Friday, January 23, 2015

#25.16 A SCIENTIFIC SOLUTION OF THE MONEY QUESTION – Arthur Kitson – Part 16

CHAPTER XV.
CREDIT.

When a merchant accepts money for his goods, he receives it believing he can exchange it again for other goods he may need. He accepts it in expectation of its future redemption. Here the element known as "credit " enters. Credit is defined as "expectation of future payment for property transferred or promises given." (Webster) The person who sells goods expecting a future return is said to sell on credit. The seller is termed a creditor and the buyer a debtor. The amount due the seller is to him a credit, and to the purchaser a debt. Credits and debts are merely two aspects of the same thing. Every credit is a debt, and every debt a credit. When Riegel said that money was created by the buyer in exchange for goods or services, and destroyed when the same buyer took back the same amount of money for goods or services he in turn sold, he was making an observation of this same fact.

Whenever a transaction occurs, in which one party receives satisfaction and the other does not, the latter is said to receive credit in place of satisfaction. This credit entitles him to satisfaction at some future time. We may define credit, therefore, as the expectation or anticipation of satisfaction. Credit and debt are merely the two poles of satisfaction, credit being the positive and debt the negative pole. Thus, if we estimate a man's wealth, we place the plus or positive sign in front of every credit, and the minus or negative in front of every debt.

Every commercial transaction must necessarily take one of two forms, either the barter or credit form. Goods are exchanged for goods or for credit; the direct exchange of one commodity for another is barter; and wherever this does not take place, credit takes the place of one or other commodity.

Practically, all the commerce and trade of the civilized world is done upon a credit basis. Credits may be divided into two classes: stationary and circulating. Circulating credit is money, but it is customary to apply the term credit exclusively to the stationary class. Thus, if in exchange for goods supplied, a man gives me his promissory note, payable six months hence, and I am unable to use it to purchase other goods, or get others to accept it in payment of debts owing by me, the note remains with me until mature; it is stationary. Such a note, whilst in my possession, is simply a credit note, it is not money. If, on the other hand, I can pass it to obtain the satisfaction I desire, the note, being current, is currency or money. Credit is purchasing power.

Now, purchasing power may be special or general; it is general whenever it is generally transferable and acceptable. Thus, legal tender represents general purchasing power; i. e., it is generally accepted throughout the country by all people, in payment of all debts. On the other hand, a mere promissory note, which is not generally negotiable, is an example of special purchasing power. It is given to a particular person in payment of a special debt, and cannot be used by that person until maturity, owing to his inability to pass it on.

All commodities have special purchasing power, and the exchange of commodities for money is the transformation of special purchasing power into general purchasing power. Circulating credit is, therefore, general purchasing power, and stationary credit is special purchasing power. Before continuing, all “public” money has special purchasing power in that not everyone will accept it, likewise gold and silver have special purchasing power, for as has been demonstratedSorry “gold bugs,” not everyone will accept it.

For instance, railway and theatre tickets are credit notes representing special purchasing power. They are redeemable in railway journeys and admissions to theatrical performances; and since they are not negotiable, and cannot be used to purchase other commodities, they are stationary credits. Although it is customary in trade to distinguish between money and credit, yet, as we have seen, they are of precisely the same nature. Strictly speaking, credit is the general term of which money is a species.

One often hears a so-called cash business contrasted with a credit business, as though the two were of opposite character; the truth being that cash is only a higher and more general form of credit.

"They are each a right or title to demand something to be paid or done by someone else. No one can compel another to sell him anything for money or credit. When, therefore, any person has voluntarily taken money in exchange for anything, it is in reality only credit; because he only takes it in the belief that he can exchange it away again.” (Ibid, Macleod)

Now, since the terms credit and debt are merely two aspects of the same thing, and since money is a species of credit, it follows that money also represents debt, and may also be termed circulating debt. It follows, therefore, as Macleod says, that "where there is no debt, there can be no currency." The attempts of governments and legislators to make of money a commodity, is nothing more nor less than an attempt to destroy the chief function of money. The idea that money must be "something valuable," "something having intrinsic value" in order to constitute "honest money,” shows a complete misconception of money and its functions; for if money is a valuable commodity, if it is, per se, an equivalent for the goods purchased, it cannot represent a credit or a debt. If in return for goods I give their equivalent in "full value," there is no element of credit whatever; the transaction is a barter transaction. All of this would have been comprehended by Riegel in nearly the exact same terms.

Now money does not enter into barter. Instead of an exchange of present satisfactions, the use of money involves the exchange of an immediate satisfaction, for a deferred satisfaction. All commodities represent immediate satisfaction; i. e., they themselves satisfy human wants and desires. Money and credit are merely the symbols of or rights to satisfaction; hence, when the commodity appears, satisfaction accompanies it, like a man and his shadow; it is no longer deferred, it is present. Therefore, "commodity money” is a contradiction in terms; it is like the man without a shadow — it is an absurdity.

It is like the expressions an "equal inequality," a "present future," or an "insatiable satisfaction." Hence gold and silver coins of "full value" are not, scientifically speaking, money; they are not representatives of debt. The value of the gold and silver which they contain cancels the debt which, as money, they represent. I must not refrain from pointing out the fatal error of Macleod, in treating credits and debts as saleable commodities. A debt is not a commodity; it is, to use his own words, "The debtor's duty to pay," or “The creditor's right of action." To pay what? Right of action for what? The "debtor's duty" is necessarily to give satisfaction, and the "creditor's right of action" is to obtain satisfaction; in other words, it is to give or obtain commodities. We sincerely hope all of this finally makes sense. If you still don't get it, read it again until you do.

Is it not the sheerest nonsense to speak of the abstract duty to pay or give, a commodity, and the abstract right of action to recover or obtain a commodity, as tangible things, as saleable commodities? "If it were asked,” Macleod says, "what discovery has most deeply affected the fortunes of the human race, it might probably be said with truth — the discovery that debts are saleable commodities.” He's getting at something here, for debt is bought and sold all the time. Debt markets are bond markets and their volume in trade exceeds by many times the volume of equities (stock) markets daily. So debt and instances of debt are bought and sold every day. But there is no such thing as an intangible debt; all real debts must ultimately demand satisfaction in real goods and services, not money.

No such discovery having yet been made, except in the mind of the able author himself -Macleod, it is difficult to predict how it would affect the "fortunes of the human race." If it were asked what discovery had most injuriously affected the fortunes of the human race, it might be said, without fear of disproof, the discovery known as the specie basis, the monopolization of which involves the absolute enslavement of human labour. Note this connection well; there has never been a single “gold bug” that honestly didn't wish to pay for common labour as little as possible and Ayn Rand and all her followers were of just the same mentality. The great discoveries that "have most advantageously affected the fortunes of the human race,” are labour-saving machines, by which the human race is able to produce far more commodities than it consumes. Such discoveries have led to the vast production of wealth — the accumulation of commodities — that characterizes the present century. This was Kitson's 19th century and his notion of wealth encompasses all “stuff,” whether capable of providing a living or not; just all that could be exchanged for anything else in terms of plain barter.

This it is that has called into existence and led to the development of the great modern system of credit, the raison d^etre of which rests upon the grand truth that man can produce more than he consumes, hence he is able to create a surplus; and by mortgaging a part of his future, he is able to bring into immediate use, a portion of this surplus. In other words, he can obtain present satisfaction from the knowledge of his ability to produce, in a given time, more than the equivalent of that advanced. This it is that has made it possible for men, under free conditions, with trade, commerce and the medium of exchange unfettered by legislation, to supply themselves with abundance of commodities necessary for life and happiness. That labour must produce considerably more than is sufficient for its support, is a truth which scarcely needs demonstration. Since not the whole, but a part of mankind labour, and all must necessarily live upon labours' produce, each labourer must of necessity produce more than he consumes. Were this not so, rent, interest and profits could never have existed. Here, then, is the great and wonderful benefit that credit, properly utilized, bestows upon mankind. It is an instrument for assisting in the production of wealth -he means mere “stuff” here- by providing an advance of wealth. It is the means of life for those who are producing the means of life for others. "Credit has done more, a thousand times, to enrich nations, than all the mines of the world," said Daniel Webster. It was another matter we covered while covering the John Galt speech of Ayn Rand that the notion that so called “men of the mind” deserve more wealth, here merely “stuff,” than common labourers who are accorded only the barest amount of “stuff” to feed them. We don't dispute that various inequities have and will always exist, but we doubt whether anything arbitrarily arrayed against the common laws of nature, which the elites have always brazenly thought favour them, is honest,  promotes freedom rather than slavery or is just. It is our view that so called “men of the mind” should probably be paid less and common labourers more, certainly enough to more than sustain them, but also to allow them upward social mobility. This may be one of the principle reasons why alternative currencies are contemplated; besides that they might offer more remuneration for present labour and more reward for settlement of monetary transactions, they may offer a stimulant to all non-monopolistic business practices, greater opportunity for more labour, greater freedom and greater independence for each local community. But first we must gain a reliable education concerning what money is and what it is not.

We have now to see the effect of the credit system upon commerce. By far the greater part of the world's commerce is done on a credit, as distinguished from a cash basis. A report from a representative house, referred to by Macleod, shows that "specie did not enter into their transactions for little more than 2%" This was on transactions of upwards of £1 million.

"A similar investigation instituted by some bankers, resulted in the fact that specie only entered into their operations to the amount of 4 per thousand/'

It has been estimated that the amount of credit in use in Great Britain is at least the equivalent of twenty-five thousand millions of dollars ($25 billion -in 1895-), the amount of coin and notes being about $600 million. In the United States, not more than 3% of the business done is on a cash basis. All this enormous creation of credit — stationary credit — has been caused by the absurd restrictions which governments have placed upon the issuance of money. (It will be understood that when speaking of credit in contradistinction to money, I mean stationary-credit, money being circulating-credit. The former is usually insecure and not properly backed by sufficient wealth. It is this form of credit which is so uncertain, so dangerous, which economists condemn, but which is called into existence by the unjust privileges accorded to one particular commodity — gold — by law.) References to “stationary-credit” at this time have turned up nothing meaningful on the subject; we do not know what it was.

Industry, which is always naturally ahead of finance, demands a greater volume of currency than exists anywhere; and since money is monopolized, industry calls credit into play. In fact, were it not for the credit system, commerce and industry would decline to a point where it was a century ago. No doubt, or a good deal farther back if certain people had their way.

John Law -1971-1729, the famous scoundrel- said: "The introduction of credit augments the quantity of money more in one year than a prosperous commerce would do in ten." No doubt. It has been shown by J. S. Mill and others, that the effect of credit upon prices is the same as an increase of the volume of the circulating medium. Since credit affects the supply and demand of money, under present conditions, just as an increase in the amount of money would do, it is obvious that prices must be affected to the same extent. It is well understood that the volume of money in circulation tends to  promote price inflation. It is also well known that supply and demand influence prices, such that an egg in a city will usually fetch more than it would in the country. Indeed were there no price differential between the city and the country it is doubtful that any eggs would ever make it to the cities: that is in accord with natural law. “Laws” have been instituted in order to decrease or eliminate this differential with disastrous effects.

"In a state of commerce in which much credit is habitually given," says Mill, "general prices, at any moment, depend much more upon the state of credit than upon the quantity of money. For credit, though it is not productive power, is purchasing power; and a person who, having credit, avails himself of it in the purchase of goods, creates just as much demand for the goods, and tends just as much to raise their price, as if he made an equal amount of purchases with ready money." This is what is commonly believed.

So Macleod says: "It is the enormous creation of credit in modern times, in the form of banking credits and mercantile credits, which has so prodigiously raised the prices of products, and diminished the rate of interest, in the last two centuries, in this and many other countries. It will be shown hereafter, that the quantity of credit which is used, and is in circulation in this country, is at least fifty times the amount of metallic coin. It is the quantity of credit in modern times, which chiefly determines the price of products; and variations in the quantity of credit produce more changes in the value of products than any variations in the quantity of gold and silver; and it is the abuses of credit which produce these terrible calamities, termed commercial crises and monetary panics, which we shall have to investigate afterward." So they say and is commonly believed, but is it really so?

The cause of these calamities, however, as I shall hereafter prove, is quite the opposite of what Macleod and other economists would have us believe. It is not the abuse of credit that creates these calamities, it is the monopolization of money. The bankers (and the economists they support and promote) are in the business of projecting their faults onto others. We have seen this as demonstrated in Ayn Rand's John Galt Speech, beginning here.

It is the outrageous and unjust interference of legislators and governments with natural operations, that causes financial trouble; the attempt to compel people to do the impossible, viz., to transact the entire business of the nation upon a single commodity basis -forget whether that be gold, silver or dollars, it amounts to exactly the same thing; monopolization by insiders, elites and speculators-, which is artificially restricted and monopolized. It is the result of attempting, by the force of law, to redeem credits in one particular commodity, instead of in all; it is the futile attempt to drive the camel through the eye of the needle.

In the chapter on Price, I have shown the cause of the phenomenon known as a general rise and general fall of prices, which is due to the fluctuations in that which is used as the denominator of values. Referring to the example there given: tea is selling for 60 cents per pound, wheat 75 cents per bushel, iron 25 dollars per ton, silver 90 cents per ounce. Now, since the dollar is the common denominator of values, the price form of these commodities is as follows:

Tea in lbs = $0.60
Wheat in bushels = $0.75
Iron in tons = $25
Silver in ozs. = $0.90
$1 = $1 (common denominator)

It is apparent that the values of these fractions vary inversely with the denominator. Now if by artificially restricting the supply, the value of one dollar should increase to two dollars, the above fractions are changed as follows:

Tea in lbs = $0.60
Wheat in bushels = $0.75
Iron in tons = $25
Silver in ozs. = $0.90
$2 = $2 (common denominator)

The price of tea is now 60 - 20 cents, or 30 cents per pound, instead of 60 cents. So the price of wheat has fallen from 75 cents per bushel to 37 1-2 cents. Iron has also fallen 50% in price, viz., from $25 per ton to $12.50 per ton, etc.

Thus the effect of increasing the value of the denominator is to decrease the price of all commodities! and if the denominator is increased 100% there is a general fall in prices of 50%. And conversely, a fall in the value of the denominator results in a general rise in prices. Now, to the general public, there is never apparently any change in the value of money; a dollar is always a dollar, it is never two dollars. Hence, to the average mind, a general fall or rise in prices is as mysterious as a shooting star, or the unknowable itself, and is popularly regarded as one of those "inscrutable mysteries of Providence." If the denominator decreases, prices rise, and this is supposed to be the result of a favourable "dispensation;” if the denominator increases, prices fall, and this is a judgement, "the result of the Almighty's displeasure!” 

The effect of monopolizing and restricting the supply of money is, however, precisely the same, so far as it affects the purchasing power of money in relation to some one commodity, as the monopolization of that commodity. And as the "honest” money advocates make of money a commodity, the results are the same. A bushel of wheat is always a bushel of wheat, it is never two bushels. Yet we know that at one time we can purchase two bushels for the same sum that at another time we pay for one bushel. This is precisely the same with dollars. Whilst one dollar never becomes two dollars, the purchasing power of a dollar, at a particular time, has frequently been equivalent to the purchasing power of two dollars at another time; so that whilst the denominator of values, the dollar, is nominally invariable, its purchasing power varies, and the effect on prices is exactly the same as contraction or inflation.

Here is the insidiousness of our present monetary system. If money were expressed in units of purchasing power, possessed by it at one particular time and place, in reference to all commodities, such a system would register variations in the commodity which circulates as money. Then the general rise or fall of prices would be shown in the denominator. But as the dollar is the standard at all times, its fluctuations are registered in commodities, and instead of the dollar rising and falling, to the public it appears that it is commodities that are fluctuating, and that these fluctuations are due to the commodities themselves.

The deception reminds one of the well-known illusion, described by aeronauts, who tell us that in a balloon ascension it seems as though the earth was falling from under them.

In the price form, therefore, the denominator is always apparently constant. It is always represented by one dollar, or numerically 1.00 It is the numerators, the commodities, that are seen to undergo the change. Thus, tea drops from 60 cents to 30 cents per pound, and wheat from 75 cents to 37 1/2 cents per bushel, whereas, as a matter of fact, these commodities have probably never changed one iota under the influence of supply and demand.

It is the purchasing power of the dollar that has actually changed; and if dollars were units of purchasing power, properly expressed, this change would be accurately shown.

Instead of the price-form appearing, where the purchasing power of the dollar has increased, thus:

Tea. 0.60
Wheat. 0.75
Iron. 25.00
Silver. 0.90

all over the denominator

2.00

it is always represented thus:

Tea. 0.30
Wheat. 0.375
Iron. 12.50
Silver. 0.45

all over the denominator

1.00

Now the determinant of value is, as we saw when discussing the subject of value, the relation of supply to demand; and the causes of variations in the values of commodities, are variations in the supply of or the demand for commodities themselves. Where the demand for a thing increases, the supply remaining constant, the value increases; where it decreases, the value decreases. And vice versa, when the supply increases, the demand remaining constant, the value decreases; and when the supply decreases, the value increases.

Where the supply is kept always in excess of the demand, there is no variation. Where the supply is unlimited in comparison to the demand, value disappears. (I use the term here in the sense of purchasing power.)

Under our present system dollars are commodities, and are influenced by the laws of supply and demand. When the supply of dollars is constant and the demand increases, the value of dollars increases, and vice versa. When the supply of dollars is diminished by hoarding or by "cornering" gold, the value of dollars increases. This describes the way speculators formerly used to manipulate the “value” of dollars. Without gold or silver, dollars are still  commodities and just as easy to manipulate for purposes known only to insiders. 

Now money, being a species of credit, the artificial restriction of the supply of money naturally tends to bring into use personal or private credit. The natural wants of mankind are not to be suppressed or confined by any artificial restriction, such as a "specie basis," or a "legal tender" act; hence, through the limitation of that which should be unrestricted, a substitute is adopted and "enormous amounts of credits are piled up." The effect of this substitute is the same as an increase in the volume of money, and its tendency is to lessen money's value.

Further, the destruction of credit, which occurs every now and again, is precisely similar in its effects to the destruction or the "cornering " of money, the value of which instantly rises. The result is analogous to that which would occur by discovering a substitute for any commodity. The destruction of credit is similar in its effect to dumping into the ocean so much coin. The contraction of credits of three thousand millions of dollars, is as disastrous to commerce and industry as the loss of that amount of money! Statesmen worry when gold leaves the country, but regard the contraction of credits with but little anxiety. The great concern of governments appears to be to facilitate the importation of gold in order to increase the volume of currency; but they are stupidly unconcerned when that which fills its place, and which is, after all, the main factor in exchange, is reduced or impaired.

It will be convenient at this place to point out the manner in which personal credit, although apparently a competitor with money, is made "its partner and associate in crime.” Lest I may be thought to use words indiscriminately or inappropriately, let me ask the reader to reflect for one moment, what is summed up in the term "financial panic." Think of the thousands plunged into poverty and misery, the hundreds driven to suicide, to drunkenness, to crime, to insanity; the homes wrecked, the hopes blasted, the careers marred, and the agony and long suffering endured by tens and hundreds of thousands! If such effects are the results of “a system,” does the term "criminal system" characterize it too severely?

We speak of murder with feelings of horror; how ought we to feel towards that which kills thousands, and drives as many to worse than death? We brand an incendiary as a criminal. What term is sufficiently adequate to describe a system that periodically confiscates millions of dollars of property? That a restricted currency resulting from the "specie basis” and governmental monopoly of money, is the cause of nearly all the world's financial panics, I shall hereafter demonstrate.

We have seen the effect of variation in supply and demand upon values. The greater the demand and the more restricted the supply, the greater the value of any commodity. The objects sought after in trade are, therefore, these two, viz:

1st. To control the supply of a commodity.
2nd. To create a demand for it.

Now, decreasing the supply of a thing, when demand is constant, has the same effect upon its value as increasing the demand when the supply is constant, and vice versa. But if the demand can be increased and the supply suddenly decreased, the effect is enormously augmented. For instance, suppose the demand for an article, at one time, to be represented by 100, the supply being also 100; and suppose by means of an artificial substitute, demand and supply be increased to 10,000. Now by suddenly cutting off the artificial substitute, the supply is at once knocked down to 100, the demand still remaining at 10,000. The appreciation in the value of that commodity can be better imagined than described.

This is precisely the effect of credit upon money. Credit is the artificial substitute for money. (I of course, refer now entirely to our present monetary system. Under a scientific system, money and credit would be synonymous.) Yes they would, but under our present system, since it is no different in fundamental respects than it was 120 years ago, what Riegel said bears out; banks don't lend money, they lend credit.

The demand for money is always far in excess of the supply; hence, its substitute -credit- is called Into existence, the first and immediate result of which is to lower the value of or the demand for money. Breaking it down: money is the ultimate drug, a claim on commodities; goods and services. It is constantly and forever in more demand than it will ever be supplied. Credit for money is a substitute for the real thing and works just the same as the real thing. The more credit exists at any point in time tends to lower the demand for real money. “Gold bugs” would have it that their tokens are the real thing and in shorter supply makes them better, more valuable, etc. and perhaps were it up to them, no credit of any kind would ever be allowed. Were they to have their way, humanity's state would soon fall back to 4th century levels when life was nasty, brutish and short for the vast majority. But meanwhile all this completely obscures the actual truth; people don't want the money per se they want what money can buy. They have never wanted the gold or silver for themselves, they wanted what gold and silver might buy. So, when the actual demand for money falls … Interest is less and we still regard interest as asking back that which was never created, prices are raised, and the effect similar to that of one competing commodity with another. But the commodity merchant always regards his competitor jealously and with impatience. He is ever ready to place obstacles in his path. Not so the commodity money merchant; he looks ahead. He will even assist in "the piling up of these vast amounts of credit” notwithstanding that his interest is temporarily cut down by doing so. So long as these credits are built upon the specie basis, he knows that as surely as the sun rises, they can be swept out of existence as completely as if they had never existed. It doesn't even matter what basis is used; land and houses do quite as well as silver or gold, in fact even better! The greater their amount the greater the disproportion between the actual supply and the money demand, and consequently the greater the harvest will the money merchant reap when the crash comes. Does everyone reading this so far, get this? If you knew that behind the scenes, very powerful but secretive forces, represented now and then by people meeting behind high security in fancy hotels, were secretly plotting how to steal more from everyone else, what would you think? What would you be doing? No, we didn't mean any violence either. What good would that do? The only response worth considering is to get up and walk out of their institutions, their plots, their plane, their everything and do one's own thing. Now back to discussing credit ...

These credits being redeemable in specie, are found too enormous for redemption. There is not enough specie in the world to redeem them with. Pay attention people; there isn't enough real estate in the world to cover all the credits based on them either, recall all the fake mortgage securities? The basis of credit doesn't matter, it's the same practise as it ever would have been with gold and silver, it makes absolutely no difference. Is that clear, “gold bugs?” And now the operation of driving the camel through the eye of the needle begins. All that does not pass through the needle's eye, falls into the hands of the drivers. ...and they come and take everything away from you and ask that you and yours … just go off somewhere and die quietly. Get it?

The makers of credit find themselves in the position of the Israelites, who were compelled to make bricks without straw. They are driven to despair. The holders of specie carefully put it under lock and key, thereby increasing an already enormous deficiency. The demand remaining what it was when credits were in existence, the supply is cut down to less than that existing before the substitute was created. Indeed, but it need not require specie to do it, anything that's rare including farm land, houses, WATER, anything will do and do much better than specie. So, not only is a return to precious metals basis for money NOT the answer, it actually evades the real questions that all revolve around credit and who gets to create it. What Kitson has described here is the accordion like puffing and squeezing of the typical banking credit cycle. Nobody in standard economics dares criticise this except to say, as the “Austrians” do, that bankers occasionally make mistakes regarding how much credit they lend, they make mistakes and so must call in loans, reduce credit, etc. Too bad for those who built their livelihood on bankers' mistakes, they can just jolly well … go off somewhere and die quietly. Standard academic economics, like very much that passes for “science” in academia, has NO substantive value when it comes to actually allowing people to live free and abundant lives. It's largely a smokescreen to obscure the real villains from most of humanity.

The effect is aptly described by William A. Whittick (“The Cause and Cure of Panics”) We're not surprised that this reference is so completely obscure as were the works of E. C. Riegel who came after him. He says: "This condition of things may be illustrated by an inverted pyramid. Those who control the apex of the pyramid, control the entire structure. This apex is gold, which, under a normal condition of things, might be disturbed with impunity, but which under present conditions unsettles the entire pyramid; in other words, the financial world controls the industrial world, instead of the industrial world controlling the financial." The effect of credit is, therefore, to greatly increase the value of money whenever credit is shaken.

Credit is the fertilizer that serves to ripen the fruit which the money monopolists shake into their own hats. It produces a harvest which money alone could never produce. Credit changes the value of the denominator to an enormously greater degree than specie could possibly do.

Take the credits of Great Britain, estimated at from five to six thousand millions of pounds, whilst the legal tender in circulation is only about 120 million pounds. Supposing that only 10 per cent of the credit is redeemable in money. There are then 600 million pounds of credit, and but 120 million pounds, or one-fifth the  amount required, to redeem it with. Now, so long as credit is unassailable and remains intact, everything works smoothly. Credits are redeemed with credits, extensions given, and a small amount of

money serves to do a vast amount of work by circulating rapidly and by making credits redeemable at different times. But let the public confidence once become shaken, or fear become general through some cause, no matter how trivial, - such as the mere rumour that a bank is insolvent, - and there is an immediate desire to have credits redeemed. Instead of redeeming them with credits, or granting extensions, every creditor insists upon cash redemption. The  demand for money, heretofore satisfied with credit, is now centred on gold and will be satisfied with nothing else. Gold rises enormously; multitudes of persons are obliged to sell their goods at a sacrifice. Down come prices. Industry is paralysed and parliamentary and congressional committees are appointed to enquire into the causes of the disaster. The men whose system is the cause of all the trouble are consulted. With learned ignorance they propound such theories as "over-production," "over-trading," "abuse of credit," "state-bank currency," "reduction of the tariff." Their theories are seriously considered and acted upon. The country pulls itself together, and once more commences its Sisyphean task of building another gigantic pyramid with its apex for a base. Such, in brief, is a synopsis of the financial panics that periodically afflict the world and which have puzzled legislators for the past two centuries, as completely as Haley's comet puzzled Popes Callixtus and Pius II. Make that for thousands of years and it would be more accurate.

Such results are wholly attributable to building industry upon an insufficient and false foundation. It is not "over-production;" it is not "over- trading;" it is not the "abuse of credit" that is the cause of panics; it is because the gold or specie basis (under which the monopolization of money by governments and individuals has been effected) is too narrow and too contracted on which to build the world's industries. The building becomes top heavy. It is pushed into a position of unstable equilibrium by those who control the base, and down it comes. To say that there is general over-production or over-trading, is to say that people have more than they want, and that they are trading for amusement. From our vantage point, without gold and silver, even so called “public” money is too narrow a basis, but the matter isn't exactly as Kitson sees it; it is the WHO that gets to control it and their WHY that deserve further treatment.

It is the wants of the people that is the cause of trading, and because of the monopolization of the medium of trade, they are actually compelled to make industry top heavy and unstable.

I have shown that money is, from the scientific standpoint, circulating credit -there is no fundamental difference between them-, and credits that are not circulating are termed stationary credits. Now the channel of circulation is filled with these forms of credit, and in order that trade and commerce should be facilitated, it is essential that the material with which the channel is filled, be kept in circulation. Like blood in the human body, it must circulate freely and unhindered to keep trade in a healthy condition. The analogy of blood to money is certainly an old one and is appropriate. Banks are likewise the hearts and pressure points of a monetary circulation and when a banking panic sets in, it has a similar affect to the economic body as a heart attack.

The effect of legislation restricting monetary issues by taxation or otherwise, is to increase the amount of that class of credit which may be termed sluggish or stationary. It is circulated slowly and with difficulty. The demand for money being greater than the supply, recourse is had naturally to the medium of personal credits, which are essentially sluggish. Hence the channel of circulation becomes choked, and circulation is hampered or entirely stopped. The analogy of arterial sclerosis is appropriate; slower circulating debt instruments clogging the arteries of commerce.

We have thus a further illustration of legislation defeating its own ends. Ostensibly, legal tender acts and specie bases are for the protection of society; to provide the people with what the newspapers are fond of, terming "honest" money. ...and who was running those newspapers? Who runs / owns the news / information / education infrastructure is a key question everyone should be asking. In suppressing State and private bank issues by taxation, the government compels society to have recourse to a system of credit far more precarious than any State or private bank systems that ever existed. The loss occasioned by a sudden shrinkage of public credit, results in much greater evil and misery than any mere over-issues of bank notes.

The end to be sought by those who would prevent a repetition of the financial and monetary disasters of the past, is to free money from the artificial and burdensome restraints with which it is encompassed; to allow the people to attend to and satisfy their own wants in regard to money, as with everything else. The more plentiful the money supply, the less a baseless credit system will be used, until with an adequate money supply, this system finally disappears. The solution is not to make the industrial and commercial structure less bulky, but to broaden the foundation; to make the base proportional to the edifice. . To use our former illustration, we must stand the pyramid on its base if we would make it stable. Those who control the apex may then do their worst, they can never overturn business. Commerce thus assumes its rightful position and becomes impregnable. Believe it or not, this would be preferable to the present Babylonian Woe situation. 

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