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TABLE OF CONTENTS
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I.
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Introduction .................................... 115
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II.
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The State as helper .................................. 116
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III.
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Some basic observations on the provision of employment by the State ............ 118
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IV.
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Some remarks on the economic and political significance of public works .......... 119
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V.
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Methods so far proposed for financing public works .................... 125
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VI.
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Considerations of some popular arguments in favour of State provision of employment, particularly
by means of new and extensive public works ....................... 128
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"Private initiative has failed" .............................. 128
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"Unemployment is largely due to the hoarding of money. Public works lead to
the discouragement of hoarding." .......................... 131
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"In great crises one should not employ petty means. An appropriate use of the large sums
necessary can, however, only be ensured if they are devoted to the execution of extensive
public works." ................................... 147
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a)
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Does the widespread distress occasioned by unemployment demand relief measures of
far reaching scope, more especially, large sums of money? .............. 147
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b)
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The extent to which new public works can possibly improve the economic situation ..... 149
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c)
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Is "the right to work", a right to be employed on new and extensive public works? ..... 150
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d)
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The right to work and the Constitution ...................... 151
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e)
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Further remarks on the starting of large scale public works for combating unemployment .. 152
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VII.
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Some observations on Milhaud's theory concerning the provision of employment through
purchasing certificates ............................... 144
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The Milhaud Plan and a free market for goods, services, and means of payment ........ 154
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a)
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Modern tendencies to eliminate a free market .................... 154
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b)
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A conjecture concerning the cause of the low appraisal of market demands as a social factor 154
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c)
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Public opinion and a free market for means of payment ............... 156
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d)
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The freedom of markets under the current system of payments ............. 157
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e)
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The development of values through free transferability ................ 158
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Milhaud's proposals and a free gold market ...................... 161
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A discount on means of payment in a free market, compared with inflation and devaluation as
factors accelerating sales .............................. 163
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a)
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There are three kinds of discounts ......................... 163
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b)
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Who suffers by the discounting of a sound paper money? ................ 163
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c)
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Discount, inflation and devaluation ......................... 164
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Once more the time validity of the purchasing certificates ................ 165
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a)
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Ensuring the reflux of purchasing certificates by a depreciation in their value after the lapse
of a stated period ................................ 165
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b)
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Exchange of "overdue" purchasing certificates for credits granted on long term notices .. 166
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c)
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Utilization of overdue purchasing certificates for paying the debts of 3rd parties at the bank 167
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The Milhaud Plan and the French tradition about means of payment ............ 168
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"Structural" unemployment and the Milhaud Plan ................... 169
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Alleged statistical objections to the Milhaud Plan ................... 173
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The Milhaud Plan and the money prerogative of the State ................. 175
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a)
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Are purchasing certificates incompatible with the money prerogative of the State? ....175
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b)
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Human and civic rights and the monopoly in means of payment ............ 176
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Gresham's Law and Milhaud's purchasing certificates ................. 178
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Unemployment insurance versus provision of employment through purchasing certificates .. 179
115
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The nature of the social question after the adoption of the Milhaud proposals ....... 180
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a)
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The view that has hitherto prevailed of the nature of the social question ......... 180
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b)
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A better distribution of the social output after the abolition of unemployment ...... 181
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c)
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The emancipation of labor ............................ 184
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Why establish a Foreign Trade Office? ........................ 186
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Culpability of some economic leaders? ........................ 187
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The mentality of the workers and their conscious participation in the process of circulation .. 189
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VIII.
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Some technical and, legal details of the issuing of purchasing certificates .......... 191
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IX.
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The practical realization of the Milhaud Plan ...................... 198
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What can individuals do to help in realizing the Milhaud Plan? .............. 198
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What could governments do within 24 hours? .................... 200
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a)
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The employee ................................. 198
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b)
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The employer ................................. 198
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c)
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Employees in higher positions ........................... 199
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d)
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The politician .................................199
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e)
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The shopkeeper ................................ 199
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f)
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Associations of taxpayers ............................ 199
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g)
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The scholar ................................... 199
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h)
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The landlord .................................. 200
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i)
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Intellectuals ................................... 200
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j)
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The philosopher ................................ 200
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X.
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Summary stressing a few differences between the Milhaud Plan
and the current monetary system ............................ 201
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Motto:
AH! NUMEROUS REMEDIES HAVE BEEN TRIED, BUT WHEN SHALL WE TRY
THE SIMPLEST OF ALL: LIBERTY! - Fr. Bastiat in "Exchange", 1850
I. Introduction: The Present Position (1934)
The economic condition of the world could not be described more unfavorable than by stating that since Milhaud drew a picture of it in his writings it has not only seriously deteriorated but has become in certain respects even more desperate. The social reformer may well lose heart when he observes that precisely those measures which have converted the "crisis" into a catastrophe, are generally still regarded in all countries as right in principle, only that more diligent recourse to them is steadily insisted on. Control of external trading, foreign exchange laws, embargoes on payments ever new labour ordinances for the few still allowed to work, constant meddling with the currency, and the like, are today demanded even by those who until recently were opposed to these steps because they expected a "natural recovery" of the economy but have since lost their belief in such a self-cure.
Unfortunately perhaps fortunately, too the crisis has not only a technical, but also a moral and a political aspect. The masses feel that something is withheld from them: they are not clear as to what this is. They feel that they have been deprived of rights, but do not know what new rights to claim, However, to find a vent for their grievances, they demand in many countries that those of their rights, for which their forefathers fought and gave their lives, should be immediately annulled.
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Freedom of the press, of public meetings, of speech, of association, yes, even religious freedom, continue properly only in a few countries and are there also exposed to violent attacks
The masses demand food, but would nevertheless dearly like to kill those who import from abroad bread and butter and much else that a few years ago was regarded as heaven sent.
They want work: perplexed they stand outside the factories and workshops which they may not enter. Who forbids them?
The guard at the factory is under orders to shoot if any one should dare to enter and begin to produce something of what all the world is in need of. Why he must shoot, the guard does not know exactly, either. "Orders must be obeyed", that is all he knows.
People dimly suspect that some reflection might possibly prove advantageous. But, at the same time, they feel that underlying all what is happening, there is a meanness and abomination incomprehensible to them and they curse the "intellectuals" with their theories, who in the morally best case have "failed" (this no one can deny) and who are perhaps even responsible for the situation today, in which a good harvest is a cause of famine.
Who knows! Away therefore with reflection and no more thinking. Instead, fight with your last strength and then yes, then we shall be exactly where we were before.
All of us have read Prosper Mérimée's Tamango, the story of how, 'under Tamango's leadership, the slaves on the slave ship "Espérance", successfully revolted. There, on the captured ship, stands the Negro prince; victorious, ambitious, recognized, having behind him the liberated slaves, who are ready to sacrifice themselves for him. The whites have been killed and thrown to the sharks. However, what is to be done next? The question is to turn the ship. How is this done- Tamango simply gives the steering wheel a kick.The ship turns and the masts break. What now? An emergency mast might be erected, but this presupposes some idea of seamanship and also some notion of how to handle sails. Tamango knows nothing of this, nor do the slaves. They only think that "the great fetish of the whites feels offended" and must be appeased. A libation of blood is offered to the compass. The compass does not respond. Magic is employed. In vain. The slaves shout; they drink spirits. Tamango demands better discipline. All to no purpose. Seamanship, and only seamanship, can avail.
Tamango, facing his liberated slaves, on the good ship "Expérance", is an image of many present day rulers before their subjects. They offer sacrifices to their own fetishes, and even to those of their enemies. Disciplinary measures become daily more severe. Freedom of speech is altogether abrogated. "Order" is daily more stringently enforced. The way the victims of starvation are to be thrown overboard - is minutely prescribed. All in vain, the ship refuses to budge.
(Compare the present concentration camps in Australia for illegal immigrants! - J.Z., 26.11.01.)
In the midst of this confusion, one man rises and exclaims: "Tamango, cease to offer sacrifices to the compass; cease to "discipline" us; drop your magic and leave the alcoholics their spirits. Instead, erect an emergency mast; sail! I'll show you how to do it."
Wil Tamango pay heed? Could there be for him a greater crime than not to pay heed, now? Or will he prove himself-to be the practical man he was when, during many years of experience as chief, he learnt how to deal with subjects? What will he do with the "theoretician"?
That is the question. The "theoretician" in this case is Milhaud.
Tamangos, of all countries! in Russia, in China, in Japan, and elsewhere, listen to him, and much will be forgiven you.
(He was careful not to mention Germany in this connection. Alas, not only the Tamangos but all democratic and republican leaders and their advisors have so far managed to ignore monetary freedom ideas and their solutions. - J. Z., 26.11.01.)
II. THE STATE AS HELPER
When, a few decades back, Max Stirner pointed out that the religion of our age had undergone a transformation and that the idea of the State had replaced in very many minds the older religious ideas, whilst the religious sentiment had survived and become directed to the idea of the State, no one probably took that remark of his really serious. Today however, we are faced by the practical effects of the new religion, effects so formidable that one may say that the basis of existence of half the world has greatly altered
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during the last thirty years.
The essence of a religious sentiment is that it remains outside the sphere of conscious thought. Frequently, too this sentiment, which by its nature represents a feeling of reverence is mingled with experiences partly originating in sub-consciousness. These experiences then create in our consciousness concepts which psychologists call "fixed ideas", that is, ideas unaffected by criticism. Kant, in speaking of such ideas, writes
"Many conceptions arise in secret and obscure conclusions incidental to experiences, and afterwards are transmitted to other conceptions without even the consciousness of that experience itself-or of the conclusion which has first established the concept of the experience. Such conceptions may he called 'surreptitious'. Many of that kind we partly only delusions of imagination, partly also true; since sub-conscious conclusions do not always err." (I. Kant, Traeume eines Geistersehers, part 1, first footnote. )
The discussion of Milhaud's proposals has confirmed the suspicion that modern economics also, although seemingly based on the rock of reality, is full of "surreptitious" conceptions, but which nevertheless form an integral part of the new religion. A religion cannot be refuted. But what is possible, is to induce its adherents to respect the principle of toleration. Religions contemptuous of this principle, risk the fate of ancient paganism when it became fiercely intolerant under Decius and Diocletian. Tolerant religions, on the contrary, call for deferential regard only because of their tolerance. All fair minded thinkers will protect them.
The religion which has bestowed on the idea of the State what it abstracted from the older religious ideas, is still young and, like all new religions it is not tolerant.
(Apparently, it did not exist before the Thirty Years' War, but by 1784 it predominated.)
Its intolerance is a most serious matter, since its aim is not metaphysical but on the contrary directed to the realization of essentially material ends. Bastiat, under the immediate influence of an outbreak of statist fanaticism, wrote, in the "Journal des Débats" of 25 September 1848, his still remembered article "The State", which has lost none of its freshness. Bastiat writes:
"Reader, I have not the honor of your acquaintance but I bet you, 10 to 1, that for the last six months you have spun utopias and I bet you again, 10 to 1, that you mean the State should realize them.
"And you, fair reader, I am sure that you would very much like to see all the evils of suffering humanity swept away and that you would not object if the State could devote itself-to this task.'
"But oh! the unhappy State, like Figaro, does not know which side he is to listen to first. A hundred thousand voices, the press, and public assemblies bellow at him:
'Organize labour and the workers!
'Root out selfishness!
'Fight the arrogance and tyranny of capital!
'Institute experiments with manure heaps and eggs!
'Build railways!
'Construct irrigation works!
'Cover the mountains with forests!
'Introduce model farms'!
'Also model factories!
'Colonise Algiers!
'Provide the children with milk!
'Educate youth!
'Help the aged!
'Bring the town population back to the land!
'Confiscate all industrial profits!
'Lend money, without interest, to all who desire it!
'Liberate Italy Poland and Hungary!
'Promote the breeding of riding horses!
'Encourage art and train musicians and women dancers!
'Abolish commerce!
'But at the same time create a merchant fleet!
'Discover the truth and sow in our heads one grain of sense!'
"It is the function of the State to enlighten, to develop, to increase to fortify, to spiritualize and to sanctify the soul of a nation." (Bastiat quoted the last sentence from a work by Lamartine.)
That all these demands embody a strong religious element is obvious, first of all from the vehemence and fanaticism displayed by their supporters against the notion that anybody except the State should concern himself-with their realization. This may be easily verified in conversation with any contemporary, be it a worker or a high official, a manufacturer or a shopkeeper. Most of them will contend hat it simply immoral for individuals or groups to undertake something which the State, perhaps, could perform.
It is true, that they cannot express their opinion in such an abstract form, but in any given case four out of five will not fail to testify to this, if asked.
A few modern laws have originated in this emotional complex, e.g., the German Act regarding the monopolization of the employment agency service by the State, of July 1922, confirmed by the Act of
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16 July 1927. One would think that a Parliament, which is seriously combating unemployment, would support every agency providing employment and only legislate against abuses. The German Reichstag did not do this but, on the contrary, as a result of pressure by the Socialist Party of Germany and the Communist Party of Germany, passed a law which has certainly contributed to the increase of unemployment in Germany.
From ideas such as are involved in the above State monopoly, there is but a step to a completely statist economy. The idea is, of course, far from novel or the property of one party. It found particularly clear expression as far back as 1877 at the Geneva Socialist Congress. One resolution of this congress runs:
"All land and sites, all means of production shall become State property, The omnipotent State shall regulate production and consumption, down to the smallest businesses. The majority shall rule and administer unchallenged; the minority must acquiesce or emigrate". (Quaritsch, Kompendium der Nationaloekonomie, 4th edition, p. 40. )
Accounts of the pitiable conditions of life of the subjects of the omnipotent Russian State and of its incompetent bureaucracy (despite the ability and goodwill of individual officials), have made many believers in the idea of a totalitarian State pause and even declare that they broadly agree to a continuance of private enterprise so that the totalitarian State which by the way was always publicly rejected by Hitler and decisive National Socialists would then be distinguished more by a statist feeling of the subjects than by a State managed economy.
More important even than this concession of politicians seems to be the fact that the Roman Catholic Church is recognizing the dangers in its own sphere threatening from the new religion and has decided to combat them. Pope Pius XI., who is respected also by non Catholics for his clear, philosophical spirit and his noble character, states in his otherwise also highly important encyclical Quadragesimo Anno, II/5):
"Just as it is wrong to withdraw from the individual and commit to the community at large what private enterprise and industry can accomplish, so, too, it is an injustice, a grave evil and a disturbance of right order for a larger and higher organization to arrogate to itself-functions which can be performed efficiently by smatter and lower bodies This is a fundamental principle of social philosophy, unshaken and unchangeable and it retains its full truth today. Of its very nature the true aim of all social activity should be to help individual members of the social body, but never to destroy or absorb them."
Such words, and much else stated by the Pope in his encyclical will remind the philosophical reader of the end, of the fifth chapter of the first section of the third part of Kant's work on religion, which it might be worth his while to re read.
III. SOME BASIC OBSERVATIONS ON THE PROVISION OF EMPLOYMENT BY THE STATE
The religion of statism is not only rooted in a sentiment of reverence. As Kant explained, this sentiment is the necessary basis of every superior religion, including the religion of the pure reason brought to light by him. Statism like so many other religions, is also rooted in the feeling of helplessness, coupled with the all too human and easily understood dislike to grapple with the troubles and dangers involved in effective self-help. Does not history report of the vigorous opposition of slaves and serfs when well disposed rulers wished to emancipate them? Unfortunately, a large proportion of the unemployed, as a sad economic and political experience, more particularly during the post war period, has taught us, possess little more desire for independence than the serfs in Pomerania, whom Frederick the Great could only with difficulty train to personal freedom, and with whom he finally succeeded so far that they no longer expected to be maintained by others. It is certain that for countless unemployed today, one might as well say for millions of them, the employer-employee relationship has practically become a category of thought and that for the moment they are unable to entertain proposals presupposing, in any way, self-help, independent thinking about the depression or indeed, an appreciation of the Milhaud Plan. Inasmuch as these unemployed are for the present not able to be more than mere employees, and since employers have
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failed and are still not equal to the occasion, there is no option but for the State directly to employ this portion of the unemployed as is indeed their wish. The nature of the work whereon they are to be engaged and the manner of financing it, is the next problem. It does not however, necessarily follow from this that the other portion of the unemployed also to be counted by the million should be dealt with in the same way since this portion is quite able to associate in self-help organizations based on the financial principle of the Milhaud Plan.
IV. SOME REMARKS ON THE ECONOMIC AND POLITICAL
SIGNIFICANCE OF PUBLIC WORKS
Before Milhaud it seems the following distinctions, of considerable importance for an understanding of the significance of public works, were overlooked
1. Public works which cannot be shelved without directly prejudicing the economic life of the nation. Such works include, e.g., the postal service and, where the railways are national property, the railway service. Also waterworks, gas works, ports, etc. must function continuously. Nor may the repair of bridges be neglected and highways and everything serving communications, nor the repair of public buildings.
2. Other public works, such as the construction of useful, but perhaps not absolutely indispensable canals.
The proper maintenance of the services mentioned under (1) is far more important, not only for the national economy but especially for the labour market of all countries than the initiation of the works suggested under (2), the plain reason being that the number employed on those works in all civilized countries is very large, that the work requires some special knowledge, and that the workers concerned cannot easily change their occupation. A discharge of only about a quarter of their number would increase unemployment more in most countries than even a financially robust State could manage to set to work by starting new public works, in fact, in some countries probably more than could be employed on really useful new public undertakings, even if finance for these works were assured..
Milhaud's system of purchasing certificates offers the possibility of resuming the full activities of State concerns which had to be curtailed because of the depression, as well as those of private concerns. It is obvious, for instance, that national porcelain factories, stud farms, printing shops, paper mills, mines, and all other State establishments working for the open market, may here be judged on the same principles as private enterprises.
Other State concerns, such as railway and postal services, as well as non-statist but still public corporations, such as electricity and water works, etc. do not work for the open market, but depend, nevertheless, on the sale of their products. All these public corporations are covered by the considerations set forth in Zander's article on railway money, which appeared in the Annals, 1934, 1 (peace plan 192),
There is no fundamental difference between Zander's railway money and Milhaud's purchasing certificates. In Zander's system' of financing, the influence on production of Milhaud's factor of orders placed is seemingly absent. But an enterprise like e g., a railway service, is not dependent on orders to be sure of sales - here sale of freight and passenger mileage. The monopoly enjoyed by such services ensures their turnover better than orders, whether the monopoly be due to a legislative enactment, as in the case of the postal service, or to a natural monopoly, as with most railways. A concern such as the German Railway (which is no longer a State service, but is economically like one, similar to the French and English railways), can count through its natural monopoly on a certain income of about 200 million marks a month and is in the same position accordingly, as if at the beginning of each month a bank placed to its credit 200 million marks. Zander reasons, in effect, that a safe credit of such magnitude should not lie idle, but should serve to provide employment. Zander then points out how this credit could be used to provide employment, by "minting" it so to speak, enabling the railway to dispense with using means of payment drawn from other economic domains and thereby to help the national economy almost exactly as if it received every month a present of 200 million marks for providing employment.
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the above reflections suggest their extension to all public undertakings and the possibility of regarding their activities as a form of public works. The juridical and the general State administrations, despite any existing abuses, are still useful services and cannot cease their activities without injuring the economic life. (It is noteworthy, though, that in Imperial China, according to available statistics, there was only about one State official for every 10.000 inhabitants. In reality there were actually fewer, for the Chinese guilds frequently paid the State officials a pension in order that they should not govern with no disturbing result.)
The Sate administration employs in any case a great labour force, and it may not be superfluous therefore to examine whether the financing of this type of work might also be organized on Milhaud's principles.
Viewed purely commercially, the State administration is financed by the State selling tax receipts and in return undertaking to maintain public order. It is true that the "purchase" of tax receipts is not an altogether voluntary process, for if the "purchaser" refuses to purchase, the State resorts to force. For this very reason, however, the "sale" of tax receipts is made very certain and is actually only checked where the' "purchasers" are without means of payment.
The certainty of the sales also creates an invisible, but very real, State credit among the taxpayers. Hence, this credit of the State through taxation is to be regarded as being as real as the credit which the railway obtains from the public through its monopoly.
Well now, Milhaud's Plan requires that everybody; at least during a depression, before withdrawing means of payment from other economic domains and thereby reducing the purchasing power of others, should utilize his own outstanding assets for payments, provided of course he is in a position to do this.
This applies more particularly to those, whose creditors are voluntarily prepared to accept the credits in payment. The latter will always apply where the creditors themselves due to other obligations have payments to make to their debtors, as is regularly the case with the State. A financial balancing is in this way rendered feasible. Every creditor, - e.g., any supplier to the State, is thus, as taxpayer, a debtor to the State and all individuals with whom he has business relations are similarly situated.
Hence it is quite in the spirit of Milhaud's theory to examine whether and to what extent the outstanding assets of the State, created (I would rather say, now: "imposed"! - J.Z., 26.11.01.) by taxation (which though invisible are not less real.) could contribute, by fractionalizing and standardizing these fractions of the total assets, to provide the population with means of payment and, through this, augmenting its purchasing power.
The certificates would be State paper money but without compulsory acceptance in private payments.
What is more, we ought to find out whether the neglect to utilize that credit does not depress the general level of employment, as much as at present the neglect to issue railway money does and, likewise, the omission to issue private purchasing certificates.
In other words, we ought to inquire whether that part of public works which is and will remain the most important, namely, the general State administration, ought not preeminently now, during the depression, to be financed mutatis mutandis (with the necessary changes The Ed.) on the principles enunciated by Milhaud.
The importance of Milhaud's principles and their fruitful application in such supposedly completely different domains as industry, railway traffic, and the general State administration, may justify us in further illustrating these principles.
In the three cases referred to here, the principle is identical and only its technical realization is different. In all three cases outstanding assets are created, and these, with a view to their being more readily transferable and finally for the purpose of clearing, are divided into standardized notes which can thus be used as money.
The outstanding assets are:
(a) in private enterprises, visible ones: they are created by the placing of orders, and their fractionalizing is undertaken by a public or private bank, The notes are purchasing certificates;
(b) in public undertakings (or equivalent private undertakings), invisible ones: they are created by the undertakings being monopoly enterprises and the public therefore being unable, at least not without detriment, to dispense with their services. The fractionalizing is carried out either by the undertaking itself-or through a bank. The notes are railway moneys, electricity money, etc.
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(c) in the State in provinces and in municipalities, also invisible ones: they are created by taxation.
The fractionalizing is undertaken either by the tax creditor or, what Lorenz von Stein deems more practicable, through a bank. The notes are Treasury paper money, provincial money, municipal money.
Jacques Duboin has expressed himself-with remarkable lucidity on the creation of Treasury paper money. (See Annals, 1934/1, Ending the Crisis, pp. 250-226.) Duboin also recognized that there exists a form of Treasury paper money which serves only for financial adjustment (clearing) between the State, its suppliers and its taxpayers, which has nothing to do with the monetary prerogative of the State and represents only the mobilizing of an assured claim. (This may be conceived as a claim of the State on those liable to be taxed or, vice versa: of the taxpayers and especially the suppliers, on the State.)
Proposals are discussed here and there today, suggesting that the payment for supplies delivered to the State should be made in such notes which would subsequently be accepted as read money by the taxation offices. In this connection see the substantial article "Le payement en blé", in the Temps of 6 November 1934.
Such a method of facilitating the payment of taxes is, however, wholly different from paying taxes in kind, e.g., as permitted to the Polish peasants.
Tax payments in kind signify progress only in so far as they prove that taxes may be paid without recourse to money. Otherwise this constitutes a decidedly primitive way, although it was for centuries customary in a civilized State such as the Roman Empire. (See on this subject Marx Capital, part 1, chapter III/3b who did not ignore the importance of means of payment in taxation, but who, owing to his extreme extremely statist attitude, was prevented from recognizing the interrelations seen and described by Milhaud and Duboin.)
The method proposed by Duboin was, as a matter of fact, applied in Germany for centuries and has only fallen into disuse during the last few decades. (See the introduction to the commentary of the German Cheque Act of 1908 by Prof . M. Apt, also the description of the Saxon cash tickets by Roscher, in "National Oekonomik des Handels and Gewerbfleisses", par. 52; further the Prussian Acts of 1814 and 1815 concerning payments for goods delivered to the State with "treasury notes ".)
In the "Vier Gesetzentwuerfe" (Four Draft Laws) there is a draft relating to the mobilization of the outstanding assets created by taxation through State paper money without legal tender, which is adapted to modern conditions.
With regard to Milhaud's purchasing certificates, Zander's railway money, and Treasury paper money which is irredeemable and not legal tender, and which maybe also freely discounted, the following problem still awaits solution:
How much of the credits created by orders placed, by monopolies, or by taxation may be utilized for the payment of expenses, without the fractionalized parts of these assets i.e., the purchasing certificates, the railway money, the State paper money being exposed to a discount in the open market?
The theory on the subject is likely to be discussed for some time yet, although the problem is essentially no other than that of the time validity of the bills discounted by the banks of issue, a topic often dealt with in the older bank literature. The practical aspect is simple: when the market value of the certificates on three consecutive stock exchange days stands at 99% or lower, then the limit is passed and a suspension of issues should ensue.
Although the theme of this monograph is really the creation of opportunities for employment by the starting of new public works, it was yet desirable to consider whether, by the maintenance of already operating public undertakings of every kind, a very appreciable part of the present unemployment could not have been avoided. This consideration was the more opportune inasmuch as the principles of Milhaud's payment theory are readily applicable here.
The State is confronted with a further problem. Suppose that it owns a railway, a few mines, and some gas and electricity works, all of which, owing to the depression, are only partially operating. Is the State to issue as many kinds of notes as there are public enterprises, that is, is, in addition to an irredeemable State paper money without legal tender, also railway money, electricity money and so on? This question should not be hastily answered in the negative by arguing for instance that a multiplicity of means of
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payment is inconvenient for trade. Such an answer would involve an a priori judgment. It should not be forgotten that in the larger towns today, cheques issued by dozens of banks are in circulation without business transactions suffering thereby in any way. It is clear, of course, that a State should not simultaneously bring into circulation in any town, be it as immense as New York, say a hundred kinds of means of payment, but it is also clear that half a dozen different means of payment, each fractionalized, would occasion no embarrassment.
This diversity of means of payment guarantees control by the public (a control which is indispensable for securing opportunities for employment) and greatly outweighs the slight inconvenience caused by the absence of a circulation of quite uniform means of payment.
However, not only is control by the public indispensable, but also the enlightening of the public about the precise nature of a circulating paper medium, and this is most effectively achieved when various kinds of paper money circulate concurrently without legal tender (i.e. when they may be freely refused). The man in the street should know that whilst, for instance, a gas works certificate of one dollar was given by the gas works to a gas worker (this enabling him to have employment at all), the certificate must be ultimately withdrawn from circulation if it is not to lose its value.
The man in the street should further be aware that if his greengrocer will only accept this certificate for 90 cents, then the reason is probably that the gas works has issued too many certificates and that there is something wrong with the financial administration of the works. If this were not the, case, the greengrocer would accept it at its face value because he would be sure that he could freely pass it on to people who have gas bills to liquidate.
The man in the street should also know that financial defects in combines cannot be detected at once when only one kind of certificate is issued for gas, electricity, railway, and the general State administration.
Such an enlightenment of the public is the best safeguard against inflation, against financial mismanagement, and against labour discharges due to such mismanagement.
But the gasworks also must be in a position to correct, without delay, slight over-issues, such as may occur in any administration. In such a case the gasworks should be able to declare that (say) for the following seven days, its cashiers will continue to accept only gasworks certificates at par in payment of accounts, but other means of payment only at a discount.
More particularly, the different parties concerned should recognize that the slight inconveniences arising out of the diversity of the means of payment are compensated by increased work and that everybody who accepts them helps to ensure his own employment.
Although, therefore, the central idea of the purchasing certificates covers also irredeemable State paper money that may be freely refused, it would be a mistake to reverse the process of thought, which has enabled us to recognize this, and contend that if it were proven that State paper money is not only justifiable but economically necessary, we ought to be "logical" and finance all public works, both the immediately productive and the administrative, with State paper money.
In all countries of the world, at least four-fifth of the yearly economic production serves to maintain the population for that or the following year. The carrying out of repairs and of such works as cannot be safely neglected, including even the replacement of old locomotives and ships by new ones, falls within the same category. The production of durable goods only provides occupation for a small proportion of the workers of a country, certainly not more than a fifth, in most cases less than a tenth, of them. Notwithstanding this, most people demand that the employment situation should be improved through increasing the production of durable goods, especially through building operations and, since private enterprise cannot undertake the latter, the public authorities are expected to step in.
It is correct that Milhaud has made proposals for financing public undertakings intended to produce durable goods, proposals which are an improvement on current proposals and contain an entirely novel economic element, that is, subscribing long term loans (destined for providing employment) with short term purchasing certificates. But Milhaud's greatest contribution is that he has recognized the extreme importance of labour devoted to the production of other than durable goods and has made proposals also to finance such labour, the laying off of which constitutes the real, problem of the depression. (Most critics have missed the fact that Milhaud has made two wholly different types of
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proposals for providing employment. One of them is to utilize the presently unmarketable stocks as working capital for increasing employment and the other aims at re employing the labour power which is lying idle at present.
"Maintenance" works appeal less to the public than "additional" works which are only undertaken in order to raise the employment level. The many hundreds of projects relating to public works intended to reduce unemployment concern almost exclusively such works. Here, however, the distinction should be made between works of future usefulness, more especially such as on their completion permanently raise the level of employment, and other works whose usefulness is anticipated to be moderate, if as much and which are principally promoted to provide fresh work.
The first category comprises the construction of canals and ports, afforestation and the like. The construction of educational establishments and hospitals, the provision of sports grounds and so on, might be also counted among them, although these are only indirectly useful economically. Thus a country like Switzerland derives as much benefit from its schools and universities as say from its railways, great as the usefulness of the latter might be.
As an example to of the second category might be mentioned the paving of the roads of Jerusalem with white marble under Herod, to prevent that the 18.000 laborers, who had been engaged on the building of the great temple, should find themselves suddenly out of employment. (Josephus, "Jewish Antiquities", book 20, chapter 9.) Memorable, too are the national workshops of 1793 and 1848.
The low level of many a seemingly great civilization of antiquity is manifest from the fact that formerly populations and their rulers were frequently perplexed not only as to how to finance the re-employment of the workless, but how to find work for them at all, a most pressing problem in all such cases. Hence the first plausible undertaking that suggested itself-to the rulers or was recommended to them, was started, quite irrespective of its usefulness. (Think of how Louis XIV. excused the building of his palace at Versailles by saying that its construction provided work for the people.) That we have made some progress socially, follows from the fact that today there is no lack of proposals in any country of useful public works and that only the problem of financing them is left.
Seeing that public opinion has traditionally held in low esteem the economic importance of "maintaining" State undertakings, but has always regarded as of great consequence new and extensive public works, the latter, and schemes of how to realize them have a special political significance. Not infrequently politicians have come to the fore who otherwise would have remained in obscurity, because they supported the popular view of the crucial importance of extensive new public works. The history of the last 150 years proves hat no government desirous of remaining in office and no party aiming at power, may resist the performance of great public works by the State. Milhaud's proposals are therefore invested with high political significance since they indicate a way of how to finance such works neither involving new taxation or recourse to the money market (in the current meaning of the expression) nor a compulsory loan, salary cuts of State employees, or any of the other hated measures that have led to the fall of so many governments. That the Milhaud Plan, in addition, permits the setting on foot of measures against unemployment which are far more effective than a public works policy, is certainly no drawback.
A brief historical retrospect concerning the political significance of unemployment may not be amiss here: After the Revolution of 1848, the economic sufferings of the French people became greatly intensified. Coins had disappeared because a recent decree declaring the notes of the Bank of France legal tender caused a general fear of inflation. The Government added an emergency tax of 45% of the direct tax already raised; farmers dreaded the possible decreeing of compulsory deliveries of foodstuffs, as in 1793; the workers clamored for work, but none was forthcoming. Useful proposals stimulating self-help were entirely wanting.
Proudhon's proposals were also impracticable. His People's Bank would have had to close its doors within a few weeks because it, too, intended to issue notes covered by long-term loans. Proudhon, undoubtedly a
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genius but evidently unacquainted with the history of banks of issue, did not know that this would not work. Bastiat, who was by far his superior, demanded free banks of issue conforming to the American system (which system was prohibited in 1863), but insisted that the notes must be redeemable at sight). This was likewise impossible in this crisis. Nobody apparently had practical proposals for raising the employment level, to which should be added that both Proudhon and Bastiat were misunderstood. One man, however submitted proposals which public opinion did comprehend and which had been carefully elaborated technically, namely Napoleon III. Shortly before the Revolution he published a few projects concerning the reduction of unemployment, which are still worth reading. Napoleon hoped to finance his schemes within the framework of the then prevailing monetary system.
When published, Napoleon's plans made a deep impression. After the June battle, when everybody felt that the unemployed workers would not be permanently satisfied with bullets in their stomachs, Napoleon was the only one who had to offer an at least technically practicable scheme for providing employment and thus he appeared in the role of a reformer who, under changed conditions, might be entrusted with the elaboration of new practicable schemes. Many historians appear to have under rated this circumstance. In their accounts, the rise of Napoleon appears only the result of clever intrigues and of brutal force. But France's belief that Napoleon was the man to abolish general unemployment through public works, and thereby to maintain the social order, was most probably the true cause of his rise to power.
Despite his serious shortcomings, Napoleon was assuredly sympathetic towards the masses, a sentiment which was sincere and which in our day forms the bond between leader and people. Where this sentiment is joined to insight into social interrelationships, as it was in a high although not yet quite sufficient degree in Napoleon, as well as to a keen sense of social justice, so that the leader unlike the Gracchi, does not merely take from one to give to the other, and where the Leader is also distinguished by a right feeling for the traditions of his people, he will, aided by a little good fortune, rout any merely bureaucratically minded government and take its place. On the contrary, where a ruler possesses all these qualities, he is the superior of any foe. We are not concerned here with purely theoretical aspects. Within the brief period that Milhaud published his first paper on how to overcome the depression, the old constitutional Governments in at least ten countries have been removed and replaced by such whom the masses believed to be sincerely interested in the solution of the unemployment problem, interested in something more than conventional rhetoric and in "measures" which truly are none.
Bismarck, Napoleon's great antagonist, offers another example. He, who had no government to overthrow but had to defend the mightiest government of its time; could not have maintained himself-and the dynasty for so may decades if he had not been most earnestly interested in the unemployment problem. (See his speech of 5 May 1884, quoted in the next section.) Men of Bismarck's caliber owe their success precisely to the courage with which they approach particular social problems, where others are satisfied with indulging in generalities.
To cite a relevant instance: The productive cooperatives, which Prof. Graham so spiritedly and competently defended, in the Annals 1933/2, and which are assuredly destined to assist in the solution of the labour problem, were well known to Bismarck, who appreciated them in a way that was misunderstood especially in labour circles. In his Reichstag speech of 17 September 1878, he expressed himself-on the subject among other remarks as follows:
"Then as regards the granting of State aid to productive cooperatives, I am not yet convinced that this would be impracticable. The attempt" (Bismarck himself-financed with 9.000 thalers a productive cooperative in Silesia)"? I am not sure whether under the influence of Lassalle's reasoning or under the influence of my own conviction, which I partly reached during a visit to England in 1862 it seemed to me that in the establishment of productive associations, which flourish at present in England, the possibitity is given of improving the lot of the working class and diverting to it a substantial portion of the profits of the employing class." (The Chancellor then turned to Lassalle's project, according to which Prussia was to spend 100 million thalers on the establishment of productive associations.) "If something of such a magnitude is to be undertaken, it is very likely that 100 million thalers might be required. Nor is this
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scheme so very foolish or naive. The Ministry of Agriculture is engaged in testing agricultural methods. Experiments are also undertaken in industries. In combating unemployment and in the attempt to solve the ... social question through improving the lot of the workers, would it not be also useful to have recourse to such experiments? ... So far as I remember, my impression was that the whole of the manufacturing part of the equipment and of the working operations raised no difficulties. Obstacles were encountered on the commercial side: the disposal of the goods produced by travelers, in shops, in store houses, through samples. All this could not be accomplished in a sphere which the workers could survey."
In the sequel will be found remarks by Bismarck about the right to work, which are not less remarkable.
What many peoples need today is a statesman having Bismarck's insight and energy, but who will this time not introduce new laws but will rather abrogate all laws relating to monetary matters that have been promulgated since 1914 (all countries have at least a few dozen of these, most a few hundred) in order to make room for the practical realization of the Milhaud proposals. These are different from all others in that they call for no new laws, but merely for the annulment of the existing ones.
V. METHODS SO FAR PROPOSED FOR FINANCING PUBLIC WORKS
In a civilized and progressive society, public works such as the construction and improvement of roads, canals, ports, dams, schools and the like, are the most useful that can be undertaken. Even when financial conditions are only half way to normal many laborers are always employed in that way (See in Goethe's introduction to his translation of Benvenuto Cellini's autobiography, his remark about the excellent paving of Florence, the maintenance of which afforded constant employment for many worker.)
However, many of the public works started in any year, even those most useful, are burdens carried by the present generation for the benefit of the succeeding one. Momentarily they cost more than they yield. In times of financial stringency, public works of this nature are therefore the first to be curtailed. Of course: no sooner is this done, than the disadvantage of the restriction becomes obvious. First, owing to an increase in unemployment allowances, the poor rates rise at once and seriously. Only with difficulty and slowly does the public come to believe their Finance Minister that unemployment assistance is less costly than continuing men on work. Fiscally considered, the Finance Minister is right, although, economically considered, the capital which permits the undertaking of public works, namely machinery, raw material , provisions for the laborers, apart from men ready to work exists in great abundance. In addition, there is the loss occasioned to the population, and in the long run to the Exchequer also, of the absence of good roads, ports, etc. What is wanting is precisely and solely the means of payment, however zealously economists may warn the public not to mistake money for capital, and however much, in this connection, they seek to demonstrate by a series of sophisms that there is a shortage of capital. The public refuses to believe its teachers because daily it has before its eyes idle capital rusting machinery, moldering provisions in the shops, and stocks of unused raw materials. There is a deficiency in means of payment, that is all!
But to provide means of payment is seemingly a very easy matter. Where there is a metallic currency, we know a priori that the means of payment exist, only that they may have to be made available. And where there is only a paper currency the "creation" of means of payment seems naturally even simpler. The situation as thus presented gives rise to tree classes of proposals for financing public works. Almost daily, in all parts of the world various authors are publishing schemes which fall into one of the following three classes :
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taxation
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loans
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the printing of notes
All three methods have their eager protagonists and each group proves to the other that it is mistaken. In this all three are right. For taxation only takes the means of payment from one party and gives it to
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another. This results therefore only in a shifting of opportunities for employment, but not in the generating of new ones. (See Milhaud s remarks in Annals, 1933, 2, p 171.) Similarly with loans if they are subscribed with existing means of payment, for the latter must be withdrawn for some time from circulation if they are to serve as a new investment.
Inflation is the incendiary torch wherewith we fire our own house in order to keep warm for a few hours. Inflation neither provides the means of payment for paying wages nor capital as should be emphasized in answer to one of Milhaud's critics. The effect of inflation on the supply of means of payment could be frequently witnessed in Berlin during the monetary crisis of 1923. The bank messengers, sometimes several hundred of them, queued up over night at the Reichsbank. Many of them brought stools with them. Towards noon they received then a small parcel of notes sufficient to last for a day.
During all periods of inflation, similar observations were made.
In any case, it will be difficult to rouse in German workers enthusiasm for a new inflation, and one of the many causes why the present German Government has numerous supporters among the workers is that under it their is no fear of an inflation. In a speech on 25 April 1934, that attracted much attention, Reich Minister Goebbels stated:
"The Government will never tolerate an inflation. It will keep the currency stable and will rather call upon the people to fight together for the stability of the currency than permit the currency to become the football of international exchange speculation.
(In fact, the Nazi regime inflated the currency, too, and also introduced the usual "remedies": price and wage controls as well as compulsory delivery quotas and rationing. Together with the legal tender paper money inflation by the following occupation forces, the mark was thereby reduced to about 1/10th of its
former purchasing power. Promises by totalitarians and "fundamentalists" are even less trustworthy than those by democrats, especially when they insist on upholding monetary despotism. - J.Z., 27.11.01.)
An appeal to the people to fight inflation would effectively rally them, provided that at the same time the Government permitted the people to establish work supply banks governed by Milhaud's principles and perhaps established a model one itself
Other Governments or parties that hope to attain to power tomorrow have less sound views on currency stability and are therefore wantonly playing with fire. (Unpleasant surprises may be prophesied particularly for Japan because of its monetary policy, and this in the coming few years.)
The mere existence of a forced paper currency stimulates the elaboration of plans to finance employment schemes simply by means of the note printing press. Such paper money allegedly acquires its value through its being a forced currency, that is through a Government fiat. This strongly suggests the printing of more paper money to finance therewith public works, and the ensuring of the circulation of the newly issued paper money likewise through Government fiat. In view of these opinions about the nature of paper money, it is really remarkable that inflations are not made much more frequently than they were so far.
The allegedly very abstract and purely theoretical question: Whence does money, and particularly paper money, derive its value - calls for a veracious answer. Life and death for a people may depend on it, Such an answer is, however, impossible as long as not only popular belief but science itself-derives the value of money from a Government fiat. And yet Knapp in his highly ingenious work "Staatliche Theorie des Geldes" (State Theory of Money), thirty years ago already, explained in detail that the State must of course somehow determine what kinds of means of payment a creditor shall be bound to accept when in doubt and that that means of payment is then to be regarded as State money, but that the State's power, let alone its right, does not go so far as to provide, by a mere decree, a definite gold value for any means of payment In other words, whilst Knapp sharply defined and carefully distinguished the concepts "debt discharging power of money' and "commercial value of money", many more recent writers constantly confuse these two concepts, frequently even with special reference to Knapp. It is exactly as if they had only read the first sentence of his work which, it is true, reads: "Money is a creation of law and order (Rechtsordnung).
The value of money is primarily determined by the effective demand for it, precisely as the value of commodities generally. To illustrate, in Germany the value of the total turnover is a billion (million times million) marks a year, about nine-tenth of which amount is liquidated without the passing of ready money. This means that the daily demand for cash alone averages about 300 million marks, which corresponds to the value of about 100,000 kilograms of fine gold (that is daily the equivalent to 10 spheres of pure gold 1 meter in diameter ).This demand represents a far sounder cover than that prescribed by
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the Bank Act. So long however, as the effective demand is not regarded as the most important basis for the value of money and people believe that the value of money is created by the Government fiat, so long will people consider the State omnipotent and will turn to it for aid in every emergency, particularly for financing re-employment during a trade depression. And the following fallacy will last as long as this only supposedly logical association of ideas: If the State can impart value to money, it can without much difficulty impart value to that money which is printed and issued specially for financing employment and it would roundly neglect its duty if it did not use its monetary prerogative in this way for the public good.
This fallacy is supported by another and apparently inborn prejudice which reasons that the economic world can surely not be organized on such a detestable plan that its laws should, owing to a few insignificant defects in form, condemn to worthlessness paper money, even money "covered by real estate, issued for such a laudable purpose as the financing of reemployment.
Every Government that honestly protects the currency entrusted to it, is, precisely because of this, in danger of forfeiting the confidence of the population, where the latter believes that the Government could legislatively impart value to paper money.
All wealth, in the last resort all social relationships, are jeopardized if the masses finally succeed in imposing their erroneous views on the Government, seek to force reemployment by means of the note printing press, and cause the start of an inflation. Science has scarcely a more important, hardly a more urgent task, than that of enlightening the people on the nature of money and of means of payment.
In one of his proposals Milhaud showed that the financing of public works should be practically a synthesis of all three methods. He demands
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creation of new means of payment
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a taxation cover for the new means of payment
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flotation of a loan, to be subscribed with the new means of payment
A fresh printing and a fresh issue of means of payment would be, it is true, unavoidable, but not in the form of fiat money.
One or more loans could have to be floated concurrently. These could be taken up with the new means of payment at their face value, never mind how high or how low the new means of payment are quoted in the open market. The subscribers to the loan would accept in their shops or factories the means of payment at par and unemployed workers, who desired to be re-employed, would do likewise. At the same time the State would agree that taxes may be paid with the new means of payment. The free quoting of the new means of payment would establish harmonious relations between the three measures adopted and would render impossible an inflation even if we assume the worst intentions.
Only in this and in no other way should public works be financed if the general level of employment is to be raised and unemployment is not merely to be distributed differently.
Only thus and not otherwise can it be arranged that the new products should not compete with those already in existence which have remained unsold because of the depression, and only thus can it be made certain that the provision of fresh employment should cost nothing and should indeed be profitable from the first day.
Very few methods of providing fresh employment possess this last advantage, perhaps apart from Milhaud's only the methods advocated in the "Vier Gesetzentwuerfe' and those of Henry Meulen, which he described in his work "Free Banking".
If, however the depression has gone already so far that the goods which were unmarketable at the commencement of the depression have deteriorated or been sold at ruinous prices, so that there is both a shortage of goods and a shortage of employment, as happened for instance, frequently in Spain during the 18th and 19th centuries, then new public works are not of a nature to augment employment. On the contrary, in such circumstances it is distinctly felt that the carrying out of public works imposes only an added burden on the present without bringing any relief for the moment. Apparently though, in no country today does such a desperate state of affairs prevail. On the contrary, very large stocks of goods, carried over from 1927 to 1930, still exist and flood the markets. Hence, and only for this reason, public works are probably suitable today to raise the general employment level in all countries, provided always that they are financed in accordance with the Milhaud Plan. The' primary condition is, once more, that a big loan to be subscribed with purchasing certificates be placed on the market which, not directly but
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indirectly, will bring the unmarketable goods quickly to the consumer.
The Milhaud method of financing public works by means of loans which should not be confounded with his method of financing normal reemployment in industry combines the following advantages:
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It does not draw on the country's available stock of money.
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Nor does it augment that stock, since within a few weeks the purchasing certificates used for financing public works are withdrawn from circulation. The works completed, the purchasing certificates have returned to the issuing centre. (Only such means of payment may be rightly denominated money which remain indefinitely in circulation, as coins or banknotes acting as legal tender, but not such means of payment as are, from the very beginning, designed to disappear as quickly as possible from circulation as are e.g., bills, cheques and goods warrants.)
(Term "ticket money" explains their essence very well. Obviously, the very temporary circulation of more "tickets" to more performances does not inflate a currency - and a genuine shortage of tickets, while seats to performances are still available, is hard to imagine, because it could be so easily overcome by issuing more of them, as many as are required. - J.Z., 27.11.01.)
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The unmarketable stock of goods is reduced, without the new employment producing new perhaps unmarketable goods.
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Any restrictions usually applied in relief works, as avoidance of machine labour, limitation to certain classes of workers (e.g., long standing unemployed), low wages, and the like, are unnecessary.
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Every "excess" becomes noticeable without the intervention of a supervisory authority because the free market rate acts as a "brake". If, for instance, there should be an attempt to bring into circulation more purchasing certificates than are required for financing the new employment scheme, the free market rate would at once react with a discount.
VI. CONSIDERATION OF SOME POPULAR ARGUMENTS
IN FAVOUR OF STATE PROVISION OF EMPLOYMENT,
PARTICULARLY BY MEANS OF NEW AND EXTENSIVE PUBLIC WORKS
The following arguments, amongst others, are said to speak in favour of providing employment through public works:
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Private initiative has failed.
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Public works accelerate the circulation of money.
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In great crises one should not employ petty means and every means is petty compared with public works.
We shall deal in the following with these arguments.
Prejudice 1: "Private initiative has failed."
It may be granted that private initiative has conspicuously failed in providing general employment. Whilst it is currently believed that "capitalists" constantly plot how they may extract more "surplus value" from the masses, it seems as if the existence of so many million unemployed has not yet induced even one great or small capitalist to think out a plan of how "surplus value" could be extracted from these millions, a plan that would involve, of course that they should be set to work in the first place. From the monstrous fact that the worlds capitalists forgo at least 100.00 million gold francs annually, which they could readily earn by employing the workless, the masses could, if they felt inclined, deduce a quite different and truer
conception of the nature of capitalism than that widely prevalent today.
(Until "employers" demonstrate their ability to employ every able and willing unemployed, or become at least aware of what prevents them from doing this and do fight these restrictions, they do not really deserve the term "employers" - for they employ only some of the people, some of the time. What would be a fitting term? The same applies to salesmen and shopkeepers - who do not really sell all they have to offer to all those who would want their goods and services, largely because they are only allowed to sell them for exclusive and forced legal tender and their potential buyers are not sufficiently supplied with this monopoly money. Until they come to comprehend the sales consequences of monetary despotism and fight for its abolition, they should also be suitably renamed. Any suggestions - J.Z., 27.11.01.)
Similarly, it may be granted that when private initiative fails as dramatically as it does today, the idea of State intervention readily suggests itself. Especially where a Government has furnished indubitable evidence of its ability to augment the national income, does it seem reasonable for the masses to appeal to it for advice and guidance. Such examples are, it is true, very rare and it would be worth while to make a
collection of these during the last three thousand years. That collection, however, would probably only fill a very slender booklet.
Still, an enlightened and well intentioned Government may also frequently be helpful, even where it
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lacks expert knowledge and where the masses too, are hopelessly bewildered. Such an instance may be found in Prussia, after the peace of Tilsit in 1807, when the condition of the country resembled that which followed the Thirty Years' War. What we call today private initiative was entirely wanting. Statesmen like Freiherr vom Stein and Chancellor Hardenberg did not dream of undertaking themselves what they considered to be the concern of individuals. They did not dictate to the millers how far their corn should be ground; they did not fix "fair" prices for agricultural products; nor did they organize any "Nira" or "New Deal". They did something quite different.
First, Stein and Hardenberg examined the question whether private initiative could develop at all. They discovered forthwith that even the shrewdest farmer, manufacturer, or merchant, whose enterprise might have employed hundreds, would, according to the legislation of that day, have been cast into prison if he had dared to do the right thing. Within three years, the two illustrious statesmen therefore abrogated some hundreds of old privileges and prohibitions, so that Napoleon, horrified, called them "the Jacobines of the North". (See Foerster, "Preussische Geschichte" (History of Prussia), vol. 6, p. 543.)
The language employed in Stein's and Hardenberg's laws and ordinances is in its way classical: chastely brief and rich in meaning. In that age, people would have been ashamed to print the text of a law, the language of which could be further improved. The somewhat extreme but wholesome dictum of Frederick the Great still possessed some force: Every commentary to a law only proves its defectiveness. (Thomas More, English Chancellor, expressed himself-to the same effect in his "Utopia".) Here is a miniature sample of Stein's style, quoted from par. 50 of the Administrative Instructions of 26 December 1808 for the Administrations in all the Provinces:
"It is most advantageous for the State and its component parts to leave industries to follow their natural course, to wit, not to favour or farther any of them preferentially by rendering them special assistance, nor, on the other hand, to hamper any of them in their starting , their operations, and their expansion." (See Jastrow, "Textbuecher" (Textbooks ), vol. 1, p. 25.)
Rarely in the history of the world have the governed manifested greater confidence in their governors than in the Prussia of that time, where the State appeared as liberator and endeavored to reduce statism (which conflicts with an enlightened conception of the State) in as many directions as possible. The present generation probably in all countries finds it difficult even to conceive such a mentality, a stance which was then by no means confined to Prussia: A work such as that of the Prussian Minister of State, Wilhelm von Humboldt, "Ideen zu einem Versuch die Grenzen der Wirksamkeit des Staates zu bestimmen" (A Contribution towards an Attempt to Determine the Limits of the Effectiveness of State Activity) would be probably no longer understood even among the intellectuals of America, Japan, or Russia. (Not in France The work was several times translated into French, also into English in 1854. At that time the arrogant pretensions of Bonapartism offered a thorough commentary on Humboldt's views. In Germany the centenary celebrations in his honor, organized by the Government and by those closely associated with it, found a warm response in all circles.
During the first quarter of the nineteenth century a number of Prussia's statesmen were deeply influenced by their teacher, Prof. Christian Jacob Kraus, 1753 - 1807, in Koenigsberg, an old and intimate friend of Kant. In judging instances of economic abuses, Kraus taught his students to ask themselves first: Why do the parties concerned not remedy those abuses themselves? Are they too weak, or too ignorant, or are they legally barred from helping themselves? (On this subject consult Roscher's "Geschichte der National Oekonomik in Deutschland" - History of Political Economy in Germany - , Berlin, 1874, 2nd. edition, 1924, p. 613.)
Freiherr vom Stein, too, who also attended Kraus's lectures, was want to ask himself-the same questions about each measure of his. Would it not be worth while today to ask ourselves why, in the first place, private initiative has failed?
We shall not repeat here what Milhaud has so lucidly and. impressively expounded in his writings: neither the absence of means of production nor of raw materials, nor of willing workers, nor of unlimited needs, stops any country from busily producing. What is lacking are the means of payment which bring these elements together and, first and foremost, permit the needs to express themselves as effective demand.
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What may have been the cause that prevented so many well informed authors to recognize this?
One mental obstacle is assuredly the modern conception of the nature of means of payment which assumes that the co-existence of private means of payment with State money basically infringes the States monetary prerogative. Those who entertain this view are inevitably blind to all possibilities of ending the depression which rest on the provision of new, private means of payment, even such which are fractionalized and standardized like money.
(It may be pointed out here, too, that Milhaud did not wish to rule out the State. He was even willing to assign it a leading part, provided it agreed to cooperate, but only in the sense of establishing a fiscal issuing office which, unlike the central banks of issue almost everywhere, would be without the privilege of its notes being fiat money. That office would be in the position of a fire brigade, an orphan asylum, or a hospital, the establishment of which is also not a State prerogative. In these cases the Stale merely acts as Exchequer, that is, in essence as a private person and even grants, for reasons of expediency, full liberty of action to private associations which would be impossible if a State prerogative were in question. This is well illustrated by the voluntary life boat associations in Germany, Great Britain, and elsewhere.)
However, the modern conception of a monetary State monopoly obsesses the minds both of authors and businessmen to such an extent that most of them regard as downright reprehensible any suggestion of issuing new and private means of payment fractionalized like money. (The tacit assumption that all private notes would have to be legal tender and could thus cause an inflation, does drive them likewise into opposition. - The Ed.) Such a conception prevents e.g. our merchants manufacturers; and others, among whom there are undoubtedly many sagacious intellects, from entertaining the idea of a private means of payment and from demanding permission to issue one. Owing to this widespread prejudice, a respectable businessman would no more think of this than, during a slump, to forge bills or to sell goods not his property however profitable the operation might promise to be. But everything would be completely changed and all mental blocks would be removed, if some Government expressly stated that whilst it intends to retain its coinage and minting prerogative it has no intention of claiming a monopoly in means of payment.
The mere declaration of a Government that for the future standardized means of payment, fractionalized like money and not redeemable in specie, were not prohibited in principle a declaration which would cost the State nothing would in most countries resuscitate private initiative, just as Stein called forth unsuspected energies in Prussian farmers and millers - merely by ordaining that the trade in mill stones should be de-controlled. (Formerly a monopoly, which benefited the Exchequer to the extent of 2,000 thalers only. Owing to this monopoly, the milling industry was quite insufficiently provided with mill stones, and agriculture lost indirectly millions through it. See Max Lehmann, "Freiherr vom Stein , vol. 2, p 493.)
The almost world-wide prohibition of standardized means of payment is the greatest enemy of private initiative and thus the proper cause of the world depression. It must be withdrawn. In the following chapter on the monetary prerogative of the State (see VII/8), we shall have something further to say about this.
Admittedly, in some States private initiative would probably fail even if it encountered no legal obstacles. Milhaud's suggestion that the State might at first establish a model issuing office is therefore of great value and offers the only possibility for millions of human beings to overcome the depression. An office of the kind he suggests, might be compared to an old Prussian "Landschaft" or public mortgage corporation. Few people know that this organization was in substance imitated by all the land credit institutes of the world.
But a ruling out of private initiative was far from Milhaud's thought, nor is there so much as a hint of this in his proposals.
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Prejudice 2: "Unemployment is largely due to the hoarding of money. Public works lead to the discouragement of hoarding."
"When the State starts new and extensive public works and raises the money required for them by taxation and loans, it counteracts hoarding. Taxation and loans draw the money from its hiding places, whilst those engaged in public works bring it into circulation and promote thereby also an effective demand for goods and labour in private enterprise.
(a) Hoarding of Coins
Complaints regarding the prejudicial effects of hoarding money date far back. It is easily understood that such complaints were rife in times when coins of full value circulated, coins which, when withdrawn from circulation, could not be immediately replaced by other coins. If, for instance, in a country like France or Germany, all coins had been withdrawn in 1,700, a social revolution would have followed, as a large part of the population, especially the working class, did not know how to do without coins. (Le Trosne, in his "L'intérét social"; Paris 1777, appears to have been the first to direct attention to the great social significance of the possibility, in case of a deficiency of coins, of helping oneself-or being permitted to help oneself, with a money substitute or by a clearing operation. He also explained that ready money is only indispensable on account of the habits of payment of the working class.)
Considerations applicable only to metallic money should not be uncritically applied to paper money and even in the case of coins only then when the creditors of a country (e.g., workers, landlords and the Exchequer ) may legally claim such coins and may refuse other means of payment.
Why is it necessary to draw this distinction? Because hoarded paper may be very easily replaced by other paper money, but hoarded coins only with great difficulty by other coins. Let us examine the problem more closely.
(b) Hoarding of Paper Money
How does modern paper money come into being? Either by a bank of issue accepting the bill of a private bill creditor for its own notes or by exchanging treasury bills for notes.
In principle there is no essential difference between them, inasmuch as a treasury bill is nothing but a bill drawn on the taxpayers and accepted by them. This essential likeness was recognized long ago. In par. 143 of his "Finanzwissenschaft" (Science of State Finance), Roscher refers to an article on the subject in the "National Zeitung'' of 30 September 1869.
That the discounting of bills through the delivery of notes represents by its nature an exchange of bills which are unsuitable for making payments with for bank bills suitable for general circulation, is strangely enough still disputed, although the earlier differences of opinion on the subject seemed to have been removed by Adolf Wagner's work on the Peels Acts (Vienna 1862). In substance, a bank of issue only fractionalizes and standardizes the bills handed to it in a manner suitable for making payments. By this process, the note holder, in renouncing the interest on the bill, is insured in a sense against the insolvency of the original obligee. If this insight, arrived at already several decades back, had been adhered to, it would be known today that the issue of notes involves neither a bank capital nor a State guaranty, that it constitutes neither a loan taken from the public, not an encroachment on the State's money prerogative.
Let us now assume the case of a State handing over to a bank of issue a treasury bill of 100 million francs. In exchange the State received, after deducting 1% for discount, 99 million francs in notes subject to the undertaking to return the notes to the bank after three months. That in practice the bank of issue accepts from the State means of payment other than its own notes, may be ignored for the moment.
The State pays its officials with the notes. These spend them in shops. Thence the notes reach the shops' suppliers who are, broadly speaking, one with the country's employers. With the notes they pay their
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manual workers and clerical staff and these, in their turn, spend them in shops. Eventually the notes find their way, however circuitously, to the tax collector. One may reckon that in civilized countries, during the last century, on the average, every monetary unit, whether paper or metal, has passed through, and has been spent by, the Exchequer two or tree times a year. (The Exchequer's demand for means of payment is actually a very important, although hitherto neglected, element in the value of circulating media. The notes having reached the Exchequer, the latter liquidates with them its debt to the bank of issue, has returned to it its treasury bill, and destroys it. Strictly speaking, the bank of issue, on its part, should also destroy the notes that have reached it, as is the case at the Bank of England, because bills which have been returned to the debtor, including the banks own bills in the form of notes, must be annulled by the debtor. Some think that the destruction of the notes is due in England to hygienic (!) considerations as, e.g., Bendixen did still, as late as 1908, in his work "Das Wesen des Geldes" (The Nature of Money).
What happens, then, when the circulating process described above is interrupted at some point, by many persons not passing on the notes, but hoarding them? The following takes place. Many who would have paid in cash, are no longer able to do this. Manufacturers and traders have no money to pay wages with nor taxpayers money to pay their taxes with. In appearance, a portion of the population and the Exchequer are hard hit. In reality, everything is perfectly normal, provided that the country's private banks and its central bank of issue really perform what they constantly protest that they can perform that which the public expect as a matter of course from the private banks and from the central bank of issue. What, then, in the case of a shortage of money is the duty of the banks?
The customers of the manufacturers, traders, and farmers can no longer pay in cash; similarly with many taxpayers. But from this follows only that the bank customers ask for credit and that many taxpayers have to be granted a respite.
Let us consider first the case of sales having now to be on a credit instead of on a cash basis. Every textbook on banking describes this alternative. The vendors discount the bills of the purchasers at their banks or apply for credit on the bills held. Should the banks themselves be short of money and the vendors not be satisfied with cheques, the banks will pass the bills on to the central bank of issue or, as is the custom now in many countries, they make out a bill of their own for the amount in question and have this bill discounted in notes by the central bank of issue This procedure is followed, more especially, when the vendors are in need of cash for wage payments (where cheques may not be used).
The State also has recourse to cash credit for covering the credit it granted to taxpayers. It makes out new treasury bills and, naturally gets these discounted, though, perhaps at a higher discount rate than previously. The embarrassment caused by hoarding in an economy having efficiently conducted banks can therefore only last for a very short time at the most a few days. By then that portion of the hoarded notes which cannot be replaced by other means of payment, is replaced by new notes. For the remainder the private banks substitute cheque money. The economic life thus continues to function as if there had been no hoarding. Even the money for paying taxes is now as abundant as before, provided that the State accepts cheque money for tax payments.
(A relevant remark in passing: It is greatly to be desired that some financial statistician should separate the revenue and expenditure of a State for a few years, according to the means of payment involved, similar to the London banking firm Morrison, Dillon & Co., which did this for its own turnover. The figures for 1856 may be found in Marx's "Capital".)
Of course, the fact that the hoarded notes have been replaced by new ones, does not remove all economic difficulties, namely not those which already existed before the hoarding began. In every economy in which creditors have a claim on a certain means of payment which is only available in a limited quantity, a permanent shortage of money inevitably exists. This entails a given minimum of unemployment, of excess indebtedness, distress among the working classes, etc., evils that money could easily remedy. If it transpires that much money has been hoarded, the erroneous conclusion implants itself, is indeed
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inevitable, that all still existing evils, so far as they could be remedied with money, are to be ascribed to hoarding. This by the way.)
Let us follow the course of the circulation of the new notes As we have assumed, these notes have replaced those brought into circulation by the State and will travel the way that the hoarded notes would have traveled, i.e., ultimately to the tax collector. If this happens, 99 million francs worth of notes soon accumulate in the Treasury and the State repays with that amount the credit it has had granted. For the missing million it makes a non-cash payment or remains debtor. (This one million would most likely be paid to it, too for taxes due, although in other means of payment. - The Ed.) Seemingly there is again a serious situation. All the notes have returned to the central bank of issue; but, as a result, the economy has become indebted to private banks and to the central bank of issue for 100 million francs, What of repayment?
It should be noted that the loan in notes granted to the State was a so-called revolving credit, i.e., a credit constantly renewed after being repaid. Whether this form is practical need not be examined here. Two or three generations back this question was thoroughly thrashed out.
Some thought it would be simplest if the State itself-issued the paper money. (See the extract from an article by Jacques Duboin in the Annals, 1934, 1.
Others considered that a control of the national issue through the interposition of a bank was indispensable, seeing the historical experiences with State paper money.
One thing , however, is certain. Very shortly after the events described here, the State with or without a bank, issued again as much paper money as previously, and although for a few days there were pecuniary embarrassments, very soon the means of payment in circulation reached their former level and everybody was as solvent as before the hoarding had begun. Only one thing has changed: the economy is in debt to the banks and to the central bank of issue for the same amount which the hoarders hoarded, and evidently the means of payment are lacking wherewith to liquidate that debt. The debtors desire therefore that ample time should be allowed them to repay the debt. This aspect must be examined in some detail and merits the closest attention. (It is unlikely, though, that the remaining debt would be simply equivalent to the hoarded amount because additional clearing attempts would be undertaken which would partly liquidate this debt. - The Ed.)
It is to be noted, to begin with, that not only have the debts of the national economy increased, but that the national economy has received a countervalue for them: i.e., that which the hoarders had given for the hoarded notes. On balance, the national economy has accordingly not suffered by its new indebtedness, just as it did not become richer through the surrender of the values on the part of the hoarders. The position is nevertheless not quite the same. What ensues depends now entirely on how the banks and more particularly the central bank of issue view the situation and what remedial measures they adopt.
An accurate analysis would lead to the following conclusion. There is no need for the central bank of issue to insist on the immediate repayment of the credits. Although all the regulations of all the central banks of the world stipulate that they should only grant short-term credits, all the factors concerned conspire to render it inevitable that a portion of the bank of issue credits should become long termed. (To avoid misunderstandings, it may be stated that it is not contended here that the long-term credits of the central banks of issue, which are strongly objectionable from the standpoint of the exact theory, are in all countries primarily occasioned by hoarding or may be always justified on this ground. lt is only intended to show that even under the present, very imperfect monetary system, it does not follow that hoarding should necessarily lead to interruptions in the circulating process.)
The private banks are not as free as the central note bank, apart from its regulations, in fixing the period of repayments of credits graded by them. The private banks have, of course, taken the means for discounting demands from their deposits, and these deposits are recallable at stated dates or sometimes even on call. It is true that private banks often greatly exceed the limits thus set for credit grants, but a certain upper limit they cannot go beyond. This is, as must be stated here, not only of importance for determining the bearings of money hoarding. The question of the length of notice for bank deposits has recently been examined, thoroughly and apparently exclusively, by Rittershausen, who concludes that private banks should peremptorily decline to accept deposits at short notice, when they find that, owing
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to the short notice, they would have no employment for them which exactly corresponds to the deposits. On the example of French large scale banks he shows that such a deposit policy is quite feasible. He, and Bendixen before him the latter less thoroughly, though, also demonstrated that it is tantamount to an economic abuse to employ genuine capital and even savings for the discounting of good bills and of other claims arising from goods sales. They further proved that turnover credit that is, a credit serving only for the exchange of existing goods ready for sale could economically only be properly granted in accordance with the "banking principle", as this principle was formerly called.
(Admittedly most economists and businessmen incline to the opposite opinion. But the works of hankers mostly confirm the old rule that bankers seldom judge rightly the economic aspects of monetary problems and this precisely because they are unacquainted with the "banking principle". We may mention in this connection that Ricardo, the English banker, in his Bullion Report, which has now enjoyed a high reputation for over 120 years, confirms that rule in a striking manner. The idea of legal tender, which is of crucial importance for the paper money theory, is not even mentioned in the report although it was, of course, the conditio sine qua non of the "high price of bullion".)
Milhaud's principles are in complete accord with the "banking principle", only that Milhaud has cleared this principle of an altogether alien element that had been erroneously introduced therein by almost all its older supporters, namely the preconception that paper money cannot retain its full value unless it is in the long run redeemed in specie.
(The honorable exceptions among the earlier supporters, e.g., Michaelis, the framer of the good clauses in the German Banking Act of 14 March 1875, are forgotten today.)
The great majority of economists postulate immediate redemption "on demand", as, for instance, such otherwise clear sighted authors as Courcelle Seneuil, Coquelin, Wilson, Bastiat, Horn, and Samter. Henry Meulen has the merit of having refuted this error in his new edition of "Free Banking", with quite novel arguments that witness to his profound knowledge of the subject. He thinks, however, that it would be enough to defer by means of an "option clause", the claim of the note-holder for redemption in specie for sufficiently long to make it practically innocuous. Milhaud does not adopt this compromise either. Moreover Milhaud presents the banking principle in language applicable to prevailing conditions. This is important, since some expressions of the older political economy have changed their meaning entirely and since, accordingly, the elder supporters of the banking principle have become quite unintelligible to our generation. (E.g., banking freedom for our predecessors meant, inter alia, freedom to issue private paper money.)
At this point, we may briefly describe the banking principle, as its neglect has constituted one of the most important causes of the present depression. Its recognition, therefore, would render superfluous numerous proposed remedies and, indeed, show at once their complete inappropriateness. These remedies include the carrying out of new, large scale public works, IF these are to be financed through new taxes,
Here is the banking principle: paper means of payment need be nothing else, and should be nothing else, than suitably fractionalized and standardized matured claims, arising more especially out of sales and orders placed. To perform this fractionalizing and standardizing, an institute or other firm is necessary but certainly not capital savings.
Zander's railway money (Annals, 1934, 1, peace plan 192 is also in accord with the banking principle, for, as will be shown in the sequel, the railway monopoly and the unconditional dependence of the public on the services of the railway, have exactly the same effect as if the railway had a legal claim on the public.
Jacques Duboin s delivery notes (Annals, 1934, 1, Ending the Crisis, pp. 250-226.) mentioned in another context, the old Prussian treasury notes, and kindred means of payment, belong to the same category.
Returning now to the credit time limit of the private banks, it is certain that even in the present state of deposit arrangements, which stand in dire need of reform, banks in effect grant credits for a few months or more. To obviate again any misunderstanding, it may be said that it is well and useful that the time limits are extended; but it is to be deplored that the time limits of the bank deposits from which the
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loans are taken, are so largely left to the discretion of the depositors. (See Rittershausen, "Der Neubau des deutschen Kreditsystems" (The Reform of the German Credit System).
Similarly, it is undesirable that bills should be discounted with money taken from bank deposits. Such deposits should be employed exclusively for financing production.
What, then, is the economic situation in the above example, after the hoarded paper money actually the hoarded notes of the central bank of issue has been replaced by fresh notes? There is no doubt that the money hoarders have somehow presented the central bank of issue and all concerned with a highly welcome non-interest bearing credit; but what is the effect of this?
Current payments continue to be made just as before the hoarding began. Hence the workers need not wait for their wages and the State duly receives its taxes. Owing, however, to the earlier interruptions in payments, the national economy is in debt to the country's banks and is obliged to make additional payments if it wishes to repay its debts and the associated interest. The means of payment for transmitting to the banks the additional payments may be, however readily procured by reducing the time of circulation of the existing means of payment, e.g., by many employees receiving their wages weekly instead of monthly, by paying rent in installments, and the like.
Suppose the repayment is made. What is the subsequent situation? Then if no other circumstances are to be considered than those assumed above only the private banks will be indebted to the central bank of issue. The banks, in turn, can liquidate their debts in two ways, through notes or transfers. A transfer takes place when a balance held at a bank is transferred. When banks themselves make transfers and that in favour of the central bank of issue, the procedure would usually be that a smaller bank transfers a balance to the central bank of issue, a balance which the smaller bank holds in a larger bank. If the operation continues for a sufficient period, then the whole of the credit granted by the central bank of issue - on account of the hoarding flows back to a few large scale banks and these remain indebted to the central bank of issue. The central bank of issue might give notice of withdrawal of its credit to the large scale banks and fix a date when repayment in notes must be made. Then the large scale banks would be in the same predicament as formerly the people were when the hoarding began. But the central bank of issue has no intention of inflicting injury in this manner on the large scale banks or to jeopardize their existence. Moreover, the large scale banks would be well able to parry such a thrust. The result would be that the central bank of issue would leave the large scale banks their credits and would thereby become a depositor at the large scale banks for an amount equal to the notes hoarded. And what do the large scale banks do with this credit? The reports of experts leave no doubt on the subject and are confirmed by the financial statements of the banks, Directly or indirectly, the large scale banks grant advances out of the credit left them by the central bank of issue, a credit which might be termed "semi-long term" credit. These are credits granted for financing manufacturing processes occupying several months or perhaps installment credits the repayment of which is designed to last a year or two, occasionally even longer. Such credits serve a most useful purpose in all countries where bank bonds are not customary. Both in Switzerland and in Austria the banks also grant industrial credits running for several years, but re-finance themselves by bank bonds. For instance foreigners are struck at Basel with the notices outside many large banks inviting the public to invest in bank bonds. This simple and practical form of financing, highly useful for providing employment, is wholly unknown in many countries. In these, the far less desirable credits of the central bank of issue to private banks, too frequently take their place. However, these credits are better than nothing, and we ought therefore to be grateful to the note hoarders, whose hoarding activities alone set free such credits on an extended scale. Such credits, too, may be and generally are, this, for the creditors in the last resort the note hoarders forgo interest.
There are some who estimate the value of the hoarded notes in France at 50 milliard francs and maintain that this amount diminishes by so much the possibilities of employment. This is a mistake. The truth is that there are patriots in France who at so me time had furnished their country with a Loan, free of
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interest and most useful for providing employment, to the tune of 50 milliard francs, the repayment of which loan they have stipulated, but in a form convenient to the country and tolerable for the national economy, in that they only demand to convert at any time the loan units into shop goods of every kind. So long as France has an unbounded stock of goods difficult to market and so many wholly or partially unemployed, who are at any moment ready to replace at once any diminution in the French stock of goods, so long is the form of repayment of their interest free loan, as stipulated by the note hoarders, neither a burden, not any handicap, nor any danger for France.
The contention that France's note boarders had furnished their country with an interest free loan for increasing employment, might be seemingly challenged by the following counter argument.
If the hoarded notes really represent a loan furnished by the note boarders and the utilization of the hoarded notes for purchases only represents a repayment of a loan furnished some time back, why should not also other loan holders, e.g., the holders of railway bonds, be entitled to use their bonds in shops at their face value like money?
There is a simple answer. When the hoarded notes begin again to circulate, they return, directly or circuitously, mainly by way of the banks, to the central bank of issue. The central bank of issue is repaid the credit it had granted at an earlier date and destroys the notes or locks them up in its safes. The notes thus quickly drop out of circulation and inflationary effects are either entirely excluded or can only last for a very short time. Should however, the holders of bonds, e.g., of railway bonds, also be entitled to spend the bonds in shops as if they were money, there would be no "last acceptor" responsible for either destroying the bonds on receiving them or for at least locking them up, as the bank of issue does with the notes. The railway company itself-does not enter into account as "last acceptor", since its duty to accept the bonds in lieu of money is limited by the plan of amortizing the railway loan, besides which the railway cannot accept more bonds in lieu of money than it can provide passenger accommodation or trucks in exchange for them. In reality, it cannot even accept as many bonds as that.
If, therefore, the hoarded notes could be made to circulate again, a slight revival of business activity would, it is true, most probably follow, and, as a result, a corresponding diminution in unemployment. The revival, however, given our presuppositions, would scarcely last longer than the business interruption had lasted - when the notes were hoarded in the first instance. In fact, if the spending of the hoarded notes in shops should proceed slowly, it would exercise a zero effect just as the injurious influence of a slowly proceeding money hoarding, given the fairly normal functioning of the banks, would approach zero. A further result of the dispersal of the hoarded notes would probably be that the "semi-long term" credits now granted by the banks would cease to be given, at least no longer given at such low rates.
We have assumed here that the banks of a country, including the central bank of issue, replace with little delay the hoarded money by fresh means of payment. It may be granted, nevertheless, that this would often not be the case. Particularly, when there is sudden hoarding, on a large scale, the central banks of issue prove mostly unequal to the situation. A few praiseworthy exceptions only confirm the rule, For example, during the economic crisis in 1857, the Prussian Bank, under Hansemann, continued to discount, with the result that in Prussia the discount did not exceed on the whole 6%. In neighboring Hamburg, on the contrary , where no bank of issue existed and paper money was generally looked at askance, the interest rate for cash credits rose for a time to 1% a day.
Fifty years later, during the monetary crisis of 1907, the German Reichsbank, under Koch, acted similarly and succeeded so far that the crisis was less severe in Germany than in the United States. But these exceptions have for their counterpart the numerous cases where, in the worst monetary crises on record, the banks of issue more especially failed to react appropriately. A quite typical example, that of the United States' crisis in 1893, is descried in John de Witt Warner's masterly article "The Currency Famine of 1893", published in the American periodical "Sound Currency" during 1895 and 1896. (See peace plan 191.) In this paper, Warner champions the right of Americans to make themselves independent of the money hoarders by the issue of standardized clearing cheques that are not legal
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tender. Warner reproduced photographs of forty-seven different kinds of emergency paper money
notes without legal tender, which had been issued by various parties in 1893, although such issues were in flagrant conflict with the law of the land. Among these may be singled out a certificate of the Arnold Print Works of North Adams, Mass., dated 15 August 1893, which reads:
"To either Merchants or Tradesmen of North Adams. Please deliver to the bearer goods, credit, or money to the value of ten dollars, and this Order will be received in Deposit or collected by any Bank in Town,"
This bill issued by the Arnold Print Works may be regarded as a forerunner of Milhaud's purchasing certificates. It has unfortunately no control number.
(Note by J.Z.: The translator, Spiller, often used "bond", now largely a term for a capital security, instead of "bill", standing for a commercial bill of exchange or a similarly short debt certificate representing the price for some sold goods or services. I have not always replaced the term "bond" in this connection by e.g. "bill", or short term IOU, although that might have helped to reduce misunderstandings. - J.Z., 27.11.01.)
The ineffectiveness of banks of issue, particularly during monetary crises, is naturally due to causes which are compelling from the viewpoint of the banks of issue. The duty of the banks of issue to redeem the notes in specie on the note holders demand represented formerly a cogent reason for restricting the issue of notes, especially when the demand for gold was particularly keen because of hoarding. It was also true and is still true that those who are the first to suffer from the money shortage are by no means the same as are deemed acceptable borrowers according to the prevailing rules of the banks of issue. A bank of issue can only be of assistance when such parties appeal to it as are able to fulfil the stringent rules of the bank of issue. These rules are naturally the more stringent the farther the banks of issue are situated from the domiciles of the applicants for credit. The Arnold Print Works, wholly unknown as they presumably were in New York, would probably never have come into consideration for a grant of credit from a New York bank of issue whilst in North Adams they were regarded as so sound that they could issue notes of their own.
The assertion repeated by the banks of issue of all countries, that they are able to satisfy every "legitimate" demand for means of payment, is therefore, even in the most favorable instances, a self-delusion and yet the banks of issue have only had conferred on them their far reaching privileges because it was mistakenly supposed that they could, especially during a depression, provide the country with an adequate supply of means of Payment.
Moreover the exceedingly narrow framework within which the banks of issue may act at all are further contracted by certain restrictions. When, for instance, the amount of outstanding notes issued may statutorily not exceed three times that of the gold stock or foreign bills held by the bank or when a price index number or some production index number determines the upper limit of the notes issued, the bank is precluded tied from issuing any fresh notes, even if it could be proved that all the notes had been hoarded, the supporters of the old restrictive provisions will perhaps object that some limit must be set to the issue of notes. The answer might be: Of course! Remove the forced market value and all restrictions on the traffic in gold, and an open market rate of 99% or 98% would be the appropriate limit.
In the case of a note issue regulated solely by a free market rate, it has been objected: It might happen that hoarding on the vastest scale imaginable takes place. When the bank of issue, issued then new notes proportionate to the degree of hoarding, the market value, it is true, would remain stable so long as the hoarded notes are out of circulation. When however, large quantities of these notes begin to circulate again, perhaps all together a fall in the market value becomes unavoidable, and in this case the decline may last for weeks or longer still. Such an apprehension cannot be shaken by sheer logic, and the proof we advanced above of the improbability of this happening, would not satisfy everybody. However, experience long ago discovered a preventive against injuries that might be caused by the sudden influx of large masses of hoarded notes namely, the issue of a loan, on a gold basis, which could be subscribed to with the hoarded notes, whatever their market rate might be. Such a guaranty was, for instance, offered in connection with the German Rentenbank notes issued pursuant to the Act of 15 October 1923.
To make the remedy as effective as possible, the interest on the loan should not be too low nor the time of expiry too remote. One reason for the latter is that the true basis of the new loan would be the above mentioned "semi-long term" credits the duration of which would rarely exceed three years. Here is an example. If it be possible to acquire with notes at 90% a gold bond which, after three years, will be
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accepted as gold money at the bank and which is, in the meantime, yielding 3% half yearly interest according to its value in gold, this would be, for the subscriber to the loan, equivalent to an effective half yearly interest rate of 4,97% in gold. To assume that such a loan would not be subscribed to, that such a loan would not be able to withdraw from circulation the depreciated notes, would contradict all experience.
However, as was shown already at the session of the Belgian Association for Social Progress of 15 November 1932, the regulations governing central banks of issue are very difficult to alter. (Annals 1933, 2, p. 242.) Accordingly, the highly important conclusion was drawn that the Milhaud proposals should on no account be left to be realized by the central banks of issue or, indeed, by any central agency, but that they might well be carried into effect by private initiative provided permission for this were forthcoming.
At all events, the danger that the central bank of issue should hold to the letter of its regulations, however serious the hoarding of notes, and should do nothing to counteract the hoarding in fact, that it might perhaps even rely on this very passivity for restoring the economic equilibrium, this danger is very real.
The above outlined considerations suggest the following conclusion.
The present monetary system of almost all countries, based as it is on the monopoly of a central bank of issue, does offer some methods for counteracting hoarding but the application of these encounters certain mental and technical obstacles. (Then, too, even when there is no hoarding, the system leads to an under supply of the economic life with means of payment. This for a similar reason that would inevitably leave unsatisfied a considerable and even wholly "legitimate" demand for bread and sausages, if a central national bakery or a central national butchery were invested with a monopoly.)
Nor should it be forgotten that under the present monetary system nobody can tell where an economically justified accumulation of cash reserves comes to an end and hoarding begins. A commodity like ready money, which in present circumstances is so precious and which, once disposed of, is so difficult to regain, everybody naturally holds on to as long as he can and he will always justify his action on many grounds.
However, in probing he problem of hoarding, there are certain other points the full and scrupulous examination of which leads to the conclusion to leave the problem to take care of itself-and preferably to investigate how the national economy and the individual might be made independent of the rapidity of the monetary circulation. Here are some of these points:
In some countries cheque stamps, receipt stamps, and similar dues seriously counteract the rapid circulation of ready money and practically compel people to keep money at home which otherwise they would have taken to the bank. As with dues, so exorbitant bank commissions, when money is paid in or withdrawn, have the same effect. Dues and excessive bank commissions thus frequently lead to considerable cash reserves being held at home and these are statistically indistinguishable from money hoarded.
In almost all countries populations fear that the banks might suddenly experience a shortage of liquid funds and "bank money" to be thus transformed into "frozen money". The experiences of the last few years have given enough cause for such fear. Not a few people prefer therefore to forgo interest for years rather than expose themselves to the risk of not being able to use their money when they have need of it. Accordingly, they keep at home as much ready money as possible. This leads to a form of cash retention difficult to distinguish from hoarding.
By the way, what is a Government to do when suddenly there is almost a general notice of withdrawal of bank deposits; when the banks recognize that they are no longer solvent and appeal to it for assistance? If the banks, as is customary, have only lent short term deposits on long term conditions but are otherwise sound that is, have not truly suffered losses they could be relieved as follows. The Chancellor of the Exchequer issues an appeal to all sales establishments requesting them, without exercising compulsion, to accept the cheques of the menaced banks in lieu of ready money and to publicize their response to his appeal by notices in the shop windows. If the shopkeepers respond to the request, the run on the banks
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stops at once. Now the shopkeepers will readily do this if they feel assured that they will be able to dispose of their cheques. This necessary "re-insurance", the Chancellor can readily provide by declaring that the cheques of the menaced banks will be accepted by the taxation offices in lieu of money. In a modern civilized land the State revenues of even a few days exceed the bank deposits threatened by runs. Such measures could be made public within an hour, by being broadcast, The State, on its part, can re-insure itself-with the life insurance companies of its territory. If the State should permit these companies to invest their reserves in long term credits granted to the banks, exposed to runs, it will probably be able, within a few weeks, to exchange the cheques received in payment of taxes for ready money at the companies' offices.
As is well known, even in years of depression these companies invest about a third of their revenues on long terms. In all civilized countries the amounts involved here do also, by far, exceed the amounts of the menaced bank deposits. The less compulsion there is, the smoother will everything proceed.
Two examples from history may be in place here.
During the Seven Years' War, the notes of the Bank of England were suddenly subjected to a discount. A declaration on the part of the London shopkeepers that they would accept the notes at par restored the parity right away.
Similarly in Berlin, at the outbreak of the war in July 1870. The value of the paper money fell 10% at the beginning. Thereupon seventy-two large Berlin concerns declared, before July 21st, that they would accept the paper money at its face value. Parity was at once re-established. ("Deutsches Wochenblatt" -German Weekly Paper, 1895 p. 346: "From the Diary of a Stay-at-home". Germany, it may be noted, conducted the war without a forced currency. )
The method here proposed, namely to counteract monetary perturbations at first by means of "shop cover' (Ladenfundation) according to Rittershausen's very apt expression, amounts, of course, in principle to transforming to as large an extent as possible the cheques of the menaced banks into purchasing certificates in fact, although not in name.
A further occasion for comparatively large private cash holdings, which again should not be confused with hoarding, is due to the fact that many incomes are received monthly or quarterly. The amounts are often too small to be taken to the bank, but large enough to affect the liquidity of the national economy.
The dilemma between justifiable private cash holdings and objectionable hoarding may be easily removed through the issue of purchasing certificates.
Our behavior in giving up production and consumption when they cannot be effected with the customary money and with the cooperation of the possessors of such money will remind our descendants of the ill-luck of a Spanish king who severely suffered from thirst, just because the courtier entrusted with fetching water was absent. There was neither a lack of water nor of willing hands, but of something else!
It is also noteworthy that those, who would make hoarding primarily responsible for the depression, have not yet formulated any general principles concerning the period during which a "money unit' may be at most, or on the average, in the possession of any individual, without injury to the economic life. A serious endeavor to establish such principles would demonstrate its hopelessness and also suggest that it would really be more advantageous to make the economic life independent of the frequency of money transactions and not to insist inquisitorially on influencing the monetary circulation.
The depression, and unemployment in particular, have not been caused by the hoarding of the notes of the central banks of issue; but if that had been the case, then taxes and loans raised only for the purpose of luring the hoarded notes from their hiding places would still be inappropriate methods. There is no good reason even for testing such methods, since Milhaud's purchasing certificates offer an alternative requiring no State compulsion, no taxation, and no loans, produce surpluses right from the beginning, and leave all theories and hypotheses regarding hoarding and not hoarding to themselves.
The general demand to end the trade depression by mobilizing the supposedly hoarded notes, has not only an economic, but also a very serious sociological aspect. It reveals a psychological helplessness both of the masses and of their would be intellectual leaders, which gives cause for anxiety to the philosopher who looks beyond to day and tomorrow. This lack of self-reliance becomes evident if we translate the desire
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to provide employment through combating hoarding into simple unpretentious language, freed from the jargon of modern economic terminology. What do, people really mean when they say that hoarding must be combated? They mean the following:
"The money no longer circulates. The rich have filled their moneybags with it, perhaps so as to increase unemployment artificially and thereby to cut wages. (A widespread view!) And now we are to exchange pork for boots and labour power for bread. But how are we to do this? Formerly, when the rich man's. money was available, exchange was possible. The rich have now left us in the lurch! This they should not have done. We insist that with their money they should, exactly as before, act as intermediaries between the farmer and the shoemaker, between the baker and the laborer. If they refuse to do this voluntarily then we shall call upon the State to compel them; let everybody be punished who keeps back money!"
And this demand is the outcome of an agitation that has now tasted for decades and which styles itself-socialist, the final result of a supposed enlightenment of the working classes through the capitalistic process of production. In revolutionary language those who rule by means of money are admonished to improve their rule and to use the instrument of their rule, namely money, as is right and proper. And this appeal is addressed to our financial potentates at a moment when they have become conscious of their helplessness, when the reins of their domination are slipping from their tired and trembling hands, and when, just like the masses; they feel themselves dragged hither and thither by obscure, demonic forces and, like all others, have lost their way.
The smoke clouds of some mysterious economic volcano are more and more thickly enveloping the masses the world over. In their agony, they cry out for a leader, a dictator, an intensified capitalism expressed in an accelerated monetary circulation, communism, anything so long as there is a lead, ignorant that those intellectuals, who offer themselves to them as leaders, the club orators and newspapermen, the party heads and those who aspire to their position, are equally enveloped in dense volcanic clouds and like the masses recognize nothing in America and Russia, in Japan and elsewhere.
Gradually this smoking mountain which seemed a Vesuvius, has become the mountain of the new law. The new tables of the law, we find, are already written and all that is necessary is to read and digest them. Milhaud's "A Gold Truce" is the name of the one and his "Fresh Work" that of the other. When the clouds have dispersed, the law will be understood by all and accepted spontaneously. However, that just prior to the proclaiming of the law, a new Aaron and his associates are beseeched by the people to transfer the existing gold, now held privately, to the public coffers (where it can no longer be of service economically and can be only the object of a religious sentiment), would not be the first experience on the eve of the proclamation of a new and historic social Legislation. Sociologists who know their compatriots, are not misled by this.
Milhaud has also made a systematic survey of the problems of hoarding, sale slumps, and public works. He treats the subject, however, in a quite novel way. His proposals avoid, on the one hand, the Scylla of the State ferreting out private hoards of notes and, on the other, the Charybdis of the State remaining wholly passive as regards hoarding. Milhaud's proposals are far from being sufficiently appreciated when they are only praised for "combating hoarding". Milhaud goes much beyond this. He does not combat hoarding; he does not prevent it; but he removes its sting. Some critics have overlooked this. (Annals, 1933, 2, p 215.)
With Milhaud's program adopted, the velocity of the monetary circulation ceases to be a problem. Whether the owners of money allow their money to circulate slowly or quickly would then become altogether indifferent. (This result should specially interest the champions of the Woergl experiment with depreciating money.) Also, whether the country disposes of little or much money is thereafter economically of no account, just as it is indifferent for a vessel whether its bowsprit is gilt or not. The people will in the future create their own means of payment which the incapacity of their present rulers has been unable to provide, be it that, as Milhaud demands, an enlightened Government should set a
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practical example, or that it should simply permit people to help themselves by establishing work supply banks on Milhaud's model (which would save time), or that, lastly, the people lose patience and place before their leaders and the money lords a simple fait accompli, as it did, for example, in the United States in 1893 and 1907.
(See the above quoted paper by Warner [peace plan 191], who expressly states that the issue of standardized clearing cheques in 1893 betokened a rebellion against the United States' monetary legislaton.)
We may add here a brief but very theoretical remark. The process of production does not, as Marx and Engels believed, train the workers for the final battle for their emancipation. This can only be accomplished by their active participation in the process of circulation.
To rouse their determination not to be excluded any longer from this participation should be the task of labour leaders. They should not repeat the old communist mistake of regarding the circulation process itself-as a capitalist monstrosity. The circulation process, which represents a continuous exchange of goods and means of payment, is an economic category which cannot be banished from any order of society. Communism can, at most, re-name the category, not abolish it.
(Compare Bastiat's remark: "Society IS exchange!" - J.Z.)
Milhaud's solution of the problem of hoarding might be developed by economists into a general theory of hoarding. Thus far we have had to be satisfied without such a theory. However, a correct theory remained out of the question as long as it did not distinguish the various means of payment according to their cover and examined the effects of hoarding for each such possibility. It appears that before Milhaud this effect was not examined as regards the following kinds of circulating media:
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Means of payment which the issuer will exchange for immediately available goods or services for
which there is a sufficiently intensive need in the locality where the can be obtained.
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Means of payment which are guaranteed by a creditor who possesses a sufficiently large and immediately payable balance and who declares himself-ready, or is obliged, to accept these means of payment in lieu of ready money. The Exchequer, for instance is such a creditor, inasmuch as taxes are falling due day by day. The creditor might also be represented by a not too limited association of house owners which accepts this means of payment for rent. The release from a debt, in exchange for a given means of payment, can naturally also be regarded as a service rendered, but it belongs to a special category and differs; for instance, from the services of a railway in that it calls for no expenditure of labour.
Milhaud's purchasing certificates possess both kinds of guaranty, seeing that the holder of the purchasing certificate may acquire with it goods or discharge with it debts to all those who hold immediately payable balances of the issuer.
The notes of the old private banks of issue also had both kinds of cover, as shown by Henry Meulen in his "Free Banking". Moreover, Meulen indicates more clearly than perhaps any other English writer has done, how much the private banks of issue in England and in Scotland contributed to raising the level of employment. The notes of the old private bank of issue were above all kept covered by the bank having claims maturing daily against its clients and that, naturally, it had to accept payment of its claims in its own notes. Meulen demonstrates that this formed a better cover than the "classical" one-third cover. These notes were also covered by the fact that the bank's debtors had to accept them at their nominal value. That was most important for the circulation, because many of the debtors of the private banks of issue were shopkeepers and a circulating medium which is accepted at par in shops, stands precisely through this at par.
The "creditor covered" and the other means of payment do not belong to the same class as regards hoarding. It is natural that a creditor should prefer to accept a means of payment which he can immediately dispose of rather than one which he cannot immediately dispose of and which, indeed, he has undertaken to destroy on receipt.
History has not infrequently illustrated this in the case of State paper money, where States having inefficiently conducted financial administrations, succumbed to the temptation of granting certain advantages to those who paid their taxes in specie instead of in State paper money. (Nero declined to accept in payment for taxes his own debased coins a quite analogous instance. His coinage policy
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contributed perhaps more to his fall than his biographer, Suetonius, suspected.) But to tell the truth, some of the old private banks of issue showed sometimes partiality to those debtors of theirs who paid their debts in specie instead of with the notes of the bank.
In the case of the "goods cover", the interest is the reverse of that in the "creditor cover". The former might almost be called "debtor cover", where e.g , the owner of the goods does not issue his own means of payment, but borrows them from a bank of issue. Every business man gladly discharges with his own goods, obligations fixed in money value
Many theorists modern ones not excepted, and certainly not the masses prefer not to have anything to do with what they deem over subtle distinctions. They believe that confidence constitutes the real cover for paper money. The "classical" theory of the "one-third cover" was based target on this mistake which finds support, it is true, in the erroneous issue policies of the past and the present. It happened, still happens frequently enough, that banks of issue formerly private banks and now State banks grant manufacturers, independent artisans, and traders, credit in excess of what these could "realize" by an immediate exchange of the notes for actually available goods or services or by clearing against immediately available balances. Thus a century ago the equipment of English factories with new machinery was effected, it is said, with credits granted by banks of issue. The State, too, very frequently issued more paper than was justified by the taxes immediately due. Where such an issue policy prevailed, it was convenient for the issuers if they did not see again the paper issued by them for as long a time as possible. Similarly, when the paper in confidence of its presumed soundness, was hoarded, they highly welcomed this. Indeed, quite naturally (humanly speaking); manufacturers and governments regarded their own methods of financing as economically correct and showered praises on the economists who, like Ricardo, declared that issues derived their main support from the confidence placed in them. This mistaken conception easily led to another one, equally mistaken and unfortunately still widely prevalent today, namely that an issue of paper money is inherently a loan derived from the public. In reality, paper money issued according to sound principles and especially according to Milhaud's proposals, is not a loan derived from the public. It becomes this only when and in so far as the cover limits drawn by Milhaud are transgressed. Paper money issued on sound principles is not dependent on confidence! When suspect, it flows back to the issuer and is there transformed into services or into debt discharges. With such paper money suspicion leads at most to accelerated provision of employment! (This is a circumstance passed over by Milhaud's critics!)
At this point we may examine in some detail the financing of re-employment in the Austrian town of Woergl. According to many, including the people of Woergl themselves, work was provided by means of a paper money the free circulation of which depended, among other things, on the confidence shown therein. The results achieved by mayor Guggenberger in this small Tyrolese town of about 4.000 inhabitants are very remarkable and have largely become known the world over through Claude Bourdet's account in the French periodical "Illustration" and the reports in the Annals 1934, 1. Seemingly, the successful results were attained in ways quite different from those proposed by Milhaud. Actually, however, they were produced by the economic forces that Milhaud aims at mobilizing. The regular monthly depreciation of the Woergl paper money, which the population regarded as primarily responsible for the success, did more harm than good, as we hope to show.
Woergl's normal tax revenue appears to be about 300,000 schillings a year. Such a revenue offers in itself-a cover for the issue of notes. Here the discount can never be very high if certain issuing limits are respected. To make this clear, let us, to begin with, take an extreme case, namely, that all the taxes at Woergl are paid on a given day in the year (which is, of course a pure supposition) and that no arrears remained. Let us further assume that the town is obliged to spend every workday on wages supplies etc., exactly 1.000 schillings. In such a case the town could perhaps pay its way with notes having for cover only the circumstance that the town accepts them at par for taxes, or even as at one time the Prussian
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Government quite practically arranged for its treasury notes the fact that a taxpayer, who does not pay at least half his taxes in paper, is obliged to pay a premium. The rates issued on 2 January can, it is true, only be utilized a year later; those issued on 1 February eleven months later, and so, on. Owing to the notes not being forthwith utilizable, they are liable to a discount which will be the smaller the more substantial the premium.
(In old Prussia the premium was called the "Strafgroschen" [penalty pennies] because in pursuance of the Act of 7 April 1815, for every thaler of taxes, a fine of 2 groschen had to be paid on that half of the tax which was to be paid in paper but was nevertheless paid in specie. By an Order of the King of 14 October 1827, the fine was reduced to 1 groschen.)
It is arguable that in a town as small as Woergl, the notes would circulate despite the discount, if the town agreed to meet the discount. If the interest rate at Woergl is 6 % per annum, the discount at the beginning of the year would be at least 6 : 1,06 = 5,7%, assuming the discount rate for a full year. Nor is there any reason to suppose that the discount will be much higher. On 1 February the discount on all notes issued in January would be roughly one-twelfth less and at the close of the year, when all the notes can be paid in taxes at par, the discount will have disappeared. It is manifest that this discount has nothing to do with trust or mistrust but depends solely on the method of tax raising.
Let us consider another extreme instance, namely where the taxes are collected continuously, i e., one-three hundredth of the tax revenue every workday. In this case the town need only issue 1.000 schillings a day. These notes would possibly all return to the municipal treasury within a few hours of their being issued. No discount can occur for at the least discount some taxpayers will acquire the discounted note, and pay it in at par in order to profit by the discount.
(In municipalities poorly supplied with specie, the tax cover keeps at par much larger amounts of paper money based on public revenues than about a third of the annual revenue, a percentage which otherwise corresponds to the normal experience. W. B. Greene in his essay "Mutual Banking" reports that in North Carolina, about twenty years after the declaration of independence, State paper money amounting to between 400 and 500 thousand dollars circulated at par, without being legal tender and this although the State revenues were much below 100.000 dollars.)
Between a daily note issue of 1,000 schillings without discount and an issue of 300.000 schillings at the commencement of the year with a relatively heavy discount (which is inconvenient in business but perhaps still tolerable in a small town) there lies a middle value. Here the discount is less than that of an annual discount and may be reduced to such an extent, by special measures of the municipality, that it occurs not daily but only occasionally not so frequently as to obstruct the general circulation, but frequently and intensively enough to induce taxpayers to procure the notes and pay their taxes with them. The municipal treasury is, of course, obliged to accept them at par. When experience has settled on this middle amount to be issued, then obviously an artificial discount, such as was introduced at Woergl by a monthly depreciation of 1 %, becomes, to, say the least, superfluous.
The reasoning underlying the systematic periodical depreciation is peculiar, presupposes that the notes are legal tender and is in the case of Woergl truly illogical. The real purpose of this depreciation was by no means a rapid reflux of the notes to the municipal pay office. The town was not directly interested in that. At most, it had an indirect interest in the reflux in so far as it naturally preferred that the notes should flow back rather than that they should be negotiated at too heavy a discount and thereby bring the financial administration into ill repute and also prejudice the chances of further town issues. The aim of the periodical depreciation was that the notes should circulate as rapidly as possible among the population and stimulate thus a maximum of business activity. Now it is very remarkable that this end was obviously not attained. The notes went a quite different way to that anticipated and returned with great rapidity to the municipal pay office. All reports stress this rapid reflux.
It would, however, be wrong to argue that Woergl's note issue proved a failure. The town's finances were, it is evident, considerably improved by the issue, which in any case was a success. Moreover, the
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undertakings initiated by the municipality undoubtedly raised the level of employment at Woergl. The only question is whether more could have been achieved and the answer should be in the affirmative.
As intimated above, the idea of depreciating money involves a logical contradiction in Woergl's case. A means of payment steadily depreciating in value cannot be expected to circulate among a population so long as it can be disposed of at par at the municipal pay office. The inhabitants of Woergl did not perceive this contradiction at once because they were under the spell of Silvio Gesell's theories. These theories, it is true, have misled many acute thinkers, as Irving Fishers example illustrates. This economist is incontestably one of the most eminent scholars and thinkers of our time. Yet he was bewitched by the idea of depreciating money. Others equally impressed, who also have a right to be proud of their achievements, need not be mentioned here. Therefore, the people of Woergl need not be ashamed of their error.
Gesell's theory has a gap which is especially important for the Woergl experiment but which has been overlooked by the critics of that theory and by the people of Woergl. This theory, in a word, does not differentiate between the economically quite different reactions of metallic currency, paper money with and paper money without legal tender. Such an omission would have been impossible 150 years ago; but since the War this distinction has been forgotten, so that for instance Keynes, in his otherwise excellent "Money", neglects to make the distinction. Gesell states only in general terms that the rate of circulation of "money" should be speeded up in order to increase the effective demand for goods and therefore for labour. But Gesell does not see that paper money requires an issuing centre and that where money is not legal tender, the issuing centre cannot force into circulation any inconvenient, let alone loss causing, means of payment.
(This enforced circulation would still be possible if the issuing centre were vested with a monopoly. This is usually the case. The Ed. - It would also be close to being "enforced", in any economy depending upon monetary exchanges, when the coin of the realm or its State paper money is at least temporarily and locally in very short supply. Then almost any kind of "emergency money" becomes widely accepted for want of something better. - J.Z., 27.11.01.)
Such an inconvenient means of payment as a regularly depreciating paper money is, in the absence of a forced rate, quickly returned to the issuing centre, and thus mediates few exchanges.
(In fact, in the absence of a forced rate the issuing centre must shoulder all its own mistakes and cannot pass them on to the public.)
Gesell also ignores the fact that the concept "circulation" is only applicable to a metallic currency and to paper money having a forced rate. The movement of paper money having a free market rate assumes a quite different form and is comparable rather to "oscillation". The latter money is issued and then returns as a rule by the most direct route to the issuing centre where it is destroyed. Such a process cannot be properly described as a process of "circulation".
In agreement with the experience of the older financial technique, Woergl's normal
issuing capacity may be estimated at about one-third of its annual tax revenue, i.e., at about 100,000 schillings. The "depreciation" has quite clearly prevented the full exploitation of this normal issuing capacity. Thus at first only 1,800 schillings were issued and never could more than 12.000 schillings be kept in circulation. This disadvantage need not be overrated, but it is not equal to zero.
In an average household there is normally a need for an amount of cash sufficient to cover the household expenditure for a few days. When this cash is represented by paper money, it means that the centre issuing the paper money is in practice sometimes able to issue a little more money than its immediate cover permits. The issuing centre may therefore not always, but sometimes issue as much supplementary paper money as corresponds to its anticipated receipts during the next three or four weeks. This is not objectionable, even from the viewpoint of strict theory, if the issuing centre is a tax creditor which also accepts advance payments of taxes and allows for this an appropriate interest rate. In this instance, a "run" would be harmless and would only represent an accelerated influx of taxes.
There is naturally no intention here to set up the general principle that future revenues form as good a cover for paper money as present balances, but it is just in the case of the balances created by the taxation acts that an accurate differentiation between what is to be regarded as the present tax balance of a State, municipality, or like body and what is their future revenue, becomes almost impossible. On the other side, the need among the population for money in hand is most urgent. There seems no good reason why this
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need should not be satisfied by the issue of paper money where here is at the same time such a reliable safety valve against an excess issue as the free market rate of this paper money.
Lorenz von Stein's empirical formula, which regards about one-third of the annual State revenue as the normal amount of the paper money issue of a State, municipality, or like body, explains itself-in the need of the population to have some money in hand. If we assume that a Government lays claim to about one-fifth of the annual income of the nation and issues in the shape of paper, money for one-third of this one-fifth (that is for one-fifteenth) of the annual national income, then this would correspond to a cash holding in households equivalent to the cost of living for about twenty-four days provided always that little other money circulated. Astronomical exactitude cannot, of course, be expected in such tentative calculations.
Assuming that Woergl had 800 families, an issue of 100.000 schillings would argue an average cash holding in every family of 125 schillings, which is probably not an exaggerated estimate. If, however, a paper money depreciates at regular intervals and as rapidly as the town notes of Woergl did, such a large cash holding as we presupposed is not to be expected, at least not in town notes, which means that the town is not in a position to issue 100.000 schillings.
The salutary effect of Woergl's issue of notes on its municipal finances would have probably suggested to its inhabitants, after a time, to introduce something analogous for all parties who had claims of any kind at Woergl and were prepared to accept the value of these claims in Woergl goods and services. This could have been accomplished through the establishment of one or more work supply banks based on the principles described in the Annals (1934,.1 and peace plan 190), and issuing notes supplementary to those issued by the town itself.
(The objection might be raised: Surely, not two banks of issue in a town having only 4.000 inhabitants. Before the Civil War, there were in the United States dozens, probably even hundreds, of such localities with more than one bank of issue.)
The population of Woergl would then have learnt by experience what a theory suggested by Milhaud's proposals would have revealed a priori, namely that what matters is not the rapidity of the monetary circulation, but making the local and even national economy independent of such rapidity.
(The old simile of money in the body economic and of blood in the human body will have to be correspondingly modified. The blood, as a matter of fact, does not circulate. It is emitted by the lungs, streams back to the lungs as a useless substance and is then burnt up by them, in a similar way as free paper money is emitted by the emission centre and is burnt after its reflux. The comparison therefore holds for this kind of money, but not for a metallic currency or for forced paper money, both of which actually circulate and are not subject to a reflux to the issuing centre.)
When a town issues non-compulsory paper money but attaches unfavorable conditions to its possession, it must not be surprised when the money quickly returns and when business fights shy of such a means of payment, It might be thought that this contradicts Gresham's Law according to which "bad money drives out good", for this suggests that on the basis of this law one ought to expect town money to drive out other money. But Gresham had in view metallic currency and not notes. Expressed in modern terms, his rule would read:
"The money more suitable for the payee drives out that less suitable for him".
As we have indicated elsewhere, a depreciated but forced metallic currency is by no means "bad" money for the payer, on the contrary, it is most suitable, hence "good" money, for him! That is, notwithstanding the common expression "bad", we ought to distinguish between economically bad, bad for the payer, and bad for the receiver of a payment In contrast with the debased forced metallic currency(*), the Woergl municipal money was, in the long run bad money for the payee and was bound therefore to be displaced by the notes of the Austrian National Bank. The municipal money was good for the payee during the few weeks only when it did not suffer from depreciation and during those weeks, of course, it freely circulated.
The published statistics do not show to what extent Woergl's inhabitants were inclined to accept the depreciation and to compensate it by affixing due stamps. It is reported that on the average 50 schillings
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worth of such stamps were affixed during a month; but the 50 schillings included also the amounts which the municipality itself-affixed whilst the notes were in their possession.
{(*)A debased and forced metallic currency is, in the long run, bad for both, the debtors as well as the creditors, but in the short run convenient for dishonest debtors who can thus legally defraud their creditors. Naturally, they can then not expect to get many other credits under such conditions and will generally suffer from many of the consequences of inflation. - While legal tender can still be maintained, the defrauded creditor is given the chance by it, to defraud his creditors in his turn with such "money", bad objectively, but good enough for him to pay his debts with. If he still receives some good money he would tend to rather hold on to it than pay it out - while he can still pay his debts with the bad money. Only to that extent does "bad money drive out the good". Without legal tender the bad money can be and will be refused, while good money is gladly accepted, and thus the good money drives out the bad. - All the dispersed insights of various writers over the centuries on fundamental and much misunderstood monetary law and experience should be compiled and commented on in a monography. - J.Z., 27.11.01.}
It was moreover, not at all a failure that the municipal notes were often deemed less acceptable than State money. On the contrary, the frequently recurring depreciation of the notes (which need not appear only as a discount) secured their reflux and constituted therefore the proper reason for the amazing increase in the municipal tax revenue and for the improvement in the town's finances. The periodical depreciations would have only argued a flaw in the issue if the note holders had not been in a position to utilize the notes at once for paying taxes or easily to find others who could at once pay their taxes with the notes, i.e., if the town had issued many more notes than its tax pay offices could accept at any dime. In reality the town accepted also advance taxes in municipal money, which indicated a practical mind and merits praise.
Special importance attaches in the Woergt experiment to the tax arrears of about 118.00 schillings. Without the issue of town money (which was only legal tender for the tax pay office), these arrears could scarcely have been mobilized. On the other hand, it was precisely this municipal claim of 118.000 schillings on its taxpayers which placed it in a position to spend liberally on undertakings which lay outside its normal administrative sphere. According to the statement made in the valuable pamphlet by Sonderegger and Burgstaller (Aufwaertsverlag at Woergl, May 1933), 102.197,13 schillings altogether were spent on relief works more particularly on road construction. This amount pretty nearly corresponds to the amount of the tax arrears paid. What does this signify? The town had amassed credits among its population not quite voluntarily, it is true and only in the way of giving a respite, but credits they were. The lax debtors then accepted the municipal notes in their shops or in payment of sums due to them gave the note holders (often laborers engaged on relief works) provisions, pickaxes, shovels, axes and other materials in exchange for the notes; and, finally, took the notes they received to the municipal pay office and therewith paid their taxes. This enabled the town to mobilize its tax credits and to transform these into durable possessions, e.g., roads. That this transformation was in any way favoured or accelerated by the depreciation of 1% a month cannot be inferred from the hitherto published statements and is also highly improbable. Without depreciation and without affixed due stamps, everything would have probably passed exactly the same, only in a simpler and more obvious way and with less friction.
Supporters of the central banking principle will contend against those, who on the whole express a favorable judgment on the Woergl experiment and who at least recognize that it did not fail, that the effect would have been identical if the central bank had tent the town first 1.800 schillings and later 12.000 schillings and had claimed them again when the notes had returned to the town. But the notes of the central bank would certainly not have flown back as rapidly and perhaps not at all. Even those strongly imbued with local patriotism could utilize to greater advantage a means of payment current also in Vienna and the whole of Austria than promptly to pay with it their taxes at Woergl. They would prefer to postpone paying their taxes than to forgo benefiting by the wider possibilities which need not be described here. It was just the fact that the notes could not be used as a means of payment in Vienna and could only be used for paying taxes at Woergl, which determined the reflux to the municipal treasury and therewith the restoration of the town's financial a equilibrium. It is, for instance, highly questionable whether the notes would have realized their purpose if even the capital of Tyrol alone, Innsbruck, had accepted the notes:
The seeming cover of the notes with legal tender i.e., by depositing notes of the National Bank of Austria at the municipal savings bank was superfluous, even detrimental, and caused a self-deception not devoid of danger. The cover was superfluous because the tax cover sufficed. The cover was also detrimental because it induced people to convert the town money into State banknotes instead of using it for paying their taxes. (A 2% exchange duty is in such cases scarcely an obstacle, as experience proved.) That there was self-deception was evident from the fact that the municipal savings bank lent out the notes of the central bank which were to serve as cover. So far as the savings bank was concerned, the true cover was
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not represented by the notes of the central bank but by the credits created by the lending out of these notes. Had a large number of town money notes been simultaneously presented for redemption in banknotes, the savings bank would have had to call in its credits and this as rapidly as possible. In its turn such a sudden calling in of credits might easily have led to an acute local economic crisis.
Summing up, it may be said that the principles which were deemed of greatest value, vi z., regular monthly depreciations and the affixing of due stamps on the notes probably did more harm than good; but that certain other principles, which were acted on only sporadically and even unconsciously, were the determining factors, i.e., the tax cover, the local circulation, and naturally the right of refusing to accept the notes. The latter were only legal tender for the municipal pay office.
The Austrian National Bank may be justly reproached for having cut short the Woergl experiment, more particularly since, as explained above, the notes of the National Bank could not possibly have replaced the municipal money. The National Bank advanced no convincing reasons for its veto; it only insisted on its prerogative. That was tantamount to exercising brute force. The account in no 1 of the Annals of 1934 (Ending the Crisis, pp. 339?350) and that in the above?mentioned pamphlet by Sonderegger and Burgsstaller, imply that even where the experiment was based on mistaken assumptions, it was carried out circumspectly, and that it would have been therefore easy to introduce any desirable improvements. The economic life of Austria would in no way have suffered through the experiment. The population of Woergl alone ran what risk there was. It should be also recognized that the issue department showed decidedly practical sense (in any case more so than not a few central banks of issue have evinced in recent years) although it was ill-informed with regard to the technique proper to note issues. If Woergl had been left unmolested, its own experience would have enlightened it and this probably very soon. The world would thereby have become enriched by a valuable experiment The decision of the people of Woergl, as reported in the pamphlet mentioned, to continue pressing for permission to find work for its unemployed through municipal note issues, can only be welcomed.
Prejudice 3: "In great crises one should not employ petty means. An appropriate use of the
large sums necessary can, however, only be ensured if they are devoted to
the execution of extensive public works."
a ) Does the widespread distress occasioned by unemployment demand relief measures of far?reaching scope, more especially large sums of money ?
The belief that a great emergency cannot be overcome with small means, appears a priori incontestable. And yet it argues a want of critical judgment to postulate that unemployment is to be regarded as a problem mainly dealing with destitution.
For over a century it has been repeatedly noticed: farmers produce too much food and the masses are starving; weavers weave too much and yet the masses are clothed in rags. Yet, despite this, numerous writers - by no means ignoramuses or dullards acknowledge, it is true, on the first page of their works that there is an abundance, a superabundance, of everything, and that the misfortune lies in just this overproduction; but on the second page already they put forward proposals of how the agricultural productivity might be increased in order that there should be more food available for the masses and how the quantity of textiles might be multiplied by the use of indigenous spinning machines - so that the masses should have clothes and so on. Books of this nature are most likely published every year in all major languages. Few are aware of the self?contradiction involved. This may serve as an excuse for those
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who would combat the depression by battling it there where its effects are most evident, namely in the homes of the unemployed and who therefore conceive the unemployment problem primarily as a question of rendering charitable assistance. Opportunities for employment are demanded, as one demands bread and clothing to the unemployed. It is therefore regarded as self?evident that the provision of employment, just like any other kind of alms, is something that costs something and something that costs much where unemployment is extensive. This "charitable" viewpoint is not altered by the declaration that alms?giving is a duty and that it should be consequently the duty of the State to spend on providing employment, as it has been for a long time the duty imposed on the State to give money bread, clothing, etc., to the sick the aged, and other helpless people. Fundamentally this view remains the same in those who do not, as humane men, moderately request that such assistance should be given to their unfortunate fellow?citizens, but who sternly demand it in revolutionary language and utter threats if assistance should be refused. The revolutionaries, too, demand the provision of employment as a sacrifice to be brought to the unemployed, and it is quite natural that they and all others should first of all turn to the power which, in the estimation of most, is able to bring the greatest sacrifice, namely the State. Add to which the fact that the State is the largest employer of labour and that therefore the demand to increase employment by initiating new public works appears quite justified even from the technical angle. This justification seems also to be reinforced by the reflection that the sacrifice demanded is only of temporary character and would be compensated eventually by the new wealth created through the public works. In any event, no one doubts that at first a sacrifice is to be brought.
This "charitable" attitude towards the unemployment problem has been made logically impossible by Milhaud 's proposals. He has demonstrated that the problem is a purely technical one and the specious fallacy that, just as in the case of great earthquakes and great floods, great want can only be combated with large means means that only the State commands has therefore become inexcusable. Distress due to a superabundance of things should not be regarded like distress owing to a deficiency of necessaries as removable by rendering assistance.
Even a social revolution that expropriated all owners of commodity stocks could not remove this form of distress because it, too, even if it followed the example of 1793 - , would not penetrate to the cause of the distress. This cause may be made clear by the following simile.
A vessel on the high seas, well supplied with stocks of all kinds, has the misfortune that the key to the store-room has been lost. A few of the passengers are very hungry and demand that something be done at once. Others have provisions left in their cabins and propose that the best be made of the situation until the vessel reaches port. The storekeepers can scarcely move, so piled up are the provisions, and telephonically they urge that the door be opened and that they might be allowed to start the distribution. Arguments ensue, violence and even murder threaten. However, one thing is clear or should be clear, namely that if the key is found or the door is opened in some other way, the problem of those who are starving will be as completely solved as that of the others, and in reality only one thing and one thing only, requires to be attended to, namely to find the key or, in the alternative, to force open the door. Everything else to keep the vessel spick and span, to improve the morals of the passengers, to respect hoary traditions and, at the same time, not to be deaf to new suggestions, not to be dependent on other vessels and yet to hasten to their aid when in distress these are matters. that have nothing to do with the problem in hand.
The worlds statesmen, if they were passengers on this vessel, would probably reason that since so many passengers suffer from hunger a petty expedient such as finding a key, cannot possibly meet the grave. situation. They would be mistaken!
The key to our store-rooms is Milhaud's purchasing certificate. We need not to search for it, either. It has already been found. All that is now required is to obtain the captain's permission to use it.
(An alphabetical index at the end of Peace Plans 11 but covering issues 9 and 10 likewise, will help you to find your way among the new concepts of monetary freedom. J. Z.)
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b) The extent to which new public works can possibly improve the economic situation
Milhaud has, more definitely than others, insisted that diminution in purchasing power is the real cause of the depression and has marshaled figures in support of this thesis. (See Annals, 1933, 2, p.163.) Milhaud's figures are alarming, but meanwhile changes have taken place which would probably have been considered economically incredible in 1929. The German Statistical Office in its periodical "Wirtschaft and Statistik" (The Economy & Statistics), of 2 September 1934, furnishes the following figures for Germany:
|
Year:
|
National income, in million marks:
|
|
1928
|
75.373
|
|
1929
|
75.949
|
|
1930
|
70.223
|
|
1932
|
45.266
|
|
1933
|
46.419
|
During 1934 the national income rose further by several milliards. The full significance of these figures can only be gauged by reverting to an earlier statement of the German Statistical Office, to the effect that in 1929 also German's apparatus of production was not fully exploited but only to the extent of about 70. That is, if in 1929 the apparatus of production had been working to capacity, the national income would have exceeded 100.000 million marks in that year. Today the national income is thus about half of what it might have been in 1929, and this without difficulty and without assuming any change in the social order. The present task is, then, to secure at least this difference for the German people, a task neither calling for
fresh social legislation of the Bruening type, nor improvements in the productive process. Most evidently this difference cannot be provided for bar the starting of fresh public works seeing that 60.000 million marks a year are in question. The German Government of today has gone as far in this direction as it could safely go and the most exacting cannot decently clamor for more. It is the turn now of our captains of industry to do something to reach the goal set by the Government. In this connection it may be said that the statement of Koehler?Muenchen, chairman of the Committee for Economic Policy of the NSDAP., in his speech of 20 September 1934, declaring that unemployment has inflicted a loss of 90.000 million marks on the German economy, does not appear exaggerated but, in view of the income figures above quoted, decidedly restrained. The real loss is probably much greater and perhaps as large as the cost of the 1914-1918 war to Germany. In other countries the diminution in the national income and the loss through unemployment have probably been proportionally as great as in Germany e .g , in England and in the United States.
(The Great German Inflation began with WW I under the German Emperor but it culminated in 1923, also under the "democracy" of the Weimar Republic, and it has been said to have cost Germany as much economically as WW I had. Then came the Great Depression, with a similar economic loss. These economic disasters were not ascribed to the monetary despotism, which really caused them but, rather, to "democracy" and thus these two great losses greatly facilitated the rise of the Nazi regime. People had remembered at least one thing: Under the German kings and Emperors they never had as severe an inflation or depression. Thus they were all too prepared for rule by another "great" leader.
In one way this accusation against "democracy" was even correct: Monetary despotism could have been freely discussed and could have abolished or rapidly ended under the Weimar Republic - but, in spite of freedom of expression and information, for politicians, other "experts", the media and for ordinary people it wasn't. Other topics and ideas seemed more important to them. Territorial statism was pervasive under it, too, and so it subscribed, like other democracies, to the monetary theory and proposals of the Communist Manifesto of 1847, with the results already intended and predicted in it. - J.Z., 27.11.01.)
Those who under the present system of making payments still demand the starting of new public works as the sole effective means for reducing unemployment and bringing back the national income to the level of the pre-depression period, should be taught by the above cited statistics that at best this expedient is a drop of water falling on a hot stone, for only a mere fraction of the Labour income lost through the depression could be regained by the starting of new public works.
(Milhaud also calls for public works but this, first and foremost, in order to invest the at present unmarketable stocks of goods as capital in such works, a highly valuable idea which probably no one before Milhaud had so clearly and definitely expressed and concretely illustrated.)
However, could not new public works, even under the present monetary system, be at least useful for "cranking" our economy? An unconditional negative answer would not be justifiable, but even less an unconditional answer in the affirmative.
Milhaud has discussed precisely this point. One thing is certain: where public works are financed on Milhaud's s principles, each newly engaged worker will, through his labour and what he consumes, save at least one other from unemployment. If, however, the financing follows current practice, the diminution in the purchasing power of those who are taxed to make the new public works possible, will fully equal the increase in the purchasing power of the workers newly engaged. Indeed, the diminution in purchasing
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power through the new taxes imposed will probably give rise to more unemployment than is abolished by the starting of new public works.
There is one instance, however, when the starting of now public works may revive the economic life, namely when the State does not pay the contractors immediately, but relies on receiving credit from them and when there is simultaneously an under?supply of means of payment. When a State is not wholly bankrupt (and there are no legal obstacles! The Ed.) a contractor will be able to utilize such credit, in some way, directly or indirectly for making payments to individuals or concerns that have to pay taxes to the State. In such case, until they are liquidated, the credits act in the national economy as would new money. Such clearing money may, up to a certain point, even if not very conveniently, replace the note money lacking. Otherwise expressed, the national economy, inadequately furnished with means of payment, is supplied with new clearing money. That must naturally have a favorable effect more particularly as the new means of payment is safe against inflation inasmuch as it is not legal tender and has a limited time validity.
c) Is "the right to work" a right to be employed on new and extensive public works?
Milhaud's total transformation of the "theory of providing employment" renders it necessary to re-formulate the idea of the right to work. Socialists and bourgeois, revolutionaries and counter?revolutionaries, have hitherto in the main conceived the right to work as the right to be employed on public works, be it that they claimed or that they refused that right. A few examples from history will illustrate this.
On 20 June 1848, the eve of the June battle, Marrast submitted to the Constitutional Committee of the French National Assembly a draft article 132 of which, guaranteeing the right to work, etc., contained the following provision:
"The staring by the State of extensive works serving the public good and having for their object to employ the workless in case of unemployment." (See Dr. A. Menger, "Das Recht auf den vollen Arbeitsertrag"(The Right to the Full Proceeds of Labour), Verlag Cotta, 1904 p. 24.) After a few minor alterations, the original text was embodied in the Constitution on 4 November 1848.
The new public works stipulated by Marrast were the only means known then to the general public for realizing the right to work and it was therefore quite logical to include in the Constitution an obligation of the State to start such works.
Bismarck's Reichstag speech of 21 October 1878 is, however, of greater importance for the history of the right to work than Marrast's suggestion. At that sitting, to the amazement of all deputies, Bismarck declared:
"Yes, I recognize unconditionally the right to work and shall support this as long as I remain at my post. In saying this, I am not voicing socialist views; but the Civil Law of Prussia which states: "It is the duty of the State to provide nourishment and care for those citizens who cannot support themselves or cannot be maintained by other persons who are responsible for this in conformity with other laws. Those lacking only the means and opportunity to earn a livelihood for themselves and their families, are to be assigned work suitable to their physical and mental capacities". (Part II, article 19, par. 1, 2.)
The Chancellor might also have quoted par. 6:
"The State is empowered and bound to make arrangements whereby starvation among its citizens is prevented and extravagant expenditure is put an end to."
The Chancellor then proceeded, reminding the deputies of the State provision of employment in Prussia in 1848. He said for instance on this point:
Who is there who does not still recall the Rehbergers" (people living in some hills near Berlin where some stone quarries existed, *) "with their red cock feathers and their top boots? In that case the State regarded it as its duty to find . work for them. In similar emergencies today, the State believe, would be also bound to intervene and the State has such far?reaching powers that it is able to carry out its
(During another public works program in the 1930's, some square miles of these arid hills were transformed into an admittedly beautiful and large suburban park, one with many sports facilities, an open air theatre, etc., even hills for skiing. The construction method used was called "labour intensive", as much as possible manpower being used and as few machines as possible. I grew up very near this park. Probably only because we lived so close to it were we not hit harder by air raids than we were. And a bit to the north of it, during my time in Berlin and with the same intentionally primitive method, "labour-intensive" was the cover word for this "policy", a second airport for Berlin was constructed, largely with shovels and wheelbarrows only. My mother worked at this and when her strength gave out, before the period required to earn unemployment benefits, I helped her at this job, so that she lasted long enough, to gain this assistance, for herself, my sister and me, instead of the previous and much lower social service payments. In my time in Berlin, to 1959, up to 1/3rd of the work force of ca. 1 million people was unemployed - and among these were about 20,000 professionals, and at least these could certainly not be accused of being intentionally "loafers" and "bludgers", nor could the majority of these unemployed. I did not have much choice for my first regular job, in 1951, either, so I was strongly motivated in this respect when I met up with Ulrich von Beckerath, upon recommendation by my father, in 1952, after he and a few others had established a small group: "Die Berliner Gesellschaft von 1952 zur Bekaempfung der Ursachen der Arbeitslosigkeit."[Berlin Society of 1952 to Fight the Causes of Unemployment.] But for years all of us remained that poor that we could not even get printed, between us, the few pages of the "Berlin Program" that we had agreed upon, after many discussions, largely under the guidance of and in the wording by Ulrich von Beckerath. We could produce only a few typewritten copies, with as many carbon duplicates as we could manage. Of these few members I am, to my knowledge, the last remaining active member. - J.Z., 27.11.01.)
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obligation to provide work for those of its citizens who cannot find any. It undertakes works which otherwise might not be carried out because of financial considerations I mean, the construction of long canals, among others. There are, of course, a great number of other most useful works."
Many of the collections of Bismarck's speeches do not contain this speech. The preceding extracts are quoted from Dr. A. Menger's "Das Recht auf den vollen Arbeitsertrag": The Right to the Full Proceeds of One's Labour, pages 11ff.
One historical remark concerning the above may be permitted here. The paragraphs from the Civil Law of Prussia were written in the reign of Frederick the Great, but the king died before his Code appeared. It was actually published only several years after his death, not before Prussia's reactionaries the gentlemen of 1806, had eliminated certain important provisions, more particularly such as were directed against the privileges of the nobles, the clergy and the higher officials. (See the commentary to the Civil Law, by Koch, Berlin, X853, vol. 1, p 1.)
Here is a second brief historical note:
At least three times during a century social reforms were introduced in Prussia by means of peaceful legislation, which in France could only be realized in some instances through sanguinary civil war. Feudalism and guild tyranny were abolished by Stein and Hardenberg during 1808-1810 without one drop of blood being shed. (Taine estimated the number of victims of the French Revolution at about half a million.) At the same time municipalities and provinces were granted administrative powers approximately as extensive, according to a remark by Bismarck, as those demanded, but not obtained, by the Paris Commune in 1871. In the street battles and subsequent massacres, the Commune had almost as many dead as Germany during the whole war of 1870-1871. Similarly with the right to work. That was not secured in France by the June battle of 1848, which had cost 15.000 lives, but was decreed in Germany, as we have seen, half-a-century before that battle, in a paragraph or two in one of Frederick the Great's laws.
Nobody will, I trust, misconstrue this comparison, as if it contained a veiled attack on France. But the French people, ready as any people to shed its blood for noble and great ends, must be aware of the relatively few historical examples where such ends were realized without bloodshed. The time is particularly opportune for this, now that throughout their land the unemployed are again urged to revolt, whilst actually their compatriot, Milhaud, proposes to them a solution that needs only to be patiently examined to make it evident that it offers what in substance all clamor for. This proposal of his requires, apart from a little ink and paper no other sacrifice than attention to it and the dropping of a few prejudices. Apart from this is requires neither sacrifices of blood nor even of money.
d) The right to work and the Constitution
Marrast and Bismarck, politically at opposite poles, agreed in one thing: they were justified in contending that the right to work must be formulated concretely, if it is to be of any value. The unemployed must know what he has to do to realize his right to work. However, if the right to work be defined as the right to be provided with employment in public works, the inevitable result would be that during the worst trade depressions the provision' of employment for all unemployed on new public works would be beyond the financial capacity of even the most powerful States. Hence the right to work should not be defined as a claim to employment by the State.
We shall see later that an effective right to work can only be an extension of the right of coalition and that in the future the citizens of a country should possess the right to establish work supply banks on a mutuality basis embodying Milhaud's principles.
Furthermore, it will be shown that for this purpose no new laws are required. The repeal of some worthless old laws will suffice.
Over and above this however, not a little might be done to allow greater latitude to the State and to the authorities generally in combating unemployment.
(Beckerath's advice to writers was that they should always write as if a censor were looking over their shoulder! - J.Z., 27.11.01.)
Few have apparently noticed so far that the authorities themselves are as much fettered by ancient laws and ordinances as the unemployed. If, for instance, some large French or English town desired to issue a work provision loan on Milhaud's principles, it could not do this without being authorized by the Government. Such authorization would however be unobtainable because of all kinds of enactments.
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Accordingly, the constitution of many, perhaps of all countries ought to confer on the authorities more extended powers in this sphere than they now possess.
Milhaud was the first to direct attention to the importance of means of payment in subscribing to work provision loans. He writes as follows: "Suppose, a Government is resolved to carry out a program of public works. It issues bonds. Some of the subscribers subscribe with certificates..". (Annals, 1933, 2, p. 180.)
These few words express an altogether new loan principle, a principle which must be applied if the loan is really to lead to increased work and not merely to a shifting of opportunities for employment. But according to the laws of almost all countries, loans to be subscribed with goods warrants may not be issued, least of all by the State, provinces and municipalities, i.e. , by the public authorities. The Constitution should, on the contrary, empower the authorities to permit the issue of just such loans without any restrictions, even if the issue of all other types of loans be made subject to approvals of every kind. The provision in the Constitution might read:
"In order to raise the degree of employment and economic activity among their citizens, public corporations are entitled to issue loans conforming to the following provisions, without the otherwise required consent of a representative assembly or a supervisory authority.
The law shall state what amount of unemployment must exist before a corporation becomes entitled to exercise its right to issue such a loan.
So far as legal provisions do not exist, the Ministry of Labour shall be competent in the matter.
A loan issued expressly with a view to providing employment is not rendered legally invalid by the neglect of the required formalities but, after the neglect has been proven, the loan debtor may repay the same at any time in legal tender.
In connection with the subscription to a work provision loan issued pursuant to this article of the Constitution, the possibility should not be excluded of placing to the credit of the loan debtor a subscriber's goods and services calculated in money, and this by clearing and without the instrumentality of legal tender.
For the purpose the corporation may, for the payment of the expenses arising out of the provision of employment, issue clearing warrants fractionalized like money, at intervals not exceeding one week. When the issue is being subscribed, the clearing warrants shall be accepted like money at their nominal value, regardless of their market rate.
In placing work provision loans, the corporation shall be entitled to invite the aid of merchants, financial concerns and other appropriate parties and to accept in payment the clearing warrants issued by them when subscribing to the loan."
e ) Further remarks on the starting of large scale public works for combating unemployment
Apart from the favorable opinion commonly expressed and above discussed, of the ability of the State to afford aid generally, there is the favorable but uncritical belief in the comparative advantage of large scale over small-scale undertakings behind the demand for extensive public works ("which do not fritter array opportunities for work").
(The Kant of economics is yet to come. He would write for us the counterpart of the Prolegomena of the illustrious thinker and make clear to us the meaning of the a priori judgment in economics.)
But the advantage of producing a relatively large output with a relatively small work force, which distinguishes an efficiently organized large scale concern from a small enterprise, is something entirely different from the rashly inferred advantage of employing relatively much labour power.
"Inferred" is perhaps not the right word to use, for the faculty of judgment is not at all involved here. The opinion is probably engendered by what is called in, theoretical logic "association by sound". The mistake made is immediately detected by workers and politicians alike when the State seriously sets about to provide employment. Then they remember at once that labor power is saved in large-scale concerns; that this is actually a very important technical advantage in such concerns; and that for decades, nay for
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centuries, this has formed the indictment against them. The same people who yesterday called on the State to provide employment on a large scale, e.g. , on big constructions, big canals, big land improvement schemes, and the like, now urge that the big works should be broken up into as many small works as possible, to the extent even of largely dispensing with machinery (according to Suetonius, already the emperor Vespasian preferred to dispense with this aid), so that the work should be distributed among many small contractors, and so on. Wherever these pleaders are in command, they break up the work as far as they can.
The starting of extensive public works, as, for example, the construction of new railway lines, has also if they are financed in the customary way and not according to Milhaud's principles a prejudicial effect which has been as yet insufficiently discussed. Such works withdraw working capital from other economic spheres, whereas Milhaud's method does not withdraw any capital at all, but only transforms unsaleable
goods into capital. (An altogether new method this of raising capital, but the most effective of all.)
In other words, large loans raised in the ordinary way, only end, exactly like taxes, in redistributing purchasing power, not in creating any. (On this subject, see some excellent remarks by Milhaud in Annals, 1933, 2, p. 193.)
Older experiences bearing on the effects of large scale works are available, Many may still remember for instance, the tidal wave of unemployment in Paris after the buildings of the World Exhibition of 1900 had been erected, work that was partly undertaken in order to provide employment. Furthermore, in a paper by Hermann Greulich, in the "Jahrbuch fuer Sozialwissenschaft and Sozialpolitik"(Yearbook of Social Science and Social Politics), 1879-1880, 2nd half, p. 337), there is the following remark:
"When the boom in railway construction began in Switzerland and the railway companies paid their shareholders dividends of 7, 8, and 9%, a large part of the generally available capital was sunk in this tempting speculation, with the result that the peasants began to suffer from a great shortage in mortgages". That this reduced the purchasing power of the peasants and that in turn, the purchasing power of many traders, maybe taken for granted, although Greulich is silent on the subject.
Similar conditions, though unnoted by contemporary thinkers, appear to have prevailed in the whole of Europe at the time when railway construction was at its height. The economic depression of 1847, which was the mother of the 1848 Revolution, was almost certainly in part due to intensive railway construction which withdrew a great deal of capital from farmers and artisans. Everybody commented on the shortage of money among these two sections of the community, while temporarily great numbers of workers were. profitably employed.
What was overlooked at the time and, in general, is still overlooked, is the far-reaching importance of means of payment when a loan is subscribed. If the loan has to be subscribed in legal tender there is decided danger that the total amount of unemployment will only be re-distributed by the loan. This evil is averted if the subscribers are permitted to offer not money but a claim expressed in money's worth of goods and services. This involves the issue of paper money with a free market rate which must be, though, at all times accepted at par by the subscribers to the issue and by the Treasury. This paper money, having returned to the subscriber or the treasury, should be forthwith destroyed.
A group of young libertarian students in Texas tries to establish communication with libertarian movements all over the English speaking world. To this end they search for the names of publications and groups which espouse libertarian views, whether they tend toward a pro-capitalist economic stance or not. The group is the Austin Libertarian Association, Sec. Cole S. Patterson. I sent them some addresses. You might be able to help them further and they, finally, might compile and publish a really comprehensive list for the benefit of all of us: Mr. Cole S. PATTERSON, Sec. AUSTIN LIBERTARIAN ASSN., 1105 W 12th St., Austin Texas.
HOME STUDY COURSE; THEORY AND PRACTICE; PHILOSOPHY OF FREEDOM. Cash, Terms or Barter. - PHILOSOPHIC RESEARCH UNLIMITED, Dr. Boardman, Box Zero, Chloride, Arizona, USA.
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VII. SOME OBSERVATIONS ON MILHAUDS THEORY CONCERNING THE
PROVISION OF EMPLOYMENT THROUGH PURCHASING CERTIFICATES
1. The Milhaud Plan and a Free Market for Goods, Services, and Means of Payment.
a ) Modern tendencies to eliminate a free market
Today free markets enjoy a "bad press". As the far reaching depreciation of commodities, labour power, and of many kinds of paper money happened on the open market, most people consider this market responsible for the depression.
(Can market participants "enjoy" it? Is is really a fully open or fully free market? Our language - or our translations are all too often too misleading. - J.Z., 28.11.01.)
Communists and anticommunists, political parties and governments, broadly agree therefore on the point that for as many goods as possible not exactly the market, but the market price should be officially abolished and replaced by fixed prices. Labour power, too, it is widely held, should no longer have a market price and, if possible, not at all be "dealt in". Workers, employers, the churches, and political parties are at one here, although everybody shrinks from the final to logical implication of this standpoint, namely the feudalistic regulation of labour matters (which is inevitably semi-communistic), and is therefore ready to make compromises. Hence the workers ask for a minimum wage and not for a standard wage. The employers, on their part, ask not for a standard wage but for a maximum wage. The Catholic Church, inasmuch as it looks, upon labour markets as incompatible with human dignity (encyclical "Rerum Novarum", no. 16 and encyclical "Quadragesimo Anno", pp 64-65 of the authorized German edition), demands, in order to abolish dealings in labour power, the introduction of corporations (collegia or corpora ), without however entering into particulars on the constitution of such corporations. These two encyclicals reveal the scientific, unprejudiced and humane attitude of the Popes Leo XIII and Pius XI. But granting this, it is nevertheless true that, unaware of the information brought to light by Milhaud, they missed the right solution of the problem, indeed even of the right view of the nature of the problem. Notwithstanding this, the two encyclicals will maintain their place in the history of attempts made to solve the social question, because they indicate more clearly than any of the others where every such attempt must lead which only takes into consideration the available data and the recognized principles of morality, but not Milhaud's solution.
However, it would be wrong to take a purely economic view of the endeavor to abolish free markets, including free labour markets, and fixing wage rates for labour; as we might fix prices for coal and soap. We can certainty not regard it as a symptom of heightened self-esteem if today millions of men not only remain apathetic when they are forbidden to express an opinion when their wages are under discussion but when they actually reach the point of demanding such a prohibition and go so far as to denounce as an agitator anyone who dares to utter his own opinion in the matter. Examples of such self-abasement in the working classes (which include not only factory workers) are to be found since the War in almost all countries, the change in the mentality of the Russian worker since 1917 being particularly striking. A future sociology will perhaps explain this transformation.
b ) A conjecture concerning the cause of the tow appraisal of market demands as a social factor
One cause of men's helplessness in disposing of their labour power is manifestly the highly abstract nature of the concept "demand" (in German, "Nachfrage", i.e. demand for.) Whether this concept corresponds to a fully formed cell complex in the brain of the average man, is doubtful. The word "demand", whilst frequently occurring in publications, is almost wholly absent in genuinely popular speech, a circumstance
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that has perhaps escaped notice until now. Not so with the word "offer" (in. German, "Angebot"), of which the masses have a concrete idea and which has even found its way into poetry, e.g., "Oh, God! that bread should be so dear and flesh and blood so cheap!" (Thomas Hood)
The concept "offer" is, in fact, distinctly revealed everywhere: in shop window displays, as a substantial part of newspaper contents, as a crowd of unemployed in front of an employment office and the like. A "demand", however, does not manifest itself-anywhere visibly, and where it seems to become visible, as in queues of purchasers outside shops in times of scarcity, we are struck by the presence of want rather than by a demand.
In criticism it might be argued, of course that for tens of centuries already men have been buying and selling and that therefore there has been truly ample time for the complete formation of a cell complex corresponding to the concept "demand" in the brains of men. Against this, it should be remembered that whilst hundreds of generations have bought and sold and whilst markets have existed for dozens of generations, the vast majority of the population, consisting as it did of slaves, was unconcerned in this. Ideas such as "offer" and "demand" could therefore only form themselves in later times and among a relatively few and, what is decisive, be passed on by heredity to our generation. Add to this, the numerous officially set value relationships in ancient and modern times These, reiterated for thousands of years, could scarcely fail to have exercised an influence on men's minds and thoughts. Their aim was to eliminate from practical life the influence of offer and demand and so to mould men's intellects that for them the value of objects should not depend on offer and demand. Thus they probably contributed to the effect that in so many minds the concept "value" does not comprehend the element "demand". Such a mentality naturally conflicted at all times with the logic of fact i.e., with actual purchases and sales; but the history of price fixing by the authorities demonstrates how slow and gradual was the development from a market with prescribed prices to one without such. This slow development certainty not only produced a "logical" association between the concepts "value" and "official price", but also a biological linkage between the brain cells for these two concepts.
The condition of slavery wherein for many thousands of years the greater portion of mankind passed their lives, not only limited insight into everything connected with markets to the few, but also had the result that the scanty knowledge of markets which trickled through to the masses, placed markets in an unfavorable light for them, even suggesting that these were the primary cause of their being enslaved. In ancient times every large market had a slave section and only with this section were the slaves familiar. Here the staves could personally observe the association between the concepts "demand" and "value", but in circumstances rousing in them the utmost abhorrence from this association.
The preceding references to concepts inherited from the slavery period which lasted probably something like 100.000 years are not meant to lend support to Nietzsche's attempt to divide morality into a "master morality", and a "slave morality", this the Less so as Nietzsche paid little heed to economic relationships and concepts and perhaps also ignored the not unimportant circumstance that those belonging to the "master" class from time to time took one another's lives (e.g., on a great scale during the migration of the German tribes). The master class used in such cases to be largely replenished from the slave class, apparently without any change in social morality, e.g., as with the Spartans after the Peloponnesian War. The frequent raising of slaves to the status of members of the ruling class is also borne witness to for the Scandinavian countries by Tacitus ("Germania", chapter 25). The "master morality" of the upper caste was evidently not affected by this. According to Gibbon, the master people of the Vandals consisted mainly of runaway slaves and similar human material. At the date in question, they were stigmatized as a rabble. To the horror of the civilized world of that time, Genserich showed what such a rabble is capable of when it is well captained, determined to preserve its freedom, and in possession of effective weapons that it knows how to wield.
The above observations bear directly on the as yet insufficiently appreciated influence of the slavery period on the mental constitution of mankind on something quite different, perhaps even more profound, than morality as such. We have sought to show, that not only a few misapprehensions, but a
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special inherited mentality, obstruct Milhaud's suggested reform of our system of making payments. Such a mentality cannot be overcome by enlightenment alone, but requires the example of those who have rid themselves of their old mentality. The setting of such an example, however, remains impossible so long as the legislation of a country grants a monopoly to a small group of banks, or even to one bank, to provide means of payment.
c) Public opinion and a free market for means of payment
The mentality inherited from the remote past, which asks that as many values as possible should be fixed and legalized by authority, appears nowhere so evident as in the general desire that means of payment, not only domestic but also foreign, should be excluded from the free market. It is characteristic that for many years none of the numerous authors who have proposed new means of payment has been willing to relinquish "the protection of the State" for his invention, and this in the form that it should be deemed a punishable offence to value in practice the new means of payment at less than its inventor contemplated. (Students. of history will not be surprised at this. Laws directed against the decrying of a debased coinage were plentiful and terrible in the Middle Ages. At the time of the assignats, first penal servitude and then the guillotine were the lot of those who discounted the assignats. Some of the new foreign exchange laws are not very different, e.g., the Yugoslavian of 1923 (no Longer in force,); which imposed the death penalty by hanging for private persons holding foreign means of payment.) (Indonesia & Vietnam have similar laws. The Ed.)
Milhaud is one of the select few who is not only confident that his invention will maintain itself-in a free market, but actually demands for it such a market. This betokens a complete break with the prevailing mentality and viewpoint. According to that viewpoint the value of paper money not covered by a gold reserve depends exclusively on a State fiat. Hence he, who values this paper lower than he is supposed to, thus rebels against the State. The present day Russian conception is here not different from that of Japan and most other countries. To "defame" a currency by pronouncing an unfavorable judgment on it is, according to this belief, quite possible and the danger of such a defamation indeed very great. As in later sections treating of the State's money prerogative and of discount, something more will be said of the aberration of this conception, it is superfluous to dwell on it here.
In order to be safeguarded against over issues; Milhaud asks for a free market for his purchasing certificates. In our day such a demand argues great audacity - indeed, very great audacity. In harmony with its statist attitude, our time demands of its citizens an unbounded trust that the government or the current director of the central bank of issue, will maintain the value of the money. According to the views generally held on the stability of a currency, this trust is of fundamental importance. He who seeks to shake it, resembles the soldier who on the day of battle paints for his comrades a black picture of the situation of their army and thereby robs them of their courage. Yet the belief that a sound currency can be endangered by expressing an unfavorable judgment about it, will not be rated more highly by our descendents than we rate the belief of our ancestors that the wolves will overrun the village if we speak of them.
The demand for a free market for means of payment of every kind is fortunately not something altogether new. On the contrary, a century ago this market was a concrete reality and the experiences with a free market for means of payment were wholly favorable. A century ago many Exchanges not only regularly quoted a rate for foreign but also for home paper money (as in Belgium). Men (*) were then fully aware that regular quotations formed the best check against an abuse of the right to issue money, more especially against inflation.
(If in 1914 the Russian Government had permitted free rates for ruble notes, the Russian people would have already then refused to accept the notes as a means of payment. In the circumstances, the Russian Government would not have dared to obtain by turning the tax screw what the note press would not secure. Accordingly, it would have made peace. The Czar might perhaps still reign, and, despite Czarism, the world would be in a better and more hopeful condition than today. The Russo Japanese War of 1904-1905, which the Russian Government survived, was financed on the Russian side without a forced currency.
Perhaps not one problem of our time deserves to be taken more seriously than that of a forced rate for notes.
(* Well, SOME men were aware of it then - but the majority were, just as usual now, ignorant of and disinterested in this relationship, whether out of an inherited slave mentality or just out of mental laziness. - J.Z., 28.11.01.)
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d ). The freedom of markets under the current system of payments
If it be the nature of a free market that no offer and no demand are obstructed, then a free market has hitherto only existed very exceptionally. The offer may occasionally have been free to express itself, never the demand. To our day the demand has been limited, among other things, by the amount of money at the disposal of purchasers or by their credit (i.e., according to current opinion, the amount of money they expect to have at their disposal later.) But Milhaud's invention of purchasing certificates renders it possible that needs may in future directly express themselves as effective demands, regardless of whether there is, or
will be, much or little "money" available in the country.
The import of this change can hardly be exaggerated. One thing, however is certain: everything that has been said against the disadvantages of a free market, against the evil of free competition, and the like, holds in reality only for the quasi-free markets under the present regime of payments. Of a veritably free market, we have as yet no experience. This is true also of a free labour market.
If workers, governments, political parties, and the churches categorically insist today that labour shall no longer be regarded as a commodity, they overlook that labour power has in reality most rarely had the advantage of offering itself-as a genuine commodity, i.e., on a really free market. At most, the old dictum may pass that the labour market was a free slave market where the slaves sold themselves. What the labour market lacked, and what all other markets lacked, was the permission for the vendor to demand as means of payment something else than the hitherto customary money ("usuelles Geld" - usual money) as defined by Karl Menger. (Or for the employers to offer it! - J.Z.) Until now legal tender money and bank cheques alone have been admitted as customary means of payment on any market. Not customary were assignment notes expressing directly in money the value of goods such as are required in a worker's household, or even to be realized immediately in labour, as would be purchasing certificates of a Milhaud work supply bank. The worker was not permitted to claim such means of payment. If the worker had been allowed to claim, in payment for his work, certificates issued or endorsed by himself, expressed in money, but not realizable in money, based on the Milhaud system, then, instead of exercising a demand for customary money, he would have directly exercised a demand for his own labour. But he is not allowed to claim such means of payment and is, therefore, by no means free on the labour market.
It should be also noted that the employers were also not free on the labour market and that for precisely the same reason as the workers, in that the means of payment were prescribed for them. The employer could only postpone his offer for a few days. This, however, constituted a marked and even decisive advantage, so great in essence, that it was confused with the advantage of freedom in the labour market.
(Compare the centuries of legislation, regulations and jurisdiction against the "truck system", based on the worst examples of it, which prevented the free development of alternative means of exchange to pay wages with and purchase goods and services with. The unchecked premise was always that an employer, with good will, would always be sufficiently supplied with coins of the realm or other kinds of official money, while in reality, he had only his goods or services to sell and depended, like his potential customers, on a sufficient supply of sound exchange media, which, under monetary despotism, was never achieved fully or for long, nor could it be. Under full freedom in this sphere, the "payment" of workers with e.g. the umbrellas they produced, which the employer found it difficult to sell under monetary despotism, would soon have been replaced e.g., by shop foundation money, usable in a shops established by an employer, which he could have stocked with various other consumer goods that he had bartered for his umbrellas, then by the shop currency of an association of such shops and, finally, perhaps, by the shop currency of consumer coop stores, owned and run by the employees themselves, becoming thus bankers for their employers, supplying him especially with suitable wage payment means, acceptable in their consumer coops. By the way, through savings invested with their employers, in the own firms, credit insured, they might have gained an above average return on their savings and, after a while, their savings might have grown so large that with them they could easily have bought out their employers. The law, as usual, proved to be the enemy rather than the helper, and stopped such developments - and so did the ideas prevailing in the heads of most employees and most employers, and even those in the heads of most economists, not to speak of the ruling lawyers in parliaments and administrations. - One of the best books on this subject that I have ever seen is: George W. Hilton, The Truck System. Including a History of the British Truck Acts, 1465-1960, Heffer, Cambridge, 1960. In 1975 there was a Greenwood reprint offered for $ 15. ISBN - 0-8371-8139-5, HITS. - This may still be in print. But this title is so rarely seen in libraries and bookshops that I am inclined to make it available at least on microfiche, if somebody else does not make it available e.g. online, on a floppy disk or on a CD-ROM. We are all suffering from all too many self-chosen and self-attached or self-approved as well as generally ignored "chains", all supposedly to be in our own best interests, with very few being aware of the consequences of such shackles. - J.Z., 28.11.01.)
What has been said here of labour as a commodity, applies to a lesser extent to all other commodities. Since the means of payment was prescribed for both, the purchaser and the vendor, they were both not in a free but in a severely restricted market, only that here also the purchaser could wait as a rule a little longer than the vendor, thus creating at least for him the illusion of a certain degree of freedom.
For the workers it must be decisive that, on the one hand through the Milhaud Plan and on the other through a really free labor market, they can almost at their discretion increase, by their own demand, the natural demand of employers for labour at their discretion, that is, to the full extent of their capacity for rendering services. A recognition of this, assuming, permission to apply the Milhaud Plan, should persuade the workers to rate the utilization of the free labour market (with a view to securing more favorable labour conditions and especially the highest attainable wages) higher than any other expedient, higher, more especially, than any Government intervention.
The workers have no idea as yet that they could rapidly employ the technique of the market in order to gain what economic theory calls "the full proceeds of labour".
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If, however, as hitherto, the workers present themselves on the labour market as voluntary slaves and dumbly await a purchaser for their labour power, the technique of the market will tell inevitably against them. But once they have become conscious of the fact that they are not only workers but also consumers and therefore do no longer senselessly dissipate the almost omnipotent economic forces involved in this, they will learn to alter their opinion about markets. Daily experience will then teach them that the market will yield them with the greatest ease all what, for example, the Russian workers have not won after hecatombs of human sacrifices and very much more even than any Russian five year plan dares to promise.
However, the most important instrument for fully benefiting by a free market will prove to be Milhaud's purchasing certificates in their varied applications. Inasmuch as their proper functioning demands, on the one hand, a free market and on the other, alone makes that market possible (since only such certificates liberate the markets from the stranglehold of a shortage of means of payment), they prepare the way for a basic reconstruction of the economic order which has during the last years become dominant in most parts of the world and for a resumption of contact with the great liberal traditions of the eighteenth and nineteenth centuries.
e) The development of values through free transferability
A few observations made during the reception accorded to Milhaud's proposals suggest also the following remarks.
The permission freely to, transfer property rights of every kind, the highest form of which would be Milhaud's purchasing certificates with their completely free transferability, is one of the most essential pillars of our civilization and more opposed than anything else to feudalism and communism. It is true that from time immemorial free transferability of at least some possessions existed in every society by the side of extraordinary psychological and legal impediments to such transferability.
(The objection of scholastics to the transfer of values in the form of interest bearing loans is well known: "Time is God's property; it may not therefore be sold" as if, from this viewpoint, there could be any saleable private property at all; for what is not God's property?)
An impartial examination of the (as yet unwritten) history of the right of making transfers could well lead to an appreciation of Proudhon's profound and ingenious remark that all social ideas have always coexisted and that social changes only indicate the temporary preponderance of this or that idea. (Proudhon, Oeuvres, vol. 6, p. 246, 1868 edition; his reply to Madol's letter of 18 May 1848.) And it may happen sometimes that a correct conception is only held by a few uninfluential individuals who, moreover, only sporadically sponsor it.
The simple and yet abstract concept of free transferability, as also the concept of a social opposition to this transferability, may well require a further explanation. Here are, accordingly, a few brief reflections on the past and future of the right of inheritance.
The popular attitude towards the right of inheritance is characteristic of the popular attitude towards the idea of the free transferability of values generally. The present form of the right of inheritance, which in the main is based on the Roman Law, has by no means yet become a part of the mentality of the masses and may not become that for some centuries. The general permission in Europe to dispose freely of one's property by a will is, in fact, quite recent, and how frequently one hears the voices of those belonging to every party who protest against this! It even seems that for decades almost all social reformers have demanded primarily a "reform" of the law of inheritance, in order to achieve a more equitable distribution of the "national" wealth i.e., to restrict it in favour of the State or of the family (as in the Middle Ages) ignoring that there is no more effective, convenient, and at the same time more, peaceable way of producing rapidly an as fair distribution as possible of the worlds goods than through Milhaud's s purchasing certificates. The owners of big fortunes have always known and will always know how to circumvent confiscatory legislation. But against Milhaud's purchasing certificates they would be as impotent as the predatory knights, of old against the cannons of the towns.
(In case some readers are misled by this analogy: The purchasing certificates would not supply any power to attack and rob these property owners but an opportunity safety to ignore their fortunes, a chance to be independent of their wealth. -The Ed.)
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For the purpose of judging the probable opposition present and future, against the introduction of the reforms proposed by Milhaud , it is well to consider how formerly and today the popular mind conceived the free transferability of debts.
The idea of a free transferability of debt claims was something quite alien to earlier legislation (consciousness of rights literally translated. - The Ed.)
It is not at all inconsistent with this that long ages ago solitary instances of quite modern forms of transfer occurred, e.g., order forms made out to the holder. (Book Tobias, ch. 5 verse 3.) During antiquity the relation of debtor to creditor was a purely personal one and such a personal relation still corresponds to the mass consciousness. Most reformers would tike to return to a personal relationship in this matter. This tendency gives rise e.g., to the demand that bonds payable to the bearer should be entirely abolished and, more so, that Stock Exchanges should be prohibited because they offer exceptional facilities for the free transfer of values, facilities, by the way, as important for the economic life as railways and certainty more important than wireless or gramophone.
(Compare the modern opposition to corporations, multinationals and globalism. - J.Z., 28.11.01.)
But common people, especially those who have never seen an Exchange document, assume: "Everything that restricts the mobility of capitalists is to our advantage and their diminished profits mean that we receive the more". If only, in almost all countries of the world, a large proportion of the party leaders and even of the rulers did not come from among those who think and feel in this way!
There is reason to believe that nothing is more characteristic for the growth (predicted already by Nietzsche and Spencer) of the communist mentality throughout the world one might even say, for the preponderance of communist instincts than the recent legal restrictions concerning the possibility of transferring property of every class goods, claims, means of payment, land, securities etc. promulgated in almost all countries. It is therefore specially noteworthy that under the irresistible pressure of circumstances, the Russian communists have most reluctantly granted permission to transfer from one person to another the miserable remnants of property still surviving in "their country.
We are examining no trifling matter, The transferability of values alone creates their value, and the further transferability extends, the greater is the rise in their value. (Bastiat, "L'échange.") The fractionalizing of negotiable papers and the standardization of these fractions (methods which today are prohibited or impeded), alone let transferability and with it the values, reach heir maximum, as became evident regarding real estate when mortgage bonds were introduced and with bills of exchange (and therefore with goods) too, after the introduction of private banknotes and as will become evident with labour power when Milhaud's purchasing certificates have been introduced.
It was the free transferability of values that broke up the clan communism of prehistoric mankind, which had lasted for thousands of years, laying thereby the foundations of our civilization. It is true, this hoary communism still runs in our blood and periodically re-asserts itself-in atavistic concepts. Sociologically, the atavistic concept in question may be broadly identical with that which the Christian Church, from a different viewpoint, has appropriately called original or inherited sin.
The opinion that in societies also, where division of labour rules, the value of objects is only a product of labour is, it is true, predominant. (Some, unjustifiably, trace the origin of this belief to Adam Smith.) The present trade depression bears the clearest witness that Bastiat was unfortunately right and that it is not labour which creates values, but only the possibility of exchanging one commodity for another.
Take Brazilian coffee. A large part of the coffee crops of the last flow years was thrown into the sea and was of less value than sand, although it had cost much effort and labour. What the coffee lacked, to make it valuable, was the possibility of exchanging it for something else. We may nevertheless (with Adam Smith) imagine a natural value for goods and services, a value identical with the amount of energy, trouble and time they cost and therefore independent of the changes introduced by supply and demand, more particularly independent of the changes made possible solely by the abuse of economic power.
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But this natural value can only be realized on a completely free market and not, as communists think, by abolishing the latter. As Adam Smith and others have shown, a really free market has, in fact, an irresistible tendency to produce this natural value. But these thinkers did not yet see it t as clearly as we do today that a truly free market implies the absence of all restrictions on means of payment, plus an accurate knowledge of the real supply and the real demand, on the part of all concerned. To which should properly be added, acquaintance with the demand to be expected tomorrow and the day after, in order that the placing of orders should not, as one might imagine a priori, restrict the freedom of the market, but rather increase it.
Where the market is completely free, there can be no considerable or long lasting excess of supply over demand or the reverse, and this for a similar reason that on the high seas even hurricanes only affect the water level to a trifling degree and passingly.
Karl Marx did not overlook the significance of a free market for the formation of values, but seemingly regarded also as possible for non-capitalist societies a measure of value which does not presuppose a free market as an integrating factor but is wholly independent of it. Marxists hold in any case, that a value only defined by the amount of labour, is possible. This opinion might be confronted with the following argument. Take the instance which is seeming seemingly most opposed to the views of the "échangistes", namely that of the isolated homestead of a single individual. For someone living completely isolated, as Robinson did on his island, there is no market and yet the different objects on the island, more particularly the products of his own labour, have for him different values. These values are therefore, it seems, determined by something else than supply and demand. But Robinson's economy has nevertheless something important in common (something entering as an element in value) with an exchange economy based on the division of labour, namely the possibility of being able to choose between the different objects. In order to appropriate a certain object, Robinson must, at least for a moment, renounce so to speak all the others, in this way exchanging in a sense the renounced objects for the selected one. This element creates such a high degree of similarity between Robinson's economy and an exchange economy based on the division of labour that eminent mathematicians (e.g., Jevons and Launhardt), starting from Robinson's economy, could develop their value formulae into the general formulae of an exchange economy. With special thoroughness, so thoroughly and manifestly that it becomes unnecessary to indicate it here, Robinson's economy, particularly in Defoe's account, disposes of the thesis put forward by some Marxists (but not at all by Marx himself) that the actual amount of labour spent on a given object determines its true value and that any exchange value diverging therefrom is just a falsification of its true value. Robinson's scale of values, according to Launhardt, who is well worth consulting on he subject, is of a wholly different order.
Abstract as these reflections may be, their practical application is concrete enough. If, following the Marxists (who should be reminded occasionally of Marx's striking remark: "Moi, je ne suis pas Marxiste!" - I am not a Marxist!) labor is declared to be the source of all values, the demand for creating 'labour money" readily follows. On the other hand, a correct definition of value suggests an "exchange money" such as Milhaud proposes. (In reality, this is not money at all, as Milhaud rightly observes, whilst labour money, with its forced currency, is indeed "money", although very bad money.)
Here I take the Liberty of making a short historical excursion into a period when the advanced state of civilization existing really called for a means of payment resembling Milhaud's, but the backward technique of which would not have provided as much as the paper for the purchasing certificates.
The Roman and, later, the. Byzantine Empire required an amount of means of payment which, per head, was probably not below that of our time. A very highly developed jurisprudence permitted a free transferability of all economic values, but indirectly the lack of paper and of printing presses prevented a turnover as great as would have been economically desirable. In fact, this lack rendered it impossible to
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make all necessary payments. (This despite large quantities of metallic currency which, e.g., enabled the Emperor in the tenth century to draw a daily revenue of 20.000 gold pieces in Constantinople. See Gibbon's "Decline and Fall, Everyman's Library edition, vol. 5, p. 455.
Wirth, in his "Das Geld" (money), states that a Byzantine gold piece contained about 4,4 grams of pure gold. We may therefore assume that at that time Constantinople contributed per head not less to the public treasury than large cities do now. The raising of slaves to the status of free laborers greatly encouraged by the Catholic Church, found in Rome a natural barrier in the fact that it was impossible to pay the free laborers, i.e., to concede them the right of claiming payment in specie.
The constant and great shortage in means of payment during the later imperial period and in Byzantium, paralyzed the economic life in general as well as weakened the military power of governments. In the end, it constituted the real cause of the downfall of the Roman empire. Gibbon raises the pertinent question what Byzantium might have developed into if the Persian monks had brought the Emperor Justinian not silk cocoons but printing presses instead which, in addition to excellent paper, existed then already in China. (Gibbon's work above quoted, vol. 4, p.175.) This question might perhaps be answered by saying that not only, as Gibbon thought, would Byzantium have preserved by means of printing the greatest works of antiquity and thereby accelerated by centuries the advent of the Renaissance, but that, considering the advanced state of the jurisprudence of the time, Byzantium would soon have printed banknotes and evolved a proper system of means of payment. This would have made available means of payment for any number of wage earners and slavery would have gradually disappeared. The governments could also have maintained large military establishments and could thus have offered effective opposition to the Turks. The invention would have spread westwards and produced there perhaps even greater revolutions than in Byzantium. World History would have been crucially affected in its course, as it was by the invention of gunpowder and the compass. (According to Wei Tao Ming, "Le Chéque en Chine", p.5, banknotes circulated in China in Roman times. Others hold that Chinese banknotes were first introduced in the year 800 of our era. See "China Year Book" for 1933.)
H. L. Follin ("La révolution du 4 septembre", Paris 1921, p. 189) also attributes the downfall of the ancient world to its bad financial system and does not, like so many other historians, confuse symptoms (luxury, decadence, big estates, etc.) with the genuine causes.
2. Milhaud's Proposals and a Free Gold Market
We must begin here with removing a possible misunderstanding. Many people in England mean by a "free gold market" the obligation of banks of issue to pay for gold bars offered a stipulated price in notes and, vice versa, to give gold for notes. (See Henry Meulen, Free Banking, 1934. This forms the 2nd edition of the author's most valuable "Industrial Justice through Banking Reform", published 17 years earlier.) That interpretation is not otherwise customary. By a free gold market is meant practically the world over the permission for anyone to hold as much old as he pleases and make unrestricted use of it, i.e. entitling him to offer it to anyone at whatever price he chooses and, vice versa, to make an offer to any gold holder to give him something else in exchange for his gold, never mind whether the gold is in the form of coin or bars, gold compounds such as chloride of gold or gold leaves required industrially. Publicity of dealings and publication of prices offered, paid, and demanded, are indispensable for a free gold markets This is therefore what we shall mean here by such a market. The duty of banks of issue, on presentation of their notes, to redeem them in gold (one of the most fatal restrictions on banking ever conceived), has nothing whatever to do with a free gold market and even less the still more senseless obligation that a bank of issue must at all times furnish notes in exchange for gold. Such an obligation involves in reality a serious interference with the gold market and it might hence be well for our legislatures to consider the advisability of prohibiting banks of issue from purchasing gold. It is quite another thing for a really free gold market to admit private means of payment or even State paper money as legitimate means of payment.
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The cardinal importance of a free bullion market for the stability of the currency and, besides, the fact that a free gold market performs everything which had been mistakenly expected of the readiness of banks of issue to redeem their notes, has so far been only carefully thought out, so it seems, by a single "practical man", the Chinese financial mandarin, Wang Mao In. His memory would have faded if Karl Marx, in his "Capital", had not rescued him from oblivion, without however doing justice to the true meaning of Wang's proposals. These are only known to us by the severe criticisms passed on him by the Imperial Finance Ministry and by a public condemnation in an imperial Edict published w the Chinese State Gazette in 154, instigated by that ministry. But from the utterances of his enemies we learn that Wang was apparently the only real expert of the Government in matters of State paper money. (That on a free gold bar market the parity of banknotes offers at least as good a guaranty to the note holders as convertibility, is stressed, by Henry Meulen in his "Free Banking", p. 88.)
For those who in South Africa and elsewhere extract the gold from the soil, its value lies exclusively in its purchasing power. In practice this purchasing power presupposes, however, that its owners will have the gold minted or exchanged for paper money. Once Milhaud's system has been introduced, there will be an active exchange of gold for purchasing certificates. This exchange might take place, of course at par or with a premium or a discount. Now, all three cases are important for the proper functioning of Milhaud's system.
A premium of purchasing certificates on gold will only occur rarely and to a moderate extent, neither more often nor to a higher degree than formerly a premium of notes on gold. A premium is possible, and will occasionally occur, to the extent that a purchasing certificate at par can be more easily transported than gold. The difference in value, as formerly with notes, will not exceed about one-hundredth. If it rises above this, everybody will pay with gold rather than with purchasing certificates, this entailing their fall in value.
A discount of purchasing certificates against gold is crucially important. If, for instance, the owners of gold coins are only prepared to give 90 francs in gold for a purchasing certificate whose nominal value is 100 francs, this indicates hat the issuing centre has most probably made some mistake, e.g., granted persons credit in purchasing certificates who were untrustworthy or granted credit on too favorable terms for too long a period more especially.
The following would happen quite certainly in the case of a discount of purchasing certificates against gold. Everybody desirous of making purchases would inquire first for the shops indebted to the issuing centre, these shops being bound to accept the certificates at their face value as if they were gold coins, although they are at a discount on the market. A river of discounted purchasing certificates streams into these shops. In their turn, the shops can dispose of the certificates without a discount in one place only, namely at the issuing centre, by there liquidating their debts, which they perhaps contracted so as to be able to pay their staff. This they naturally do and the issuing centre then destroys the certificates. If notwithstanding that, the discount continues, this must be because shops where the holders of the certificates might dispose of them at par, are not within reach of the remaining holders or because such shops do not exist at all. From this it would follow that the issuing centre granted purchasing certificate credits to persons other than such as offer to the public immediately available and daily required goods or services. When this is once established, the issuing centre will go out of business since no one applies to it any longer for credits. The centre may perhaps have to declare itself-insolvent and the certificate holders may suffer losses. Later perhaps, those debtors of the issuing centre, who are its long term debtors, would accept the certificates at par and might straighten everything out again. What is certain, however, is that the first trifling discount acts as a warning signal for the issuing centre and the public. But in the absence of a free gold market the signal bell will not ring. Hence a free gold market is an indispensable condition for the proper functioning of Milhaud's system and of all other schemes depending on freely quoted means of payment (and only such constitute a safe safeguard against inflation)
(The Milhaud or Beckerath payment system is not indissolubly tied to gold, silver, platinum or any amalgam weight of metals as its only possible value standards. But for whatever alternative value standards are chosen by free issuing centres and their acceptors, a free market would be essential, so that a sound value measurement of its exchange media against these value standards would become possible. - J.Z., 28.11.01.)
A free gold market is therefore in a sense the place where purchasing certificates may be exchanged for
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gold. The older theory erroneously located the redemption at the bank,
All Laws and ordinances placing restrictions on the free gold market should be revoked. But from what precedes it also follows that Milhaud's system is in no way opposed to an effective circulation of gold coins; on the contrary, it favors it. However, the right of free private coinage, a right which has always and justly been considered as being essential to the old standard that is the right of every man to bring bullion to a mint and get it here minted into coin is not only not abrogated in Milhaud's system but expressly postulated. The attitude of his system towards gold and a gold coinage is that it provided against a shortage of them and even forestalls any possible shortage.
3. A Discount on Means of Payment in a Free Market, Compared with Inflation and Devaluation as Factors Accellerating Sales
a ) There are three kinds of discount
A paper means of payment is subject to three kinds of discount which economically are of very different importance:
through a faulty management of the issue;
through an error of judgment on the free market and
through obstruction of the market.
A paper means of payment to be good and suitable for making payments generally must be at any time easily disposable by its holder at its face value, be it through the possibility of being able therewith to purchase something at shops, of to pay with it wages or other creditors, e.g, the department of taxation or the landlord. If the centre issuing the paper money does not make sure that the paper money can be thus utilized by its holder, a discount is the inevitable consequence.
The easiest, most convenient, and safest way of immediately recognizing administrative mistakes consists in subjecting the paper money to daily and hourly estimations of its value on a free market. Hence a free market, and every facility for true quotations and publication of the exchange rates as widely as possible, are the public's best insurance against administrative errors and abuses.
We have already referred to market restrictions i.e., to the prejudicial effect on the market's freedom owing to creditors and vendors having a right to claim a given means of payment, say gold or banknotes, even though only a limited and relatively very small quantity of this means of payment exists or can exist. Where creditors command such privileges, the preferred means of payment inevitably stands at a premium periodically and all other means of payment, though well administered, stand simultaneously at a corresponding discount. There is no need to re-elaborate the subject here.
b) Who suffers by discounting of a sound paper money?
If the value of a sound paper money is underestimated on a free market, this must be because some holders are mistaken about its true value and pass it on at a reduced rate. The loss here is entirely borne by the holders. This is even valid in cases where the holders erroneously assume that they can speculate with a sound paper money, pass it on therefore with a discount and then hope to fish in troubled waters. Should the paper money be really sound, such speculators would thereby merely make a present to the public. Accordingly, there is no reason whatever to prohibit such speculation. The day will come when this will be recognized and then speculations for a fall in the exchange rate of means of payment will be as little prohibited as it is prohibited today to buy railway tickets at par and sell them at a discount. The railway suffers no loss thereby and certainly not the public. A speculator who thus "speculated" would justly be regarded as mentally not quite normal although not a danger to the community. (Things would be different if the railway management, fearing an "inflation of tickets", printed only a small number or railway tickets and, moreover, instead of simply meeting the demand of its booking offices relied on
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"railway index numbers", "trend curves , etc,, as do our central banks of issue, or should do, according to prevailing ideas.)
Hence a discount of inherently sound means of payment, occurring on a free market, injures only those who underestimated its value. It profits, however, others who recognize its actual value and convert it into goods or services there where it must be accepted at par, that is primarily at the shops in debt to the issuing centre. Consequently, a discount occurring on a free market, in the case of a sound means of payment, promotes sales and thereby creates additional employment. Here the example furnished by Milhaud (Annals, 1933, 1, p. 57, A Gold Truce, p 57) deserves mentioning. The generalization of this example into a general discount theory would offer a splendid theme for a doctorate thesis!
c)Discount, inflation and devaluation
That a decrease in the rate of exchange increased sales has not escaped the attention of wholesalers and politicians. This effect was indeed observed day by day in external trading. However owing to the uncritical attitude common in those circles (see Adam Smith's "Wealth of Nations", vol. 1, p. 289, World Classics edition), what occurs in external trading has been quite illegitimately generalized. People have reasoned that if on a free market a natural discount of a few o/oo exercises already a favorable effect, how much more favorable should be the effect of a depreciation of a means of payment by many % through inflation or devaluation! It is as if someone argued: if sailing is helped by a fresh breeze, how much more by a tempest!
It need scarcely be pointed out that a discount on a sound means of payment subject to a free exchange rate and an artificial depreciation of a means of payment made legal tender by a government; are two wholly different matters. Since a discount on the first means of payment drives it to where it has to be accepted at its face value, it accelerates the circulation of goods and operates directly by inducing the goods owners to pay their debts to the issuing centre to remove both the means of payment and the discount thereon from the market. (That the issuing centre, like the Bank of England is to destroy the returned certificates should be laid down in the statutes.) An inflation or a devaluation acts quite differently. The sale of goods, it is true, is momentarily raised but in what manner? One reason why inflation and devaluation promote sales is undoubtedly that during inflations and devaluations, as many price statistics have shown; prices rise quite unequally, in times of disturbed currencies the prices in the shops of even the same street frequently differ for the same article. Indeed, it may happen that in large stores the rise in prices in the different. departments takes place in various proportions. Purchasers note such differences quickly. Even women and children exhibit sometimes amazing aptitude in discovering price differences for the same articles in different shops. The desire to buy is naturally much more stimulated by differences in the price of the same articles in the same locality and at the same time than by low prices prevailing generally, where, the articles to be compared for the purpose of establishing
their relative cheapness are not visibly present, but belong to earlier, not remembered days. (The masses forget nothing so quickly as prices.) Owing to the disparity in the rise of prices, the sales are largest in those that have least adjusted themselves to the inflation or devaluation. Their stocks are soon bought up. The shopkeepers have, it is true, some difficulty in replenishing their stores, but this has noting to do with the sales of those traders whose turn comes next. Here shows a great difference in the effects of a naturally arisen depreciation and an artificial one. Whilst the discount produced on a free market injures not a single creditor, that produced by inflation and devaluation, injures every creditor. Why this? Because means of payment properly administered and not constituting legal tender, but left to a free market, are in case of a discount automatically removed by the market from the market, resembling in this the action of a sound physical constitution which easily expels from the circulation small quantities of weak poisons: Artificially inflated or devaluated paper money, on the contrary, continues circulating and can be forced by every debtor on his creditor.
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Nor does a discount of a sound means of payment arising on the open market in any way affect injuriously long term credit or the production of "durable" goods. Inflations and devaluations, on the other hand, hold up frequently enough even urgently needed work if it does not directly serve consumption. Hence, e.g., the collapse of dams in times of inflation, which in recent years has cost millions of lives in China, and even in Germany, after the inflation was over, inflicted losses amounting to several hundred million gold marks, quite apart from the sacrifice of human life involved,
4. One more the Time Validity of the Purchasing Certificates
The determination of a suitable time validity of the goods certificates and, in general, their timely withdrawal from circulation has appeared to critics as a special difficulty in the Milhaud Plan. (See Annals, 1933, 2, p. 238, as well as many other passages.) As a matter of fact, this point calls for close examination, for next to the goods cover, a sufficiently great intensity of reflux of the certificates is supposed to replace their being covered by gold metal. Even here, however, the Milhaud Plan is more carefully elaborated than some critics have thought. This part of the plan is, besides, admitting of being amended without interfering with the other components of the plan. To enter into some particulars:
a) Ensuring the reflux the of purchasing certificates by a depreciation in their value after the lapse of a stated period
Milhaud proposes such a depreciation in the Annals (1933, 2, p. 238). The certificates, according to that statement, are not to lose their value entirely after their validity has expired, but to suffer only a depreciation of between 5% and 10% in certain circumstances, the deduction to take place when the certificates are returned to the issuing centre.
This proposal considerably diverges from the proposals of a periodically depreciating paper money, such as that brought into circulation at Woergl. The depreciating money theorists demand a weekly depreciation of about one-thousandth in the value of their notes during their circulation. According to Milhaud's proposal, the depreciation is only to take place after the certificates are over due, could have been returned to the issuing centre long ago and after other means of payment in place of the certificates, have probably reached the centre and are waiting to be exchanged. Moreover, according to Milhaud the depreciation is only to begin after the goods, for which the certificates are to be exchanged, have probably also undergone deprecation, namely through deterioration in quality. (If a bank's debtor has not been able to sell his goods; if the goods have been spoiled by prolonged storage; if thereby the debtor is affected in his solvency; and if it also appears that certificates have been hoarded instead of being used for purchases, the bank should declare the certificates as null and void and allow the debtor a corresponding amount.) Milhaud does not calculate on a depreciation of one-thousandth part weekly as the depreciating money theorists do, but on a single deduction of fifty or even hundred times as much, which would, of course, operate far more intensively. (In practice, it might be found eventually that less heavy deductions would serve as well.)
By confining the depreciation to the moment of the reflux where it is economically harmless, and by thus not interfering with the circulation at all, Milhaud has placed the idea of depreciating money in its true perspective and has indicated a method of technical realization which would be tolerable in practice, By altogether replacing the idea of a means of payment which is only accelerated in circulation, but which otherwise continues to circulate, by the proposal of a means of payment which wholly disappears from circulation after a short time, he revealed the very core of the idea of a money the value of which gradually disappears. (If I may express it this way, for evidently none of Silvio Gesell's theories has played any part in the elaboration of Milhaud's plan.)
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Since the ideas of the theorists of depreciating money are widely entertained in circles closely in touch with governments, and as these theorists would therefore certainly oppose Milhaud's proposals as far as they could, the following additional remarks may be in place.
The basic idea appears to be that a means of payment should automatically and periodically depreciate to prevent its being hoarded. Money claims, however, must be protected by an index clause, so that when prices are falling debtors should not have to pay too much and when prices are rising creditors should not lose anything. This idea is so firmly embedded in many minds that it is almost hopeless to try to convert those concerned. The periodical depreciating of means of payment has been already commented on. As regards index clauses the following may be said.
The ideal, which is to maintain the purchasing power of the creditors claim, is unrealizable. To begin with, an index currency, even if it should fulfil all expectations, could only maintain the purchasing power of the totality of the creditors' claims. But the individual index diverges to such an extent from the general index that almost nothing is gained thereby, except during an inflationary period. What degree of divergence between the individual index & the general index renders the latter valueless?
If we use the standard applied by the index theorists themselves, namely that a few per cent of difference in value is already to be taken into consideration, then the impracticability of the whole index method in at least ninety per cent of all cases directly follows.
b) Exchange of "overdue" purchasing certificates, for credits granted on long term notices
If all the issuing centres debtors promptly Liquidated their debts; if no orders received by them were cancelled; and if moreover, those of the issuing centre's debtors, who did not obtain sufficient purchasing certificates, repaid their debts in legal tender, then the issuing centre could and should do with the "overdue" certificates (surrendered despite their being overdue, with the request for exchange ) nothing else but just exchange them for the legal tender received, in which case some sort of deduction would be right and fair. This, however, is not the only conceivable case. Among the customers of a work supply bank there would be frequently, perhaps even always, some who would gladly obtain credits for a longer term than the bank can grant without endangering the stability of the value of its goods warrants, i.e., if the bank operates solely on a goods warrants basis and without other cover than such goods and services as are immediately exchangeable for goods warrants. Accordingly, the bank's debtors would also include persons who would benefit by an extension of their due credits. That might happen, say, with manufacturers temporarily embarrassed, for instance, by a strike or a fire, or who have had big orders cancelled. To such customers the bank could, without difficulty, allocate as long term credits those amounts that correspond to the overdue goods warrants. In turn, the bank would credit the amount corresponding to the long term loan to customers presenting overdue goods warrants with the request for permission to utilize them although out of date. The procedure would have to be as follows. Anyone who, after a lapse of 3 to 6 months, presents overdue warrants at the bank, will receive a receipt for a credit only withdrawable at a date corresponding to the date of the long term loans granted by the bank, which credit, furthermore, can only be claimed, if claimed at all, in the form of goods warrants.
In this connection we may also refer to the example of the German Rentenbank warrants. Pursuant to par. 12 of the Act of 15 October 1923, these warrants could be exchanged at any time for 5 % interest bearing annuity bonds of gold value. This exchangeability was intended primarily as a safety valve in the case of Rentenbank warrants standing at a discount, for given such a discount it was anticipated that the warrants would be exchanged for bonds and would thus, with their discount, disappear from circulation. This arrangement might be, mutatis mutandis applied to purchasing certificates, thereby creating the possibility of exchanging the certificates for interest-bearing credits or bonds, not only when overdue, where a discount is inevitable, but at any time, most especially in case of a discount during their time validity. As a rule, the issuing centre would not be at a toss for investment
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opportunities. Should, however such facilities be lacking, then the bank would be precluded from exchanging the certificates for credits or bonds. In the Annals (1933, 2, p. 238), Milhaud proposes a second method of utilizing credits created by exchanging overdue purchasing certificates, namely by making advance payments for orders given to the bank's customers. An obligation on the part of customers to accept such orders would have naturally to be included in the statutes or in the business terms of the bank. Such provisions could be no doubt easily drawn up At all events, the orders period, just like the withdrawal period of credits acquired by surrendering overdue goods warrants, would have to tally with the loan period or respite granted by the bank.
Where advance payments for orders are made, it would be necessary to conclude a circumstantial agreement between the holder of the goods warrants and the party accepting the order concerning the details of this order. (We may assume that, economically considered, the bank is only a controlling body an that, economically viewed, the credit relations only concern the holders of goods warrants, on the one hand, and the bank's debtors on the other. The bank may therefore neither accept a time risk nor a commercial risk (e.g.) through the bankruptcy of its debtors. This understood, there is no likelihood of serious mistakes being made in the drawing up of business terms.)
The credits at the issuing centre may be interest-bearing. If we consider that many savings banks, including English building cooperatives, accept deposits as modest as 1 mark or 1 shilling, there will be no need to be exacting as regards the minimum amount credited in any given instance. Three marks, say, might be allowed as a minimum sum for paying in.
c) Utilization of overdue purchasing certificates for paying the debts of third parties at the bank
In the Annals (1933, 2, p 238) Milhaud calls attention to a special use for purchasing certificates that merits examination, i.e., e. the payment of other's debts to the issuing centre. To offer an example: Someone presents himself-at the bank with purchasing certificates to the value of 1.000 francs and states that he desires to pay them in to the credit of Mr. X, manufacturer. (Should he not know anyone in whose favour he could make a payment, the bank could easily name a debtor who would appreciate such a payment being made to his credit. Most probably someone could be found, say a director of a theatre or a hotel keeper, who would state that in all such cases he would agree to a payment being made to his credit, if the payer in does not expressly stipulate someone else.) In accordance with the question submitted to him Milhaud discussed only the possibility of utilizing the purchasing certificates on the last day of their validity. But there is no good reason why this special mode of utilization should not be generalized and apply both during and after their time validity, provision being made for this in the banks business terms. It is worth mentioning that there is a blank in the existing legislation, at least from the bank's viewpoint.
The French Civil Code, par. 1236, which might be applied here, reads:
"A liability may be met by anyone interested therein, e.g., by a joint debtor or a guarantor. The liability may even be met by a third person not interested therein, provided hat this person acts in the name and on account of the debtor or that, if, acting in his own name, he has not had conferred on him the creditor's rights".
Par. 267 article 1 of the German Common Law (Buergerliches Gesetzbuch) is broadly to the same effect:
"If the debtor is not bound to pay personally, a third party may make the payment. The consent of the debtor is not required."
This paragraph seems to be modeled on that in the Napoleonic Code but is better expressed. However, both the German and the French legislation lack the provision that the payee shall acquire in all such cases a claim on the debtor equivalent to the payment made. It is otherwise in the old Prussian Civil Law (Allgemeines Preussisches Landrecht) which in part 1, article 16: par. 50, provided for such a claim. In any event, the bank's business terms should fill in the gaps to be found in this respect in the Napoleonic Code, for instance. The business terms might stipulate:
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"Everyone indebted to the bank must agree to his debt being partially or entirely settled by others if the settlement has to be in goods warrants issued by the bank. To those who settle his debts at the bank, the debtor shall be bound at their request, to transfer goods or services; provided they are not already ordered. The transfer shall take pace if a customer of the bank's debtor does not in the ordinary way accept the goods he ordered from the banks debtor, or if the customer expressly agrees that another person is to take over the obligations arising from his orders. The debtor, when paid for goods, shall accept at its face value, like cash, the bank's acknowledgment of repayments of his debt. So far as his business situation may be considered to admit this, the debtor shall be also bound to accept a fresh order from the holder of the repayment acknowledgment. In cases of doubt, the bank shall decide what the business situation admits. The bank shall be entitled to make a charge to the bearer of the goods warrants which serve to liquidate the debt (the third party The Ed) for the drawing up of a repayment acknowledgment. Every such acknowledgment shall state the earliest day when it may be given to the debtor in payment, The day shall be fixed by the bank in agreement with the due date of the debtors repayment obligations and this in such a way that, on the one hand, the debtor need not pay earlier than his arrangements with the bank demanded and, on the other, that the payee may present the warrant in payment at the earliest opportunity",
Here is an example: Someone surrenders overdue warrants to the face value of 1.000 francs. The bank, to begin with, charges a fee of 20 francs for the exchange, leaving the presenter with 980 francs. The bank then examines its books. It finds that the manufacturer to whose credit a payment is made, will have to pay 200 francs on the 1st proximo and also 200 francs on each of the four succeeding months. In this case the bank can hand the presenter of the overdue goods warrants four warrants of 200 francs each, due at intervals of one month and a fifth one, of 180 francs, due after five months. That is, the bank may not make out a warrant for 980 francs which the manufacturer has to honor directly, nor one for that sum to be honored only after five months.
5. The Milhaud Plan and the French Tradition about Means of Payment
In his famous work, "Die Banken" (Banks, Leipzig, 1854, vol. 1 p, 78 ), Huebner reports the following :
"Business in France decidedly benefits by private bills of exchange being widely used as a means of payment. The tailor accepts from his customer a "billet à ordre", pays with it his cloth merchant, who pays therewith this manufacturer, who, in turn, passes it on to the bank. This is an exceedingly practical method from a business point of view. . "
A few decades later Dr Eugen Kaufmann remarked in his "Das franzoesische Bankwesen" ( French Banking, Tuebingen, 1911, p, 197):
"Even in the most modest business transactions the bill of exchange has been for a long time widely employed as an instrument of credit. Artisans and small tradesmen pay for their supplies in short term "billets á ordre". Since the granting of order book credits is not customary, it is a common practice to make out thirty-day certificates drawn on those customers who did not pay in cash and among farmers bills of exchange a for the next market day."
Similar practices were formerly prevalent in many localities in the Rhineland. There it was the custom to try to secure from traders, to whom payments were due, bills of exchange as cheaply as possible and then to remit them to the traders who had naturally to accept them at their face value. A Krefeld banker, who was; for a few months, German Finance Minister in 1848 (Hermann von Beckerath, the author's grandfather? The Ed. ), amassed a large fortune through systematically mediating such transactions. He acquired thereby a profound insight into economic matters, so that until his death in 1870 he was regarded as a high economic authority.
Huebner and Kaufmann do not refer to the use of bills as a means of payment to the bill debtor. It is however, scarcely to be presumed that the idea should not have suggested itself-in France, as it did in the Rhineland. If we assume that that was so, Milhaud's system would be only the scientific elaboration of
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an old French popular custom. Through the issuing centres proposed by Milhaud, the practice among the older artisan class is, on the one hand, made available to our workers, in that the issuing centres, so to speak, suitably fractionalize and standardize the bills, so that they can be used for wage payments, whilst, on the other, the procedure is made available to exporters and importers, in that the creditor, just like the French tailor, agrees to be paid with his own bill after having become a debtor.
The advantages of the French payment system appear to have been better understood in Germany than in France itself. The reason is probably that in Germany an attempt was made to explain why France remained relatively unharmed by all the great monetary crises. The explanation was found in the manner in which,thanks to Colbert's Bill Decree of 1673, large sections of the French people contrived to emancipate themselves from State money and especially from a metallic currency, so that the latter constituted for them a standard of value only. We dedicate to them here a passage from Goethe's "Farbenlehre" (didactic part, par. 732), where he says that "a continuous practice which fully explores the sphere to which it is confined by trying out all accidental opportunities will conveniently reveal itself-to a theorist who is clear-sighted and honest as a highly perfected solution."
6. "Structual" Unemployment and the Milhaud Plan
Today we call structural unemployment that type of unemployment which is occasioned, or rather which is supposed to be occasioned, by changes in the process of production. Among such changes are technical ones, more especially increased use of machinery; also, growth in population, regular or temporary, the latter due to the importation of foreign laborers for the execution of extensive works, a growth which once the works are completed, appears as a population surplus if the workers are not entitled to, or lack the initiative, to procure employment for themselves according to Milhaud's plan or if the Government remains likewise inactive.
The political economy of the future will have to answer the question how many persons at least would have to associate in an order and payment community issuing its own means of payment, the minimum number of persons whose united economic power is sufficiently great to provide employment for all its members. In a small village, 20 might be conceivably a minimum. 2,000 would in most cases probably suffice. And certainly, more than 20,000 would only be exceptionally required. We should have to presuppose:
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that the members live sufficiently near to one another;
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that the members order their necessaries through the good offices of their corporation from as low a
number of shops and artisans as possible, preferably situated in the same locality as the members;
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that the members arrange for the passing on of their orders. Particulars relating to this will be found in
the Annals (1934, 1, also in peace plan 190, pp. 16ff). The members would have therefore to insist that
every shopkeeper and every artisan to whom orders are given should place himself-orders in advance,
covering his requirements for some time, perhaps for three months;
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that the passing on of orders is pursued further, with a view to their being passed on in ever increasing volume until they reach the parties directly employing labour;
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that the demand for workers caused by the orders placed should be met, so far as this is technically feasible, exclusively by employing members of the corporation;
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that all concerned, both the members and the recipients of orders, undertake to accept the goods warrants of the corporation at their face value like ready money.
If these conditions are complied with, the members, whether there be 2,000 or 20,000 of them, would probably be all employed within a few weeks, although possibly not on such work as they had been accustomed to. In any event, they have created for themselves supplementary opportunities of work, and not opportunities wrested from others.
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The new technique which has shown that all the manual processes in every kind of productive activity may be reduced to some forty or fifty manual movements and that therefore a proper subdivision of a given working process would render it possible to employ untaught workers in any kind of industry, this new technique is perhaps destined to play as important a part in providing employment as the technical bank expedient of goods warrants (purchasing certificates). The new technique of separating work processes into their elementary constituents which need not be, properly speaking, learnt, would even render employable numerous workers between sixty and seventy years of age, enabling them easily to earn their livelihood and this perhaps by only working four hours a day. It would not be difficult to imagine that such workers regarded today as disabled, should form themselves into special workers' cooperatives following the Italian model (cooperative di lavoro) and waive all claims to poor law assistance, provided they are permitted to pay with purchasing certificates (with or without the help of a work supply bank). This view will not be considered utopian if we remember that in some industries already today, as e.g., in agricultural circles in Dakota and in the fish conserving industry of Norway, the expression is frequently heard: "Anyone who has "eyes and hands" can work here". Nor does the new technique prevent certain workers willing to train themselves, mastering three or four working processes, thus easily earning more than their supervising engineer. Almost every large factory offers examples of this kind. When such a worker leaves, three or four "unskilled" men are required in his place.
Even by themselves, these purely technical considerations suggest that the formerly widely prevalent view as to the relation existing between machinery and employment facilities was erroneous. The difficulties experienced in changing one's occupation, due to Guild rules, trade regulations, social conditions, and frequently the indolence of the unemployed, were confused with unemployment as such.
To generalize from isolated observations, argues a capacity not usually found in the average man. In his "Vom Beruf unserer Zeit fuer Gesetzgebung and Rechtswissenschaft" (Of the Vocation of our Age for Legislation and Jurisprudence), the first edition of which appeared in 1814, Savigny wrote some pages on this which are truly worthwhile reading. Here is one passage:
"We must always have clearly and vividly before us a conception of the whole in order really to understand a particular case. Hence it is only theoretical and scientific reflection that makes practical experience fruitful and instructive".
The earlier observations regarding unemployment were almost without exception falsified by the introduction of preconceived notions about the causes of unemployment. In the circumstances it seemed natural to consider machinery as a contributory cause of unemployment, We know, for instance, that the Danzig Council secretly arranged for the drowning or suffocating of Anton Mueller, the inventor of the "ribbon loom", to obviate that the mill employees should be thrown out of work by the new machine. (Roscher, "National Oekonomik, par. 125; Marx, "Kapital", section 4, note 194.)
Our ancestors ought, however, to have noticed the following. Every age believes that the machinery it possesses is too good and produces too much, and every succeeding age is amazed that its ancestors could reconcile themselves to such primitive tools and such a scanty output. Every age is also convinced that formerly in the national economy, including all stores, there was no superabundance of clothing furniture, and other commodities, but rather, measured by its requirements, a shortage of these.
Some student of the older economic literature might render a public service by collecting some expressive utterances by our forebears about former economic crises and their supposed causes. Such a collection would not only be of marked scientific value, but would make interesting and entertaining reading and appeal to the man in the street and the daily press. The collection would, among other things, show:
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that each generation regards its latest economic crisis as worse than any ever experienced before;
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that in any given generation only a few individuals, quite ignored by thecommunity, have been acquainted with the conditions that prevailed during former economic crises;
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that every generation specifies the same causes for any economic crisis, assigning the chief
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responsibility for it to "the rapid spread of machinery in this age"; and
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that in reality some of the former economic crises were neither less severe nor less prolonged than the
present one, as when, for example, a century ago a third of the working population of England was
sometimes without work, or as when the crisis that started in 1873 lasted about sixteen years. (Daily
wage of English blast furnace workers in 1873, 8s.6d.; in 1878, 2s.9d. See: "Uebersichten der
Weltwirtschaft" - Surveys of the World Economy) by Neumann Spallert, year 1883-1884, p. 48 ).
It might be also worthwhile not only to collect the mistaken views expressed about the nature of economic crises, but also those views which not even found any spokesmen because they were common to all and deemed self-evident. One of these is that in every national economy the sum of available work is a given factor and is not capable of being increased except perhaps by the omnipotence of governments, a sum
not determined by the social need for products, but, on the contrary, one which itself-determines the possibility of providing society with these.
Workingmen, economists, and governments so far conceived the sum of available work just about as they
do the number of acres of fertile land in a country or the seating accommodation in a train.
The demand of workers, persistent for decades, that the amount of work still available should be distributed as equally as possible during trade depressions, i.e., to shorten the hours of labour and to allot the "saved" hours to the unemployed, if necessary by reducing the general wage level (Mostly they recommend now reduced working hours for all. - J.Z., 28.11.01), this time honored demand is based
entirely on the conception of a given quantum of available work which, in times of emergency, has to be rationed like bread in a besieged city.
(Henry Meulen, in his periodical "The Individualist", June 1966, reports that no less than 230 theories of the cause of crises have been put forward. That even in the case of a besieged city, price fixing and rationing are not advisable was well shown e.g., by John Fiske in his article: "How to Lose a War", Essays on Liberty, vol. XII, p. 136 ff, Foundation for Economic Education Irvington-on-Hudson, New York. - The Ed. )
It is one of Milhaud's greatest merits to have tracked this erroneous conception to its source. This he had done by pointing out that in the absence of purchasing certificates the sum of available work is indeed given, in that it is circumscribed by the amount of money circulating. At the same time he showed that, assuming such certificates, the production based on the division of labour of the own livelihood of all circles suffering under the depression, can be an inexhaustible source of opportunities for work among a population, without affecting thereby the money in circulation, either as to amount or value.
Milhaud's teachings have not yet penetrated to the people. That is comprehensible and no fault of theirs. But unfortunately his teachings, have also not yet penetrated to the governments. Although this is also explainable, it is not excusable at all. Ah! If only the world's statesmen possessed the mentality of the great Chinese reformer Sun Yat Sen! Sun resigned for the explicit reason that, as he discovered too late, he lacked the knowledge requisite for solving the social question in a positive way - which is likely to be the most honorable motive that ever moved a statesman to resign his powers over a people. (Compare with this the reasons for Sulla's, Diocletian's s or Charles the Fifth's abdication.)
Allowing for one or two exceptions, the world's statesmen are not as sensitive as Sun. For them, the quantity of available work is still always a constant number. Accordingly, every Government has thus far in practice occupied the position expressed by Herriot, otherwise admittedly one of France's most enlightened spirits, in is speech he of 6 Oclober 1934, where he stated: "I have often said it and repeat it here: unemployment among us is largely the result of an inflation on the labour market which followed the War and is related to the reconstruction of the devastated regions. We cannot possibly find work for all our fellow citizens and at the same time for the many foreigners who have settled among us etc." (Herriot did not answer the question what would have happened if there had been no war and if France's dead and disabled had remained strong and employable and had children to boot! ) And if there had been no destruction in France! - J.Z.)
One would think that the responsible guides of the destiny of nations might today, when their fundamental mistake has been in every way refuted, show some modesty in judging the actual causes of the trade depression and, above all, cease publicly to represent obvious consequences, such as the glut on the labour market, as causes.
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On the contrary, already on the first publication of Milhaud's proposals, it transpired that not only did they not modify their views on "structural" unemployment as a result of the new light shed on the subject, but actually, put forward these very views as arguments demonstrating the alleged impracticability of the Milhaud proposals.
Some remarks on the untenability of the current opinions on structural unemployment are therefore not superfluous. To prove this untenability, we shall apply here a mathematical method much favoured because of its simplicity and convenience "the method of extreme cases". In considering the extreme limit, the cases falling this side of the limit are implicitly dealt with. The actual limiting case may be pure fantasy; its object is solely to clarify a problem.
Let us start with the most important case, that of the employment of machinery to the utmost extent. We may imagine that one man say Aladdin with his magic lamp is able by means of his lamp alone to produce everything that mankind needs or has ever produced, and that working daily for a few minutes only. Aladdin can therefore manifestly produce far more cheaply than anyone else. In fact, he might even furnish everything gratis. However, as the few minutes, during which he rubs his lamp, do involve some effort, he asks a trifle for his pains. Let us further imagine that Aladdin offers his wares through the medium common today namely shops. Would the position of mankind be then such that its members could not survive because there was no employment opportunity?
Not to complicate the problem, let us assume that Aladdin supplies his wares to shops on credit, as is now customary, say at 3 months' term. What does this mean? It means that Aladdin is satisfied with being paid in legal tender, although for the moment, he does not know what to do with it. At any rate, Aladdin's wares lie on the shelves of the shops ready to be sold. The shopkeepers, of course, have already notified all manufacturers, artisans, and others, that they are placing orders with Aladdin only, because his wares are by far the cheapest. Result: all workers, both journeymen and apprentices, are discharged from the factories and all artisans are without employment However, for a few days or even weeks all is "as usual". He who still possesses legal tender, brings it to the shops and gets the desired commodities. He who has not any left, borrows, begs, or steals some, just as happens today. But very soon Aladdin holds all the legal tender in the country and in the world. And at this point our problem begins.
The case most favorable for mankind would be if Aladdin, in turn, spent the means of payment he had received on making purchases. It is difficult, however, to imagine what he should buy with all this money given to him, for his lamp supplies him with a superabundance of everything. But he might, perhaps, purchase some personal services that are beyond the range of his Lamp. Should this happen, the position of mankind would not be very dignified, but not everybody would be wholly unemployed. It would, however, be altogether different if Aladdin did not spend the money he had received, that is if he hoarded it. Mankind would find itself-then without money and without the means of subsistence, precisely because it had no money, and would, moreover, be without work and without the hope of earning money within a calculable period.
(A phrase, such as that in the "Matin" of 22 November 1934, "... the eternal truth that work creates money and not money work", would, in such a situation, not be accepted with indifference. It would, on the contrary, be considered as an attempt to deceive the people about its situation and the author of the phrase would in vain try to excuse himself-by pointing out that in 1934 most people, if they did not chance to be unemployed were of his opinion.)
There are two means of escape. One is to kill Aladdin, make a bonfire of his wares, and confiscate his money, redistributing it and thus restoring the status quo ante. Some Caesar, ready to do this or at least ready to promise to do it, would soon be found. But there is another way out. This, however, requires a somewhat greater reflective effort: it involves the realization of the Milhaud Plan. Imagine now that a Pompey should oppose the elected Caesar. (By the way, most historians underestimate the greatness and significance of Pompey, who. restored the liberties destroyed by Sulla and protected them for several decades by ingeniously conducted defensive wars against Asiatic despotism and internal enemies. Whether the world would not have benefited if Caesar, with his good fortune, had been drowned in the
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famous tempest recorded, might be worthwhile considering. Imagine, then, a Pompey addressing the people in this strain:
"Workless masses! Is Aladdin really the final cause of your unemployment? I believe it lies somewhere else. Instead of offering you, however, lengthy explanations about the situation you find yourself-in, I prefer to state at once what I would do if you appointed me dictator.
"Without delay, Aladdin would receive an ultimatum from me. I should say to him:
'We are quite prepared to take your products, but not on the old terms. We are ready to receive them as a gift and to spend the rest of our life in idleness. We are, however, also prepared to pay for them if you should insist on this. Only the present means of payment has become impossible. In future you must either accept Milhaud's purchasing certificates or cease to do business with us. Order anything you like. We shall produce it and you can pay for it with purchasing certificates. If you decline our alternative offers, your absence will be preferable to your presence. We shall regard you as an undesirable alien; we shall levy on your palace the legal house taxes; and impose an income tax on the revenue you derive from your lamp. Both taxes will be payable in old money or in purchasing certificates. Should you attempt to manufacture such certificates with your lamp, we shall discover this by checking the numbers on the certificates and you will be charged with forgery.
'If you prefer, you can hoard the means of payment you have so far received from us. We do not require them, as the Milhaud purchasing certificates enable us to dispense with them. An immediate answer is imperative, or we shall fight you with the economic weapons supplied by Milhaud'.
"Thus, O workless masses, would I, Pompey, address Aladdin. And if you have attentively listened to what I have said, you will agree that your unemployment is not "structural", but, like any other type of unemployment, only due to your ignorance of the Milhaud plan or to despotic laws prohibiting its application. Aladdin's amp was only a 'causa occasionalis' of unemployment, not the effective cause."
This Pompey might say. But any people, calmly listening to such a leader, could not help noting that a population entitled legally to have recourse to the Milhaud Plan cannot be thrown out of work either by social or technical progress or even by Aladdin's magic Lamp. It could only benefit by these.
( Editor's note: Aladdin's tamp considered as "absolute" property which would anyhow exclude all violent and confiscatory means and not as a natural resource to be made accessible to all e. g., by means of the free access principles developed by Theodor Hertzka or by the equalizing tax proposed by Henry George - and, furthermore, assuming that Aladdin is not at all interested in obtaining purchasing certificates either but is completely content with his self-sufficiency, then indeed, there could be no trade with Aladdin. But this would not be a disaster, either, as it would not preclude the unemployed from independently producing their own livelihood, as before, but in the absence of the customary means of exchange, hoarded by A, exchanging their own products by means of the system which Ulrich von Beckerath, because of his extreme modesty, always only refers to as Milhaud's. Should A, at some later stage, perhaps when his tamp has been broken, try to utilize the stocks of money that he had accumulated, in his first enthusiasm after obtaining the lamp, he would find that the others, being monetarily independent from him and his money stock, would refuse to accept his money and he would be in the same helpless position a dictator would be in, whose means of payment would be refused at a time when his revenue has been stopped by means of a well or organized and just tax strike, in which the strikers keep going all the services they still desire by paying for these themselves.)
7. Alleged Statistical Objections to the Milhaud Plan
That trade depressions recur at intervals of about ten years, was naturally noted by various earlier economists, as by Karl Marx, in his "Kapital" (7th. ed., ch. 23, p, 570 ). A few mathematically trained observers were thus led some decades ago to surmise that the ten years' interval from depression to
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depression might have a special cause that had nothing to do with capitalism or any similar "ism". The first to express himself-quite definitely on this subject appears to have been Jevons in his paper "The Solar Period and the Price of Corn", published, a year after his death in his "Investigations in Currency and Finance" (London, 1882, second ed. 1909, the latter unfortunately much abbreviated), a work containing a number of exceedingly valuable investigations. Ridiculous as this suggestion may have appeared to Jevons' contemporaries and still appears to most, nevertheless if it be a fact that the sun's heat radiations are subject to a certain periodicity and if it be also a fact that these radiations precisely coincide with the frequency of sun spots; if it be further conceded that the radiations influence the weather, or, more correctly, produce it, then it may be granted that our harvests, which vary primarily with weather conditions, are indirectly influenced by the frequency of the sun spots and are, therefore, abundant or poor at periodic intervals. In its turn, the harvest is a social factor of prime importance. It defines the purchasing power of the country population, that is of more than three quarters of mankind. It is, further, of weighty significance for the purchasing power of the urban populations. Jevons' theory suggests the desirability of inquiring whether there is a sufficiently marked correlation between the well known sun spot period recurring on the average every 11 1/9 years, the quantity of the harvested produce, its price, trade depressions, and other social phenomena. Should the correlation prove sufficiently marked, a causal connection between these phenomena, based on the preceding reflections might be suspected.
Jevons' investigations, and even more so those of his successors, have placed beyond all reasonable doubt the above interrelations which were already suspected by the older Herschel. (See the unjustly forgotten standard work by Otto Schmitz. "Die Bewegung der Warenpreise von 1851 bis 1902" (The Movement of Commodity Prices from 1851 to 1902), Berlin, 1903.) The results of Jevons' investigations might be regarded by some as forming a serious objection to Milhaud's proposals. It might be urged, for instance, that if it be true that a factor, so entirely beyond man's control as the solar radiations, is manifestly connected with the periodicity of the trade depressions, then little can be expected from such a simple expedient as purchasing certificates that take no notice whatever of the sun's radiations. This objection can be easily refuted.
That in correspondence with the solar radiations the harvests are abundant in one year and poor in another, only means, so far as the Milhaud Plan is concerned, that the Plan will make no difference in this respect. In fact, Milhaud has never maintained that the adoption of his Plan would produce an economy no longer subject to economic depressions. Milhaud's Plan would have a quite different effect. Singular as this may appear to mercantilists, under his system an abundant harvest would not mean that men will not be able to satisfy their hunger, but the contrary. In other words, his system renders it possible that men should actually reap the advantage of an abundant harvest. Indeed, anomalies, such as that of the year 1872, with its bad harvest, high prices (the highest during the nineteenth century), and, as a direct result, high level of employment, high wages, and general wellbeing, will not be known under the Milhaud system of means of payment.
Economic statistics suggest another apparent objection to the Milhaud proposals. Numerous carefully conducted investigations have shown that there is an exact correlation between a decline in prices and a fall in the level of employment. Not only is it possible to prove that, in intervals of about eleven years on the average, there is a fifty per cent drop both in the price level and in the employment level, but that much smaller decreases in prices are statistically associated with a corresponding fall in the level of employment. The following mistaken inference might be drawn from this: These statistics indicate, that the employment level is ruled by very powerful influences against which so simple a method as that of Milhaud is impotent. Why then, trouble to put this system into operation? If raised, this objection, too, would be beside the point: the objector would fail to comprehend the fundamental difference between the old and the new system of making payments. Under the old system, including that of a "managed currency" as, proposed (say) by Keynes and Cassel,. the quantity of means of payment is given. The demand of producers, traders, workers, and consumers does not affect it directly. Hence the close
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connection between falls in prices and the level of employment. Under the new system on the contrary, the quantity of means of payment is not independent of the demand of producers, traders, workers, and consumers. Hence, for instance, under the new system a fall in prices may well lead to an increase in sales and hence to an increased demand for labour; in fact necessarily so. (Under the old system, low prices might stimulate sales, not falling prices.)
The objections derive their force from the circumstance that men do not go beyond the statistically ascertained facts and do not examine the interrelations but that, instead, a natural and indissoluble connection is asserted to exist where the connection is really an artificial one, occasioned by an easily removable maladjustment.
8.The Milhaud Plan and the Money Prerogative of the State
a) Are up purchasing certificates incompatible with the money prerogative of the State?
In days when it was generally believed that "money" was identical with "coins", it was possible, without causing any misunderstanding, to call the coinage prerogative of the State a money prerogative. Today this is no longer admissible The older and true conception of a money prerogative is nowhere better expressed than in the old Prussian Civil Law, which was drawn up under Frederick the Great and published after his death. There we read in Part II, title 13, par. 12: "The right to provide for coins measures and weights is the prerogative of the crown". (See also Jastrow, "Textbuecher" -Textbooks-, vol. 6, p. 15.)
The objective of this law, and of similar laws in other countries, was obvious: to maintain as unchanging a system of coinage as possible by prohibiting anyone but the State to mint coins. Experience with private mints had proved notoriously unsatisfactory, the minted coins being mostly underweight. To prevent this, the mint monopoly was introduced. (In later articles U. v. Beckerath favoured private coinage, particularly free coining of pure gold. Abrasion losses are bearable. The Ed.)
Pettifogging lawyers found it easy o transform the minting monopoly into a money prerogative and that, finally, into a means of payment monopoly.
Similarly, many of the more recent money theorists anticipated however by not a few in the seventeenth and eighteenth centuries have simply transferred legal concepts is which were rightly applicable and applied for centuries, to coins to other means of payment They even transferred juridical relations intimately associated with those means of payment to debts of every class, and attributed to the State the right at any time to depreciate and appreciate money debts at its discretion by manipulating the currency. Whether lack of critical judgment or something very different was the cause; we need not inquire here. Certain it is however, that this inadmissible transfer of juridical concepts has led to the present-day concept of the money prerogative of the State which is equivalent, first of all, to the institution of a State monopoly of means of payment generally. This monopoly is daily making headway in every part of the world and its baleful effects menace the economy of every people. In the circumstances, science cannot remain indifferent to what is happening. Its duty should be to point out that this monopoly cannot be justified by even a single economic or political consideration; that its advent is due to a misapprehension; and that its maintenance either serves the base material interests of a small privileged clique or else represents a servile attitude towards the State which passes as loyalty and patriotism although it is not reconcilable with either.
(Hyper patriots of this kind are known in Germany as 120% patriots, so stigmatized by the Fuehrer in a specially noted speech wherein he poured scorn upon them.)
Once science has exposed the grave danger involved in a State monopoly of means of payment, far seeing governments will recognize that a certain class of people are seeking to burden them with a task which would be too heavy even for a Marcus Aurelius. Governments will then become aware that their true interest is as little bound up with that despicable monopoly as with a bread or sausage monopoly. In this respect bakers
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and butchers will always be of greater service than the wisest ruler. Moreover, according to many recent economists, the administrators of the means of payment system should, inter alia, take into consideration the general price level. Its ascertainment, however, requires the application of difficult mathematical methods. But is it fair to ask even a model ruler, whether king, dictator, or constitutional minister, that he should be a mathematician? And yet the management of the currency cannot, it is said, be safely entrusted to one who is not a mathematician. The theory of a State monopoly in means of payment, carried to its logical conclusion, thus annuls itself-by making impossible claims,
Yet precisely because of its mathematical formulae, the most recent money theory has come to exercise an irresistible authority over non-mathematicians, who constitute not only 99% of mankind but even of those well capable of judging. Some of its representatives, like Keynes, may undoubtedly be classed among the best and most brilliant mathematicians of our time and their purely mathematical labours will certainly continue to be studied for generations. However, useful as it may be to apply mathematical methods to isolated monetary problems (as e.g., to employ Pareto's formula relating to the level of incomes in order to determine the market available for motor-cars, or the numerous index formulae for determining the average value of a country's money), their application to the general problem of means of payment is inadmissible. It is not the province of mathematics so much as to discuss the economic and juridical basis of matters relating to means of payment.
(How lamentabte, for instance, are the sections relating to money in Gossen and Launhardt's otherwise valuable pioneering works, where both authors fail to draw a distinction between paper money with and without a forced market rate! Roscher's statement on the subject in his "Grundlagen"(Foundations), par. 22, still holds.)
Ptolemy 's epicycles required considerably more mathematics than Keppler's simple system. Was Ptolemy therefore nearer the truth? Is mathematics, in fact, competent to decide between Ptolemy and Keppler? Certainly not.
b ) Human and civic rights and the monopoly in means of payment
During the seventeenth and eighteenth centuries large sections of the people felt the need (in a manner scarcely comprehensible today) of determining through general principles the rights of men and of citizens as against the State and, vice versa, the rights of the authorities, especially of Governments, as against the people. The student of history is well aware of the profound effect initiated by the apt formulation of such rights during the English Revolution of 1688, furthermore during the American Revolution of 1774, the French Revolution with its diverse formulations and by the formulation of rights in the Prussian Civil Law of Frederick the Great.
A word in parenthesis: All that the past had elaborated of what is right and fair in this respect will be found collected and expanded in an as yet unsurpassed system of international law contained in Jerome Internoscia's "New Code of International Law" (New York,1910). This work of 1,003 pages provides a text in three languages. Since Justinian's "Corpus Juris", no work has perhaps appeared dealing with the various brands of juridical relations which would bear comparison with that of Internoscia.
Singularly enough, the appearance of the work passed unnoticed. What Internoscia states in the second book of his treaties on the delimitation of the legal spheres between the individual and the State soars as high above the older conceptions as for instance Descartes analytic geometry above that of his predecessors.
(This work has been microfiched in the PEACE PLANS series, early on, on a number of microfiche. I have not yet got around to get it re-filmed on a lesser number of microfiche. - J.Z., 28.11.01.)
Still one highly important right is to be found neither in the declarations of the French Revolution nor in Internoscia, namely the right which the Americans of Washington's time called "the Right of Banking", without however their being quite clear on the point. Here is a tentative formulation:
"Every citizen of age has the right to secure for himself-opportunities of work by offering his property and his products to other citizens in the form of suitably standardized and fractionalized notes which he undertakes to accept from the note holder at their nominal value in exchange for parts of his property and products. He has also the right to combine with other citizens with a view to the mutual acceptance of such
coupled naturally with the duty of subjecting all transactions and particulars arising therefrom to such
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inspection as may be deemed right and proper."
(The "right of banking" is mentioned by Prof. Bullock, in his "Monetary History of the United States", NewYork, 1900 p. 81.)
(Compare also the formulations in the human rights draft in peace plan 110, numbers 31-34 and the special expositions of Ulrich von Beckerath on monetary rights, already microfiched among some of his papers. - J.Z., 28.11.01.)
One may suppose that world history would have taken a different and happier turn if the supporters of that right in America and in Europe (Horn, Courcelle-Seneuil, Coquelin, and several others, including Proudhon) had found for it a convenient name and a striking formulation. The recognition of this right suffered also from a serious misapprehension, shared by the older economists, to the effect that notes cannot possibly maintain themselves at par if not convertible in specie on demand. For example, Courcelle-Seneuil, despite his deep insight, the vigor of his style, and his lucidity in explaining the social consequences of an abolition of the note monopoly, always claims the right "d'émettre des billets payable á vue et au porteur". He did not even think the right of the holder to demand redemption to be a minor defect and yet this mistake is the final and real cause of the present depression. Milhaud had to construct a whole new system so as to rid the world of this misconception.
Nevertheless, the establishment of numerous small and locally operating banks of issue, where they first appeared in larger numbers, namely in the U. S.A, had almost incredibly important social and economic consequences.
(One of the reasons for this is precisely that they largely evaded the prescribed gold metal cover and redemption restrictions. Banks associated for this purpose and informed of a coming inspection visit, made sure that before the inspector arrived at a note-issuing bank the other banks had rapidly and temporarily provided it with the legally required "cover", which they did not really need, at least not to the extent that their note issues were covered by short term claims against their local debtors. - J.Z., 28.11.01.)
The active participation of women and of the working classes is specialty noteworthy in this connection. In his "Le crédit et les banques" (Credit and the Banks), Paris, 1859, p. 435, Coquelin furnishes the following table as typical of the United States as a whole at that time:
Shareholders in six banks of issue at Portsmouth, New Hampshire,
grouped according to their occupations:
Women .................. 2,438
Workers ................ 673
Farmers and agricultural laborers ...... 1, 245
Savings banks ............... 1,013
Teachers, ................ 630
A private individual ............. 307
Charitable institutions ............ 548
Municipalities and State .......... 157
Government employees ........... 438
Sailors .................. 434
Merchants ................ 2,038
Agents .................. 191
Judges lawyers and solicitors ......... 377
Physicians ................. 336
Clergymen ................ 220
The Civil War of 1861/65 suppressed this popular movement which had contributed more to the prosperity of the United States than anything else. National banks were established at that period and a tax of 10 % was imposed on the notes of the "free" banks of issue.
Had the peoples been duly and thoroughly enlightened in good time on the point that their right to issue goods warrants (in the sense above explained) was only the indispensable technical aspect of the right to work and that this right may be claimed by individuals and organizations and should in no way be a fiscal prerogative, public opinion today would irresistibly demand of its governments either to do something themselves immediately, to realize the Milhaud proposals (proposals in which the issue of such warrants is the essential point) or at least not to prevent others from doing what the governments are loath to undertake themselves.
Property understood, "the right of banking", once recognized (not only, as e.g., formerly in Switzerland, silently tolerated owing to legislative loopholes) will aid in realizing all other human rights. Without this right, existing rights also cannot be maintained today. A clear perception of this would result in great social and political changes, probably more extensive than those effected by th e French Revolution.
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For the moment the masses view the withholding of "the right of banking" with no more concern than they would a prohibition not to shoot birds of paradise at the North Pole. They have no inkling that this right is of any consequence for them. Once however, they become alive to the issue, a certain portion of mankind will have good reason to tremble, not because of the "brazen tread of massed battalions" (these are not invincible) nor because of a "Communist Revolution" where the masses have, it is alleged "nothing to lose but their chains" (Communist Manifesto of 1847, end), but because of their own superfluity which will become dramatically apparent.
In Russia any agitation for securing this right would be prohibited, perhaps on the ground that the right to issue goods warrants on the basis here submitted, would practically amount to the right to secede from the Communist State (on this subject, see Follin, "Paroles d'un voyant") and that logically therefore a goods warrants agitation would have to be prohibited, just as in 1921 agitating in favour of the individual's right to relinquish Communist citizenship (What was meant here, was not emigration but withdrawing from the State in the same sense as one speaks of withdrawing from the Church.) was prohibited on pain of death.
Anton Menger, a jurist as learned as he was brilliant and bold, wrote some thirty years ago his still remembered work, "Das buergerliche Recht and die besitzlosen Klassen" (The Civil Law and the Propertyless Classes). One right, however, Menger overlooked, the right to settle one's claims and one's debts by clearing and to choose for this the technically most appropriate form. Traders have enjoyed this right for generations and exercise it extensively. They could not transact business without this right. The workers, however, do not enjoy the right to exchange their labour power and their livelihood according to precisely the same methods applied by wholesale merchants. Workers are forbidden to clear their labour power, and that in almost every country. The redress of this injustice will begin with its exposure.
9. Gresham's Law and Milhaud's Purchasing Certificates
Gresham spoke exclusively about a metallic currency. In 1558, when he wrote his memorial for Queen Elizabeth (Jastrow, "Textbuecher", vol. 4, section 29), paper money did not as yet exist. When therefore Gresham stated that "bad money drives out good", he had in mind debased coins declared by the Government to have the same value as those of full weight. That his maxim also holds when a Government imposes on the public instead of debased coins notes having a forced market rate, is evident. Generally speaking, Gresham's maxim only implies that money more "suitable" for making payments drives out that which is less "suitable" for the purpose: Bad money, e.g., an assignat, is very "suitable" for being forced on an internal creditor, whilst, e.g., silver pounds were most "suitable" for meeting external liabilities and for hoarding. As soon, however, as the acceptance of bad money is no longer enforced, the tables are turned. The coins are then only accepted at their value as metal and paper money according to the value of its actual cover, whether this consists of tangible metal or of tangible and generally needed goods, or of the readiness of creditors, e.g. the Exchequer, to accept them at their face value.
Milhaud's purchasing certificates are covered 100% by goods or services or by the undertaking of creditors to accept them, In the case of a market discount numerous parties are therefore obliged to accept them at their nominal value despite the discount. The purchasing certificates are accordingly not "bad" but good money. It might be imagined that when a State bank liberally grants inflation credits, as did the German Reichsbank under Havenstein (the Reichsbank discount stood at 5% until 27 July 1922, when the amount of the circulating paper money already exceeded 250,000 million marks) it could successfully compete with a bank based on Milhaud's principles and that then the Milhaud certificates, because they are too good, would be driven out by the State notes which are bad but very "suitable" for plundering the creditors. May the gods protect us! (See "Observer" 's telling criticism in "Etoile", reported in Annals, 1933, 2, p. 200.)
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10. Unemployment Insurance vs. Provision of Employment
through Purchasing Certificates
State insurance against unemployment also calls for a few critical comments, more particularly as in many countries large State offices exist for operating such insurance schemes which normally absorb revenues amounting to several hundred million gold francs a year.
The contributions paid by workers and employers into the unemployment insurance fund partake essentially of the nature of a tax. Whence it is very probable that during monetary disturbances the raising of this special tax will find the same difficulties as the collection of all other taxes. Hence the current revenues of an unemployment insurance fund dependent on contributions will tend to diminish just when they are most wanted.
Similarly with the reserves of the fund. These, of course, are not kept in safes in the form of cash but are invested. With unemployment increasing, notice is given of the withdrawal of this capital. Should there also happen to be at the time a currency shortage, as is the rule when there is widespread unemployment, the debtors concerned will find repayment exceedingly difficult. (The existence of a shortage of means of payment is sometimes veiled by the fact that at the same time the large scale banks find it difficult to invest the numerous short term deposits that reach them because of the crisis.) If, for instance, the unemployment insurance reserves were invested in factories (or first in banks and by these in factories) it may easily occur that the manufacturers, in order to repay the credits granted them by the unemployment fund, consider it necessary to economize on wages, i.e., to discharge a number of their workmen. In such case it may be rightly said that unemployment insurance brings about additional unemployment, more especially during a period of depression. This is not a mere figment of the imagination, although detailed investigations on this point are still wanting.
On the other hand, where payment may be made with purchasing certificates, unemployment insurance is redundant.
It is true that unemployment insurance contains a valuable, though hidden, core. It is sometimes possible to restrict present opportunities for employment in order to provide for future opportunities. In such a case means for financing future undertakings have to be reserved. Much work, instead of being done in the summer, with the help of overtime, may be thus deferred to the winter months when a kind of
"structural" unemployment generally occurs. In 1909, the famous statistician Bowley estimated that in England, from 1896 to 1906, through a well calculated seasonal distribution of public orders of the value of only 4 million pounds a year (the aggregate annual expenditure on public works being 150 million pounds), a very considerable amount of unemployment could be prevented. (See "Schriften der Deutschen Gesetlschaft zur Bekaempfung der Arbeitslosigkeit" (Publications of the German Society for Combating Unemployment), part I, Berlin 1913, edited by Dr Ernst Bernhard.) But in the case, too, of reserving part of the public works for the winter months, the authorities should examine whether the payments involved are derived from taxes paid in summer. If this be done, the taxes received in summer and spent in winter should be invested in such a manner that they can be made liquid in winter time through purchasing certificates and not through money. The custom of depositing at the banks the taxes not required momentarily, and the banks investing these in stock exchange credits which are then called in, in winter, must give rise to at least as much unemployment in winter as the winter work removes.
"If you are convinced of the beneficial nature of a capitalist economy, you will unconditionally reject the Federal Reserve System, You will condemn it as the controlling body of a socialized industry. You will blame it for having shattered the American dollar; for having caused booms busts, recessions, and depressions; and for having given the forty-four years of its existence the period's fundamental characteristic: an unprecedented economic instability." Dr. Hans F. Sennholz in: "The Federal Reserve System", an article in "Freedom Magazine", 9.10.1966. Addr. 21 on p. 205.
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11. The Nature of the Social Question after the Adoption of the Milhaud Proposals
a) The view that has hitherto prevailed of the nature of the social question
Among the numerous social questions that have occupied the minds of the leading thinkers of the past two or three centuries, our age recognizes two as practically comprehending all others and the solution of which is the preliminary condition for the solution of all alike. These two questions are:
-
a more equitable distribution of the social output,
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the banning of unemployment.
It is true that many social reformers, and not the least well informed among them, have endeavored to show that these two questions are really just one question. (Indeed, truly considered, they represent only two sides of the same question.)
But it would argue simple mindedness merely to contend that "capitalism" is the cause both of the mal-distribution of the social output and of unemployment, and to conclude from this that the question of how capitalism may be abolished is the sole social question People who speak thus ("who think thus" would be saying too much, for none of them could clearly tell us what he means by capitalism) are not even on the wrong track they are on no track at all. Through their doctrinally "honest" opposition to all "half measures", they prevent our coming at last to grips with the problem at one point at least. Even if they expressed themselves more scientifically and said: surplus value is both the cause of low wages and of periodical unemployment, we should be no nearer to correctly formulating the problem. Surplus value, although naturally detrimental to the workers, does not at all explain their being unemployed. Not even
Marx makes surplus value responsible for trade depressions, but primarily machinery. It would indeed well repay re-reading the passage in question in his "Kapital" because of several striking contradictions it contains. In part one, chapter 3b, entitled "Means of Payment", he rightly describes the nature of a depression as consisting in a "money famine". Had Marx proceeded one step further in this direction, he would not only have correctly diagnosed the nature of the problem, but found its solution. But this he does not do. Instead, he turns aside suddenly, and in part seven, chapter 23 (3), he makes machinery the starting point of a new depression theory. That this confirmed the old adage, "simplicitas veritatis sigillum" (Simplicity is the seal of truth), can scarcely be maintained.
Marx draws a threefold distinction. First the continuous setting free or workers owing to newly installed machinery; then the fact that machinery is used at all, as this creates the possibility that today millions of people are fully employed and tomorrow these millions are without work for a prolonged period; and, lastly, the effect, which in his view is progressive during decades, of earlier displacements of workers by machinery. ("Kapital" seventh ed., 1923, p. 571.)Marx contends that the earlier displacements are bound to express themselves in the form of periodic expansions and contractions, just as in every isolated dynamic system a single impulse is conserved in the form of enduring periodic movements. Marx, however, makes no attempt to show that in this sense, mankind would be a dynamic system and would consequently lack adaptability or, otherwise expressed would be no organism. Marx states:
"Just as the heavenly bodies, when they have once been started in motion along a particular path, continue that motion for an indefinite term, so does social production."
As shown in a previous section; the periodicity of depressions has been meanwhile explained by a far more natural cause than is suggested by the comparison of a human or even a capitalist society with an independent dynamic system. (That the formulae of economic mathematics relating to exchange, accumulation, and the like, resemble in many ways. the formulae of dynamics, should not mislead us into conceiving our economic life as being nothing but a dynamic system.)
With regard to the setting free of workers through machinery, many countries today, Germany and Switzerland among others, have reached the stage where for every human worker there are seventy "iron slaves". This relation of about 1 to 70 shows of itself-that machine power could not possibly have displaced human labour power and that therefore the economic significance of machinery must be a
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quite different one.
In this connection it should be remembered that on the average a human being is able to produce a third of a kwh of mechanical work daily, that is a quantum of labour which electricity works sell for about 10 to 20 Pfennige.
Milhaud has performed an invaluable service by showing that even in the present "capitalistic" order of society unemployment might be abolished. To ban unemployment, it is therefore not necessary, as most workingmen believe, to solve previously or simultaneously the whole social question hence that we are not obliged to organize previously or simultaneously a different distribution of the social output, say by eliminating surplus value. Milhaud's solution should nevertheless not be regarded as constituting a 'half measure". The best method for reaching a complete solution of the social question follows directly from his system, i.e., it offers the working classes potent means, if necessary to be applied by themselves that is, without parliamentary circumlocution for bringing about an equitable distribution of the social output, and this probably without inconveniencing our politicians.
b) A better distribution of the social output after the abolition of unemployment
A critique of the distribution of the social output is the ethical startingpoint of modern socialism. Not only was this starting point suggested by a sad reality; but it obtruded itself. On the one side large sections of society are one day entirety without work and the next day laboring for a miserable pittance insufficient to provide the necessaries of life and on the other, are the super rich, people who literally cannot compute how wealthy they are, and among whom there are those who, like the kings of old, require a "maitre de plaisir" to help them squander their fortunes.
Between these facts the connection seemed the more obvious inasmuch as nothing appears more certain than that the rich can consume nothing which the workers have not produced entirely without their collaboration, as wine and cakes, or with their partial collaboration, as in the case of art objects.
(Appears"! In Russia the sudden exclusion of a large proportion of the propertied classes from the
process of production had unexpected and highly unfavorable consequences.)
Notwithstanding this, socialism has been mistaken in its ethical starting point already. The revenues of the non-working classes constitute a far smaller proportion of the national income than first appearances suggest, and, besides, it is not true that the rich possess in superfluity that which the poor need.
When after the Revolution of 1918 many Marxists came to occupy official posts and when their followers
expected them to proceed at once to "socialization", these Marxists, as was indeed their duty, began to make certain calculations. To their amazement, they discovered that the "surplus value" was less than it might perhaps cost to "get hold" of it. The Marxists lost courage, were satisfied with a few legislative trifles, and their opponents then exploited the complete ignorance of the Marxists and of the whole people in matters relating to means of payment, to the end of producing inflations, which few countries
escaped.
And yet it would have been possible even at that time, by reforming the means of payment system (not even the standard of value), at least to double the income of the working classes and, by the way, to reduce unearned incomes considerably.
Before the War, Prof. Ruhland, who was not a socialist, estimated the aggregate unearned income in Germany at about 9.000 million marks. This estimate was probably too high. According to another estimate in the "Statistisches Jahrbuch fuer das Deutsche Reich" ( Statistical Year Book of the German Reich) (year 1933, p. 495), the distribution of private incomes in Germany for 1928 (that is, for a year when the productive forces were scarcely weaker than say in 1913) was as follows:
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Income grades in marks
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Estimated private incomes in million marks
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From 0 - 1,200
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20,577
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1,200 - 3,000
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26,005
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3,000 - 5,000
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9,888
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|
5,000 - 8,000
|
6,239
|
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|
8.000 - 12.000
|
2,849
|
|
12.000 - 16.000
|
1,410
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16.000 - 25.000
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1,698
|
|
25.000 - 50.000
|
1,706
|
|
50.000 - 100.000
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1,010
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Over 100,000
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1,295
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The incomes in the higher levels which one first thinks of in connection with unearned incomes, amount to much less than might have appeared likely a priori. Of course, these statistics like all such statistics, are not quite exact (which the Statistical Office itself-points out), but they offer some guidance nevertheless.
For 1928 the German Statistical Office also drew up another table which equally shows that capital receives a smaller share of the national income than many surmise.
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Source of income
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Private incomes (1928) in million marks
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Agriculture and forestry
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5.816
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Commerce and industry
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12.187
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Wages and salaries
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42.621
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Funded property
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2.784
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|
Rents and teases
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836
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|
Annuities and pensions
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8.433
|
|
(From: "Wirtschaft and Statistik", year 1934 p. 612)
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The percentage distribution does not greatly differ from that of the United States' national income for 1925, as reported by Milhaud in the Annals (1933, 2 p, 172).
As these statistics intimate, labor's share of the income would not rise to the extent anticipated by most socialists if the incomes of the classes styled idle by the socialists were added to the labor income proper. Moreover, the importance of unearned incomes is also over estimated because they are not actually responsible for the distribution of the social output as expressed in the above figures. The reason that in winter time many proletarian homes have no fire in their hearths is not that our millionaires consume too much coal in theirs. On the contrary, ample stocks of coal remain over which the mine owners would gladly sell to the proletariat, if they only knew how. And what is true of coal, holds, of course of every commodity which the well-to-do consume. Proletarian households have not to go without these commodities because the well-to-do possess them in superabundance, for the shops remain choked with goods which deteriorate there daily in great quantities. If this be granted, it will be admitted that the real problem does not lie in a redistribution of the social output but in something quite different, something that might be called accessibility to the social output.
The factory worker, who perhaps received a rise in wages only yesterday, the probable effect of which will be to lower the dividend rate of the company employing him, finds it naturally difficult to see this. To him it appears obvious that he and his employer share the social output between them and that what the one gains the other loses. But the factory worker is mistaken. It is not the output which he and his employer share between them, but the money, as this alone gives access to the product, that is, represents a warrant for a share of the output. Money has hitherto been always scarce and this necessarily so. Only this scarcity is responsible for the present mal-distribution of the social output, a distribution so bad that the term "unjust" is too good for it, for one man's destitution does not even spell another man's plenty.
Here comes in the reform planned by Milhaud, a reform both of society and of the concepts of social interrelations. After the practical realization of his reform there will be no longer any shortage of means of payment, i.e., they would be always available to the extent that ordered commodities (or goods which are daily required, anyhow The Ed.) can be produced. In these circumstances such a mass of goods
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would become accessible to the working classes that the present day consumption of the classes that do not work will appear, by comparison too trivial to make it worth while to legislate about it. On the other hand, most of the drawers of unearned incomes who in reality flourish on the shortage of money existing among the other drawers of incomes, would be deprived of their most important privilege through the realization of the Milhaud Plan.
("Privilege" is not exactly the right word. It is rather an "advantage" similar to that possessed by owners of marketable goods during an inflation, an advantage which at some junctures these owners themselves are at a loss to know how they came by it; which they have made no effort to secure; and which they automatically lose when the standard of value becomes again stabilized, this also without the owners of marketable goods actually knowing how it all happened. At the same time, during an inflation public opinion persistently calls for a "taxation of concrete values" and looks upon their possessors almost as enemies of society. This privilege of owners of concrete values in times of inflation is an exact analogy to the privilege of those possessing money. )
No doubt, the abolition of the money monopoly will leave a certain residue of an inequitable distribution of the social output, but this residue might be reduced to a minimum by comparatively simple means. This did not escape Theodor Hertzka, a thinker who, although not quite modern, has unjustly sunk into oblivion. His argument ran roughly as follows. If everybody were free to leave an enterprise or association where, in his opinion his services are inadequately rewarded, and if he were also free to work in other concerns or in other communities, the rules and conditions of which promise a better reward, or to work entirely on his own account, it would really become unnecessary to organize an equitable distribution of the social output. Freedom of movement would then of itself-gradually establish a just distribution, and this simply in the way that centres, where injustice reigned, would be avoided. Hertzka elaborated this idea in a few forgotten but very thorough works which a future social legislation will have to study if it intends to be of service to the community. (Compare peace plan 110 point 29, plans 113; 114 and 120. -The Ed.) In criticism, it has been contended that his idea is utopian, for, it was said, capitalists will take good care that workingmen shall not be free to leave the factories where they receive low wages. Since the soil belongs to the capitalists, it was further argued, these could forbid access to the land to everyone who appears to them too "covetous". Moreover, as the capitalists hold the money, they would be able to prescribe to every worker where he is to live, by declaring: In such and such a place, and nowhere else, will you receive your wages. Being the money lords, they could determine at their discretion what shall be the proportion of the social output each worker is to receive. It is imperative therefore to break the power of capital. Once this is achieved, other and more effective means than merely unrestricted mobility will be at our disposal for equitably distributing the social output.
However, as the preceding reflections have shown the argument misses the core of the problem.
The real cause of the present maldistribution of the social output is the nature of the means of payment system the world over. This forbids the working classes (comprising not only factory workers) to sell their labour power for suitably fractionalized and standardized warrants granting the money value of their own output. At present they are only permitted to conclude such a sale for money. (W.B Greene appropriately terms it "exclusive currency"), whence for them (who are always guided by first impressions) it has the appearance as if those who pay them in money are also lords of it. In reality however, "capitalists" are even less the masters of money than the workers, for the latter are not only legally bound but also legally privileged to receive in any circumstances ready money for their wages whilst in practice a "capitalist" is content with any kind of money substitute. "Money lords"! As if anyone, who for the moment possesses it, were not lord of his money and as if there existed a class of money lords today as there existed once a class of feudal Lords. The language of the masses is their worst handicap.
PLEASE INFORM ME OF THE ADDRESS OF ANYBODY INTERESTED IN MONETARY FREEDOM AND POINT OUT TO ME ALL RELEVANT BOOKS AND ARTICLES NOT ALREADY MENTIONED HERE. - THE ED.
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c) The emancipation of labor
The moment that the workers become entitled to sell their labour power otherwise than for money and act on this right, the money owners (be they lords or slaves of money) lose all the privileges they possessed compared with those who do not possess money. The propertyless masses (who nevertheless own their labor power) are no longer faced on the other side by the owners of money, forced either to come to terms
with them or to starve, but they are only faced by the owners of marketable goods, i.e., the owners of the means of production, of the soil, and of supplies.
In this new situation the working classes benefit by a socially most important fact, one entirely overlooked by revolutionary socialists: the owners of dwelling house's factories, and supplies not only desire to make use of their property, but most of them are under the compulsion to do this. It is true that Henry George rightly pointed out how easily the landlords might come to an understanding among themselves and so become the absolutely ruling class by means of a land monopoly, a class that might, if it so wished, prescribe to the other classes even their religion. It would also argue an exaggerated social pacifism not to grant that such a course of action on the part of the landowning class would justify society as well as individuals to adopt any and every measure of resistance; but, on the other hand, experience teaches that landlords are not likely to come to an understanding among themselves and that they are much less inclined to and capable of taking common action than, for instance, factory workers.
What follows from this? As soon as the owners of the land, of the means of production, and of the supplies have grown accustomed to the idea of goods warrants as means of payment (and as the working classes come to think of themselves primarily as payers and not as receivers of payments), these owners will leave the laboring classes the use of their land, their means of production and their supplies, and accept the goods warrants as compensation. Here still another and very important fact should be taken into account. Most men are only interested in the immediate future. What will happen after a few years or, even more so, after their death, leaves them indifferent. In return for a slight increase in the compensation they ask for the mere use of their property, most of the owners of land and of factories would be therefore disposed to transfer to the workers their property in land and in the means of production. In the Annals (1933, 2.), Prof. Graham made proposals to that effect, and in no. 1, 1934 p. 55 of the Annals, will also be found some remarks bearing on these proposals, The depression with its depreciation of all plant, is specially favorable to schemes such as Graham's:
The desire of landlords to reap as great a benefit from their land as possible and to exchange their property rights for a secure rental, is of first-rate importance socially. In the Middle Ages numerous serfs took advantage of this desire to purchase their personal freedom through the payment of a modest rent. The freedom thus won remained the heritage of their successors for centuries, whilst the uprisings of the peasants almost invariably resulted in an aggravation of their condition, The line of action of those serfs might almost be said to have been resumed in the history of the Italian lease cooperatives organized by agricultural workers, after every kind of sabotage, "direct action", and even killing and murder had proved unavailing. (See Preyer, "Die Arbeits? und Pachtgenossenschaften Italiens" -The Italian Labour and Lease Cooperatives, Jena, 1913.) However, without a system of payment such as that proposed by Milhaud, these lease cooperatives could not fully attain their aim and the development so hopefully begun appears therefore to have come to a standstill. Should these cooperatives, however, receive permission to effect their payments on the Milhaud Plan, Italy might become for the solution of the social question what 2,000 years ago it became for jurisprudence. Here is a "tip" for Mussolini, who could acknowledge his indebtedness to the creators of the "fascio" (see Preyer) by granting them the right to pay with purchasing certificates. ( Editor's note: What happened instead? Most of these cooperatives as centres of the opposition were literally destroyed by Mussolini's gangs shortly after he usurped power.)
Thus, applying Milhaud's system of payment, the laboring classes could gradually reduce unearned incomes so that perhaps thirty years after its introduction no such incomes, in the sense of surplus value, need any longer exist. The remaining unearned income would be the residue of Ricardo's
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"differential rent". This residue is not of such magnitude as to demand violent measures for its removal. It is, in fact, of a nature rendering a voluntary settlement easy.
And the employers? The small ability of workers of this and probably of the next generation to build up economic organizations, and their great desire to be led, would yield, after the reform of our payment system, greater possibilities to employers than they possess now. Intelligent employers, one could imagine, are perhaps pondering even now how they might transform their concerns into productive cooperatives and become their managers. (Compare peace plans 180-182. The Ed.) Without arousing envy, they might then often earn more in the form of salary and shared profits than they earn today in the form of a "surplus value" which causes them to be hated. In this connection we might mention that Fourier, who by no means lacked business acumen, thought of distributing the social output in his phalansteries on the following basis: to capital 4/12, to labor 5/12, to talent 3/12. Rodbertus, who was also a leading, even an extreme socialist, but experienced in business affairs, wished to allot out of 10 million working hours 3 to wages, 1 to the State and 6 to ground rent and income from capital. (Anton Menger, "Das Recht auf den vollen Arbeitsertrag", 3rd. ed., p. 66 and p. 89.) According to this socialist, labor's proper share of the social output would be even more modest than it is today, as indicated by income statistics.
These calculations show that the scientific socialism already long ago by no means called for a diminution in the incomes of employers, but, just as today, only demanded of them results (and even earnestly expected them) justifying a high income. Nor would a scientific socialism wish, or be able, to ignore Pareto's s profound researches which have proved that a quite simple, mathematically easily explained, social law rules the distribution of incomes. The table of German incomes for 1928 also suggests, on the merest inspection, that a simple formula could express it. As is well known the law has proved its value when applied to taxation lists going back to the Middle Ages as well as when applied to up-to-date lists, to incomes in small provinces as well as in large countries. It would very probably also be found to hold good of the distribution of incomes in present day Russia. That the graduation does not merely express social injustices but that Pareto's formulae and those of his successors are the expression of certain characteristics of leadership, that are unequally distributed among men, not at all unlike bodily stature, the extreme values of which also obey a mathematical law (see Fechner, "Kollektivmasslehre") all this scientific socialism will also neither want to, nor be able to, ignore. (On this subject see the mathematical investigations of Dr. W. Winkler, in "Handwoerterbuch der Staatswissenschaften" (Encyclopaedia of Political Sciences), 4th edition, article "Einkommen" (Incomes).
One could also imagine that today already intelligent bankers are turning over in their minds the idea of transforming private concerns into cooperatives, to aid in this connection all parties with advice and with elaborated plans, and lastly, to take over the financial conduct of the new cooperatives.
One more, by no means utopian, possibility deserves to be mentioned here. An efficient and modern works organization calls for at least three times as much administrative labour as was customary in factories thirty years ago. Part of this labor cannot be executed without individuals having considerable and trained organizing capacity, as Taylor has shown in his writings. This seemingly so mechanical administrative labour actually demands a high grade of education. That is why a businessman like Ford insists that his administrative officials should know when approximately Hannibal lived and what caused Caesar to be hated so much. Why does this kind of general education raise a man's capacity to distribute intelligently the daily work of a factory among its employees? Let our psychologists explain it. Ford is satisfied with the fact and stipulates therefore that his administrative staff shall have had a good education. Anyway, American observations on the efficiency of factory managers seem to indicate that there are here unlimited opportunities for our rising academic generation, opportunities which once opened up, will call permanently for more well-paid individuals than the universities could train. Thus the problem of the unemployed students and academics would be solved apparently a quite subsidiary, but
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really a most important problem. Indeed no section of society would be likely to benefit more by the introduction of the Milhaud system of payment than this. (For scores of years European firms in China have found that classically educated employees who (say) know the Kong Fu Tse by heart, are quicker and more efficient as salesmen, clerks, etc., than employees having had only a practical training,)
12. Why establish a Foreign Trade Office?
The expression "Foreign Trade Office" lends itself-to very different interpretations. Most reformers demand a board which, on the Russian model, regulates foreign trade dictatorially. Similarly the numerous proposals made (since the introduction of goods compensation by Neurath) to place foreign trading as far as possible on a compensatory basis, have mostly in view a powerful board so that the
authority of the State might be invoked in cases of friction. Instances suggest themselves here where a Government prohibits compensating and payment generally, after their subjects have received from abroad large supplies and were, it is true, retaliatory measures are sometimes justified. Milhaud's s grounds, however, for suggesting such an office for the realization of his proposals, are manifestly of a different order. His principal reason appears to be that certificates issued by such a centre would certainly inspire more confidence internationally than private certificates issued possibly by a small
scale bank managed by unknown individuals, at least in the initial stage. Apart from this, Milhaud
counts on a voluntary association of forward looking firms. That is in contrast to almost all others who propose an international clearing centre, he intends to avoid compulsion.
Milhaud's uncommon attitude follows, inter alia, from the vital difference between his proposals and those of almost all others who favour compensatory transactions.
Milhaud does not propose that goods as such should be used as a means of payment. He suggests instead the introduction of a new means of payment, the freely transferable purchasing certificate made out in money. In sharp contrast to this almost all others propose that the goods as such should be the means of payment and that other means of payment should on no account be used additionally in business transactions,
Ordinary compensatory transactions, such as are provided for today in dozens of State treaties cannot therefore be properly regarded as stepping stones to Milhaud's purchasing certificates. These transactions have only something negative in common with the procedure proposed by Milhaud, namely the avoidance of gold and foreign exchange as means of payment. (Since these transactions furnish practical proof that this is feasible they tend naturally to support Milhaud's theory.) Moreover, the inadequacy of the bilateral and multilateral compensatory transact transactions, on the one hand, and the convenience of trade mediated by money, on the other, evidently led Milhaud to elaborate a procedure which combines the advantages of the two methods whilst avoiding their disadvantages. But countries which now that Milhaud's proposals are available in detailed form, still continue to conduct their external trade in the primitive manner of the first compensatory transactions of the war time, cannot be said to be tending in Milhaud's direction.
If we are in search of an analogy positively illustrating the practicability of a means of payment not redeemable in specie and subject to being freely quoted on the market, we ought not to cite the case of present day compensatory transactions. In this connection it would be more appropriate to mention the German clearing cheque as provided for in par. 14 of the Cheque Act of 1908 or certain kinds of "trading notes" ("Handels Billets") of old Prussia.
Clearing cheques that is, cheques which the holder can only utilize by clearing were in use in Germany long before 1908. If after the Revolution of 1918 the German Government had not introduced emergency money legislation in order to carry out their inflation policy, the issue of Milhaud purchasing certificates by private enterprise would have been possible in Germany. (See Annals, 1934, 1, Ending the Crisis, first paper.)
Alhough clearing cheques did not exist in old Prussia, the Civil Code (in part 2, title 8, par. 751) contained the following interesting provision:
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"Certificates (Verschreibungen) where the choice is left to the debtor either to deliver goods or to pay in money, shall not count as bills of exchange".
It was a veritable misfortune that the Code did not allow such certificates to be treated as bills and that the jurists did not recognize the mistake made. As a result, traders made little use of this facility, which therefore gradually fell into oblivion. The General Bills of Exchange Act of 1849, to complete the misfortune, abrogated all the provisions of the Civil Code relating to bills of exchange and the certificates which corresponded largely to Milhaud's purchasing certificates were forgotten. The laws of the Great King were in this respect, as in so many others, a century in advance of their time and were revoked instead of being further developed.
Moreover, the clearing cheque of the German Cheque Act is totally different from the English "crossed cheque" and the French "cheque barré", both of which are redeemable on demand, even if only when presented through a bank.
Against debtor countries that allow imports for a while and then prohibit their subjects from compensating for them (one involuntarily thinks of Rumania), a far simpler means is available than trading restrictions trough Trading Offices. This means will be found in the Civil Law. A Government desirous of safeguarding its subjects against future expropriations due to the refusal to compensate need only pass an Act of the following kind:
"Creditors domiciled in country XYZ shall only be able to prosecute their claims before our courts so far as their claims in pursuance of the agreements underlying them do not require to be settled in ready money or in the transfer of credits which, in their part, may be collected in ready money, However in the case of such claims also an action is permissible on the ground that the debtor is bound to accept the written claim in payment, in lieu of ready money, once the claim has matured, Where the creditor is entitled to demand installments and where special documents relating to the part claims have not been drawn up, the creditor is entitled to give a receipt for the part amount and to demand the acceptance of the receipt by the debtor in settlement as if the receipt were ready money. The creditor shall be also entitled to every relief which debtors of that country customarily extend to their creditors, more particularly that of being permitted to settle with the debtor through a domestic or foreign bank."
This Act should be supplemented by regulations according to which bills, drawn bonds, dividend warrants, etc. would no longer be required to be paid in cash to creditors in those countries. The trading firm concerned would therefore only be required to realize the bills of trading firms by accepting the bills in lieu of ready money when something is bought off that firm or when debts due to former purchases are to be paid with them, as if the bills read like the text proposed in the Annals, 1934, 1, p. 105 ( peace plan 190, page 26. - The Ed.). Railways will not pay their debenture warrants in cash, but accept them in lieu of money when freightage is paid for or passenger tickets are purchased.
The defaulting country may retaliate by passing an Act corresponding to that which had been passed against it. But in that case all the conditions would have been created for conducting foreign trade on the principles proposed by Milhaud. Henceforth the balance of trade of neither country can be favorable or unfavorable as a result of their inter-trading; it will always and necessarily be a compensated balance.
13. Culpability of some Economic Leaders?
The widespread belief among the masses that certain economic leaders have deliberately provoked the economic crisis finds no confirmation in fact. This does not, however, mean that certain frequently mentioned personages are guiltless. Roosevelt, for instance, has certainty acted in good faith, but whether he would consider himself-today free from all reproach of having perhaps proceeded too hastily, may be left undecided here.
As Kant already remarked in effect, all moral judgments are probability judgments; and besides, the conclusion "post hoc, ergo propter hoc", is of all conclusions the most precarious. How helpless even directors of banks of issue sometimes are against a Governmental abuse of the banknote monopoly is
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well illustrated by the example of Havenstein, one time President of the German Reichsbank. When the extreme political pressure on Germany had abated, Havenstein wanted to bring the inflation to an end and even wrote anti-inflation articles, In one of these he coined the now famous expression of a "dry Bolshevism" realized through the note press; all in vain. For reasons still undisclosed, Havenstein was no longer master in his own house. Such an example suggests caution in judging individual heads of banks of issue. Thus in the Annals (1934, 1) a former President of the Reichsbank, Luther, was attacked as partly responsible for the monetary crisis in Germany. But the crisis was due to circumstances not created by Luther. Where Luther was really unfettered, he not only proved to be of the greatest service to the German economy but also to the world economy. Some of these services will be shortly mentioned here.
During the whole term of Luther's office as President of the Reichsbank, powerful interests savagely attacked the German standard of value. The reproach was leveled at him that he sacrificed the economy to "the phantom of a stable currency". He was subjected to the utmost pressure but remained unperturbed. Luther's colleagues in England, the United States, and in many other countries, exhibited less tenacity. In the end Luther handed over to his successor the German standard of value intact, just as it had been entrusted to him. The significance of a stable German standard of value for the world economy does not have to be explained here.
When in 1923 the German mark had fallen to a millionth part of a millionth part; when the social and political order was on the point of dissolving, Luther, who was then Minister of Finance, introduced the Rentenmark which saved Germany and thereby averted serious complications for Europe and the world. The Rentenmark offers an example of a gold-less gold currency being established in the course of a few days. It is well worth therefore a retrospective examination.
The Rentenmark had neither a forced market rate nor was its acceptance in general circulation enforced, (The English term "legal tender" unfortunately covers both concepts. -The Ed.) It was not redeemable in gold, although it was made out in gold. It was guaranteed by tax foundation (par. 14, no. 3 of the Act) that is, all taxation offices accepted the Rentenmark at its face value irrespective of any market discount. Inasmuch as the aggregate amount issued (2,000 million marks) corresponded to the revenues of those offices for only two months, Lorenz von Stein's "safety coefficient" (namely total of State paper money not more than a third to a half of the annual requirements of the public revenue offices) was far from reached.
In order to make a concession to popular opinion, the Act referred to a cover by landed property, but at the same time the Act provided that no one was obliged to surrender real estate property for Rentenmarks. Also, a small annual contribution was imposed on landowners and manufacturers; but this was not collected because it naturally proved superfluous for safeguarding the currency. An "intercepting organization" was established by allowing everyone to exchange Rentenmarks for a long term loan, (i.e., an annuity) made out in gold and bearing 5% interest. When the certificates stood at a discount say 3% or more , this naturally led to the loan being subscribed with the certificates, with the result that the certificates together with their discount disappeared from the market. This safeguard proved in the sequel unnecessary as almost no use was made of the possibility of exchanging certificates.
The new currency could scarcely have been better devised; and if some foreign Finance Minister should ever be placed in a similar predicament, he would be well advised to study the German Rentenbank Act, Luther has publicly acknowledged that others had some share in bringing into existence the Rentenbank currency, more especially he gratefully acknowledged in his pamphlet "Feste Mark, Solide Wirtschaft" ("Stable Mark, Sound Economy), Berlin, 1924, p.73, that Schacht did not continue his early opposition to the introduction of the Rentenmark. The unfavorable comment on Luther above referred to probably stands isolated. Luther is held in high esteem in Germany, not least by his successor, Schacht.
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14.The Mentality of the Workers and their Conscious Participation
in the Process of Circulation
When it is considered that Europe's working class was for many centuries attached, and partially still is, to a religion which had its origin in their own environment, e.g., within their own class, a religion which expressly regarded not only the habitual economic poverty, of the working classes as a metaphysical advantage but also its spiritual poverty (Matthew 5, 3); if, further, we note that in past centuries the forms of that side of the government with which the masses came almost exclusively into contact, the sphere of justice, were for centuries arbitrary and brutal; and that the impression thus produced could not possibly have been without influence on what today is called "hereditary mass" (Erbmasse), we shall not be astonished at the present mentality of a great part o the European working class. Without this explanation it would appear strange that the workers should look with suspicion at every reform proposal which does not initially provide that some section of society is to be penalized or which makes an appeal to the intelligence and the economic initiative of the workers. It is naturally due to this type of mentality that the workers do not feel themselves in the least oppressed because certain old laws deny them the right to take such initiative indeed that they are scarcely aware of this legislation and in any case are not interested in it. The outcome so far, of the historical and economic course of development, is at all events that the masses entirely misapprehend the real cause of their burden and that they believe this cause to lie in some, certainly remarkable, aspects of the process of production. They do not see that they must either enter into the process of circulation or their grandchildren, perhaps even they themselves, will sink to the level of their predecessors, the serfs of about the year 1500.
To what slight extent the process of production is able to achieve the political and economic education of the masses, as expected by Marxians, has become evident on the few occasions when the working class really was in control but did not in the least understand how to utilize their ascendancy to improve their situation. The most striking case is perhaps that of the Paris Commune of 1871. A decree of the Commune transferred the city's closed-down factories (that is nearly all) to the workers. But not a single instance is reported where workers attempted to restart a factory on their own responsibility and on their own initiative. A feeling that it might be unfair to the owners to occupy their factories, was certainty not the cause which held them back, for such a feeling was unlikely to exist among the great mass of the Paris workers in 1871. The only practical idea which the Commune produced for provisioning the Paris workers was that it called on the bank of France to m make the Commune a daily advance of some 800.000 francs, which the Bank acceded to. (That Jourde. the Commune's Finance Commissar, administered the sums entrusted to him not only with absolute honesty but most intelligently, and also repaid in part the advances of the Bank of France, is now recognized even by the enemies of the Commune, but in doing this he realized no distinctly socialist ideas.)
It is remarkable that during recent decades again agrarian revolutions have generally manifested a clearer economic insight than the revolts of the city workers. The establishment of a number of lease cooperatives in Southern and Central Italy, which surprisingly improved the economic condition of so many thousands of families to a veritable "renaissance latine") occurred in the 'nineties in circumstances which argued that the handing over of the lands by the estate owners was not quite voluntary. The way however, in which the peasants and the land workers proceeded how everywhere they chose the form of a lease instead of recklessly plunging into expropriations; how, afterwards, they divided the land thus secured into land worked collectively or by families; how they drew up for themselves exceedingly practical work regulations; and how they organized the marketing of their products, evinces a wholly different intellectual and moral standard than, for instance, that shown by the "occupation of the
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Factories" in 1922 in Italy, whereby the level of employment in those factories felt at once to zero and which was the real cause of the success of the fascist counter revolution. And yet the factory workers had the advantage of having undergone a long "capitalistic education process" which the agricultural workers lacked. Indeed, most of the latter could neither read nor write, and their methods of production were not very different from those of their ancestors in the days of the Gracchi.
The movements of the industrial workers of our present epoch, commencing with the Revolution of 1848 and going down to the Russian Revolution in 1917 and the unemployment disturbances of recent days, unmistakably remind us of the traditions of the guild period. Thus one of the first demands of the Paris workers in 1848 was that the 'non-local" workers should leave Paris at once, and another that women were not to earn their living by their own work. By the side of these characteristic guild demands the simultaneously issued manifesto of fraternization, addressed to the workers of the entire globe, appears decidedly peculiar. However, if we remember how in 1918 in many a public assembly the same orator proposed that "the working class should forthwith take over the reins of Government" and "in order to demonstrate that the workers meant business, the women should be got out of the factories belonging to the X. Company this very evening", we shall not be astonished at what happened in 1848.
In essence, the guild idea is to exclude all who do not belong to the guild; also; not to tolerate that anyone should remain outside the guild; and yet at the same time to keep the number of guild members as low as possible. The objective of the laws demanded or forced through by the workers in recent times is exactly the same e.g., restriction of admitted workers, suppression of black leg Labour, extension of the school period in order to relieve the labour market of juvenile workers, pensioning of workers over sixty years of age so as to relieve the labour market of aged workers, limiting the use of machinery and the like.
The very opposite mentality was, as we saw, exhibited by the Italian land workers towards the close of the nineteenth century and the commencement of the twentieth. For the first time perhaps in the history of the labour movement, it was clearly recognized that an opportunity to work is not something fixed and given but something that can be created and extended, and this without reducing correspondingly other's opportunity to work. The value of this forward step is not diminished by the fact that the instrument of labour, the soil, could be seen by all and, owing to this also the technical aspect of the opportunity to work. The policy of the Italian land workers was therefore seemingly a natural result. Yet from the recognition of the technical possibilities of applying their labour power, to the understanding of the economic and juridical aspect of the problem is, as a matter of fact, a long step and if is just this step that the Italian land workers took. A special significance attaches today to the half forgotten events that transpired more than a generation ago in Italian agriculture. Quite spontaneously altogether new and, as it proved, very effective, indeed irresistible, forms of the economic struggle emerged. Indeed, there was really not even a struggle. Inasmuch as the Land workers discussed with the estate owners matters which the latter had hitherto only discussed among their equals, namely the utilization of the land, a real equality of the two parties was established at one stroke, an equality far more real than any which the most triumphant "jacquerie" could have brought into being. The simple offer of the land workers to lease the farms, and the public announcement of this offer, made the land workers masters of the situation. The estate owner was no longer the supplier of money. On the contrary, the land workers promised to supply him with some. No wage increase was discussed. The superstition whereon the entire industrial system of the last few centuries has rested, namely the superstition of the workers that the employers are a kind of economic magicians capable, unlike anybody else, of transforming values into means of payment, this superstition was surmounted. The cause of the low wages then paid to the land workers in the distressed areas of Italy (frequently only 20 centesimi a day) was recognized. Out of this grew the determination among them to seek to improve their economic position themselves - not to complain to the heavenly powers about the wickedness of their masters, not to appeal to a distant government department, and much less took forward to the miracle of a world revolution, but simply here and now to accomplish what the incapacity of the ruling classes could not achieve.
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That movement appears at present to be marking time. (Editor's note: Giovanni Giglio reported about the burning and looting of the Italian cooperatives by fascist armed bands, in his book "The Triumph of Barabbas", Angus & Robertson, Sydney, 1937.)
This was to be anticipated, although for quite different reasons than the "revolutionary section of the workers" (that is, the economically inactive) prophesied, The leases taken up by the land workers provided for payments in money to the estate owners, that is: in a commodity only procurable when economic chances were favorable. The re-drawing of the leases, with Milhaud's purchasing certificates substituted for money, has therefore become necessary and also the arranging of new leases on the same basis. If as may be hoped, the Italian land workers have not lost their old mentality, it will suffice to make the new system known to them in order to further develop their movement on the basis outlined by Milhaud.
The lesson learnt already in the first phase of the movement, that a cooperative society (not a trade union and much less secret associations, which not so long ago were common especially in Italy, presents the most suitable organizational form for the workers, will become the more apparent as they increasingly participate in the circulation process. The credit cooperative, already known and often realized, will assume new functions. It will one day supersede the capitalist banking system, just as the productive cooperative will supercede the capitalistic joint stock company.
VIII. SOME TECHNICAL AND. LEGAL OBSERVATIONS
ON THE ISSUING OF PURCHASING CERTIFICATES
In an article in no. 1 of the Annals of 1934 (peace plan 190) I submitted a few technical and legal suggestions concerning the issue of purchasing certificates, especially where the State itself-does not wish, or is unable, to occupy itself-with this question, but for this very reason does not prohibit such issues. On this point several persons have suggested valuable improvements in the proposals which I want to make known in the following remarks.
In the preamble to the business provisions in the article referred to, it should be more definitely stated that in no circumstances will the work supply bank accept other securities for its goods warrants than such as may be immediately realized in goods ready for sale in present services, or in the payment of debts due. If he, who borrows goods warrants from the bank, is unable to offer securities realizable immediately, then he must find a guarantor who will do this for him Hence the work supply bank cannot accept as securities goods deliverable at some future date, services promised for a latr date, or credits maturing some time in the future, e.g., not machinery that will be ready for use six months hence, not tonnage available only in a few weeks' time, nor rents due some months from now.
It is not the business of the issuing department of the bank to arrange the exchange of immediately available for later available goods.
If Henry Meulen's definition holds: "Credit is that which brings into commerce the present worth of a future profit" ("Free Banking", p. 62), and the definition is right, then the issuing department of a work supply bank does not undertake to grant credits in the economic meaning of the term, even though it adopts for safety's sake the legal forms relating to credit.
Economically speaking, a work supply bank lends out its goods warrants as a railway lends out its trucks; but a loan exists here in the legal sense only, not in the economic sense.
If, to repeat, the bank also establishes a department concerned with long term credits, it finances these, as was pointed out in the article referred to, not directly with its goods warrants, but indirectly and with immediately available goods or services, or with credits already due, which other persons place at its disposal for this purpose on long term conditions, by undertaking to sell goods and services to every
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bearer of a goods warrant for that warrant and surrendering thereupon the goods warrant to the work supply bank. (When subscribing with them to the long-term loan they are providing through this bank. - J.Z.)
There is one rock the work supply bank must avoid and which the old private banks of issue only avoided with great difficulty, a rock which the older critics by no means failed to see. (Regarding what follows, consult especially the remarks bearing on Proudhon's People's Bank in H. Greene's Mutual Banking", Boston and New York 1870), a work which probably would have been forgotten had not Henry Meulen saved it from an unmerited oblivion. Here lies the danger:
When a bank of issue confines itself-to accepting as security bills from persons known to be solvent, it may easily happen, for instance, that ten decidedly solvent middlemen should draw bills on one another, the actual basis for which is one and the same set of goods, e.g., a cargo of cotton, so that perhaps ten times as much paper money is brought into circulation as is economically justified. Such an operation need not always result in a loss. If, however, the middleman does not at once pay his supplier with the notes lent him by the bank and that supplier does not at once pay h i s supplier, then the ten middlemen could later only pay their debts out of income derived from sources other than those arising from the sale of the cargo of cotton they dealt in. Some time will generally have to elapse before such revenues become liquid. Suppose that this involved only one day more than is demanded by the immediate repayment of the notes received, then it might happen that just on that day a feeling of distrust in the notes seizes the public and everybody wishes to get rid of them on that very day. But that would not be possible because there is no firm bound to accept the notes in exchange for goods or services. We do not speak here of a metallic cover, fort judging by experience, if it is below 100%, it fails just when it is required. The middlemen in our example, on whom the bank of issue could call to accept the notes at par and sell cotton for them, are, in accordance with the above assumptions, not in a position to respond since the cotton has been sold long ago. A properly conducted bank of issue, just like a work supply bank, may only have debtors who are able to convert the notes on any date, up to the amount of their debt, with their stocks or services or with their credits; Should they not be able to comply with this, there must be guarantors ready to undertake this obligation for them.
(The guarantors could ask for some compensation for their guaranty. Purely juridically considered, this would perhaps constitute an interest payment.
It is a matter worth consideration whether it would not be well if every credit bank required a guaranty from a great many shops in its immediate district; this in the form that, for instance, the shopkeepers undertook, through announcements in their windows, to accept the cheques of the bank concerned during the coming three months. This would frequently prevent the calling in of deposits at moments embarrassing for the banks. )
In the present example of the ten middlemen, as much as 100% interest would evidently not suffice to justify taking the smallest conceivable risk arising from "middlemen's bills", for the risk could not very well be estimated as smaller than the postponement of the normal note circulation by one day. The commercial risk of illiquidity is qualitatively wholly different from any other and cannot be compensated by any interest rate however high.
Still, the risk to a bank of issue arising out of middlemen's bills, which has not been exaggerated here in the least, would be avoided if every borrower undertook to devote all current income not directly required for urgent and necessary expenses, to repayments to the bank-of-issue.
The explanations attached to the business provisions should therefore state the order in which the expenses of a debtor to a work supply bank may count as "urgent" and, more particularly, in which they take precedence to repayments to a work supply band. The order might be perhaps: taxes, wages, insurance premiums, rents, expenditure on e .g, electricity, gas, etc., and then repayments to the work supply bank out of current income.
The sketch of business provisions in the article referred to, speaks only of the right of borrowers to return. the goods warrants on any date. Such a right does not therefore meet the case properly and should be replaced by the obligation of the debtor to make repayments as soon as they are technically feasible.
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A friend has also called my attention to other ways in which the business provisions might be considerably improved. He mentions, for instance that it would be only exceptionally practicable to hand over the goods warrants to the borrower himself, except when he required them for paying wages. As a rule it would be much better to place them at the disposal of the borrower's creditors. This principle has very well and for a long time succeeded in other spheres For example, the insurance institutes established by Frederick the Great paid the fire-damage money directly to the builders engaged in rebuilding the destroyed property, to the brickyards supplying the bricks for the purpose, and so on. The danger due to abuses was thus greatly diminished. Old Prussia followed a similar procedure where the State granted assistance in the case of floods and hailstorms. The sufferers could buy new things, in replacement of those destroyed, the State paying the supplier directly. Both in Anglosaxon countries and in Germany building societies generally act on similar lines. When a loan is granted to a member, the member does not receive the amount in cash but has to send in his bills to the society. The society then makes the payments. In Germany, mortgage banks mostly follow a like rule.
The same objection has been raised against the goods warrants of work supply banks as had been raised against Milhaud's purchasing certificates, namely that the holder of such warrants runs the risk of a rise in prices after the warrant has been issued. (As if the possessor of gold coins were not exposed to an identical risk!)
(Editor's note: These objectors have apparently in mind a situation where there is only one shop obliged to redeem the notes. But any work supply bank would have many shops as its debtors. They would all compete, through their price policy, to obtain the goods warrants in circulation in order to repay their debts. Admittedly this competition is not as extensive as that which benefits a customer paying with gold coins but it will nevertheless suffice to avoid the above described danger.)
Milhaud has effectively dealt with the objection. However, to reassure the warrant holders, it might be provided that the borrowers may not raise their prices without the consent of the work supply bank so long as they remain indebted to the bank. The holder of purchasing certificates would be then better placed than the possessor of gold coins.
(Note by J.Z., 29.11.01: A supermarket, on whose shelves are hundred-thousands of goods, among them many whose prices fluctuate up and down all the time, could hardly give such a promise. At most it could promise not to increase its average price level but even that would not be advisable when e.g., due to floods or droughts a shortage of fruits and vegetables results in higher prices for fewer goods. And for certain items there are simply several seasonal fluctuations in their prices. Ordinary price competition should be relied upon, here, too. Customers would tend to boycott stores that charged more than others.)
In connection with the sketch of business provisions referred to, it has been remarked that even in the case of a locally operating work supply bank the hoarding of warrants would be possible and that therefore the business provisions should provide for circumstances where it is technically impossible for the warrants to be returned in time to the work supply bank. The remark is to the point. Hence precisely as Milhaud stipulates for the means of payment he proposes, the business provisions should provide for a time limit for the warrants. In addition however, the borrower of warrants should be able to free himself-from the obligation of returning the warrants when the fulfillment of this obligation has become technically impossible. A provision like the following might serve this purpose:
"When in the considered opinion of the management of a work supply bank a borrower of its goods warrants cannot return these because they have been evidently retained by the public and if the borrower cannot offer any other means of payment because means of payment are evidently being hoarded, the work supply bank shall be entitled to adopt the following measures:
"I. The bank may impose on the borrower the obligation as from the following day to offer his goods or services with a reduction of one-tenth in price to those paying with the warrants of the bank.
"II. The bank may empower the borrower to sell on credit, arranging with him the conditions of sale. The resulting assets secured by the borrower may be accepted by the bank as means of payment if the purchasers are customers of the bank.
"III. The bank may demand of the borrower to surrender to the bank purchasing certificates of his own, drawn up in a form agreed on by the bank, i.e., certificates which the borrower accepts in his business transactions in lieu of money. If the bank acts thus, it shall claim from the borrower a premium sufficiently high to cover the estimated probable cost of withdrawing from circulation its own warrants. This premium may also be paid with the borrower's own purchasing certificates.
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"IV. The bank may extend the loan period if at the date in question the goods warrants are not at a discount compared with gold and if such a discount is not anticipated."
The business provisions proposed in the article mentioned, do not state with sufficient definiteness that the bank should bind every borrower of its goods warrants to accept orders and this from all such persons who can confidently promise to pay in goods warrants or as an alternative to pay with other means of payment plus a reasonable premium. In case of doubt, the bank decides whether the borrower is bound to accept an order.
The same business provisions make mention of bills as securities of a work supply bank, It should also have been mentioned that bonds, as stated in the above mentioned article on p. 105 (peace plan 190, page 26), should be placed on an equal footing with bills, i.e., bonds not redeemable in money but accepted by the drawer at their face value like money in payments made to him.
It ought not to be too difficult to make the proposed business provisions relating to the financing of long term credits (peace plan 190, pp, 39 ff.) also applicable to a bank financing (as Milhaud proposes) public works in different countries with products which, in a given country, because of the depression, can either not be sold at all or only at a loss. Such a bank would have to operate in various currencies. But since the currencies of some countries are suspect, the bank would have to try to make out the documents for repaying the capital funds it has mediated, in a fixed weight of fine gold, e.g., 1 gram fine gold as the unit. (According to Follin's proposal, 1 gram fine gold = 1 doro.)
Such a form of indebtedness is, it is true not permitted in all countries. Inhabitants of these would therefore not enter into account as debtors, They would however, be eligible as suppliers of goods or capital.
Let us suppose that it is intended to finance a Chinese air line with stocks of coffee difficult to market in Brazil because of the trade depression.
("Because of the trade depression", that is because no foreign exchange is available wherewith to purchase the coffee and because the parties interested cannot obtain the foreign exchange simply because their prospective buyers are also without the necessary foreign exchange. An actual surplus of coffee, which has probably never existed in economic history, would also be unsuitable as a marketable commodity for a Milhaud bank.)
Should Brazil possess such supplies of coffee and should it prefer to exchange its coffee for claims against a Chinese transport company rather than throw it into the sea, then a bank operating on Milhaud's principles could act in the following way as intermediary between China and Brazil.
If the Chinese Company, having for its object say the establishment of an air service between Peking and Canton, should require a capital sum of approximately the value of 50 million grams fine gold for airplanes repair workshops, air ports; etc., it might issue to begin with 1 million certificates, each of the value of 50 grams fine gold, having roughly the following text:
" CERTIFICATE
"The Air Line Company Peking Canton will accept this certificate after it has been drawn by lot and the drawing has been made properly public, in lieu of ready money when payment is offered for passenger tickets, freights, and in the case of all other payments receivable by the Company, this in agreement with the latest published gold quotations on the Shanghai Exchange. In accepting payments the Company will make no difference between the certificates and cash, whatever be the market value or the market quotation of the certificates.
"Attached to this certificate are interest coupons due at intervals of three months and representing 1 gram fine gold. The Company accepts the interest coupons after maturity, just as it does the certificates. The interest paid corresponds therefore to an annual interest rate of 8 % of the nominal value (without compound interest).
"The Company undertakes to effect the drawing as for a loan period of 10 years (40 quarters) and that in accordance with the scheme of drawing as proposed by the Milhaud Bank at....
"The Company is entitled to proceed with the drawing in series, in agreement with the series formed
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when the loan was issued.
"Each series is to be arranged that each quarter a sum equal to at Least 3,655575 % of the original face value of the series may be repaid by drawing & by due interest coupons as means of payment, against the Company.
"The Company is also entitled to buy up certificates. Bought up and destroyed certificates count as drawn as soon as the destruction has been made duly public. If during a given quarter the Company buys up and destroys a larger amount than 3,655575 % of the face value, it is entitled to reduce the future drawings by a corresponding amount.
"Holders of certificates or of interest coupons have no claim to redemption in cash. The only claim recognized, as above stated, is the utilization of the documents as means of payment.
"Payments with certificates and interest coupons on other's behalf is admissible, also advance payments for own or other's account. In receiving payments, the Company is not bound to give change.
"Certificates or interest coupons not surrendered to the Company within one year after maturity may be utilized during the following three years as follows. The Company accepts the documents in exchange for services rendered by the Company, as when the holder pays for seats that would otherwise have remained unoccupied or for freight room which would otherwise have remained unused. Moreover, during the next three years the Company will accept these documents when it sells material or when other parties, e.g., departments of finance or suppliers of raw material (petrol) or of airplanes, are ready to accept the documents.
"After the three years have expired, the Company will decide at its discretion as to continuing the acceptance of the documents.
"Should the Company's tariffs be raised during the ten-year period of the Company's loan, the holder of the certificate is entitled to demand that his certificate should be exchanged for another than the nominal value of which has been raised in the ratio of the raised tariff. The Company is entitled to raise provisionally the nominal value of the certificates by stamping them over.
"The Company is entitled, but not bound, to ascertain the identity of holders."
It would be the task of the bank to find a sufficient number of persons or firms which, like the Brazilian coffee suppliers, would be ready to accept the certificates without delay in lieu of ready money.
The number of these acceptors should be sufficiently large and their readiness to accept complete enough, to result in a degree of negotiability of the certificates that would induce the suppliers of airplanes, petrol, and other articles required by the Company, to accept them in lieu of ready money, although with a trifling discount of say 1 or 2%. It would be also the function of the bank to help these suppliers in the disposal of the certificates and to take care that the certificates shall eventually reach Brazil whose coffee is the actual basis for the certificates.
A certificate for which coffee may be bought as with ready money in Brazil, would be valued as ready money in all countries that have been accustomed to obtain their coffee from Brazil, but which countries, owing to a deficiency in foreign exchange, can no longer obtain it. Furthermore, the certificate would represent a value in all countries that have in the past supplied Brazil with machinery, textiles, musical instruments, films hardware, and the like, but which now cannot expect payment from Brazil because that country has not enough foreign exchange wherewith to pair for such articles. Hence the certificates made out for grams of fine gold, for which coffee may be procured from Brazil at any time, would be soon recognized as foreign exchange by many firms anxious to export to Brazil, and would be therefore accepted by them as a means of payment.
(The universally prevalent superstition that imported goods must be paid for with foreign exchange and were paid for thus before the War, affords the bank an opportunity to intervene by supplying "substitute foreign exchange".)
The bank would have another calling namely to explain to as many interested parties as possible the manifold uses to which the certificates may be put and to prevail on them to accept the certificates in lieu of ready money, After a few weeks the bank may have succeeded in finding, besides the Brazilian coffee planters, the following classes of acceptors for the certificates:
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A few English engineering firms;
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Egyptian cotton merchants;
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A few wheat suppliers in Dakota;
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Mexican silver suppliers;
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Chinese tea merchants and other wholesale dealers who are rarely paid in cash today but generally in some kind of bonds which they have to transmute into money, and for whom such certificates would not be anything uncommon.
Once some wheat suppliers of Dakota accept the certificates, many flour mills in Chicago would do likewise and would probably be followed even by a few individual traders. Similarly with Mexico. Certificates accepted by a silver mine might be practically given in payment throughout Mexico once the acceptance by the silver mine has become known, so too, as regards other wholesalers. Once they accept the certificates, the circle of acceptors would automatically expand. In the end, even banks would not refuse to accept them. This achieved, the suppliers of airplanes, petrol, etc. would not hesitate to furnish their goods for the certificates, provided their governments do not veto this. Even the possibility that some central bank of issue would accept the certificates as a form of foreign currency and exchange them for its notes, is not out of the question. This would of course, greatly facilitate transactions. Above all, the Brazilian banks should be led to accept the certificates as a form of foreign currency and furnish in exchange ordinary Brazilian means of payment. That would enable coffee owners holding certificates to pay therewith wages and taxes without delay. (See Ed.'s note on page 197.)
The final result of the operation would be as follows:
The airplane factory has passed on its certificates to a bank in its locality e.g., to the one where it banks without troubling naturally what the bank will do with the certificates. The bank then looks out, in the first instance, for parties having payments to make in Brazil. In this search, it will be assisted by the Milhaud Bank with information based on its business experience during the last few weeks. Coffee importers especially will gladly acquire these certificates, for they would thus possess at last a means of payment negotiable in Brazil which they needed so far. Ultimately, the certificates will reach the Brazilian coffee owners.
A few months later, a certain demand for certificates and interest coupons will spring up in China, for the Chinese Company will receive at its counters Chinese dollars and other means of payment circulating in China. Part of this money the Company will preferably spend in buying certificates and interest coupons obtainable anywhere on the globe at less than par. Also, all those making use of the services of the Chinese Company will seek to obtain certificates and especially interest coupons standing below par in order to pass them on to the Company and thus profit by the discount. This brisk demand on the part of the Company and of its customers will rapidly restore the parity of the certificates on the worlds markets should they have fallen anywhere below parity. Since therefore the certificates will remain steadily, or almost steadily, at par, the Brazilian coffee owners, to judge by all experience on the world's market for securities, will be able to dispose, within a relatively short time, of their certificates here or there. Most likely, too, China itself-will take up certificates although today many Chinese economists are inclined to believe that their country could only raise modest sums. (They are unaware that the means of payment is of crucial importance for raising money. Whilst in present conditions, China finds it difficult to raise 100 million yuan in silver, it could easily raise ten times the amount by the above method.)
In this way, only lightly sketched here, it would be possible to subscribe with Brazilian coffee a loan having for its object to establish a Chinese air line.
The importance of Milhaud's proposal to finance public works with the goods of a country that have become unmarketable because of the depression (Annals, 1933 1, p 63) cannot be overestimated. It opens entirely new economic world vistas.
(It need not be explained here that he does not have in view one product only, say coffee.)
Singularly enough, his proposal has been severely ignored, at least the details of how to realize it have not been publicly discussed.
In accordance with the above proposal, the Milhaud bank acts solely as an intermediary. It does not issue bonds of its own. Such operations could also be, of course, conducted by other agencies than a bank, e.g, by a large scale trading firm in good repute internationally. In an emergency, the Chinese Company could itself-undertake the sale of its certificates after they have been "re-insured" in Brazil. (It will
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naturally be understood that for the end in view American cotton, Malayan tin, African rubber, and much else, would be just as appropriate as Brazilian coffee.)
The improbable case might be imagined that the Brazilian coffee suppliers would only agree to the transaction if out of the proceeds of the coffee sold they could at once pay wages, rents, taxes etc. That would increase the difficulties of the deal, for workers, landlords, and taxation offices in small communities cannot conveniently accept a certificate worth 50 grams of fine gold as a means of payment. But even so the transaction would still be practicable, if only the possibility existed of establishing a bank in Brazil on the principles outlined in the article mentioned. This bank would have to come to terms with Brazilian manufacturers, workers, shopkeepers, and others concerned in retail business, with a view to their accepting as money the fractionalized notes of the bank. The bank would then be a work supply bank in the sense defined in the article referred to. The bank's cover would firstly be the Chinese certificates furthermore, an undertaking of the coffee owners to supply coffee also in exchange for the goods warrants of the work supply bank. These goods warrants would be made out in milreis; but this would involve no currency risk for the bank, for whilst the milreis might depreciate, the grams of fine gold would not. We need not trouble ourselves here about details. The existing Brazilian banks would probably suffice to see the transaction through. It would only depend on them whether they would collaborate or not but they would stand to make considerable profits if they agreed.
(Editor's note: The author seems to contradict himself-here by using future services in another country air line services in China and only a single local commodity which, though it can be immediately supplied, is not in sufficient local demand, namely Brazilian coffee as cover for the new paper money. Admittedly, he insists, generally, on shop foundation but he seems to forget, on this occasion, about the necessary local reflux precisely through such a readiness to accept foundation. Lastly, the shop owners would have to exchange their otherwise unsaleable everyday commodities into either long term air line bonds or coffee warrants which, although immediately realizable into coffee, could be turned into other goods only to the extent that they would be accepted in payment for the import of such goods. Thus, wage payments would be made possible only to the extent that shopkeepers are willing to make long term investments with their supplies or can sell the coffee or air service certificates - in the open market. But this again requires a readiness of the coffee growers to accept the long term airline certificates, a readiness, which, in this assumed case, they do not necessarily show. - Either he had not sufficiently explained himself-here or I have not sufficiently understood him. Anyhow, I hold that for local wage payments there will be no good substitute to local currencies based on local shop foundation. - J. Z., 29.11.01.)
Milhaud is also responsible for a valuable suggestion relating to commercial reporting, the realization of which is indispensable for establishing a really free market, namely the publication of the quantity of goods actually in the market and of the quotations relating to them. Hence not only the actual turnovers should be made public, as is now already often the case but also the quantities of goods offered as well as those remaining unsold, the price's demanded and the location of the stocks, when it is a question of world markets, so that the parties interested may estimate the cost of transport. Accordingly, not only the demand satisfied would have to be made public, but also the unsatisfied demand and the prices offered. This principle might be also utilized for bracing up the securities market. How frequently does it not happen that even in boom periods the holders of securities cannot sell them at the prices quoted in the Stock Exchange list. This gives rise, sometimes, to an unfounded distrust of quotations. If, however, the Exchange's list would publish the actual offers and the actual demands; as well as the limits fixed by the interested parties on the Stock Exchange they are known anyway, then the distrust would disappear. On the basis of such reports the turnover would most certainly increase.
Attention should also be paid to the method proposed by Milhaud for determining quotations. This method, according to his account, has proved successful in practice, but has as yet been rarely applied. (Annals, 1933, 1, p. 56.)
Legislatures should contribute their share to enable banks to undertake operations having for their object to convert the unsaleable stocks of a country into capital providing work for the unemployed. An exhaustive enumeration of all legislative reforms desirable in this connection is naturally impossible here.
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In fact, only the practical experience gained by such a new type of bank could show what legislative provisions, unsuspected at first, impede its working.
(Jefferson, the cofounder of the United States, insisted that no law should remain in force beyond the lifetime of a generation - that is, beyond about thirty years. A statesman who introduced such a provision into the Constitution, would have done much for the progress of his country.)
First, of course an Act would have to provide that dealings in purchasing certificates and in certificates of the kind described above, are perfectly free and are not subject to the many thousands of foreign exchange acts which during recent years have been passed in every part of the world.
Seeing the exceptional social importance of such a bank, the State might provide that in bankruptcies, court accommodations, and the like, the bank shall have priority over other creditors. Such a provision would be no novelty, for the central banks of issue have enjoyed such priority for generations and so have many other State banks. Where the new privilege clashes with the old the latter should go. However there will be seldom any clash, since the sphere of action of the new banks lies wholly outside that of other banks.
Of special importance would be a provision decreeing that all laws relating to the protection of debtors during an economic crisis should be inapplicable to debts or obligations the discharge of which the creditor does not stipulate in money and which the debtor is able to repay with his own goods and services without the aid of money and in accordance with the principles enunciated by Milhaud.
Certificates of the kind above described would therefore have to be excepted from all legislation relating, to the protection of debtors during trade depressions, for debtors of this class require no such protection.
IX. THE PRACTICAL REALIZATION OF THE MILHAUD PLAN
1. What can Individuals Do to Help in Realizing the Milhaud Plan?
a) The employee:
First and foremost, he can declare to his employer that he is prepared to waive his legal right to demand legal tender if his wages were paid in Milhaud's purchasing certificates instead.
A single publicly announced declaration of this kind on the part of the workers of a factory or of the officials of an authority would go farther than hundred-weights of literature.
If the worker is employed in a large scale firm, he can discuss with his fellow workers the possibility of their forming themselves into a cooperative society, of buying or leasing the enerprise from its owners, using for this purpose Milhaud's purchasing certificates as a means of payment.
In frequently and earnestly talking this matter over with his fellows and in making thus clear to himself-and to others the fundamental difference between a payment received in such certificates and in money, he acts in the truest sense of the word "revolutionary", even though the followers of Marx might dub him "lower middle class" or ''pace maker of reaction".
(What working man has ever considered that if the body of workers of a factory or of a large estate paid the owner quarterly one-fiftieth of the value of the undertaking and that seventy-nine times, the workers would own the undertaking, provided the owner is satisfied with an interest rate of 1 1/4 % quarterly on the debit balance remaining at any time? Workers will either entertain such extremely non-marxist thoughts or will be worse off in 100 years than Chinese coolies are now.)
(I do not agree with the last part of this statement, but I am convinced that they could, by this method and the personal economic incentives it would provide, increase their incomes by several percent every year. There are many reports of coops and partnerships reaching growth rates of 20 -30% annually, by mobilizing the innovative talents of all their members. Beckerath's last statement would apply only if the workers would fall under another totalitarian rule. - J.Z., 29.11.01.)
b) The employer:
He can bring it to the attention of the workers that their privilege to receive wages in legal tender does them far more harm than good. He can prove to them that his influence on the money circulation approaches zero and that neither he nor the most powerful trust nor the Government itself, can get hold
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of money once it has left the accustomed channels of circulation. In this connection the employer can explain to the workers the nature of a Milhaud purchasing certificate. He can show them that this certificate represents the sole effective means of combating economic crises associated with unemployment and can make it clear to them that he himself-can only accept payments in purchasing certificates if he is allowed to pay wages in such certificates. He can explain to them better than they could explain it to themselves that they can buy their provisions as well with Milhaud purchasing certificates as with money.
Indeed, to remove the suspicion of the workers, he may go farther and declare himself-ready to accept in payment for the bills of his undertaking purchasing certificates issued by the consumer's cooperative societies of the workers if, in return, the workers will accept such purchasing certificates in payment of their wages.
The employer may propose to his workers that they acquire his undertaking on the installment system installments to be paid in Milhaud purchasing certificates and prepare the change in his social position (from lord of an undertaking to leader of a body of followers) in such a way that he shall not suffer loss thereby but, on the contrary, benefit in every respect.
c) Employees in higher positions (departmental chief, foreman, master tradesman):
This class of employees will find it far easier than the employer to enlighten the workers regarding the serious disadvantages they are exposed to owing to the present system of making payments.
It is to be hoped that very soon the workers of all countries will imitate the German method of frequently holding work meetings where everybody is free to express his views about work questions.
d) The politician:
He may elaborate draft laws and, above all, cause the drawing up of a comprehensive list of laws and decrees of his country which prevent today the issue of Milhaud purchasing certificates. Afterwards the politician could propose that at first only experimentally and in a certain small area, having as many unemployed as possible, all these provisions should be suspended in order to make practical experience possible.
e) The shopkeeper:
By posting up a notice in his establishment, and in conversation with his customers, he could make it evident that he would willingly accept Milhaud purchasing certificates if his suppliers would take them in payment. Such a declaration would deeply impress his customers,
f) Associations of taxpayers:
Such associations exist in England and in France. Should any of these demand that taxes be payable with other means of payment than those customary today, above all with Milhaud purchasing certificates, this would have a salutary effect on the authorities. The members of these associations should be enlightened in respect of the feasibility of paying taxes with means of payment other than those current today.
g) The scholar:
He should, first of all, read the Milhaud Plan and thoroughly familiarize himself-with it. The man who is not a scholar frequently lacks the necessary time, patience, and knowledge required for doing this. The scholar should make use of his relations with the press and with publishers to make propaganda for the Milhaud Plan. He more than anyone else, is also called upon to combat the objection raised against Milhaud's system that it encourages "inflation".
It is precisely among scholars that the simple but, it may be admitted, very abstract truth is misconceived, namely that the issue of means of payment entails no danger of their depreciation and certainly does not represent an inflation, as long as the issue only serves to facilitate clearing and if it is not forgotten that only liabilities of the same due date can be subject to mutual clearing. This granted, the means of payment issued may be with impunity fractionalized and standardized like money. They represent then nothing but a convenient form of warrant (or "ticket"! - J.Z.) referring to the own undertaking to supply what is agreed upon.
The economic mischief of an issue begins when the issue exceeds the promised supply or exceeds at least the enforced demand for the own service. The mischief expresses itself-then in a depreciation of the means of payment issued, without involving however, a general rise in prices, provided the means of payment are subject to a free internal and external exchange rate. On the other hand, the depreciation expresses itself
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as an inflation if the means of payment have a forced market rate (and not otherwise!).
(Legal tender, meaning: compulsory acceptance and compulsory value, regardless of how worthless a State paper money may have become! - J.Z., 29.11.01.)
All this only the scholar can see in its manifold bearings and in proper perspective.
h) The landlord:
He should ask his mortgage creditors whether they would accept Milhaud certificates. Associations of house owners should address the same question to large scale credit institutes, first of all to mortgage banks. Whenever he is paid his rent, the landlord ought to make it clear to his tenant that as far as he is concerned, he would willingly accept Milhaud certificates instead of money. The landlords might also circularize the holders of mortgages suggesting that they should be satisfied with Milhaud certificates. The acceptance of matured interest coupons of mortgage banks and of the drawn mortgage bonds of these banks in rent payments would make a decided and economically beneficent approach to the Milhaud Plan.
i) Intellectuals:
As is well known, most people class themselves among these. But each individual should say to himself-that he who is indifferent to, or inappreciative of Milhaud's proposed improvement of the present day system of payment, is not an intellectual.
j) The philosopher:
He should remember Proudhon's dictum: "L'économie politique, c'est la métaphysique en action" and should reflect that purchasing certificates have decidedly more than a mere economic significance.
2. What could Governments Do within 24 Hours?
The masses are mostly unacquainted with the legislation in force or when they are acquainted with it, regard it as an integral part of nature, after it has been in operation for a few years (a circumstance to which sociologists have paid little attention). Hence they rarely call for the annulment of existing laws, but rather for the passing of new ones. They expect the State to come to their aid in times of emergency because they feel that the State could really help. The masses are, however, unaware that the aid they expect from the State can seldom consist in anything else but the permission to help themselves and at most in showing them how they might accomplish this.
Sometimes a government finds itself-indeed in the latter position, as was the case with Frederick the Great, who in some regions of his kingdom encountered considerable opposition on the part of the serfs, when he endeavored to ameliorate their condition. This occurred more especially in the non-German regions. These serfs had no idea how to conduct themselves as free men and what, in fact freedom meant. Accordingly, the king considered providing them with some practical illustrations of this, and in a communication on 1 April 1772 wrote to Kammerpraesident von Domhardt: ''The surest way to produce in these servile folk better views and manners will always be to bring them in contact with Germans, even if only with two or three to begin with in each village."
(What he actually did, was to encourage the settlement of some Germans from Southern Germany, already long familiar with degrees of personal freedom, among Germans in Northern Germany, who had no such freedom traditions. Not as many peasants there, as in Southern Germany, had long ago, bought their personal liberty from their former feudal lords. My mother reported to me that she still found there conditions like the following: Land laborers, on large farms, were housed in barracks, the female ones separately, but with the girls and women in rooms that were, intentionally, not lockable, while the "men", their proletarian fellow-workers, considered them to be fair game! Similar conditions were reported as existing in at least some ammunition factories in Germany during WW I. - Beckerath here simply used the Nazi's bias against "foreigners" in his favour. Indeed, some other ethnic people existed as well in these provinces, e.g. Wenden and Poles. But the German people, already living among them, for centuries, had so far not set shining freedom examples, either! - They, too, had demonstrated against liberty when confronted with the "threat" of being set free! - Unbelievable? We, too, have our popular and violent demonstrations and common prejudices against what is now attacked as "globalization", i.e., free trade, free foreign investments and free migration on a global free market. The demonstrators do not want less government interference but more of it or at least the continuance of the current restrictions of as basis individual rights! Don't they make you proud to be a human being? - J.Z., 29.11.01.)
Today also the presentation of practical examples would constitute the best way of showing the masses how they might help themselves where the cause of the misery is exclusively a shortage in the means of payment.
In order to make a beginning and render it possible to offer examples, every government, should first pass an Act to the following effect:
"Certificates mentioning a definite amount of money in domestic or foreign currency but not containing an undertaking that the amount must be redeemed in money, and which instead are accepted by the obligees as money only when receiving payments, are not subject to the legal restrictions relating to the issue of means of payment standardized and fractionalized like money.
Contracts wherein the surrender of such certificates is promised in lieu of payment, are valid, even should they be invalid according to earlier legislation. Creditors who have unconditionally accepted such certificates in lieu of payment, are to be regarded as satisfied with the amount of money mentioned in the certificate. "
In all countries such an enabling Act would open the way to the introduction of the Milhaud Plan, and that from one day to another.
"It is no more a function of the State to regulate money and banking than it is a function of the State to regulate the growing and marketing of onions." - Oscar B. Johannsen, 825 Walnut Street, Rosette Park, N.Y., author of "Private Schools for All."
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X. SUMMARY
STRESSING A FEW DIFFERENCES BETWEEN
THE MILHAUD PLAN AND THE CURRENT MONETARY SYSTEM
A = Current Situation B = Milhaud Plan
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( 1 )
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( A )
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In the case of the present paper money system which depends on a forced market rate, the issuing centre has only the choice between deflation and inflation. A forced currency offers no means for accurately ascertaining the requirements of the population of means of payment or satisfying these requirements when ascertained.
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( B )
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Where the Milhaud system is allowed to function, even limitless ill-will and bottomless stupidity on the part of the issuing centre cannot occasion an inflation. Nor could a deflation be maintained for long. The requirements in means of payment can be fully satisfied.
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( 2 )
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( A )
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Goods left unsold because of a depression drive down prices and act as a poison in the body politic.
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( B )
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Goods that have remained unsold create a strong inclination in their owners to place them at the disposal of others, in the form of long term credits. This leads to a rapid sale of these goods and favours a tendency to reduce the cost of long term credits.
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( 3 )
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( A )
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The tax debtor, just like any other class of debtor, is often short of means of payment, because these, so long as the currency remains stable, inevitably circulate in insufficient quantities. The State is therefore constantly tempted to take from the central bank advances in forced currency, thereby imperiling the currency.
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( B )
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Since the State may accept Milhaud purchasing certificates in payment of every class of charges, its receipts will markedly increase.
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( 4 )
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( A )
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Distrust in the currency may occasion great economic dislocations. It markedly prejudices long term credits, prevents the conclusion of insurance contracts, and so forth.
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( B )
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Distrust in Milhaud certificates would only induce the holders to exchange them for goods at the shops, with the result that the means of payment together with the distrust would disappear from the market and long term credits would remain wholly unaffected.
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( 5 )
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( A )
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Unemployment calls for great sacrifices on the part of the people. Such sacrifices, however, easily lead to fresh unemployment as they only redistribute the purchasing power.
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( B )
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The elimination of unemployment calls for no other sacrifice than an open confession that we had followed the wrong road.. What is more, if the Milhaud Plan is adhered to, the elimination of unemployment yields from the very first surpluses and calls for no subsidies.
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( 6 )
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( A )
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in the present monetary system, where the currency material is not only the standard of value, but a means of payment, one to which every creditor has a right and payment in which he may enforce, there is inevitably a perennial shortage of means of payment. Inasmuch as the real cause of this shortage (which rests precisely on the said claim of creditors) is misunderstood, statesmen are constantly tempted to remove this shortage by creating new forced currency. If they succumb to the temptation, they first eliminate gold both as a standard of value and as a means of payment and then replace it, in both functions, by paper money having a forced market rate. (Legal tender, i.e., compulsory acceptance combined with compulsory value. - J.Z.)
However, it is found that the shortage in means of payment remains unaffected, indeed rather increases, when a milliard of paper circulates in the place of a milliard of gold.
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Under these circumstances confidence in the currency is undermined, as a rule, once free dealings in gold and the permission to reckon in gold are cancelled. The prevailing system does not offer any possibility of retaining gold as the standard of value and yet of allowing for the fact that there is not and cannot be sufficient gold available to provide for all payments.
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( B )
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Although the Milhaud Plan permits the retention of gold as the standard of value, at the same time it permits to create as many paper means of payment as are required to discharge all payment obligations.
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( 7 )
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( A )
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Want of confidence in the economic outlook leads to hoarding and produces a depression by this very act. Yet the prevailing system possesses no effective weapon wherewith to combat hoarding.
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( B )
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Once the Milhaud Plan is in operation, those who are distrustful will not be able to jeopardize by their distrust either the economic life of the nation or the standard of value, not even if they should hoard gold coins or paper money. Under the Milhaud Plan the position of those who are distrustful resembles that of a man who, without good reason, distrusts the weather and provides himself-with more umbrellas than he needs. Under this Plan a hoarder only succeeds in permitting debtors to defer their payments free of interest. The Plan takes care that in such cases the proper limits are not exceeded.
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( 8 )
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( A )
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In the current economic system the advantages of machinery are not generally admitted nor are they obvious a first sight.
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( B )
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Only when, as a result of the application of the Milhaud Plan, everyone set free by machinery can find other work found for himself, immediately, will the advantages of machines become fully obvious to everybody and no one will be opposed to their employment.
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( 9 )
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( A )
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Every deviation from the normal circulating speed of money may prove injurious economically, including both rapid spending and hoarding.
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( B )
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The relative speed in the circulation of the means of payment plays a quite subordinate part in the Milhaud Plan. Deviations from the normal speed bring about as many economic advantages as disadvantages, in no case considerable ones. An excessive circulatory speed of Milhaud certificates only increases sales, which is no misfortune; too slow circulatory speed means a respite for debtors, which is no misfortune either.
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( 10 )
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( A )
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The present monetary system, with its inevitable shortage of liquid means of payment (which according to experience continues even during an inflation), affects prejudicially both wages and profits, continuously. The normal level of wages and profits necessary for a rapid disposal of mass-produced articles is unattainable under the present monetary system.
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( B )
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Inasmuch as the Milhaud Plan renders possible the mobilization of the purchasing power of individual workers and of individual employers, it creates a demand for labour power (managerial and subordinate) which exceeds the offer on the labour market and drives up wages and profits to their economic maximum. That is, by workers and employers placing orders for their requirements for a few weeks in advance, they produce a demand which the combined labour power of all the employed and workless is unable to satisfy for the moment.
(There is no need for ordinary consumers, doing their regular shopping, to place any orders, far less weeks in advance, for those goods and services that are in daily demand anyhow, as long as all their potential customers, who will not, e.g., intentionally, starve themselves, are sufficiently supplied with cash [or good enough substitutes for cash] to be able to pay for them. This would automatically be the case once the owners of these goods and the suppliers of these services are free to offer them in form of suitable standardized and fractionated goods and services warrants, aptly called ticket money, with shop foundation, which it would be in their own interest, and in that of their customers and of the general economy, to do so. This supply of exchange media would, naturally, not be done in form of hand-outs but, rather, in form of short-term and turn-over loans only, for goods that are already produced, have been sold and are on their way to their markets, and with these turnover credits also and immediately backed up by goods and services that are ready for sale and are in daily demand. These notes would be optional, free market rated, i.e., discountable and refusable, and they would be self-liquidating, like tickets for theatre performances, upon their use. Beckerath was here still all too much "in love" with his "order system". An order system will and does play a role, but hardly in the sphere of daily wanted consumer goods. There the daily recorded sales to the customers under monetary freedom, will clearly indicate how many more of such goods should be produced. The usual orders will then go from the retailers to the wholesalers and from them to the producers. Now this can be done with the speed of computers, even automatically. If consumers want to make even better bargains then they could, naturally, oblige themselves to purchase, for agreed upon periods, and, perhaps, for minimum amounts, mainly from certain stores, e.g. their own consumer coops or some or the other super-market. Thus, as members or favoured customers, they could obtain a special discount and these shops would be enabled to purchase at lower prices and would have reduced sales costs. - J.Z., 29.11.01.)
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( 11 )
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( A )
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This system leads to a constant struggle between workers and employers for the available means of payment. Since the possession of means of payment decides the share obtained of the social output, the struggle for means of payment is also a struggle for the proportion of the share of the social output. Both parties are under the impression that the other receives too much and at every opportunity they renew the struggle.
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( B )
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Under the Milhaud Plan the procuring of means of payment presents no longer any problem for the employer. A money shortage that might induce the employer to cut down wages no longer exists.
In addition, as everybody knows, the means of payment disbursed in wages inevitably return to the employer in the shape of a demand for goods or services. Thus high wages not only promote sates generally (which is already true today) but in the case of every individual employer.
203
And this would be obvious to everybody. At least four out of every five reasons for labour disputes would be gone under the Milhaud Plan.
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( 12 )
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( A )
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Under the present monetary system almost every product has to carry special sales costs which often represent as much as half the market price or more This greatly reduces wages and profits, without however the numerous agents, travelers, "publicity experts", middlemen, and others; earning much.
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( B )
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Under the Milhaud Plan sales costs would drop to a fraction of the present amount, perhaps to less than a quarter. The income of workers and employers would correspondingly rise, whilst "sales experts" would turn to socially more useful occupations.
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( 13 )
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( A )
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Export trade affects prejudicially the standard of value, since exporters incessantly call either for a devaluation or an inflation.
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( B )
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Under the Milhaud Plan a stable currency manifestly encourages exports, particularly as long as countries exist where the currency seems threatened. The inhabitants of these countries will endeavor to secure purchasing certificates from the countries that have adopted the Milhaud system. This, in turn, will further encourage exports from the latter countries.
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According to Prof. Wagemann, head of the Institute for Crisis Research (Institut fuer Konjunkturforschung) the German Government, replaced in January 1933, planned to prohibit new social reform proposals by a special enactment. This would be a reminder of the French "arrét" of the 28th. of March, 1764, which prohibited every publication dealing with political economy.
Anyhow, more confidence was inspired by the frank declaration of Adolf Hitler in the September 20th., 1933 session of the General Council of he Reichsbank:
"The Government is grateful for good and practical advice."
(On this occasion we might remember another saying of the Fuehrer in the same session:
"First of all we ought to fight the idea that men do not really need much for survival and ought therefore to restrict their consumption systematically that is the cult of primitiveness spread by communism. The Bolshevik ideal of a gradual reduction of civilized aspirations must inevitably lead to the destruction of the economy and life altogether.")
(Fuehrer, or Leader, as he like to be called. He was clever enough to e.g., have insisted on a right arm salute - which clearly indicated that you were carrying neither a revolver nor a hand grenade! Throwing bunches of flowers at him was likewise forbidden, for they might hide a grenade. I remember him being driven past, in an open car, in the Muellerstrasse, of Berlin, a major North - South road, during a parade, with the road sparsely lined by spectators. This was, probably, just after the conquest of Poland. I was looking around and asked myself: Why doesn't anybody do anything against him? For I was already then aware that many adults did not agree at all with his "leadership". Obviously, a seven year old is hardly in a position to make a tyrannicide attempt himself. - J.Z., 29.11.01.)
If a government suddenly takes over a broken down economy and first tries only to abolish particular abuses then it deserves merit for this self-restraint. It amounts, according to a remark of Keppler, made on June the 11th 1934: "The Party has still no economic program in the common meaning of the word", to an appeal to all who believe that they have positive proposals to make for improving the standard of living in Germany.
(Editor's note: At this place I ought to remind the readers, again, that the author lived in Nazi-Germany and wrote under Nazi censorship. He had to make corresponding concessions when expressing his views. Nevertheless, he was several times questioned by the Gestapo for having published books in foreign countries. Luckily, the Gestapo either did not notice the underlying libertarian tendency of all his writings, or did not understand it or did not take the freedom that he advocates serious enough as a threat to totalitarianism, although it is such a threat. Perhaps the Gestapo was really taken in by the nationalistic and traditionalist trappings which the author had included for this very purpose.
Ulrich von Beckerath was associated with the resistance movement which culminated in the tyrannicide attempt of July 20th, 1944 and he and Rittershausen survived only by a lucky chance the subsequent massacre of almost all associated with this conspiracy. Apparently, a former student and sympathizer with their freedom ideas, working within the prosecutor's office, made their files "disappear". Beckerath had no ambition for power. When the conspirators considered job distribution, after their putsch had succeeded, he only asked for a job as a librarian at the Reichsbank's library. - J.Z.)
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