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not an inert metal that, because of artificial pricing, has been produced in excessive, supply, and if the dollar were withdrawn from it today, would it not plummet in price?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.
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.
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.
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.