Selected
Correspondence from 1943 to 1952
(correspondence is in chronological
order)
To
William T. Foster (January 27, 1943)
There
are, as you know, endless fictions, fallacies and fetishes in the
theory of money, and I would like to follow the strategy of dumping
them all into the laps of those who believe in political money and
let them go on in the interminable task of trying to explain them. I
would, on the other hand, invite those who choose the nonpolitical
path, to join in the constructive effort of developing a new theory
which at least, does not inherit the confusions of the old. It is a
privilege to make original errors. You will note that the issue
policy for the valun system is the central unsolved problem, and this
alone is grist enough for minds that would mill and mull.
To
Henry Morgenthau (April 10, 1943)
The
word stabilization now so much used in political parlance, seems to
mean in the Unitas Plan the act of rigging the market on the
currencies of the member nations. Why cannot foreign exchange be
natural? Why should not nations benefit from good fiscal policies and
suffer from bad ones, the same as private corporations?
The
endeavor to fix exchange rates springs from the fallacious belief
that trading through depreciated currencies is unfair. This fallacy
holds that when a currency becomes discreditable, the holder thereof
has a trading advantage over those who hold currencies that are more
creditable, and that therefore nations undertake to depreciate their
currencies.
Now
no nation but one ever deliberately undertook the depreciation of its
own currency, and that one happens to be the one of which you are
fiscal officer. It failed to accomplish its purpose, because it had
not dawned upon our statesmen that the dollar is the criterion of all
currencies, and that a criterion cannot depreciate in terms of
itself. All nations that have depreciated their currencies have done
so in terms of dollars, and in each case they merely recognized a
fait accompli forced upon them by the natural operation of supply and
demand. In other words, they acknowledged a fact beyond their control
and reduced the "gold content" (dollar content) of their
unit.
What
is gold dissociated from the dollar? Is it not an inert metal that,
because of artificial pricing, has been produced in excessive,
supply, and if the dollar were withdrawn from it today, would it not
plummet in price? By marriage, gold was lifted to a parity with the
dollar, but as the dollar sinks to the level of the actual value of
gold, gold will divorce the dollar on grounds of non-support. You
will recall how in 1934 the President raised the price of gold and
expected all prices to rise in salute, but they remained sitting.
This time as the dollar falls, gold, like all other commodities, will
remain standing.
In
other words, gold is a value of and by itself, and the dollar is an
entity of and by itself. The dollar will continue to be the monetary
criterion of the world, but in the end it will probably follow all
other national units to extinction through inflation.
It
does not require a convention of nations to make a unit the world
standard; it is in the nature of the credit concept that all monetary
instruments are and must be weighed in the scale with the best. Since
the pound surrendered its premiership, there has been nothing but a
dollar standard throughout the world, and gold has nothing whatever
to do with it. That the dollar can lift the price of gold above its
actual value is merely a demonstration of the dollar's power. But the
time is coming when it will no longer be able to do so. Since the
United States is the only nation that supports gold, we will then
have an end of the gold standard nonsense.
To
Leverett Saltonstall (July 1, 1943)
The
political monetary system inevitably trends toward political
centralization. The reason for this is that the central government
denies to the several states participation in the monetary system,
reserving to itself a monopoly of the issue power. By resort to this
power, it is enabled to practice paternalism, and thus it draws to
itself supplicants and pressure groups that the states are powerless
to serve. In exchange for its grants and largess, the central
government gains the fealty of its beneficiaries and thus undermines
the prestige of local governments. It seems all-powerful because of
its apparent ability to create riches by creating money, which is
actually dilution of the money supply and which manifests in
inflation, the cause of which the people do not understand. The state
and local governments, on the other hand, must collect their taxes
the hard and obvious way. Hence they are limited in their
expenditures and thus in their power. In this way, the central
government builds up a vast bureaucracy that reaches into the
jurisdictions of state and local governments and harasses their
citizens with regulations that discourage the spirit of enterprise
and dull the sense of freedom.
To
William M. Bellamy (November 3, 1943)
The
classical theories of interest no longer have relevancy, because the
lending industry is largely socialized and the interest rate is no
longer determined by demand and supply. Its basis now is a pure
gratuity or subsidy, and is determined solely by political
expediency.
The
time is coming when the banks will not be able to subsist on the
present rate, due to the inflationary increase in their expenses,
unless the volume is very much increased. It is just as easy for a
bank to lend two or three dollars as one, and since there is no
hazard in lending to the Government, the coming squeeze may be
relieved by the automatic action of inflation, in that the Government
will be obliged to borrow more from the banks as inflation
progresses.
I
say obliged on the assumption that the present policy continues. In
fact, however, the Government is in no wise dependent upon the banks.
The reverse is the case, since the Treasury may at any time it
chooses merely issue checks against itself, and such checks would
clear through the banks just like bank checks. This may be the
ultimate resort, but in the meantime the Treasury has the problem of
keeping the banks on an earning basis. Therefore, the Treasury will
compensate the banks for their increasing expenses by increased
volume of loans until the end. Otherwise it will be obligated to
raise the rate. This alone determines the future of interest rates.
To
Willard T. Chevalier (November 11, 1943)
Fair
exchange is a process whereby the producer sells his energy in one
form and buys it back in another form. Thus the individual produces
all the things he acquires, just as he did before exchange was
introduced; he merely makes more and acquires more. Since the
individual is the fountain of all wealth and the rightful acquirer
thereof, and since to effect his productive-consumptive cycle he must
utilize money to mediate his exchanges, is he not also the only
rightful fountain of the money required for such exchanges? What has
the Government to do with it? Could not men work and exchange by
means of money even if there were no political government?
The
premise of the prevailing monetary theory is that money issuance is a
sovereign political power, and that government must either issue
money for producer-traders or authorize banks to grant the power to a
selected few at a price. Since the individual's ability to produce is
dependent upon his ability to exchange, is it not obvious that to
place the power to create the means of exchange in the hands of a
privileged group gives to those privileged ones the power to control
the individual's capacities either by design or by error with
resultant miscarriages?
The
power to produce wealth and the power to produce the means of
exchanging such wealth must be coextensive and reside in the same
person. This is the premise of personal enterprise money.
To
William Langer (November 23, 1943)
The
only way to get anything from government is to organize a party or
pressure group. But how can we get anything out of an empty vessel?
Does not everything drawn from government have to come from the
people, and is not therefore any organized effort to draw anything
from the government a conspiracy against others in the constituency?
Is
democracy a conception of equal rights and equal service under
government, or is it a game whereby those who gang up get special
privileges at the expense of the unorganized? Now I realize that the
first definition is the ideal, and the second is the practice, and
that the idealists invariably lose out to those who play practical
politics. Therefore the tendency of government is to degrade itself
and, by evolutionary processes, ultimately to destroy itself, as a
greater and greater element in the constituency reaches the
conclusion that it must either rob others through the agency of
government or be itself robbed through that agency.
Random
(1944)
All
about are evidences of the frustration of the political means of
attainment. Every political project is stalemated. Governments that
have failed in their respective sovereign spheres pursue the folly of
internationalizing their problems.
Typical
of this is the Bretton Woods effort to stabilize the various
political monetary units-for the destabilization of which each of the
participating governments is to blame. Here we have the spectacle of
the perpetrators of destabilization posing as the proponents of
stabilization, whereas it is but an international league of
counterfeiters for the purpose of establishing standards of
counterfeiting practice.
"Fundamental
disequilibrium" (FD) is a phrase used in the protocol, and it
means out of bounds. A certain tolerance is extended by the
fraternity to any straying member, but a fundamental disequilibrium
may result in expulsion from the lodge. FD means that the member has
been issuing counterfeit out of ratio to the practice prevailing
among the brothers, and, thus, has disturbed the relativity of the
currencies of the bro-therhood. For instance, if the prevailing
watering of the currencies with counterfeit is fifty per cent, all
members are honor-bound to try to stay within this ratio so as to
maintain parity of debasement.
In
fact, this scheme requires counterfeiting. If a member refrained from
it, its currency would rise out of bounds with respect to the others,
and thus it would be guilty of FD. Counterfeiting is recognized as a
prerogative of all members, provided they counterfeit only the
currency of their own nationals. But if the league is to hold
together and the racket is to be preserved, the standards of practice
must be respected.
This
is another political effort wrong in principle and infeasible in
practice. First, the participants must agree on parities before the
freezing, called stabilization, can begin. But troubled waters do not
freeze, and there is no calm in prospect. Even if it should ever get
started, it would be doomed to fall apart, because standards of
malpractice are difficult to maintain.
Random
(Undated)
The
accomplishments of the arts and sciences have been exclusively in the
making of things. The consequent facility in production has not had a
coordinate development in distribution - in the swapping of things.
Swapping
began by direct action and evolved into the indirect method through
the use of money, an instrumentality which has ever been shrouded in
mystery. With a complete lack of science in the art of swapping, it
is no wonder that we have suffered so many social ills; it is more a
wonder that we have progressed so far as we have.
Life
depends upon the ability to swap. He, who has nothing to swap, has no
social security. But he who has something to swap should have social
security, and he can have it - if the monetary instrument of indirect
swapping is at his command.
The
more the arts and sciences develop facility of production through the
specialization of labor, the more important indirect swapping
becomes, and hence the greater the need for money, the
instrumentality thereof.
Intercourse
among friends is on a direct swapping basis without the mediation of
money, and this zone widens as the base of indirect swapping, by
means of money, widens. Thus our culture depends upon our ability to
expand our indirect swapping by means of money. A society that has
few indirect swaps has few direct swaps or amenities. The mastery of
money is therefore a cultural accomplishment. The more we command
money, the less mercenary we become, for the greater the facility of
money in our basic swaps, the greater is our freedom from the use of
money in our direct, or social, swaps. This is because the facility
of basic swaps so increases our wealth that, in our social
relationships, value accounting is submerged in the greater value of
free and generous fellowship and indulgences. Only a society that is
money wise at its base can enjoy priceless social interchanges at the
top.
To
Spencer Heath (April 6, 1945)
I
read your little essay, "The Inspiration of Beauty," and
shall re-read it several times before I shall be able to extract all
of the good that you so thoughtfully put into it.
I
have always realized that I was working in the foot-hills of a
sublime thought, but have not felt competent to paint the beauty of
the exchange relationship. I am convinced that in you I have found
the person who can present the beauty of the exchange idea. This
letter is the confession of a tyro and salute to a master.
To
the editor of Money (May 1945)
Various
readers and non-readers of Private Enterprise Money have likened the
valun system of private enterprise money to the plans of Proudhon and
Greene. I would like to make the distinction clear.
Proudhon,
who saw clearly that it is the labor of the people that gives
substance to money, proposed a mutual credit plan for the issuance of
bills of exchange in terms of the franc. Greene, the American
Proudhon, proposed a mutual credit plan for the issuance of currency
bills in terms of the dollar. There have been other mutual credit
plans, usually called Giro plans, in Europe. All these accept the
political monetary unit and make no effort to limit the government's
issue power. They are aimed at escape from the restrictions and
impositions of the banks, but not the perversions of government.
A
mutual money plan, to be successful, must be restricted to private
enterprisers (employers, employees, and self-employers) so far as
issue power is concerned, because they both buy and sell and, thus,
redeem as well as issue. Any mutual credit plan can be perverted and
ultimately ruined if the government is given the issue power.
Under
the valun system, governments-national, state and local-would be
entitled only to class B membership, thus limiting them to drawing
against a credit balance, whereas all private enterprisers would be
permitted to draw against a debit balance, the only method by which
money can be created.
To
the editor of Money (August, 1945)
July
Money carries a letter by George A. Startup addressed to me in which
he states, "Please stop trying to confuse the people more by
talking about money to be issued by private enterprisers.
To
avoid confusion, let me summarize. Broadly speaking, there are now
three schools of monetary thought: a) those who denounce Government
money issue and bend the knee to the banks; b) those who denounce the
banks and bend the knee to the Government; c) those who denounce both
banks and Government and bend the knee to nobody, while asserting the
exclusive right of the citizen to issue money to negotiate his
exchanges.
Mr.
Startup is of the second, and I am of the third. Those who like to
bend the knee to some power will choose the first or second school.
Those who are self-reliant, self-assertive, and have private
initiative, all typically American qualities, will align with the
third group, leaving those of the first two groups to fight each
other.
However,
I must remind Mr. Startup that in the battle of the knee-benders,
neither side can quote the Constitution in its support. It is not
true, as Mr. Startup states, that "the Constitution places the
power to issue money in the monopoly of the Federal Government."
Article 1, Section 8, states that Congress shall have the power "to
coin money and regulate the value thereof and of foreign coin."
Thus the exercise of the power is optional and not mandatory. Nothing
is said about exclusive power or monopoly. There is nowhere any
prohibition against the people issuing money. It is true, that such
money could not be made legal tender without Government sanction,
since the state governments are forbidden to make anything but
federal coins legal tender. But legal tender is immaterial, since
even the Government accepts checks in payment of taxes.
The
same section quoted above also provides that Congress shall have
power "to borrow money on the credit of the United States."
Here is another optional power. Congress can issue or not, borrow or
not; so, both groups of knee-benders can call theirs "Constitutional
money." In other words, "Constitutional money" doesn't
mean anything. The only possible unconstitutional money would be an
issue by a state government as legal tender.
Let's
not muddy the waters by misquoting and misusing the Constitution,
which is perfectly neutral in this fight. We are all free to align
ourselves with any of the three schools. The third school (private
enterprise money) has the advantage in that it doesn't have to pass a
law or engage in politics. It depends upon voluntary cooperation.
To
Laurance Labadie (December 1, 1945)
This
is a report on the references you gave me: Henry Meulen, Free
Banking, 1934
He
quotes approvingly from Whittick, Value and an Invariable Unit of
Value (Lippincott 1896), page 244, to wit:
"Are
not two sparrows sold for a farthing?" A money system could be
built upon this starting point. If two sparrows are sold for a
farthing, prices of all commodities whose values were determinable
could be expressed in farthings. The farthing might be a myth, and
yet from it the proportions of all wealth might be determined. How
absurd it would be to attach the sparrows in perpetuity to the
farthing.
This
conforms to the concept of abstract value, and recognizes that only
precedent and practice are required to establish a monetary unit. Yet
Meulen denies this by attacking "the sparrows in perpetuity to
the farthing," when, on page 238, he says,
Few
of the millions of people who exchange ordinary commodities actually
desire gold; yet, when gold becomes cheaper, prices of all goods must
increase, to the confusion of all debt contracts.
This
is the theory that the raising or lowering of the price of gold
affects all prices - a theory that was disproved by the policies of
Roosevelt. It does not seem that Meulen has the abstract value
concept.
Alfred
B. Westrop, The New Philosophy of Money, 1915
He
also accepts the theory of the influence of the "standard"
commodity over all commodities, in these words, page 93:
The
purchasing power of "standard" money is affected by the
rise or fall in the market value of the "standard"
commodity hence this purchasing power must vary.
His
book does not live up to its title, as it merely proposes a mutual
banking plan within the existing philosophy and the existing unit.
Arthur
Kitson, A Scientific Solution of the Money Question, 1894
I
am delighted to find myself in full concurrence with him on the basis
for a monetary unit. On page 135, he says:
The
language of commodities was created as soon as their relationship was
ascertained in terms of the quantities (either by weight or volume)
of anyone commodity, whether gold, silver, wheat, or whatnot; and if
from that instant prices had been reckoned without returning to the
standard commodity for successive comparisons and valuations, we
should have had an absolute method by which the variations in prices
of each and every commodity would have been correctly registered,
including the variations in the standard commodity itself. A
commodity can only be considered a standard at one particular
instant.
I
have likened the starting of a unit to the keynote of an
orchestration - to be lost and forgotten the moment the play of
pricing has begun.
Kitson
and Whittick, as quoted above by Meulen, are the only writers I know
of who have expressed the same idea that I have expressed, and I
thank you for leading me to them.
I
also found in Kitson's book passages worth copying in support of
private enterprise money. Beginning at page 276, he first quotes
Spencer thus:
"So
constantly have currency and government been associated," says
Herbert Spencer, "so universal has been the control exercised by
law givers over monetary systems, so completely have men come to
regard this control as a matter of course, that scarcely anyone seems
to inquire what would result were it abolished. Perhaps in no case is
the necessity of state superintendence so generally assumed, and in
no case will the denial of that necessity cause so much surprise.
"That
laws interfering with currency cannot be enacted without the reversal
of state duty, is obvious; for either to forbid the issue, or enforce
the receipt of certain notes or coin in return for other things, is
to infringe the right of exchange-is to prevent men making exchanges
which they otherwise would have made, or is to oblige them to make
exchanges which otherwise they would not have made."- Social
Statics.
Then
Kitson proceeds:
To
the average man, a currency that has not the authority or stamp of
government is inconceivable; and yet there is no good reason why
communities should not create and control their own currency without
the aid or intervention of governments, just as they incur debts or
liabilities without such aid or intervention.
In
the chapter on Credit, I showed first that the large proportion of
the business of all commercial nations was done upon a credit basis;
and second, that circulating credits constituted money in the strict
scientific sense, and that whilst a large amount of personal credit
was stationary, still a considerable proportion did circulate, and so
performed all the functions of money. It therefore follows, that in
spite of legislative acts, and in spite of the assertions of certain
writers that "law and law alone creates money," the
greatest volume of money is now created by the people themselves,
without the aid or knowledge of governments. In fact, were it not for
the power that individuals have of creating credit, the volume of the
world's commercial transactions would be reduced to a mere fraction
of what it is now. Whilst, therefore, as a matter of fact, the
commercial world does create the greater portion of the world's
currency, in form of bills of exchange, drafts, credit notes, etc.,
the effect of the legal tender act and governmental interference, is
to force people to build credit upon an unstable, insecure basis. The
entire volume of commercial currency is built upon that of the
government, so far as domestic exchanges are concerned, and is liable
at any time to be overturned by the manipulation of those in control
of the government currency.
How
anyone who is familiar with the history of the coinage and currency
of Europe, or acquainted with the financial history of the United
States during the past fifty years, can imagine that the control of
currency is safer in the hands of the governments of these countries
than in the hands of the people, is astounding.
A
nation, whose currency is controlled by its legislators, is like a
town built in the vicinity of a volcano. Its inhabitants never know
at what period they may be enveloped in ruin.
Governments
cannot exercise the function of controlling the currency without
violating the one function by which their right to existence is
generally recognized, viz, the administration of justice. The
issuance of money must be free, in order that industry and commerce
may be free; and commerce must be free in order that people may be
free. Freedom to life necessitates freedom to maintain life, and this
involves freedom of exchanges. Denial of free money is, therefore, a
denial of freedom to life.
It
is astounding to me that Kitson, after thinking so clearly and
fundamentally on money, should have since lapsed into a political
money reformer instead of devoting his life to promulgating private
enterprise money.
To
Raymond J. McNally (April 10, 1946)
After
money has been created, i.e. when one holds currency or book credits,
it is evidence that one has delivered something to the market and has
a claim upon the market. Such claim is transferable for a
consideration. But the creation of money is purely a self-service
based upon the mutuality of credit that the monetary system rests
upon. I see no justification for interest here. If the participants
in a monetary system wanted to charge each other interest, it would
seem to me like taking in one another's washing.
To
Raymond J. McNally (April 10, 1946) (b)
The
essential idea in the valun proposal is that credit is based upon a
pact of traders, and that pact may be anything that is mutually
agreeable. Such a pact might even accept the administration of one
man with power to extend or diminish credit, and it might permit such
a person to make a profit or suffer a loss from administration. Such
a set-up would apparently please you. As for myself, I would prefer
to take part in a system where the members laid down certain
principles under which the officers operated and then rewarded such
officers for efficiency with adequate salaries. That private
operation or a profit motivated system is necessary is contradicted
by innumerable non-profit stock and commodity exchanges, chambers of
commerce and trade associations and business and professional clubs.
To
Fyke Farmer (July 10, 1946)
As
you truly say, “the individual as a human being is not recognized
by what is called 'international law.' ” Nor is international law
recognized by the individual. Whence cometh this thing called
international law? By what right do governments establish relations
with each other? Can the citizens, even if they would, delegate to
their national government the power to intervene in the affairs of
another or compromise its sovereignty? The power to establish
diplomatic relations is not and cannot be delegated; therefore
international law is beyond all law, in the democratic sense.
I
see no need for international relations, and I am sure there is no
demand for it, except from special interests that have no respect for
the rights of others. It is the provocateur of war. "A decent
respect for the opinions of mankind " dictates that no national
government have any opinions or policies pertaining to the affairs of
other governments or peoples. The conscience and culture of one
people should be allowed to react directly upon other people without
the intervention of governments. The urge for world government,
whether its advocates realize it or not, is an effort to abolish
international relations. Is it the shortest way?
To
Floyd B. Odium (October 11, 1946)
That
the value of the shares of an investment trust is determined by the
value of the underlying corporate shares is a matter of common
knowledge. But it is not realized that the dollar, in terms of which
these corporate shares are expressed, is itself a share certificate
of participation in the general market of goods and services. It
follows from this that every corporation is but an investment trust
basing its stock on the under-lying monetary stock.
Any
corporation executive and stockholder knows that when a corporation
declares a stock split, each outstanding share is proportionately
diminished in value. But how many comprehend that when the dollar
supply is increased without commensurate increase in the underlying
capital of goods and services, that a stock-split has been executed?
As the dollar goes down, corporate stocks must go down in value
regardless of their nominal quotation on the stock market.
The
basic stock of the economy thus is the monetary stock. Any
businessman who has the necessary bank credit, has the power to issue
this basic stock. Therefore, when issued by a producer, the
underlying capital for the monetary stock is maintained share for
share, and parity is preserved. But when the monetary stock is issued
by one who does not offer goods or services to the market, it
constitutes a stock-split, and each unit in circulation is
proportionately reduced in power. Banks ordinarily do not qualify
such an issuer among private borrowers. But the sky is the limit when
the Government borrows and issues dollar splits.
To
Floyd B. Odium (October 11, 1946) (b)
It
is apathetic commentary that many of our businessmen extol free
enterprise and in the same breath uphold price control. Free
enterprise means freedom to determine price. Thus a prohibition
against the determination of price is a prohibition against free
enterprise. Instead of defending their vital right of mutual
agreement between buyer and seller, they undertake to operate in a
straight-jacket and join in the aspersions cast upon those
businessmen, known as "black-marketeers," who are the real
defenders of free enterprise, upon the continuance of which all our
liberties depend.
To
Merwin K. Hart (June 10, 1947)
The
organizations which you list are some of the conscious left-wing
organizations; the unconscious left-wing organizations, such as
yours, are those of the so-called right wing.
There
are no truly right-wing organizations, because it has not dawned upon
society that the political monetary system that prevails in every
nation is fundamentally socialistic. To point the finger at conscious
socialists is self-deceiving, for it implies that others are not
socialists. The finger should be pointed as well at the professing
individualists who accept the socialization of the monetary system
and are naive enough to believe that we can have a free-enterprise
system in spite of it.
Random
(December 20, 1947)
Under
the valun system, savings would not lose their value through deficit
financing, and people could save and insure against hazards without
fear of their savings being watered down in value. Such saving is a
mark of prudence. A money hoarder, on the other hand, is one who
insists on giving value without receiving value-a monetary masochist.
He harms no one but himself, if his extraction of money circulation
does not starve exchange, and it cannot if money creation is not
controlled by a monopoly.
To
William v. Burnell (March 12, 1948)
Your
mind seems to be seeking an answer to the question, what makes money
circulate? The ultimate answer to that question is the
indispensability of money. Man will use anything to serve the purpose
of money in the absence of something better, but will always seek the
best. The best is that which attracts him by its superior stability,
not that which rests upon legal compulsion.
For
the first seventy years in our Republic only gold and silver coins
were legal tender, yet by far the greater amount of business was
transacted with letters of credit and private banknotes, and today
all governments, federal, state and local, accept tax payments in
checks which are, of course, not legal tender. Legal tender merely
means that a creditor may require payment in currency. We are not
concerned with plans of com-pulsion; we are planning a unit that will
be preferred.
To
Ralph W. Manuel (May 7, 1948)
It
is so unusual to find a banker who feels a social consciousness in
his work sufficient to ponder the problems of money and banking, that
when one meets a thinker like yourself, he is especially appreciated.
The banking business is burdened by statutory laws, yet the natural
laws governing it are apparently not understood by either the
legislators or the bankers themselves.
The
contract or the meeting of minds between buyer and seller that forms
the basis of money is extremely difficult to define. In fact, it may
be questioned whether money has any existence, in a dynamic sense,
except at the very moment that it is occupying the minds of traders
in the actual process of exchange. I hesitate to assert that money
exists only in motion, but I recognize a difference between a
bookkeeping record of money and money in action.
It
is an interesting speculation whether the volume of money actually in
existence at anyone time is merely that which is actually in process
of exchanging, and whether the record of issues is but authorized or
potential volume and the exchange act a process of creating and
retiring money from the potential supply. In other words, whether the
substance of money is manifested only in exchange action, and whether
it becomes a dormant entity after exchange, subject to reactivation
by the next buyer.
If
money exists only in motion, or if only the active units activate the
demand-supply effects upon the price system, are not the other units
(so-called savings) practically non-existent, except as potential
re-issues?
We
understand that the monetary circle has its birth in the issue by one
who has credit in the monetary system, and its death is accomplished
by the issuer as he turns from buyer to seller. Between his issue act
(by buying) and his retirement act (by selling) there are a number of
intermediate traders. These may be without credit in the monetary
system, and, at least in this monetary circle, are not primary or
initiating issuers. But since we recognize that they have the power
to retire money from the circle, must we recognize the power to
restore money to the circle as a power of re-issue? Do they not, as
you have contemplated, have the power to affect the consequences of
the credit which brought the circle into existence, and thus share
with the initiator the responsibility for making money a benign
agent?
Whether
every person in the monetary circle is responsible for its equitable
operation or only the issuer, is a question that touches the essence
of the money compact, which, as stated at the outset, is extremely
difficult to define. Is the pledge upon which money rests a pledge of
only the issuer, or does it involve also the acceptor? Does the
intermediate acceptor in the money circle affect the interests of the
past members of the circle and the potential future members by
interrupting or breaking the flow, or is the reaction solely upon
himself?
It
is because questions like these are unanswered, and in many cases not
even posed, that I get much satisfaction out of the opportunity for
experiment that the valun system permits. Each valun bank would adopt
its own credit policy, and it is on credit policy that most of the
unsolved problems hinge.
To
FelixJ. Frazer (September 15, 1948)
I
have found that the general impression of my proposal for a private
enterprise monetary system is that I advocate the taking over the
control of money by big business. Yet I have at no time advocated
this. When I use the terms private enterprise or private
enterprisers, I include employees as well as employers. To get away
from the general interpretation of these terms, I am in my recent
writings using the term personal enterprise. I hold that the money
issuing power is inherent in every producer and potential producer
and is not delegatable. The recognition of this principle is
society's security against economic reverses, because it enables
money supply to spring automatically at the point of need.
Under
the valun system, it is just as feasible for employees as for
employers to start or join a valun bank and to secure credit upon
which to issue valuns. After the board of governors is established,
there will be nothing to prevent you from setting up a valun bank
with any type of enterprisers you may prefer and can get. So please
don't continue to have the impression that there is anything
aristocratic or snobbish about the valun plan. Under the valun
system, neither politician nor banker nor big businessman will be
able to withhold from the little fellow the power to issue money if
that little fellow has enough initiative to exert it.
To
Felix J. Frazer (September 15, 1948) (b)
We
are in agreement that the basis for all wealth is labor, and from
this must follow the principle that all money credit is based upon
labor. But do you include potential labor with realized labor, or
commodities? I do. I hold that an unemployed potential producer has
as sound a basis for money credit as the possessor of realized
wealth. All that a money issuer promises is to accept money in
exchange for his goods or services, and to deny that an unemployed
man is a justifiable money issuer is to assert that he will not
accept money when it comes his way, in other words, will not take a
job if offered to him.
From
Spencer Heath (November 1, 1948)
The
ideal business organization for supplying exchange facilities would
be the one that supplies, by the exchange process, the most services
to the whole general public, and is thereby in best position to
redeem all the tokens that it issues when buying from them. When the
numerous owners of public communities unite their ownership in the
service of their inhabitants doubtless they will supply them with
many common services, including exchange services.
To
R. Harland Shaw (April 6, 1949)
We
disagree upon the necessity of stipulating a specified sum of a
specific commodity for which the valun would be exchangeable. I hold
that this is gratuitous, and you hold it vital. This is the old
specie versus fiat controversy that has raged from the beginning of
the political monetary system. It involves the effort to legitimize
the illegitimate, namely, government issue, and has the further
purpose (on the specie side) to supply a particularization deemed
necessary for the certitude of the unit.
Since,
under the valun system, we abandon the impossible effort to
legitimize government issue, the first named purpose has no relevancy
to our problem. The second purpose, namely, the convertibility or
"deliverability," as you state it, I grant you, has
relevancy to any monetary unit. But it is not an issue in the valun
system, because the system permits its presence or absence
accordingly as its operators believe to be sound. The question is to
be resolved empirically by competition.
For
instance, if you were conducting a valun bank under your proposed
policy, you would ask the board to print on your currency a specie
promise. I, on the other hand, would omit this pledge and rest
acceptability upon the power of competition to maintain the parity
and constancy of the unit. If your plan proved preferable to traders,
your bank would attract business and mine would lose business.
I
believe that the experience would prove the reverse; while, of course
there would be no objection on the part of any trader to
convertibility, I believe that there would be no preference. If this
were true, your bank would have a competitive handicap by reason of
the necessity of investing capital in the commodity reserve, thus
imposing a greater overhead with consequent higher charges for
exchange service, which would force traders to a non-convertible
exchange.
As
I conceive the function of a valun bank, it would be merely to
administer the credit of its account holders, and not to underwrite
their losses, except to charge each a sum for an insurance reserve
against losses and to establish a parity of units issued by each
account holder through each bank. For a bank to guarantee its account
holders that any particular commodity would be available at a fixed
price, would be a hazardous undertaking, and entirely uncalled for.
Nevertheless,
as you see, there is room in the valun system for both the specie and
fiat advocates. I should think that you and your fellow specie
advocates would welcome this, the first opportunity you have had in
all history to demonstrate to the world that your theory is correct.
So
far as I know, there is but one piece of currency in the world that
is "deliverable," as you call it. That is the United States
silver certificate. Yet we see no preference for it manifested by the
public over bills that merely promise other paper. Nor is there
demand for redemption - "deliverability." This, by the way,
demonstrates that the specie principle may be operable with the fiat
principle in the same monetary system. Before 1934, we had the gold
certificate as further demonstration.
If,
however, you believe that we cannot play marbles with different
colored marbles, or that different colored marbles cannot be par in
the game, let me remind you that you will have the same opportunity
that I hope to have to present views to the board of governors when
that body is formed.
You
come fresh to the battle, but I, after fifteen years of advocating
nonpolitical money, have grown weary of frustrating side issues.
To
Mildred Loomis (May 21, 1949)
In
your effort to classify me among the "ists," please
catalogue me solely as a valunist. I do not concern myself with
social ends, but with means. I believe that with a true monetary
system, the individual can avoid what he dislikes and bring his full
power to bear in the attainment of his aims. To identify myself with
any cause other than monetary reform would hamper my efforts in my
chosen work, as it would create the im-pression that the valun system
is designed to attain particular ends, whereas a true monetary system
is without bias and is but a tool for the attainment of aims,
regardless of what these aims may be.
Social
reformers are divided into many movements, and each has its pro and
con. None of these issues can be resolved under the existing
political monetary system; which frustrates the operation of economic
democracy, a process that can operate only by means of a true
monetary system. If one tenth of the energy expended in attaining
ends could be consolidated upon realizing the means, the world's
problems could be quickly solved.
Random
(Undated)
The
purpose of money is solely to facilitate exchange and competition,
and not to regulate exchange. It must have no governing power
whatsoever. It must be the ever ready handmaiden of every trader who
wishes to buy anything, anywhere, anytime, and for which he can
deliver an equivalent value. It must not influence him to buy or not
to buy; it must not color his opinions or aims; it must not impede
evil impulses or impel good ones; it must not strive to augment some
men's wealth and diminish other's. It must be neutral and insensible
to moral considerations and all economic and political inequalities.
It is an instrument of individualism, the servant of all men in the
process of exchange. Through it, all the moral and immoral forces
exert their influence, but it is itself neither moral nor immoral.
Money
is the mathematics of value and must remain as impartial as
mathematics. It is the function of the trader's mind to evaluate
commodities, and it is the function of money to mathematize such
evaluation, i.e. to express in numbers and fractions the value
determined by the trader, but not to influence such determination.
The
natural issuer of money is the trader when acting in the capacity of
buyer, and the sole aim is to serve him and others in their desire to
trade with one another. Among the trading group will be some who are
smarter than others, some more acquisitive, some more active, some
more cunning, some more frugal, some more ambitious. Other
differences that are natural to the human species must also exist.
Regardless of what the human animal is and how many varieties there
be, it is not the function of a monetary system to either approve or
disapprove any characteristic, nor to promote or oppose any
tendencies nor exert any leveling or paternalistic influence.
The
valun therefore must exert no modifying influence upon exchange
except to remove modifying influences and thus assure natural
exchange. Man will continue and should continue to trade for private
advantage; this self-seeking is nature's way of intriguing men into
social progress.
To
Curtis E. Calder (May 27, 1949)
I
note that the International Relations Committee, National Association
of Manufacturers, of which you are chairman, asks the Government to
clarify the respective roles of government and private enterprise in
the pursuit of the President's "bold new program."
We
may be sure that the constructive part will be supplied by private
enterprise and the destructive or socialistic part will be provided
by government. What amazes me is that businessmen and especially
deliberative bodies are always willing to join these two antagonistic
forces and thus promote socialization, which always gains by such
mergers.
The
ideals of the "bold new program" can be and will be
realized by business only in proportion as it separates itself from
political action. This will come when businessmen make their
practices conform to their anti-socialist professions.
If
you and your Committee members really believe in the efficacy of
private enterprise to promote human welfare and will consider a world
plan of action to this end, entirely divorced from political action,
I shall be pleased to submit such a plan.
From
Arvid L. Frank (June 1, 1949)
Mr.
Calder has referred to me your letter of May 27th regarding the
recommendations which the International Relations Committee has
formulated on the President’s Bold New Program.
We
appreciate the interest you have taken in the matter, and assure you
that we are cognizant of the importance of the role of private
enterprise in constructive accomplishment in the development of
backward areas.
We
have associated in our work many distinguished monetary authorities,
and call upon them freely for advice on the monetary phases of our
program.
To
Arvid L. Frank (June 4, 1949)
Responding
to yours of the 1st in reply to my letter to Mr. Calder.
I
never had any doubt that you have on call many distinguished monetary
authorities, but would it ever occur to you to ask any of them to
submit a plan of action completely divorced from political action, or
would any of them voluntarily offer such a plan, as I have done? The
answer to both questions is no. So the NAM goes blithely on imagining
it is a defender of the private enterprise system, while at the same
time playing right into the hands of the socialists.
I
enclose my recent pamphlet The New Approach to Freedom which I dare
you to read, even though I should be intimidated by your rebuke for
presuming to offer a suggestion.
To
Curtis E. Calder (June 4, 1949)
I
enclose copy of my answer to your vicarious response to my letter of
the 27th ult. [sic]
Your
name was prominently featured in the press release, and you were
willing to accept credit as chairman of the International Relations
Committee for the deliberations of the Committee. The moment,
however, you were called upon to think, you took refuge behind a
hired man, who in all probability prepared the publicity putting the
words in your mouth.
How
long must the real friends of private enterprise suffer from the
mis-leadership of prominent business organizations such as the NAM,
which is encumbered by prominent businessmen who are too lazy to
think and who resort to canned publicity releases prepared by
hirelings who don't dare to think?
How
long, oh how long?
P.S.
You will note that I have sent my pamphlet directly to Mr. Frank so
as to save you the trouble of referring it to him.
No comments:
Post a Comment