover those laws and principles, guidance bywhich will tend to the material well-being andprosperity of the human race. "Considered as abranch of the science of a statesman or legislator,political economy," says Adam Smith, "proposestwo distinct objects: First, to supply a plentifulsubsistence for the people, or more properly toenable them to provide such a revenue or subsis-tence for themselves ; secondly, to supply the Stateor Commonwealth with a revenue sufficient for thepublic services. It proposes to enrich both thepeople and the sovereign."How happens it, then, that in spite of so manymiracles of industry science and art, comfort andculture have not become the inheritance of all ? Howhappens it that in Paris and London, centres of


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QUESTION 5social wealth, poverty is as hideous as in the daysof Caesar and Agricola ? *

Look, for instance, at the condition of thewealthiest nation on earth,England. Herethebirthplace of modern political economystatesmenand legislators have been largely guided by itsteachings. It is said that the " Wealth of Nations "revolutionized the opinions of England's ministersand caused them to enter upon a new policy inaccordance with the doctrines propounded by thegreat English economist. Clubs were formed forthe study of economic questions, and statesmenvied with each other in seeking to bring the com-mercial laws of England in conformity with thoseof the new science. According to the judgment ofone of England's foremost statesmen and economists,the great work of political economy has beenachieved.

" The controversies which we now have in poli-tical economy," said the Rt. Hon, Robert Lowe,many years ago, " although they offer a capitalexercise for the logical faculties, are not of thesame thrilling importance as those of earlier days.The great work has been done." Let us now lookat the results. Bearing in mind that the object ofthe science is " to provide a plentiful revenue orsubsistence for the people, and supply the State with

* This question, asked by Proudhon more than half a century ago,is still unanswered.


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6 THE MONEYa revenue sufficient for the public service," let ustake a brief survey of "the great work" thatRobert Lowe said "has been done."

" In the wealthiest nation in the world," saysJohn Rae, " every twentieth inhabitant is a pauperone-fifth of the community is insufficiently clad ; theagricultural laborers and large classes of workingpeople in towns are too poorly fed to save themfrom what are known as starvation diseases ; thegreat proportion of our population lead a life ofmonotonous, incessant toil, with no prospect inold age but penury and parochial support; andone-third, if not indeed one-half, of the families ofthe country are huddled six in a room, in a wayquite incompatible with the elementary claims ofdecency, health or morality."

" Our exports during the past quarter of acentury," wrote Professor Fawcett, "have advancedfrom ;^5o,ooo,ooo to more than ^^250,000,000, andour imports have increased to a still greater amountyet, incredible as it may on first considerationappear, it can, I believe, be proved that whilstthere has been this unprecedented increase of wealth,the remuneration of labor has in many instancesscarcely advanced at all."

Speaking of the industrial condition of Scotland'sgreatest city, Matthew Arnold said: "Who thathas seen it can ever forget the hardly humanhorror, the abjection and uncivilizedness of Glasgow?"


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QUESTION 7" Nothing is more certain," wrote Professor Caimes,"than that, taking the whole field of labor, realwages in Great Britain will never rise to thestandard of remuneration now prevailing in newcountries, a standard which, after all, would formbut. a sorry consummation as a final goal of im-provement for the masses of mankind. . . . Theexertion of labor and capital produce 5, 10, 20 or100 times more than it did 100 years ago. Yetwages have not increased in any such ratio, and it iseven questionable whether profits have risen. . . .The large addition to the wealth of the countryhas gone neither to profit nor to wages, nor yet tothe public at large, but to swell a fund ever growing,even while its proprietors sleepthe rent-roll of theowners of the soil."

Here it is apparent that political economy hasfaUed to achieve what its chief apostle designatedto be its special mission, nor do we find in turningto other nations with their several schools a muchbetter state of things. "Any one," wrote ProfessorHuxley, in his " Social Diseases and WorseRemedies," "who is acquainted with the state of thepopulation of all great industrial centres, whether inthis or other countries, is aware that amidst a largeand increasing body of that population, la misferereigns supreme. I have no pretensions to thecharacter of a philanthropist, and I have a specialhorror of all sorts of sentimental rhetoric; I am


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8 THE MONEYmerely trying to deal with facts, to some extentwithin my own knowledge, and further evidenced byabundant testimony, as a naturalist ; and I take itto be a mere plain truth that throughout industrialEurope there is not a single large manufacturing citywhich is free from a vast mass of people whose con-dition is exactly that described, and from a stillgreater mass who, living just on the edge of the socialswamp, are liable to be precipitated into it by anylack of demand for their produce. And with everyaddition to the population, the multitude alreadysunk in the pit, and the number of the host slidingtowards it, continually increase."

" In the United States," says a well-knownauthor,* "squalor and misery and the vices andcrimes that spring from them, everjrwhere increaseas the village grows to the city, and the march ofdevelopment brings the advantages of the improvedmethods of production and exchange. It is in theolder and richer sections of the Union that pauper-ism and distress among the working classes arebecoming most painfully apparent."

" I have been told," says a clergyman t whowitnessed the recent great railroad strike, " thatthe average wages paid by the Pullman Companyare $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.


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QUESTION 9that the men are not receiving 'starvation wages.'I know many of which this is true, but they arethe exception and not the rule. I know a manwho has had, after paying $14.50 rent for four smallrooms and seventy-one cents for water rent, butseventy-six cents a day left to feed and clothe hiswife and children. When we remember that this isan average case, that it is on the basis of fuU time,then in the name of all that is just and right, Isay God help that man if his dependents be manyor if sickness invade his home,"

This is a description of what exists in America'sso-called " model town." " It is," says the samegentleman, "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' strikethroughout this country the following press despatchappeared in all the newspapers : "I have neverseen such a discouraged set of men as the minersof this neighborhood have been since the lastreduction was made. They know it matters nothow steady they work, they cannot make enoughmoney to keep a small-sized family in the necessaryfood, and they have concluded that if they have tostarve, they prefer doing it at once and not bydegrees."

Here in the two wealthiest and most civilizednations, we find labor leading a miserable existence.


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10 THE MONEYin a chronic state of warfare against capital, andperiodically striking for "living" wages. Underthe regime of institutions considered necessary bythis so-called science, society presents us with thetwo extremes of vast wealth and wretched povertyside by side; of the wealth-producer doomedto a poor existence, and the non-producer born to alife of luxury. With such results drawn from ex--perience, what other judgment can we pronounce upona system which works out so difFerently from whatis desired, than that of being false and unscientific ?What faith can we place in a "science" the objectof which is "to enrich both the people and thesovereign," that fails so completely in its main object ?

But the question arises, " Have the principles ofpolitical economy had free play in any industrialcommunity where poverty still exists ? " " Havethose nations in which poverty progresses withwealth been governed by its precepts ? " Thepatient who neglects to follow his physician's advicecannot justly hold him responsible for failure taregain health. So far as England and the UnitedStates are concerned there can be little doubt thatin all essentials the laws of each nation have been,in the main, favorable to the workings of its^respective schoolschools which, while differing inmatters pertaining to foreign trade, agree in almostevery other branch. There can be no question thatthe production of wealth during the past century


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12 THE MONEYconsiderable percentage of the race have devisedschemes for living without the expenditure of anyenergy at allon their part. We have acquired notonly the art of buying in the cheapest, and sellingin the dearest markets, but modern ingenuity hasdiscovered a plan for controlling the markets them-selves, thus making goods cheap or dear atpleasure.

In conformity with economic teachings we haveabolished the duty of alms-givinga system whichserved to mitigate to a considerable extent themiseries to which the laboring classes were ex-posed during mediaeval timesand have enactedtramp and vagrancy laws, thus making poverty acrime. We have learned to treat labor absolutelyas a commodity and have made it entirely sub-servient to the laws of supply and demand, not-withstanding our high pretensions regarding theimmorality of slavery. In short, our modem com-mercial and industrial system seems to conformentirely to the principles and teachings of ortho-dox economists. So far, then, it is fair to say thatthe principles of political economy have hadreasonably free play in the countries we have beenconsidering, and therefore we are warranted inpassing judgment upon the system which bearssuch fruit. But it will be contended that thoughconditions are bad, they are better than they wereand are continually improving; that although labor


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QUESTION 13is admittedly in a "dim-eyed, narrow-chested con-dition," it is slowly but surely gaining in healthand happiness.

For instance, we are told by an optimisticeconomist, Mr. W. H. Mallock, that "the poorerclasses as a body have advanced and are advancingenormously."* Another writer informs us that thepauper of to-day enjoys comforts and privilegesunknown to even the nobility of a few centuries ago.Against the statements of Mr. Mallock, however, wehave that of Prof. Thorold Rogers : "I have pro-tested against that complaisant optimism whichconcludes because the health of the upper classeshas been greatly improved, because that of theworking classes has been bettered, and appliancesunknown before have become familiar and cheap,that therefore the country in which these improve-ments have been effected must be considered tohave made for all its people regular and continuousprogress." And again, " relatively speaking, theworking man of to-day is not so well off as he wasin the 15th century." He adds, "the freedom ofthe few was bought by the servitude of the many."fWe have also the statements of both ProfessorsFawcett and Cairnes before quoted. We havelikewise the evidence gained from experience in all

* " Property and Progress."t "Work and Wages."


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14 THE MONEYnew countries of the inevitable growth of povertywith the progress of wealth. But outside of anyopinion, the fact remains that after a century'sunprecedented growth of wealth, the one humanfactor in production still remains as a class, withinsight 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 wonderand amazement than food for instruction. Startingoriginally with the intention of discovering laws bywhich the greatest amount of wealth can be pro-duced and enjoyed by society, it concludes byshowing how wealth can best be conserved by con-trolling and limiting the production of human beings.The problems which were originally propounded havebecome inverted. Acquisition of the means ofwealth-production is set forth as the end of socialexistence. Instead of wealth being produced for thebenefit of mankind, the right to life, by the majorityof beings, is regarded solely from the standpoint oftheir ability to create wealth, whilst often thisright is denied. Listen to the following passagefrom Malthus : " A man who is born into a worldalready occupied, his family unable to support him,and society not requiring his labor, such a man, Isay, has not the least right to claim any nourish-ment whatever ; he is really one too many on theearth. At the great banquet of nature there is no


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QUESTION ISplate laid for him. Nature commands him to takehimself away, and she will not be slow to put herorder into execution."

The least intelligent person can hardly fail toperceive that under those laws which economistsdeclare essential to social progress, nine-tenths ofthe people are the servants or slaves of the othertenth, whilst the whole of society is dominated byand subordinated to the things it produces.

" Although labor is the starting point in pro-duction," writes Prof. Jevons,* " and the interestsof the laborer the very subject of the science, yeteconomists do not progress far before they suddenlyturn around and treat labor as a commodity whichis bought up by capitalists. Labor becomes itselfthe object of the laws of supply and demand,instead of those laws acting in the distribu-tion of the products of labor. Economists haveinvented, too, a very simple theory to determinethe rate at which capital can buy up labor. Theaverage rate of wages, they say, is found bydividing the whole amount of capital appropriatedto the payment of wages, by the number of thelaborers paid ; and they wish us to believe thatthis settles the question."

In the branch known as exchange we find thesame remarkable inversion of the natural order of

* " Theoiy of Political Economy.''


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i6 THE MONEYthings. The mechanism for distributing wealth has.become the highest form of wealth. Money, insteadof remaining the medium or tool of exchange, hasbecome its ultimate object, and commodities, al-though produced for consumption, are regardedmainly from the standpoint of their ability to-produce that which should function solely as ameans for exchanging them. In place of financeserving industry we find industry the slave offinance. Universally good harvests and generalincrease in production and manufactures are regardedwith dismay by producers as leading to over-production and consequent starvation, whilst awholesale destruction of wealth by fire, flood orwar is hailed as a boon to the masses.* In fact,regarded from a rational standpoint, the wholecommercial and industrial world appears to bestanding upon its head.

Whilst recognizing wealth as essential to sociallife, orthodox political economy demonstrates thatthe conditions favorable to its growth do notconduce 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 thePhiladelphia Inquirer, Aug. 6th, 1894 : " The reports of serious damageto 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 sevencents a bushel higher than at this time last year ; and yet it does notappear that the crop wilt be any less in 1894 than it was in 1893. Thehigherprice at which the grain is now quoted thus tneans prosperity toa very large and important consuming element in thepopulation.


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QUESTION 17and want go hand in hand. The self-same lawsthat govern distribution of the means of existence,are continually urging man towards destruction.Life and death are inextricably mixed up in allits prescriptions.

The original problem was " How can wealth becontrolled to serve the best interests of society ? "To-day the problem is " How can nine-tenths ofsociety be controlled to serve the interests of ex-isting wealth ? "

Viewing it from an ethical standpoint we shallfind 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 utterlyirreconcilable with any standard of right conduct.Not only so, but economists have not hesitatedto proclaim economics and ethics as irreconcilable." Moral considerations have nothing to do withpolitical economy," says John Stuart Mill. "Theeconomic ' want ' is not necessarily a rational or ahealthy want," says Prof. Smart.

Prof. Caimes writes : " I am unaware of anyrule of justice applicable to the problem of dis-tributing the products of industry ; and any attemptto give effect to what are considered the dictatesof justice, which should involve as a means towards

* Introduction to "The Theory of Value."


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8 THE MONEYthat end, a disturbance of the fundamental assump-tions on which economic reasoning is based, morespecially those of the right of private property andthe freedom of individual industry, would, in myopinion, putting all other than material considerationsaside, be inevitably followed by the destruction orindefinite curtailment of the fund itself, from whichthe remuneration of all classes is derived." He adds,"As to the amount of truth or morality which theseseveral maxims of political economy embody, I amnot concerned here to enquire. My business withthem has reference exclusively to their efficacy asrules for regulating the production and distributionof wealth."

So might the navigator say, "As to the cor-rectness or incorrectness of the ship's compass Iam not concerned to enquire. My business issimply to sail the ship."

So the metaphysician might say, " As to thetruth or correctness of my premises, I am notconcerned to enquire. My business with them issimply to arrive at logical conclusions."

To my mind there is something amazing inthese statements of Mill and Cairnes. How theycould believe they were building a science governinghuman actionsfor the production and distributionof wealth is entirely regulated by human actionswithout any regard to that science which governsright conduct, is to me inexplicable.


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QUESTION 19With Proudhon we may remark : " It is surely

a sad symptom for a science, when, in developing itselfaccording to its own principles it reaches its objectjust in time to be contradicted by another."We now pass to a consideration of the premisesupon which the science is built. Economists assertthat wealth is the resultant of three factors : land, laborand capital. Allowing, for a moment, the assertion,we must recognize that this classification places allhuman exertion under one heading, viz. : labor.Hence there is but one human factor in production ; andsince, in order to maintain and properly develop them,the factors must be properly nourished and replenishedfrom wealth produced, in the absence of anythingto the contrary, reason would suggest that all wealthshould be divided among them in proportion totheir needs ; i.e. the land should be properlyfertilized and irrigated, capital replenished and thebalance should go to labor. This would seem toharmonize with the principles of ethics. To parodya political adage we may justly say " to the factorsbelong the spoils."

But what do economists say ? " The products ofindustry," say they, "are divided into three parts.One part goes for use of land and is termed rentanother to labor and is called wages; and anotherto capital and is known as interest." Instead ofrent going to the land, then, it goes as paymentfor use to a landlord and interest is similarly


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20 THE MONEYpaid to a capitalist. But to what purpose arethese portions of wealth, which are paid to land-lords and capitalists, applied ? To fertilizing landand repairing capital? Not necessarily. The maindisposition of this wealth is used to support thelandlords and capitalists themselves, rather thanmaintain the factors that they represent. With thisquestion, however, economists do not bother themselves.There is here, evidently, some gross error, somethingentirely misleading and wholly unscientific. Beginningwith three factors in production, one of which is human,economists end by distributing wealth among threefactors, all of which are human. As factors in pro-duction, landlords and capitalists do not appear. Onwhat basis, then, do they appear as factors in distribu-tion ? " Rent," they say, "is for the use of land." Nowthe natural payment to land for its use is labor.There is no just reason to exact payment for use unlessthe thing is used. To use land is to work upon it,^tolabor. Without such labor there can be no return, fornature gives only to labor; hence, the paymentnature demands is labor. To use is to employ, andto say that land is an agent in production, and theuse of land an agent, is one and the same thing. Inother words, land as a factor necessarily means itsuse, and the natural payment for use is labor.Labor is, in fact, nature's rent. To pay rentto a landlord, therefore, means a double tribute.But land is nature's product, and her rent


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QUESTION 21there is not the slightest possibility of evading.What part, then, does the landlord furnish ?Where is his quid pro quo? To these questionspolitical economy gives but evasive answers ; andyet, if it be a science it must answer them, andanswer satisfactorily.

Again, interest we are told is the reward forabstinence.* Now although the term "reward" issometimes used as meaning natural result, it is moreoften used to signify a gift, donation or present, i.e.something given to a person which does not naturallyresult from his labor or services. The reward oflabor 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 interestthe rewardior abstinenceused ? Let us see.

* " The claim to remuneration, founded on the possession of foodavailable for the maintenance of laborers, is of another kindremunera-tion for abstinence, not for labor. If a person has a store of food, hehas it in his power to consume it himself in idleness, or in feeding othersto 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 supportthem during their work, he can, and naturally will, claim a remunera-tion from the produce. He will not be content with simple repaymentif 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 hisown benefit or pleasure. He will look for some equivalent for thisforbearance." "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. Wealthmust be used and consumed in order to become productive. It is use,Bot abstinence, that is productive. Author.]


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22 THE MONEYIf I abstain from the practice of certain vices I

escape the pain and misery that I should otherwisesuffer. This is the "reward" or natural result ofabstinence. If, on the other hand, I abstain fromeating and drinking for a long time, I become weal A " general desire for one article " has no more to dowith a common denominator of values than a demandfor clothes has to do with language. In fact, it wouldbe as sensible to talk of expressing the relation of afurlong to a mile by " an article " for which there wasa "general desire," as to talk of expressing values,or constituting a common denominator of values,by the same thing. " You do not measure the relationof a mile to a furlong ; you express it thus, 8:1. You


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MONEY 113use a common language for the two quantities. Youtake a common term or denominator for the twodistances and thus set them in immediate comparisonwith each other," says Professor Walker. Preciselyso ! 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 thereis a general desire," is as incapable of measuring orexpressing the exchange relations of commodities asit is incapable of expressing the ratio of a furlong toa mile. Both are quantitative relations, and bothcan only be expressed numerically. The long andsomewhat skilful argument by which ProfessorWalker endeavours to overthrow the errors of the so-called " Hard Money " advocates, is founded upon afallacy as great as those he seeks to expose. Whenhe writes of money as " expressing values " and as the" value denominator," he is writing correctly andscientifically. When, however, he writes of moneyas an " article of uniform quality, susceptible of easyand exact division," he is treating money as acommodity, and from the standpoint of a legalizedinstitution. Scientifically speaking, it would be justas sensible for a government to pass a law declaringthat there shall be two sunsets every twenty-four hours,or black shall be white, as to declare that 25 8/10grains of gold shall be a "standard of value," andthat money is a commodity. Legislators declaremoney to be a commodity ; science says it is not and


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114 MONEYcannot be. And so in trying to reconcile twoopposing and contradictory theories, Professor Walker,in common with Macleod and many other ableeconomists, misses the goal towards which the scienceof economy unerringly points. Approach the subjectfrom whatever standpoint you may, providing it isin the true scientific spirit, and the only solution tothe money question is found in releasing money fromits association with a commodity. This is not the firstoccasion that the laws of nations have conflictedwith those of science.

The pranks played by this association of moneywith a commodity are the strangest possible. It hasled economists into a perfect labyrinth of mystery andconfusion, until the science of exchanges resembles aChinese puzzle.

It has led Francis Walker, one of the cleveresteconomic thinkers, to conclusions directly oppositeto those he should logically have reached; similarlywith Macleod, the mathematical economist. Itmade the former condemn paper money, afterhaving satisfactorily and conclusively proved it tobe capable of performing perfectly well the moneyfunctions, because it did not, forsooth, possess thefunctions of a commodity; and yet he starts withthe definition " Money is that money does, that is,money ; all that is money ; only that is money,which performs a certain office." As well mighthe condemn a horse for not possessing wings, or


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MONEY 115a cow for not raising wool. That which satis-factorily performs the money functions is goodmoney, just as a steam-engine that performs thework required of it is a good engine. Again hesays ; " Money is that which passes freely fromhand to hand, throughout the community in finaldischarge of debts and foil payment for commodities."

In another place he says, that " When a manaccepts money in payment for the product of hislabor, he parts with that which, presumably, wascapable of gratifying his own tastes and bodilyneeds, and takes instead, something which he doesnot intend or desire personally to consume or enjoy, oruse in any other way than as the means or medium ofsecuring later or elsewhere that which shall satisfy hisindividual wants." And again, " A sale of goodsfor money is only half a transaction," * How canboth parties to a transaction be considered as" finally discharged " of debt, and " full paymentfor commodities declared to have been made, ifthe transaction is only " half a transaction " ?

I have dwelt at length upon the commodityaspect of money, because it is this associationwhich is the cause of most of the world's financialtroubles. It is the conflict of two opposing forcesthat unsettles industry periodically. Money isconstantly seeking to perform its functions as the

* These quotations are all taken from Prof. Walker's book," Money, Trade and Industry."


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"6 MONEYmedium of exchange, and is every now and thenhindered and restrained by the commodity govern-ing it, and as a general thing the commodity ismaster of the situation. It insists upon assertingitself. It causes the money, or rather the materialby which money is known, to leave the country,to stay at home, to circulate, to be hoarded, tobe plentiful or scarce, as seems most profitableand desirable to its owners. Commodity-moneyonly facilitates exchange when it is more profitablefor its controllers to do so than not. " The coinageof this specie basis," says William A. Whittick,in his admirable little pamphlet on the moneyquestion, " constitutes a world-wide monopoly ofmoney which exploits industry to an appallingextent. It alternately stimulates and paralyzesindustry ; it is, in the hands of its owners, both thelife and death of business enterprise. So far as itgoes, and that is but a little way, it is life, but itslimit is paralysis. We carry on our business enter-prises until the money gives out; but the limitshould be labor and material. How the discoveriesof gold in Australia and California in 1847 stimu-lated the world's industries ! ! And yet the basicfactors of that industry existed before these golddiscoveries."

To sum up then : We have now discovered thetrue origin, nature and functions of money. It isan ingenious invention to avoid certain difficulties


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MONEY 117and inconveniences brought about by unequalexchanges. It represents the inequalities in theseexchanges, or, in other words, debts. In order todo this satisfactorily, it must be capable ofrepresenting and expressing precisely the exchangerelationship of one commodity to another, or, in otherwords, values. Since values are the exchange relationsbetween different quantities expressed numerically,it follows that the money must consist of somesystem of numbers by which these ratios areexpressed. By bringing all commodities to an ex-changeable equality, we find the numbers represent-ing their exchange proportions. By finding theleast common multiple for these numbers, and dividingit by each, we get the value expressions of all com-modities in simple numbers. Since these are wholenumbers, unity may be adopted for the commonunit, and we have at once the relations of thepurchasing powers of all commodities in terms ofan invariable unit. The general adoption of thisplan will enable anyone, at a glance at the dailymarket reports, to see the prices of any commodities.These units recorded fractionally, singly and inmultiples on paper, issued for debt and maderedeemable in all commodities, constitute money inthe strict scientific sense. It thus becomes, in truth,the medium of exchange, not the end. Its unitsbeing invariable, it becomes a perfectly safe andscientific standard by which to reckon deferred


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"8 MONEYpayments. A commodity is the end desired by ex-change ; money is only a means to that end, themechanism by which exchanges are eiFected. Asale of commodities for money is, therefore, not anexchange. Exchange is then only in a transitionalstate; it is incomplete. It is completed only whena purchase of goods for the money takes place. Apurchase is the complement of a sale. The twoacts, by the same person, with the same money, isa complete exchange. The end sought in exchange is,therefore, the acquisition of commodities, not money.


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Cbapter IX.GRESHAM'S LAW

IF evidence be required to demonstrate the un-scientific thought responsible for our monetarysystems, we find abundant proof in the importancegiven to what is known as the Gresham Law duringthe past two centuries. No theory in this branchof economic science is more frequently quoted, or moreoften appealed to, and yet its existence is entirely due tothe fallacy which I have endeavoured to expose in theprevious chapter, that money is a commodity. TheGresham Law contains about as much truth asthe astronomical theories of the Rev. Mr. Jasper.Sir Thomas Gresham, the founder of the RoyalExchange, in the sixteenth century, observed thatnew coins rapidly disappeared from circulation,especially when the bulk of the coinage in circula-tion was light in weight. He discovered that inexporting the precious metals, money changersinvariably selected the new full weight coins; hencethe light weight ones remained in circulation. Thepersistency with which this occurred led Sir Thomasto formulate what has ever since been known asGresham's Law, viz., "Bad money drives out goodmoney, but good money gannot drive out badmoney." Consideration of this law makes one


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I20 GRESHAM'Swonder whether monetary science is a branch ofknowledge which conflicts with the fundamentallaw of natural philosophy, viz., the survival of thefittest. Let us consider the subject closely. If weanalyze a coin we shall find it composed of acertain quantity of metal, moulded into a certainform and stamped with an inscription on eachside. As a piece of metal it is merely a com-modity. The inscription gives it the credit ofthe bank or government. Wherein does the moneyconsist ? In the nation's credit or in the metalcontained in the coin ? What causes it to be generallyreceived, to circulate throughout the community ?If I take a hammer, and, avoiding the loss of anyof the metal, I deface the inscription so that it isunrecognizable, the coin will not circulate. No onewill receive it on the same terms as before theinscription was defaced, notwithstanding that as apiece of metal it remains of precisely the sameworth. I am compelled to send it to the mint andhave the inscription renewed, or sell it to a gold orsilver merchant as a commodity. The effacement ofthe 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 samequantity, quality and shape, as a five dollar gold pieceor sovereign, and omitting the inscription, let him try touse it as money. He may put even more gold into itthan is in the coin. No one but a gold merchant will


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LAW 121accept it, and then only as a commodity.* He will buyit just as he would buy tea, coffee or any othercommodity. What, then, is the meaning of thephenomenon, viz., the disappearance of the largestand fullest weight coins ? Merely this, that thetendency of commerce and of industry is towardscheapness, towards the destruction or abolition ofvalueas used in the commercial sense, f It isfounded upon the economic law that men seek togratify their wants with the least expenditure ofenergy, a law that corresponds to the line of leastresistance in mechanics. Consequently, of twothings, both equally well adapted to fulfil a certainfunction, the cheaper one will be selected. Forthis reason iron has superseded brass and wood.

* ' ' Counterfeiters are flooding Cincinnati with spurious dollars ofsilver. The curious feature of this illegal act is, that the counterfeit issaid to be pure silver, and, therefore, of a better quality than the govern-ment furnishes as a legal tender. The present market price of silverenables the counterfeiter to manufacture this superior coin and yetobtain 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 pieceon the tracks of the Reading Railroad, and after a train had passedover 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 byweight and acid, and told him how much they would give for it. Thehighest 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 industrywhen free from governmentalinterferenceto reduce the "valuable " to the merely useful.


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122 GRESHAM'Sand steel has taken the place of iron in many ofthe arts. For this reason iron itself will be dis-placed as soon as mankind finds a cheaper materialcapable of performing the same duties. For thisreason, too, coins of short weight stay at home,and those of full weight go abroad. For thisreason, were it not for the interference of govern-ments, and for legislative enactments, gold andsilver would be relegated to the arts to which theyproperly belong, and the cheapest and best formof money, paper, would be universally adopted.The Gresham Law is a thorough demonstrationof the fact that the ability of money to perform itsduties is a function which a commodity is incapable,as a commodity, of performing. In commerce, as inmechanics, the utility of an invention is determinedby its ability to discharge the functions for whichit was invented. As Francis Walker says : " Moneyis that money does."

Now, knowledge of the fact that when two kindsof coins were put in circulation, the one circulatedfreely whilst the other refused to do so, would leadto the inevitable conclusion that that which circulatedwas the better money, i.e., better adapted for thework required; for what is the work required ofmoney unless to circulate freely ? Money is to tradewhat wheels are to a car, a means of facilitating itsprogress. Of what possible use would a wheel be toa car that refused to revolve ? And yet we are gravely


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LAW 123informed that money which will not circulate is thebest money ! Gresham's Law is, therefore, an absurdand ridiculous fallacy. Good money will always drive outbad money. The cause of the " picking and cullingof gold and silver coins is this, that when coinsfunction as money, they are not, properly speaking,commodities ; as metals, they are ; and coins,like everything else, obey the highest law oftheir being. This law is that they seek the spherewherein they can perform the functions of that officefor which they are best adapted ; and this is the lawof the survival of the fittest, a law which Gresham'stheory contradicts. As coins, they are of less valuethan mere commodities. Their money functions aresubordinate to their commodity function. But now,it may astonish " Greshamites " to learn that, as amatter of fact, money never goes abroad. It is thecommodity that emigrates. Coins- are sent abroad asbullion, not as money. They are sent to foreign mintsand re-coined or sold to exchangers. We may sumup the matter as follows : Commodity-money is thesubject of two powers, one governing it as a mediumof exchange, the other as a commodity. The questionas to whether a coin will perform the money functionwell or ill, whether it will circulate or not, isdependent upon whether its commodity worth isgreater or less than its money worth. Any money thatis tied to a commodity is, therefore, bad money, in thesense of not being reliable in performing the money


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124 GRESHAM'Sfunctions when it is needed. Good money is ofthat nature that at all times it obeys the law of itsbeing and is subjected to no other law.

Gresham's Law shows further that the naturaltendency of money is to dissociate itself fromthe commodity. A coin short in weight circulateswhere the full weight one cannot. The commoditybegins to disappear from the moment a coin is startedon its course. Either it disappears per saltum, or elseit is gradually worn away by abrasion. The lossfrom use is in itself evidence of the unwisdom ofallowing money to carry the wealth of which it shouldbe merely the representative, with it. It is handi-capped from the start.We can now see the absurdity of striving to makemoney a commodity, or in associating it with acommodity. Subjected as it must be to two conflictingforces, it cannot well perform the money function solong as it is exposed to the force acting upon it as acommodity. Gresham's Law shows that as com-modities, gold and silver refuse to perform the moneyfunction ; they will not serve as money. It is onlywhen their commodity forms disappear, are lost sightof, that they properly fulfil the function of a mediumof exchange. Gresham's Law should, therefore, beamended, in order to become truthful, as follows" Cheap money is the best money and drives out dearmoney," which means that the cheaper the materialof which the money is composed, the better.


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LAW "5Of course, in order to be money, it must properly

fulfil

the money question by arthur kitson

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