Chapter
6, Toward a Natural Monetary System
Since
money is but the mathematics of value, there is no more justification
for the nations of the world to have separate monetary systems than
separate systems of mathematics.
It
has been said that a communist is a socialist in a hurry, to which it
may be added that a fascist is a socialist dragging his feet. They
all face in the same direction. All groups, whether they are called
radicals or conservatives, progressives or reactionaries, have turned
their backs upon personal enterprise and their faces, directly or
obliquely, toward state dictatorship. All advocate state intervention
in some form or degree.
Adam
Smith in his political economy allocated the money power to the
state, and thus he anteceded Marx as a socialist. It is his
followers, unconscious socialists, and not those of Marx, who
constitute the greatest peril to the social order. The Smith
philosophy is taught in all our schools and colleges, and we are all
indoctrinated with it, unaware that in its monetary concept it is
antithetic to the true philosophy of personal enterprise.
The
Smith and Marx philosophies are of the Old World, authoritarian.
America, under the democratic ideal, must perfect the personal
enterprise system by reserving to it all three essential factors, to
wit, the means of exchange, the means of production, and the means of
distribution. In the Old World structure of the enterprise system,
monetary power, the keystone of the arch, has always been lacking,
and thus the temple of personal enterprise has never withstood the
political winds and storms.
"Political
economy," the gospel of the so-called free world, is an assembly
of speculations upon the behavior of man in political subjection. It
offers no emancipation. It challenges no political presumptions, nor
does it embody a fundamental concept of money, the life blood of
economy. Hence its speculations are useless, for man's behavior must
of necessity differ under a true monetary system than under a
perverse one. An unnatural monetary system begets unnatural economic
manifestations.
How
can a free economy work with the monetary system socialized? As the
very name suggests, political economy is an attempt to compound
antitheses. The term is usually applied to the so-called classical
school founded by Adam Smith, but it can be applied just as
appropriately to the mercantilists, the physiocrats, and others that
went before. All take the socialist approach; they differ on the
extent and means of political intervention, but not on the principle.
We search their literature in vain for any challenge to the basic
socialistic doctrine of political money power.
With
the modern world thus educated to think in terms of the political
means of accomplishment, is there hope of salvation? Professional
economists do not find the principle of separation of money and state
in their textbooks, and to espouse it would require turning
somersaults in public. If salvation depended altogether on reason,
therefore, there might be none, for statism is deeply imbedded in the
mores of the peoples of the earth. But it is not solely upon the
rationality of the truth that we must depend; the irrationality of
the existing order is being demonstrated by the collapse of the
political monetary system. As we progress toward runaway world
inflation and all that that signifies, there will come a public
demand for an escape which political action cannot supply. Private,
nonpolitical action alone can provide a true monetary system to which
the peoples of all lands may turn for self preservation.
A
monetary system is simply a system which facilitates the money
issuing powers of its constituents and accounts for their monetary
instruments. Personal enterprisers, which term includes employees as
well as employers and the self-employed, have in their hands all the
powers for the establishment and maintenance of such a true and
stable system, while governments hold none. The substantive element
of all money ever issued has been supplied by personal enterprisers,
hence it is nothing new to propose that money be issued by them. What
is new is the idea that governments be excluded from the issue power.
Governments under such a system would be enabled to collect and
dispense money that had been created by personal enterprisers, and
they would also be enabled to borrow such money, but they would not
be permitted to undertake the creation of money.
Whence
will come this saving and liberating movement? It might come through
a worldwide effort of superstatesmen of the business and financial
spheres, or it might arise, instead, from small local action in one
or several locales with the humble and modest purpose of preserving
and promoting local trade. In the former case, a world authority
would be set up with a single monetary unit and overall
administration. In the latter case, each locale would nominate its
unit and govern itself until mergers brought about unification under
one unit and one administration.
Any
sizable group anywhere, any day, could start a nonpolitical monetary
unit and system. There is no law against it, and no legislation need
be invoked. The legal tender provision is gratuitous window dressing,
for any monetary unit that is not acceptable in trade cannot be made
so by law and, if acceptable, needs none.
Since
participants in a personal enterprise monetary system will have to be
drawn from the established political monetary systems, its success
will depend upon demonstrated merit. By the test of competition, it
will have to prove itself worthy of universal acceptance by traders.
Such a system will enjoy no monopoly privilege. It will entail no
political action. Therefore, there will be no question of majorities
- or minorities - denying to any his right to trade with whatever
medium is preferred by him. If the system does not prove responsive
to the needs and preferences of all people, it will soon face
competition from one or more alternative systems. Because trade
naturally tends to unify and to adopt a single monetary language, one
of these systems, through sheer merit, must sooner or later become
universal.
To
avert the utter and complete disorder of a moneyless world, however,
such a system must come into being before the present expires through
total inflation. The present monetary units must not sink to complete
worthlessness before a new unit and a true one becomes available. Not
only must we act while exchange is still operating under the
political monetary system, but we must also make it as easy as
possible to exchange the old currencies for the new. To do this, it
will be necessary also that we exchange old ideas for new.
The
Valun Universal Monetary System
The
valun plan for a nonpolitical, universal monetary system represents a
concrete effort to implement a new approach to freedom. It takes its
name from valun, which is the name for any value unit that is
established by a social compact of its users, who agree to bargain
with one another in terms of it.
(Dennis
Riness, of Seal Beach, California, has suggested Riegel as an
appropriate name for a new, wholly nonpolitical monetary unit.
-Editors.) [Attention Laurence Gilbert, you cannot lawfully hold
patent or copyright title to this concept, or probably any other that
you claim!]
This
proposed system will not be the only one devised or tried, nor need
it be the one that ultimately prevails, but it provides a much needed
starting place for thought and action. Free competition in the
marketplaces of the world will be the ultimate arbitor, as it is in
all things where free choice prevails.
The
"built-in " features of the valun system have been limited
to those considered indispensable to a successfully working monetary
system, leaving to experience and the process of competition the
selection of operating policies and details. The "built-in"
principles are two:
a)
All governments are excluded from the issue power.
b)
The power to convert check drafts into currency shall not be limited.
The
first principle, being basic to the whole thesis, needs no
elaboration. The second is necessitated by the distinction made in
the political monetary system between currency money and check money,
a distinction which, as we have seen, puts a purely gratuitous hazard
in the banking business: The political monetary system imposes
artificial restraints upon the banks' ability to convert any or all
bank deposits into currency. This is the reason for the recurrent
bank crises of the past. Bank runs forced banks to resort to clearing
house certificates or else fail, even though they were perfectly
solvent but for the arbitrary distinction between currency and
checks. This hazard in the banking business has been displaced in
recent years by the yet greater evil of legal counterfeit. The banks
have purchased so many Government securities that there is
practically no possible demand for currency that they could not meet.
A true monetary system, however, must preclude not only the major
evil of counterfeiting, but the secondary evil of the business cycle
as well. Hence the provision for the full interchangeability of
checks and currency.
Let
us now look beyond these bare-bones features which would obtain in
any successful private enterprise monetary system, and envision how
such a system actually might work in operation.
Organization
of the Valun System
The
valun system would be governed on a mutual participation basis. A
board of governors would license the participating banks, and the
board and member banks would be served by a separate service
organization which, like the banks, would be organized and operated
for profit. This basic structure is illustrated in Figure 4.
Figure
4, THE UNIVERSAL VALUN SYSTEM
The
board of governors would be a non-capitalized, mutual association of
participating banks in which all members would have one vote. With
the bank stocks, in turn, being held by personal enterprisers, the
whole monetary system would thus be truly of, by and for personal
enterprise. The banks would pay stipulated fees to the board, and any
surplus accruing would be redistributed among the banks in proportion
to their volume of valun business, probably with check clearances
being the criterion.
The
board would license new and existing banks to operate under the
system, without distinction as to nationality or the monetary unit in
which the latter normally transacted business. Valun banking would
require merely a separate set of books. The operating licenses would
stipulate rules of practice and provide for periodic examinations.
Through its control of the name valun, the board would guarantee
adherence to uniform standards by all banks in the system. The board
would also authorize the printing of bills and minting of coins and
provide for surveillance against counterfeiting of valun currency.
A
chief responsibility of the board would be with respect to credit
policy. The board could set what it deemed to be the most
conservative policy and provide therefor a minimum percentage to be
charged for loss insurance, and from there up graduations of more
liberal policies, with appropriate percentages for loss insurance for
each. Thus there would be no more need for standardizing the basis of
credit in the valun system than in the present banking system. Each
bank could choose its own credit policy. The appropriate loss
insurance percentage would then be added to the check clearing charge
made to the customers. In this way, customers of the various banks
would pay more or less as the policy of their bank was less or more
conservative. The insurance fund thus set up against defaults would
be held by the board, subject to draft by any bank to cover any
"loss" from credit default.
The
service organization would be a profit corporation with capital
adequate to promote the adoption of the system by banks and their
depositors. In addition to negotiating licenses for the board, it
would supply the banks with checks and other forms required by them,
as well as any mechanical equipment desired. It would also supply
valun currency in bills and coins, as authorized by the board. In
view of the national and inter-national potentialities of the valun
system, it can be seen that the service organization would have the
possibility of becoming a very profitable enterprise, expanding both
in capital and income with the growth of the valun system.
The
function of the banks would be to administer, for an appropriate
service charge, the mutual credit of their account holders. The banks
would provide credit facilities for the issuance and redemption of
valuns by personal enterprisers and would clear checks and render
other appropriate banking services. There would, of course, be no
interest charge for lines of credit, since the banks would take no
credit risks. Traders to one another would extend the credit, and the
banks would not be involved except as administrators.
Hence,
under the valun system, credit would be free, but not printing,
bookkeeping, insurance and other expenses; service costs would be
paid for by the account holders. The small percentage charge
stipulated by the board of governors to set up reserves against
credit "losses" might range from 1/20th to 1/10th of a per
cent per month. Thus the valun system would save business the
tremendous sums paid in interest under the speculative political
monetary system.
Parity
Provision
As
noted, each bank would adopt and pursue its own credit policy under
an insurance agreement whereunder a base, or minimum, premium rate
would be charged, subject to increase according to that bank's
"loss," or charge-off, experience, the board, of course,
reserving the right to determine what constituted a charge-off. Under
this arrangement, all valuns issued through all banks would be of
equal validity. The insurance rate would compensate for all
charge-offs, and the cost of insurance would be reflected in the
charges for banking services. Thus, no matter how many banks were
authorizing the issuance of valuns, nor wherever in the world their
borrower/issuers might be, there could be no variation in the worth
of valuns.
In
other words, every issuer of valuns would be practically underwritten
by the account holders of his bank, through the provision of reserve
percentages adjusted to the "loss" experience of each bank.
The board of governors might, for example, set a median rate of
1/10th of one per cent per month on debit balances, and then raise or
lower this rate in accordance with the experience of each bank. Since
these reserve percentages would affect the service charges of each
bank, competition among banks would tend to deter laxness in the
administration of credit. This credit, it will be remembered, would
be based upon the debtor's potentiality of placing in the market, at
the market price, the commodity or service that he dealt in, and not
any specific, price-pegged commodity.
This
insurance feature might better be called the parity provision. Unlike
the Federal Deposit Insurance Corporation, its purpose would not be
to insure depositors against default of the banks, but rather to
preserve the parity of valun issues emitted through the various
banks.
How
much money might the banks permit each issuer to issue? As much as he
could redeem, which means, as much as he might need to get a turnover
in his business. This, admittedly, would vary with different lines.
All lines, taken together, average about four turnovers a year. Thus,
roughly speaking, business would need an issue power sufficient to
span three months. This question will be dealt with more fully under
"Credit Limits," below.
There
would be no need for valun currency at first, because all existing
currencies would be purchasable with valun checks at the going rate
of exchange. When these currencies became so depreciated as to be
inconvenient to use, then valun currency in bills and coins would be
made available. These bills and coins would be uniform the world over
and would be made of the cheapest serviceable material, without any
suggestion of intrinsic value. Such currency would bear the
certification of the board of governors and would be available from
banks by check requisition, its author being, of course, the check
writer from whose check it was converted.
Credit
Limits
The
major policy question to be resolved in valun banking would be the
matter of credit limits, i.e. how much should the enterpriser be
permitted to issue (to take goods and services out of the market)
before being obliged to cancel out an equal sum (to recapture by
sales). This could be worked out on the basis of the needs of various
trades and professions, rather than passing upon the applications of
each member thereof. On the other hand, account holders, once
established, might be extended a line of credit based on a percentage
of their previous year's business. This being done, each participant
would be authorized to draw checks against his assigned credit
without giving any note or other instrument. The credit would have no
term, but would be in the nature of a call credit, since the pledge
would be to deliver value on tender of money.
Different
banks would have different needs, determined by whether they were
largely agricultural, manufacturing, or mercantile. The nature of the
prevailing industry and the degree of presence of reciprocating
trades would determine the need for debit balances. For instance, a
farmer who sold only once every six months or year, but who bought
continuously, would need a longer debit line than a shopkeeper whose
selling was more closely synchronized with his buying. A territory
where the local product had to be transported a considerable distance
before a sale could be effected would also need more time than one
which was more integrated or self-sufficient.
The
ideal issue policy would be that each customer of the bank be
empowered to purchase equivalent to his capacity to sell and to emit
sufficient money within such limitation. Whether this ideal could be
determined would depend upon solution of the problem as to what
constituted "capacity to sell," since value can be
determined only in actual exchange and not prospective exchange.
Whether the ideal would need to be attained, would depend upon the
actual requirements of the money volume and its relation to total
exchangeable wealth, of which the former can be determined only by
experience and the latter can only be estimated.
Whenever
men organize, there is always the possibility that their association
may disadvantage some of their number or non-associates. If a debit
policy is adopted that makes the money supply inadequate for some or
all of the members, the ideal that animates the undertaking is
defeated and conspiracy, in effect, exists against those adversely
affected. For the money issuing function, although it is private, can
be exerted only within the limits of the communal arrangement. There
is an ideal debit policy, but it may have to be worked out by trial
and error.
Launching
the Valun
The
determination of what value relativity a monetary unit should
represent at the time of its adoption is a matter of choice. It might
be the equivalent of a bushel of wheat, a bale of cotton, a pound of
brass, or any other commodity. On the other hand, it could be placed
on a parity with an existing political monetary unit which had
attained a significance. It would be easier, obviously, to identify a
unit in the public mind by making it at the outset equivalent to the
current unit. Doubtless it was for this reason that the United States
dollar was initiated at par with the Spanish dollar. For the same
reason, therefore, the valun would be initiated at par with the
United States dollar.
This
does not imply constancy of parity; it merely means keynoting. All
monetary units are, in practice, established by relativity to an
existing unit. The relativity thereafter is subject to the issue
policy governing each. Hence the valun would have an initial value of
one dollar, which would be equal to the power of the dollar on the
day of the valun's launching. Thereafter, it would be entirely
dissociated from the dollar and independent of any subsequent
fluctuations in value that the dollar might have.
Existing
banks presumably could open valun departments without legal
difficulty or political embarrassment, since under the valun system,
they would extend no credit and therefore take no risks. Banks would
merely administer the credit extended by the account holders to one
another. A large bank such as the National City Bank could make the
valun plan a world system overnight by offering it from all its
far-flung branches.
The
actual launching of the valun might be accomplished by enlisting a
number of business concerns to pay their bills with [valun-dollar]
valdol checks, which would offer the payee the option of accepting
payment in valuns or dollars. The purpose of this would be to
establish parity for the initial valun issues. It is expected that
sufficient acceptances would be had that, from that point on, there
would be a money exchange market for valuns in terms of dollars.
After this, the free money market would be the guide to the values of
the respective units and would govern the number of valuns required
to pay for bills rendered in dollars.
The
participating banks would open valdol accounts upon request, against
which the holders could draw valdol checks. The valdol account would
honor the payee's preference of payment in either valuns or dollars
or both. In the case of a shortage of either valuns or dollars in an
account, and there being an adequate balance of the other, the bank
would be authorized to sell a sufficient amount of the long unit on
the money market to offset the deficit in the short unit.
Valdol
checks are proposed merely as an initial expedient. They would give
non-valun account holders the option of accepting either valuns or
dollars. Because of this option, these checks would be usable by
participating banks in payment of any bill. This would extend
invitations far and wide to others to become members of the valun
system. Between valun account holders, however, such a form would not
be needed, and a single-unit valun check would be used.
The
face of the valdol check would carry spaces for the tender of either
valuns or dollars, or half in each, and a place for the payee to
state his preference and to add his signature. For the information of
the recipient, the back of the check would carry the following
notice:
After
stating your preference and signing on the face of this check,
deposit in the regular way if your bank carries valdol accounts. If
it does not, write your name and address here (space) and mail to us
(name and address of issuing bank). We will immediately send
signature card and, upon receipt thereof, will mail you a valdol
checkbook.
Thus
prospective valdol account holders, no matter where located, could
bank by mail should there be no valdol bank in their locale.
The
Money Exchange Market
All
political monetary units are inflated and growing more so. There is
no sound unit to which uneasy money can take flight. As inflation
progresses, many will flee from the dollar into property, but it is
exchange that produces income, and not the holding of property
static. As the many retreat into a static situation, the volume of
product will drop, thus aggravating the general inflation problem.
The true and ideal accomplishment in an inflationary movement, for
the individual as well as for society as a whole, is to keep active
in exchange and thus produce income. Yet in order to continue in
business without grave hazard, one must switch his exchange
commitments to a stable monetary unit and convert his reserves and
working capital to such a unit.
The
valun, having no inflationary element and being secure against any,
would naturally be desired by both the holders of idle funds and by
active businesses that wanted to avoid the destruction of capital and
profits. Since no valun could be issued except by a producer in the
market, no inflationary units could enter into circulation, and the
unit would remain stable. The valun user, therefore, would escape the
storm; he would not be tossed about on a sea of confused costs and
prices. Through the money quotations of the spot market, current
remittances could be determined by translating dollar obligations
into valuns. Through the futures market, manufacturers, importers,
and exporters would be enabled to hedge against the inflationary
decline of all national monetary units.
One
of the most vexing problems of business is the difficulty of
adjusting wages to the decline of the monetary unit. These troubles
would be eliminated by employers paying wages with valdol checks. The
employee would have his salary or wage stated on his check in both
valuns and its equivalent in current dollars. Moreover, given the
option to receive their pay in valuns, labor would not have to strike
for cost-of-living raises. As inflation raised the dollar cost of
living, each valun would purchase an additional corresponding amount
of dollar currency.
With
the exception of those who had joined the valun system and who thus,
by mutual consent, were using the valun, pricing and billing at the
outset would be in dollars. As the system spread, however, more and
more business would be initiated in terms of valuns, first by
manufacturers, then by wholesalers, and finally by retailers.
Once
the valun system had started in the United States and the
international money market had begun valun trading, check forms
appropriate to the currencies of other nations, such as valmark,
valpound, valfranc, etc., would be provided. As stated, between valun
account holders, valun checks would be used for international as well
as domestic payments.
As
valun banking spread in this manner, the implications for world trade
would be far-reaching. Since the valun would be a universal unit, it
would be as much domestic to a nation as would be the unit of that
nation. It would be issuable by the citizens of any nation, either
through an internal bank or through one beyond the national
boundaries. Thus the present obstructions to international monetary
exchange would be removed. With monetary exchange operating
internally between the national unit and the valun, the limitations
on exchange between national units would no longer be restrictive of
trade. Exporters and importers could operate with valuns. The valun
would thus ameliorate trade restraints even if the national
restrictions upon exchange between national units continued.
For
these various reasons, therefore, it is believed that the valun would
immediately take its place in the world as the monetary criterion,
that the dollar would sell at a discount in valuns, and that all
other units would be affected in relation to their dollar exchange
value.
Universal
Liquidation
It
might seem impossible to liquidate the extant astronomical numbers of
units of money by means of valuns, a unit that would have to start
from scratch and that, at the outset, would be infinitessimal in
volume. But the problem seems otherwise when we remember that money
springs out of exchange, and not vice versa.
If
the seller stipulates the unit that a transaction is to be expressed
in, the buyer must provide payment accordingly. If he has bank credit
in the stipulated unit, he creates the desired units. If he does not
have the required bank credit in the unit stipulated, he uses
available funds to buy the desired unit. Any unit that is not
entirely worthless will buy any other unit at the market price.
Thus,
demand for valuns would always be met by supply, either by bank
credit in the purchase of goods or services, or by purchase of
existing valuns by conversion from other units. As demand for valun
bank credit increased, so would facilities therefor, either by
expansion into a wider territory by the banks that already offered
valun credit, or by new banks nearer to the locale of demand.
By
the same token, supply of valuns would never exceed demand, even
though there would be no credit limitations imposed upon member
banks. The banks would be free to use their discretion, with the sole
proviso that their parity insurance rate would be upped or lowered in
accord with their loss experience. But with the freedom allowed valun
bank credit, one must not visualize an irresponsible surfeit of
valuns, for money can be issued only when it is bought into existence
by a seller. To establish bank credit does not constitute issue.
Issue is not effected until a tender has been accepted in exchange
for value. In other words, money, to be issued, must be bought into
circulation either with goods or services or by delivery of money of
another name, which, being money, is a claim for goods or services.
No issuer will issue money except for market value, and each, in
turn, is under necessity of bidding for it to remain in business.
Thus would the competitive system tend to maintain the parity of the
valun unit both during and after liquidation of all political
monetary units.
When
May the Valun be Expected?
To
put the valun theory into practice, it is not necessary to expand the
number of theorists. It is no more necessary for men generally to
understand the science of money than it is for them to understand the
science of any other utility. Given a sufficient number of traders to
participate initially, it will take only a few directing individuals
to put the system into operation. These numbers of traders are as
indispensable as the few theorists, however. One might understand the
theory of baseball, be familiar with all the rules, have the diamond,
the bats, the balls and gloves, but there would be no game until
there were eighteen participants -nine on a side. Likewise there must
be many times nine buyers and an equal number of sellers before the
game of exchange can be played.
The
simile may not seem a good one because the players of ball must be
experts, while to predicate exchange upon expert participants would
seem to be hopeless. Expertness in monetary exchange, however, does
not imply comprehension of the theory of money. It means expertness
in making up one's mind on what is wanted and what it is worth. Every
person has this expertness. However much we may hear of
super-scientific money management, there is no money management, just
as there is no money creation, except by the buyer. Money management
means spending for self gain, nothing more and nothing less.
To
whom shall we look to start the valun? We must look to employers, for
as we have seen, it is the buyer and not the seller who creates
money. The common man begins his exchange activities by selling his
services. He must do this to live, since he cannot apply his services
directly to fashioning all his necessities. His psychology is really
a buying psychology, since his selling is but the means of his
buying. He visualizes the things he needs or desires, and hence,
mentally buys before he sells, but chronologically he sells before he
buys. The bit of paper or metal that intervenes between the sale of
his services and the purchases of his wants, he calls money - if it
works. He gives no further thought to the matter.
The
first buyer in the chain of exchange is the employer. Therefore we
must look to employers to start the valun, and employees have the
right to expect it to be trustworthy. Employees will repose
confidence in what employers profess to be an honest medium of
exchange, and they will underwrite that medium with the basic
commodity, the mother of all wealth, namely brain and brawn and
sweat. If no one cheats - and in the valun system no one could cheat
- the currency will circulate freely without popular understanding of
the theory of its being. Let us understand clearly, therefore, that
while we need numbers, we do not need understanding numbers. We need
no educational crusade. We need but to comprehend the simple
acquisitive instincts and how to serve them.
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