Necessity For a Standard of Value

J:16 INDIVIDUAL· LIBERTY Mr. Ingalls denied,-or, if he did not deny, he expressed a doubt equivalent to a denial and equally calling for proof that mutual banking can eradicate usury, and the phraseology· shows that he meant by this to deny that mutual banking I can eradicate the payment of a premium for the use of money. And, if I had his entire writings for the last :fifteen years be fore me, I could point out equally· conclusive instances. As I have not, I can only say that I remember such. Thus ends this matter. Now Mr. Ingalls desires rile to discuss with him the question of the existence of what h~ calls economic interest,-that is, the question whether people can do more with capital than without it. He asks me to retract my ccdenial of the existence of economic .interest." I pledge him my word that I will retract it as soon as he shall quote to me the passage in which the denial occurred. There exists no such passage. To have denied so trite a truth would have been no less remarkable than Mr. Ingalls' grave persistence in affirming it. I do not approve the new use that Mr. Ingalls makes of the word,interest, but I have nothing to say in dispute of the entirely undisputed idea which he expresses by the phrase, cceconomicinterest." When he denied my posi tion, I had a right to expect. him to answer my questions.

When he shall show that I have denied his position, he will have a similar right to expect me to answer his questions. .And, if he drives me into a corner, I swear that he shall hear no complaint from me that he is trying to ccforce answers." NECESSITY FOR A STANDARD OF VALUE In the early 90'S, the Galveston News had on its staff an exceptionally able and clear-thinking editorial writer. Liberty frequently reprinted his editorials. Concerning one on cCThe Functions of Money" Mr. Tucker wrote the following article for the News: I ENTIRELY sympathize with your disposal of the Evening Post's attempt to belittle the fWlction of money as a medium INDIVIDUAL LIBERTY 117 o£exchange; but eto.yougo:farenough when you content yourself with'~aying that a s.tandardofvalue is highly desir.. able? Is it, hot absolutely.necessary? Is llloney' possiblewith~ out ". ·it?' If.' ·no ,standard is .dennitely.adopted, and, then, •.,if papefmo11ey is issued, does not the nrst commodity that the mst. note' is exchanged , for.' immediately •become'a standard of value? Is not the secondholdero£ the note governed in making. his'next purchase by ,!hathe parted with in his·,pre..

viougg~le~· •. ,0£ course it'isifl.verypoorst~nd~rd,th~t is thug arrived at, and one that must come in conflict with other standards adopted in > the same indefinite way by othere~.. changes' occurring .independently but .almos~ simultaneously wi~hthe first one abovesupposed.iButso do gold and silver come in conflict noW'. Doesn't it alhshowthat the idea o£a stan4ard isinseparcable. from •money? '. Moreov:er, there is iDa: danger in, a. standard. 'Ehe whole ,trouble disappears with the abolition of the basis privilege. The News pripted the atticle,. ,but followed it with a .. rejo~nder 'in' which. itattetnpted tOlIlain taittits ,previous ppsition. In the columns of Liberty, then, Mr. Tucker pt()ce,ededwith the' discussion: FIRST, 1 questiQn•.•. the· News' admission that· .... a. measure". of 'Yaluediffers fro111.a measure. of .length in that·, the· fOt"tn~r is empirical. True, value isa ,.relation;but then, what is extension? . Is not.· that .a' ,relation •. also,-;-the '.' relation of. an c:>bj¢ct tc:> space? If so, then the yardstick does not possess.

tbequality ofextensiOll in itself,byingas4ependent for.it "pon space •.••asgold .is .dependent "for .its.·•value ·upon oth~r <;omfi1odities. But this is/metaphysical and may lead us, far; therefore I 'donotinsist~ and' pass.'on. toa moreimportallt consideration. S,~colld, I question whether .the •• News'$ ... u~ounterva:iling difference .between· a .standard.,Q£.lepgth and,.a standard ,0£ value" est~blishes all that it claims.. In the supposed case of ·~bi;lnk.loan secured ·by 1ll0rtgage,.the margin between tpe val~~tionand theobligati0tl; practically secures the nate holder agains~ loss from adeclitlein the value of the security, but it •.doesnot secure him against loss from· a decline in the lIS INDIVIDUAL LIBERTY value of the standard, or make it impossible for him to profit bya rise in the value of the standard. Suppose that a farmer, having a farm worth $ 5000 in gold, mortgages it to a bank. as security for a loan of $2500 in notes newly issued by the bank against this farm. With these notes he purchases implements from a manufacturer. When the mortgage expires a year later, the borrower fails to lift it. Meanwhile gold has declined in value. The farm is sold under the hammer, and brings instead of $ 5000 in gold, $6000 in gold. Of this sum $2 500 is used to meet the notes held by the manufacturer who took them a year before in payment for the implements sold to the farmer. Now, can the manufacturer buy back his implements with $2500 in gold? Manifestly not, for by the hypothesis gold has gone down. Why, then, is not this manufacturer a sufferer irom the variation in the standard of value, precisely as the man who buys cloth with a short yardstick and sells it with a long one is a sufferer from the variation in the standard of length? The claim that a standard of value varies, and inflicts damage by its variations, is perfectly sound; but the same is true, not only of the stan dard of value, but of every valuable commodity as well. Even if there were no standard of value and therefore no money, still nothing could prevent a partial failure of the wheat crop from enhancing the value of every bushel of wheat.

Such evils, so· far as they arise from natural causes, are in the nature of inevitable disasters and must be borne. But they are of no force whatever as an argument against the adoption of a standard of value. If every yardstick in existence, in stead of constantly remaining thirty-six inches long, were to vary from day to day within the .. limits of thirty-five and thirty-seven inches, we should still be better off than with no yardstick at all. But it would be no more foolish to abolish the yardstick because of such a defect than it would be to abolish the standard of value, and therefore money, simply because no commodity can be found for a standard which is not subject to the law of supply and demand. At this point Mr. Alfred B. Westrup, who believed that to talk of a standard of value was not only a de lusion but a misuse of language and whose ideas had INDIVIDUALLIBER TY IIg been. refered to in the controver~y, took a hand in the discussion. Mr. Tucker then turned his attention to him: Ma. WESTRUP'S r article sustains in the clearest manner· my conteQtion that money is impossible without a standard of value. ·Starting out to show that such a standard is adelu sian,.he does not succeed in writing four·sentences des~rip tiveof 'his•proposed bank before he adopts that <Cdelusion.""

He tells us that (tone of the conditions in obtaining the notes (paper money) of the Mutual Bank is that they will be taken in lieu of current money." What does this mean? Why, simply that the patrons of the bank agree to take its notes as the equivalent of gold coin. of the same face .value. In other words, they, agree to adopt gold as a standard of value. They will part with as much property in return for the. notes as •they would part. with in return for gold. And if there were no .~uch standard, the notes would not pass at all, be cause nobody would have any idea of the amount of property that he ought to exchange· for them. The naivete·with which r •Mr. Westrup gives away his case shows triumphantly the puerility of his'raillery at the idea. of a standard of value. Indeed, Comrade Westrup,. I ask nothing bett~r than to discuss the practicability of mutlJal banks. All the work that I have been doing for liberty these nineteen years has been directed steadily to the establishment of the ~onditions that alone will make them practicable. I have no occasion to show the necessity fa a standard of value•. Suc!) necessity is al ready recognize by •the. people whom we are trying to con vince of the tr th of mutual banking. It is for you, who deny thisnecess ty, to give your •reasons. And in the very moment in whic you undertake to tell us why you deny it, you admit it ithoutknowing it. It would never have 09curred to me 0 dis.cuss the abstract theory of a· standard of value. I rega dit as too well settled. But when you, one of the most co spicuous and faithful apostles of mutual banking, begin t bring the theory into discredit and ridicule by •• t,asing your rguments in its favor 01). a childish attack against one. of the simplest of financial. truths,.· I am as much bound to .repudiate your heresy as. an .engineer would 12.0 INDIVIDUAL LIBERTY he to disavow the calculations of a man who should begin an attempt to solve a difficult problem in engineering by deny ing the multiplication table.

I fully recognize Mr. Westrup's faithful work for freedom in finance and the ability with which he often defends it. In fact, it is my appreciation of him that has prevented me from criticising his error earlier. But when I see Individualists holding Anarchism responsible for these absurdities and on the strength of them making effective attacks upon a financial theory which, when properly defended, is invulnerable,-it seems high time to declare that the free and mutual banking advocated by Proudhon, Greene, and Spooner never con templated for a moment the desirability or the possibility of dispensing with a standard pi value. If others think that a standard of value is a delusion, let them say so by all means; but let them not say so in the name of the financial theories and projects which the original advocates of mutual banking gave to the world. Another phase of the standard of value problem, con cerning currency and its convertibility, was thus treated by the editor of Liberty: To AVOID misunderstanding, it should be stated that, when: Mr. Yarros urges the substitution of convertibility into pro., ducts for convertibility into gold as a quality of the circu lating medium, he does not refer at all to that convertibility in point of right which is guaranteed by the issuer of a note, but simply to that convertibility in point of fact which exists when a note finds ready circulation. He means to say that the currency of a mutual bank, while not redeemable-in 'gold on demand at the hank, will be to all intents and pur poses redeemable in products on demand at the store of every dealer. His position is correct, but his new use of the words cCconvertibility" and cCredeemability" will lead to much mis understanding when not accompanied by such an explanation 'as that which I have just given.

A similar use of these terms in a previous article by Mr. Yarros led a Philadelphia correspondent to ask me what, even supposing that gold were retained' as a standard of value, INDIVIDUAL LIBERTY IZI would maintain the equality of a paper dollar with a gold dollar ·if the paper dollar were redeemable" not in gold, but in commodities. The gentleman evidently supposed Mr. Yarros, •to mean that mutual currency would be redeemed in commodities. by the bank. If such were the case, then, to be sure, the value of the mutual money would he measured, not by gold, but by the commodities in whiCh.the bank agreed to redeem it. Gold in that case would no longer be the standard of value, its, function as such being' pertonneJ, h1 stead by the commodity chosen by the bank for redemption purposes. My corresp~ndent was guilty of an absurdity in supposing gold to be still, the standard in such a case, but he was led into this absurdity by Mr. Yarros's use of the term «convertibility," which was not easily intelligible to one not ,perfectly familiar with the mutualbanking idea.

Mutual money will, be ,expressed in ,terms of some chosen standard of, value; if gold .be chosen, then in terms of gold. It will be based, not necessarily or probably on gold, but on notes given by the borrowers and secured by mortgage on the borrower's property. It ,will not be redeemable ,in gold on demand at the bank. It will circulate readily, and without depreciation, if the bank has a good standing with the com munity and with the clearinghouse. It will be redeemed, in the vastmajqrity, of cases,' by a re-exchange of it for the borrowers' notes against which it was originally issued. That is, 'the .' borrower ,himself will present at the bank ,notes equiva lent to, those, which he received from the' bank, and will get in exchange the notes which he gave to the bank and a can cellation 'of the mortgage on his property. If he does not do this, the mortgage on his property will be foreclosed, and the property will be sold at auction. It will be sold for gold, if gold is what the holders of the bank's notes desire. And it is this. fact-that such a sale of the property insures an ulti ~ate redemption. in gold if demanded-which will maintain the equality of fUutual money with gold.

The liability to misinte·rpretation is increased by Mr.Yarros's statement that Hthe government could not issue.currency re deemable in products, ,since it hasn't ~ny products." The indication. here. is that a mutual" bank· issuing currency re deemable in· products must have products., •But this is con trary to the,' mutual, banking idea, and' equally contrary,,' I 122 INDIVIDUAL LIBERTY am sure, to the meaning that Mr. Yarros intended to convey, -namely, that the government could not issue currency that would circulate, to borrowers mortgaging no property for its security. The Anarchists maintain that government should not engage in the business of issuing money, but there is nothing in the nature of mutual banking that makes it im possible for the government to carry it on; and, if it de cided' to carry it on, it would not need products (beyond those mortgaged by borrowers) in order to issue a circulating currency any more than a private banking enterprise would need them. 'The statement of Mr. Yarros tends to confirm the reader in the, mistaken idea that under mutual banking the bank notes will be redeemed in products at and by the bank.

In a letter to the editor of Liberty, Mr. Steven T., Byington reported a discussion which he had had with a professor of political economy and in which he had taken the position that, in order to maintain the value of mutual money and to keep the notes of a mutual bank at par, all property pledged to the bank as security should be appraised in terms of the standard of value, and that the loans offered should never exceed a certain ratio to this appraisal. He also contended that the steady supply and demand would keep the value of the notes at a steady ratio to the standard in which the property was appraised. Mr. Tucker then analyzed and criticised those ideas: IN COMMENT on Mr. Byington's letter, I can say at once that with him I should oppose any legal restriction of, the denominations of the notes issued by mutual banks. It is probable that Colonel Greene himself ,would oppose such restriction, were he alive today. It must be remembered that his UMutual Banking" is an economic rather than a political treatise, and was written at a time when the philosophy of Anarchy had been scarcely heard of in this country. Never theless 'I consider it an exaggeration to say that Greene, to INDIVIDUAL LIBERTY 12) keep mutual bank notes at par, uwould depend wholly" on .this restriction, or -even -on the •customers' contract to take the notes at par with the standard. I have not a copy of UMutualBanking" at hand, and do not remember whether there is any sentence in it which warrants Mr. Byington's sta'tement; but, even if there is, it is -none the less an ex aggeration (by the author himself) .ofhis real position. FOl.· the customers' willingness to make this -- cpntract depends in turn upon their knowledge thatthe notes will ultitnately command their face value - at the -bank. As soon as the general-public, through time and experience, becomes pos sessed of •this knowledge, the customers' contract may be dispensed _with. without the least impairment of the value of -the notes. The restriction and .the _contract were, in Greene's mind, OJlly devices tor making plain to the public the truth upon which he placed his real dependence,-viz., that, if the original borrower of the notes should fail to meet his obligations to the -bank, the security for the notes would-be converted into the- .actual commodity adopted as standard, .and this commodity _used in redemption of the notes. It is this great fact that will ~lways keep mutual bank notes at par. And it will-do this whether the standard is .actually coined and in •circulation, or not. Nothing is needed· but the standard's presence in the market as a com mddity. The market quotations of the price of gold per grain serve the purpose as well as the actual circulation of coined dollars.

Mr. Byington's plan for keeping the notes at par doesn't make as great an impression upon me as it did upon his pro fessor of political economy. He se~ms to think he has made a discovery. B,ut all that is true in his plan is old-and has long been accepted asa matter. of course, while all that is new -- in it is in flat contradiction with the cardinal truth about mutual money which distinguishes it vitally and eter~ nally from all forms of fiat money. Outside of those who deny the possibility of a standard of value (a quantity which may safely be neglected), no believer ill: mutual banking within my knowledge ever dreamed·of appraising the property pledged as security in anything -but the standard. It -is largely for this purpose that a standard is necessary. A safe 1.atioof notes issued to standard valuation of security' is 12.4 INDIVIDUAL LIBERTY another point that the defenders of mutual banking regularIl insist upon •. Greene urges two dollars of security for each dollar.;.note. Competition between the banks will fix this ratio. Those banks adopting a ratio which unduly sacrifices neither safety or enterprise will get the business. These two points of Mr. Byington's plan-appraisal in terms of standard and ratio of issue to appraisal-are very good, and they hav~ grown gray in their goodness. But, when he assumes that the value of the notes issued will be regulated by their supply and demand, he .becomes a financial heretic of the worst description.

There is nothing more certain (and oftener denied) in finance than the statement which Colonel Greene, in cCMu_ tual B~nking," prints in. small capitals,-that mutual money differs from merchandise money (and, I may add, from fiat money also) in that it is absolutely exempt from the opera tion of the law of supply and demand. Be there more of it, or be there less, the value of each note remains the same. The hypothesis of free and mutual banking excludes on the one hand any legal limitation of the supply of currency whereby each note would acquire an extra value due to the enforced scarcity of the tool of exchange, and, on the other hand, any inflation of the currency to a volume exceeding the basis or sufficiently aproaching the limit of the basis to inspire an appreciable fear that the notes are in danger from a possible depreciation of the security. Now, within these limits no change in the volume of the currency can by any possibility affect the value of the individual paper dollar. The value of the paper dollar depends not at all upon the demand and supply of paper dollars, but altogether upon the demand and supply of the kinds of property upon which the paper dollars rest. And, unless these kinds of property themselves depreciate sufficiently to endanger the notes, each paper qollar is worth a standard dollar, 'neither more or less. Mr.

Byington's plan for maintaining this parity by providing steadiness in. the demand and supply of notes is worthless, then, for two reasons: first, of itself it could do nothing to ward accomplishing its purpose; second, without it its pur pose is otherwise accomplished. I do not know how to respond to Mr. Byington's request that I describe more fully the method of this accomplishment. If he will try to point out IND'IVIDUAL LIBERTY I2'S just what it is that he does not understand, I will try to make him understand it. Mr.• Byington, in his letter in another column, asks'me' what would maintain the par value of mutual bank notes ina community where every borrower promptly meets his obliga tions to the bank' as they mature,. in the absenc~ of any contract binding the individual parties. thereto to· receive the bank not:es. at: •par. Mr. Ry~rtgton's hypothetical com.m.unity is one in which every man in. it is as certain as of the· daily rising of the sun that every other man in it is thoroughly honest, absolutely capable, infallible in judgment, and entirely exempt from liability to accident. Such must be the case in any. eommunitywhere there· is andean be absolutely no failure to meet financial obligations. 'In this ideal. commun itythe necessity ,for collateral as security for mutual money vanishes. . But. so •also vanishes the necessity of any agree ment to take the notes at par, for it is perfectly certain that then· the notes. will be so taken whether such an agreement exists. or not. And the knowledge of. this fact, arising out· of the ·absolute certainty prevailing on every hand, would be 'more potent in maintaining the par value of the notes than any confidence based.on contract. The supposed community, however, is, if not an absurd impossibility,. at least too remote a possibility to be considered. ..During the pre-millennial pet;iod.it will be necessary to count on the element· of risk in considering banking. problems. While. risk remains, col lateral will be a necessity. Now, this collateral, instead Qf being a subsidiary· security, is the final dependence of all who. use the money. Even those who contract to receive the moneymake this contract mainly because they know the collateral to have .been deposited or pledged. All the other devices for security are merely props to .this main bulwark."

Abandon this .bulwark, and, until risk disappears from the world, bank notes will depreciate. Maintain it, and, though all. the props be removed, the notes will· remain at par. People who live by' buying and selling merchandise will always. take in lieu ofa gold dollar that ,which they know, and. which .other' dealers know, to be convertible into a gold dollar if the occasion for such conversion shall arise. In answer to the c,losing paragraph of Mr. Byington's .letter, I 126 INDIVIDUAL LIBER TY need only point out that to use the fact that mutual money will be at par with the standard as a reason for dispensing with the cause that maintains it at par with the standard is to reason in a circle. Mr. Byington was still not quite satisfied, and, in order that Mr. Tucker's meaning might be made a little more clear to him, he asked for answers to the following questions: HIn the ideal community of perfect men, what would make it certain that mutualbank notes would be taken at par, if there were no contract to take them at par?" and HIn the present world, what will maintain the value of a mutualbank note which has good collateral, if call the props be removed', or if that particular prop be removed which consists in the contract to take the money at par?" To which the editor of Liberty replied: IN AN ideal community of perfect men, from which, by the hypothesis, failure to meet financial obligations is absolutely eliminated, mutualbank notes would circulate, even if un secured, because this very hypothesis implies a demand for these notes, after their issue; borrowers must regain pos session of them in order to make the hypothesis a reality, and those from whom the·· borrowers buy will accept the notes from them in the first place because they know-again by the hypothesis-that the borrowers must in some way recover them. They will circulate at par because, being issued in terms of a commodity standard, and redemption by cancel-.

lation being assured, there is no reason why they should circulate at a figure below their face. Or, at least, if there is such a reason, it is incumbent upon Mr. Byington to point it out. ' In the existing unideal world the collateral securing a mutualbank note would guarantee its holder that, unless the original borower buys back the note in order to cancel therewith his own note held by the bank, the bank itself will ultimately convert the collateral into the commodity IN DI V I D UALL I BE R T Y 127 agreed upon for redemption purposes a.ndwith the proceeds buy .back the· note. Therefore· it is precisely this converti bility, even though conversion is not to be had. on demand, that will maintain the value of the mutualbank note. The' mutual batik will never show anybody that paper money which is· never convertible can ever be made steadily useful in an unideal world, e~ther with or.withouf a govern ment fiat. For such is not die truth, and neither the mutual hank or anything eh:e can establish an error.

Mutual banking, it is true, is not a cardinal doctrine of Anarchism. But free banking is. Now, free banking will lead to mutual banking, and mutual banking is the greatest single step that can possibly be taken in the direction. of emancipating labor from poverty. Mutual banking, then, is as intimately connected with Anarchism 'as though it were one of its· cardinal· doctrines. Liberty is .. valuable only as it contributes to happiness, and to this end no single liberty is as necessary at presen~ as the liberty of banking. Because the editor· of Liberty considered it important to demolish Uthe most specious· plea" that had yet ap peared for uthe notion that a monetary system is pos sible without a standard of value," he asked Mr. Hugo Hilgram to review Mr. Arthur .Kitson's uA Scientific Solution of· the .Money Question." Mr. Bilgram per formed the task in a masterly manner, ,and Mr. Tucker ,added the following caustic criticism 10£ Mr. Kitson's book: IT OFTEN happens that some of the most active men in a movement aren\>t its most rational exponents. The move ment for freedom in finance is an .instance of this truth.

Two or three of its most enthusiastic propagandists are basing their .advocacy· upon propositions regarding' value a1l;d. its measurement which are so absurd that I.have to blush for the rational utterances which I find in their company. If I ·.were interested in some great discovery! in mechanics, and if others interested with me were to· persist in. bringing it into ridicule by associating it with, and even basing it upon,,, 128 INDIVIDU AL LIBER TY a professed solution of the perpetual motion problem, I could not 'feel a deeper sense of humiliation for my cause than I feel when I receive a new book, written by an earnest comrade, in which the social ends that I seek are defended on grounds so laughably untenable that they give rational men a warrant for entertaining a suspicion of our sanity. Such a book is Mr. Kitson's, which, in asking for freedom in finance for the purpose of creating a monetary system pro fessing to estimate concrete values in the terms of a value less abstraction, is liable to do more harm to the cause' of financial freedom than all the writings of the orthodox eco nomists. It may seem that, in calling upon one of the ablest living writers on finance to expose an error so childish, I have trained a columbiad upon an egg-shell. Yet, after all. one is seldom set a more difficult task than that of dealing with those forms of error which fly in one's face with a flat and fatuous denial of truths so nearly axiomatic that they do not admit of much elucidation. Of this task Mr. Bilgram has acquitted himself triun1.phantly. Mr. Kitson's theory of an invariable monetary unit is riddled completely. If Mr. Kitson will set himself to answer the question asked him by Mr.

Bilgram regarding the value, in terms of the invariable unit, of several commodities assumed to have certain exchange relations on the day following the adoption of this unit, he will begin to appreciate the difficulties of his situation. I would like him to deal also with a problem of somewhat similar character which I will set him. Suppose that today, April 20, 1895, Mr. Kitson's monetary system goes into operation. Suppose, further, that, in his preliminary tabulation \ of the exchange relations of commodities as existing on' April 20, he finds that 48 ounces of silver == 1 ounce of gold == 200 ounces of copper; and that he takes I ounce of gold, at its valuation of April 20, as his invariable unit. A year elapses. On April 20, 1896, the exchange relations of silver, gold, and copper, in consequence of variations in the supply and demand of these commodities, are found, we will sup pose, to be as follows: 48 ounces of silver == 3 ounces of gold == 300 ounces of copper . Now let us leave copper out of consideration for a moment. If on April 20, 1895, when 48 ounces of silver were worth I ounce of gold, I ounce of gold was worth 1 unit, then on April 20, 1896, when 48 INDIVIDUAL LIBERT·Y 1';9 ounces of silver are worth 3 ounces of gold, I ounc.e of gold is worth 1/3 of a unit .. So far, so.good. Now let us t.ake copper into consideration once more,but leave .out silver.

If •on •• April 20, 1895, when 200 ounces of copper were worth 1 ounce of gold, 1 ounce o( gold was worth I unit, then on April 20, 1896, when 200 ounces of copper are worth 2 ounces of· gold, I ounce of gold is worth ~ .of a unit. But we have just proved it to be worth .• I/J of a unit. That is to say, starting with the same data and ±ol1owln$ two parallel and irrefutable lines of argument, we arrive at con",", tradictory conclusions. And by taking other commodities into account and applying the same argument in each case, it could be. shown that, with Mr.· Kitson'sUinvariable" unit, an ounce of. gold at any given moment would have a thousand and one' different'values,all·expressed in terms of the sam.e unit. Or denomiJ?ator. In .dealing· thus •. ·severely .with Mr. Kitson's book, I am moved by no unfriendly spirit,··and· I have no inclination ·to deny that it contains much valuable truth,-truth that would be of great service to liberty. were itnotttqueered" by pages of intolerable balderdash. Iwould like the work to be read by every person who has previously familiarized himself with the literature of free and mutual banking. •But no work could be better calculated to fill the mind of a beginner with confusion· and that of a ·keen oppon ent with contempt. For this reason I cannot include it~ much to my regret-in the literature·· of Liberty'spropa ganda.

Concerning Mr. Tucker's crItICIsm of Mr. Kitson's book, Mr. Victor Yarros submitted some quotations from Proudhon which seemed to indicate that that greateco nomistdid not •• believe in the necessity for· a standard of value. The editor. of Liberty thus analyzed the quota ... tions and discussed them: I DO NOT consider the question thus .raised of very great importance. I-Iowever momentous the standard-of-value question may be in· itself, it is of· very little consequence •on which side of it any given writer stands, unless,:6.rst, .he 130 INDIVIDUAL L.IBERT-Y takes his position so clearly and unmistakably that those who read him most attentive,!y can agree, at least broadly, as to what his position is, and, second, brings arguments to bear in support of his position sufficiently weighty, and sufficiently different from the arguments adduced by others, to exercise an influence where other arguments have failed to induce agreement.

I do not accept Proudhon or anyone else as a financial authority beyond question. There is more than one important point in his banking plan to which I cannot give assent. Proudhon has made a signal. and a revolutionary contribution to economic science by his overpowering demonstration that the chief hope of labor lies in the power of monetization of all its products,-a power now allowed only to one or two of them. For this he has my lasting gratitude and honor, but not my worship. I grant him no infallibility, and I reserve my right to differ when his declarations do not commend themselves to my reason. On the matter now at issue his works do not throw much light. In his numerous volumes of financial writings references to the standard-af-value ques tion are casual, incidental, and rare. Even if they were clearly against the standard-of-value theory, they would call for little ~ttention or opposition from me, because they are inconspicuous, because they are ass~rtions rather than argu ments, and because they are not, basic in .his financial plan.

With Mr. Kitson it is different. He places his opposition to a standard of value at the very foundation of his theory, he pretends that it is basic, and he even declares that with a standard of value the free-money theory becomes ridiculous. It is necessary therefore, to attack him in a way in which it would not be necessary to attack Proudhon, even could it be shown that the latter's references to a standard of value are clearly antagonistic to it. But, were it necessary to attack Proudhon, I should not hesitate to do so. I have no gods. But now to the merits. I claim that Proudhon acknowl edged the necessity of a standard of value; that the passages cited from his writings in Mr. Yarros's letter are not clearly and conclusively against the theory of a standard, but are capable of another explanation; that one or two other pas sages can be cited which are so clearly in favor of the theory INDIVIDUAL LIBERTY 131 of a standard as to exclude any other explanation; and that most ,important of ,',all-a standard of value .isadopted both in, his Bank of Exchange and his Bank of the People.

Let us examine first the quotations 'cited 'by Mr. ,Yarros, four in number. The first, which speaks of Law, Ricardo, and the economists as tcalways taking metal. asa standard of value," does not thereby antagonize the theory of a stan dard of value. The most that can be gathered from, it is a hint that Proudhon considered that, when all values should be ttconstituted," to use his phrase, perhaps a better standard tha.n metal might be found. It is fair'to presume that, if he had been opposed to a standard, he would have said ttal_ ways, taking a standard of value." The. phrase actually used implies opposition to metal rather titan opposition to. a standard.' The proposal, in the second quotation, to destroy the royalty of •gold and to republicanize specie by making each .product of labor. current money does not necessarily mean anything more than an intention to strip 'specie of its ex~ elusive 'privilege as a basis of currency and to give each product of la1;>or the liberty of representation in the currency.

In fact, Liberty and the free-money advocates who believe in a >standard have, always been. in the. habit of using these phrases from Proudhon to express exactly that idea. The concluding portion' of ,the second quotation obviously refers to paper based upon metal and not simply expressed,in terms of metal; and its language, like the language of the first quotation, impliesoppos.ition to metal rather than to a standard. The third quotation simply establishes the undisputed point that Proudhon did not believe in a currency redeemable in sp~cie. This is an entirely separate que~,#on from that of the necessity of a standard of value. It '. is perfectly possible, theoretically, for a bank to, issue currency on an understand ing tha-t its members are pledged to receive it in lieu of ,a definite quantity of a definite commodity, {.without any promise or intention on the part of, the. bank, to redeem it in the said commodity or in any other commodity. True, I do not think that such a currency is practicable; that is tosay, Ido not thjnkthat, the world being what it is, such a currency would circulate. This is one of the important 132 INDIVIDUAL LIBERTY points, already referred to by me, on which I disagree with Proudhon. But it in no way concerns the standard-of-value problem.

A greater stumbling-block is the fourth quotation. I do not pretend to know the thought that lay in Proudhon's mind when he wrote it. But I do know that he could not have intended to exclude the idea of the necessity of a standard, for this is proved by the sentence immediately preceding it, -a sentence which Mr. Yarros's correspondent could not have understood, since, if he had understood it, honesty would have forbidden him to omit it. Here it is: HEach subscriber [to the Bank] binds himself to receive in every payment, from any person whomsoever, and at par, the paper of the Bank of Exchange." At par, mind you. At par with what; if you please? Evidently at par with some chosen standard; and, no other standard being specified, evidently at par with the ordinary specie standard. In the absence of a standard of value, to talk of any currency as receivable at par is to use a nonsensical phrase.

So much for the passages cited. It may be said of them, as it may be said with truth of many other passages ill Proudhon's writings on many other subjects, that it is to be regretted that they are not more explicit. But it cannot be truthfully said of them that they establish Proudhon's opposition to the adoption of a standard of value. Look now at the evidence on the other side. First of all, there is the passage which I have cited in the last paragraph but one. As I have pointed out, the words ((at par" absolutely necessitate a standard of value, and exclude any other ex planation. This is sufficient in itself. Even if a passage were to be discovered indisputably denying the necessity of a standard,.it would prove only that Proudhon had flatly con tradicted himself. But this is not all. In the chapter on value in the HCon tradictions" these words occur: HIn geometry the point of comparison is extent, and the unit of measure is now the division of the circle into three hundred· and sixty parts, now the circumference of the terrestrial globe, now the average dimension of the human arm, hand, thumb, or foot.

In economic science, we have said after Adam Smith, the INDIVIDUAL LIBERTY X33 point of !view frbrn which all values are compared is labor; as for the unit of measure, that adopted in France is the FRANC." The small capitals, here are Proudhon's own. Now, a franc" like a dollar, is a definite quantity' commodity, four and one-half grammes of silver alloyed with half a gramme of copper,-and anyone who will read this passage carefully~and especially in connection with its several pages of contex~will see that the author means to point out a precise analogy ,between the adoption, of a ,dehnite amou~t of extension embodied in a' material object as a standard of length, and the adoption of a definite quantity of labor embodiedwa definite commodity as a st~ndard of value; yet it is t¥s, very analogy which the opponents of a standalid deny and attempt to ridicule. This passage also is conclusiv~; it excludes any, other interpretation. < Above, all, however," and finally disposing of the subject, are the provisions contained in the constitutions of the Bank of Exchange and the Bank of the People. No note was to be issued by the fbrmer for any sum less than twenty francs (four dollars), and it was specified in Article I 8 that the Bank would make change in coin. This is unintelligible except' on· the hypothesis that a franc in the 'Bank's' paper was to b~ kept at par with a silver franc. For, if the silver franc were worth more than the paper franc, it would be ridiculous for the Bank t9pay out a silver franc when it owed only a paper franc; and, if the silver franc were worth less, it would be equally ridiculous to suppose that anyone would?t'l\e it from the Bank in lieu of a paper franc. Again, in Article· 2 I of the act incorporating the Bank of the People, we f1;~d this: UEvery producer or merchant adhering,to the Bank' of the People binds himself to deliver to the other adherents, at a reduced price, the articles which he manu factures or offers 'for sale." At a price reduced from what?

The phrase can mean only that the merchant agrees to put a pre111ium on the Bank's paper. Now, a premium implies a stanilard. More conclusive still, if possible, is Article 24, whiclj says: uAll consumers, whether associated or not,who desire; to profit by the low prices guaranteed by the pro ducers· adhering to the Bank, of, the People will turn over to the "Bank ,the coin intended, for.' their purchases ~nd will 134 INDIVIDUAL LIBERTY receive an equal sum in the Bank's paper." That is to say, Proudhon's Bank was to issue its notes against coined gold and silver among other things, franc for franc. Need more be said? Besides this direct evidence there are circumstantial con siderations of much force. One of these is that a thinker like Proudhon, writing many volumes on finance with the intent of revolutionizing it,-of making the sun rise in the 'West instead of in the east, as he once expressed it,-would unquestionably have argued at great length the standard.;.

ofvalue question, if he had dreamed of denying fora moment the current view that money is an impossibility without a standard. But the fact is that he said very little about the question, and in the little that he did say, instead of always taking pains to make his language clear and unmis takable, sometimes expressed himself carelessly, as one is apt to do when speaking upon a matter where he does not fear misinterpretation. A. second telling circumstance is that Colonel William B.Greene, a disciple of Proudhon who enjoyed with him for years in Paris a personal acquaintance and a considerable in timacy, did not, when noting in his CCMutualBanking" cer tain points of difference between Proudhon's plan and his own, even h~nt at any difference regarding the necessity of a standard of value, although Colonel Greene himself, who saw the importance of a clear position on this matter, treated the question at some length in another part of his pamphlet.

There can be little doubt that, if there had been any differ ence between them on this point, Colonel Greene would have alluded to it either in tcMutual Banking" or in his later writi~gs on finance. It is further significant that in the many conversations regarding Proudhon and regarding finance which I have had with Colonel Greene, he never signified in the remotest way that Proudhon rejected the standard-of value theory. Believing that it has cleared Proudhon of the charge that he entertained the Kitsonian absurdity, the defence rests, and awaits the plaintiff's rebuttal. I hope no one will suspect Mr. Yarros of being the plaintiff's attorney. He is not. It is simply as a juror that he makes his request for in formation.

IINDIVIDUAL LIBERTY THE REDEMPTION OF. PAPER MONEY In a paper entitled teBanking and the·· State,." :rea,d before the Single Tax Club of Chicago, Mr. A. W. Wright took the position,. which he considered of. the greatest importance, that paper. money must always be subject to immediate redemption, the sole reason assigned for that contention being thatnoth "ng· but publi.c con fidence can· mak,. paper money. poss hIe.· The edit()r of Liberty took. issue with him on that point: ' IT remains to be proved that im ediate redemption is ~ssential to public confidence. It is,o£ course, true that certainty of ·ultimate redemption is s ch an essential. But this is the, most that can be claimed. '. A run on a bank of issue is caused by ~the fear of the note-;holders.that the notes will·· nevfT. be redeemed, •. and not because they desire them redeemed at once. On the ,contrary, if they felt sure of ultimate redemption, ,.and felt sure that, Qther people felt equally sure, they ·would go precisely contrary to their desir~ in .presenting the notes for '. immediate redemption,. for' they are in need of the money for actual ,monetary use and in this respect find' solvent paper, preferable to gold. The! pledge of immediate redemption, far from being' -essential to the use fulness of paper money, is one of the two things that in the , past have done most to' cripple it (the other being the re striction of its basis to one or two forms of wealth). Paper money, to attain its highest usefulness, must be issued in thefo:rm of notes either maturing ata definite date or else redqemablewithin a certain period following demand. There would be no lack of confidence in such money, if issued against specific and good security. and. under· a system of bankin,giurnishing all kn9wn means of safeguarding and informing the public. Mr. Wright's mistake probably arises from a'dherence to the old notion that a hank of issue needs capital of its own, and that this .,capitalconstitutes th~ security of the noteholders. The •real fact is that the secur ityand all .the needful, .. capital is that which the borrowers themselves furnish. There is np special re~son why the State 136 INDIVIDUAL LIBERTY should not do a banking business, but only those general reasons which make it improper for the State to undertake any business. The fact that it has nothing of its own is no bar, for it is in the very essence of money-issuing that it is done on other people's property.

When banks cease promising to pay on demand, it will no longer be possible to precipitate a panic by cornering gold. But as long as demand notes alone are issued, banks will have to keep large quantities of coin in their vaults, and there will be a constant effort on the part of speculators to gain con trol of specie, success in which will cause a run on the banks and a general lack of confidence. The true way to maintain confidence is to refrain from making promises that cannot be kept. The fact that less than half the gold is coined proves nothing. Gold has other than monetary uses. It is needed in the arts; and in the worst panics, when money is so scarce that business men will pay enormous prices for it, but little of the uncoined gold finds its way into the market. The pressure upon the rich in times of panic is never great enough to cause them to melt their jewelry, carry their watch-cases to the mint, or have the fillings extracted from their own teeth and those of their dead ancestors to be turned into coin. To induce such a result money would have to command' a much' higher price than it ever does. And yet the high price of money proves its scarcity.

Mr. Wright further errs, it seems to me, in saying that (tbanks should be permitted to issue paper money equal to their unimpaired capital,"implying thereby that they should not be permitted to issue more than this amount. This would be a virtual prohibition of mutual banks, which do not profess to have any capital and claim to need none. As Colonel Greene has pointed out, banks serve simply as clearing~houses for their customers' business p~per running to maturity, and no more need capital than does the central clearinghouse which serves them in the same way. By what right does Mr. Wright pretend to say how many notes a bank shall issue to people who are willing to receive them? I ask him in his own words: Must the State afford holders of bank paper pro tection that is denied to holders of individual notes? uCan a note of issue justly be held more sacred than other promises to pay?" In putting a limit to pap~r issues Mr. Wright vioINDIVIDUAL LIBERTY 137 lateshisprinciple of liberty· in finance. And he·does ~o again when he insists on· unlimited liability ..To deny therighto£ two. parties .to contract on a basis of limited •liability is to abridge the freedom of. contract. If unlimited liability isa better arrangement,. those banks which. offer it will survive, while the·other~ will go down. Trust more to liberty, Mr.

Wright, and less to law. Erroneous. also is .the statement that Hbills of. issue·should he a :first lien upon the assets of the bank." But th~s I h~ve no need. to discuss, for I have received a letter from Mr. Wright_in which he ~ays that he has changed his opinion., I am convinced that further reflection ·will show· him that prohibition of i.. other than·· demand notes, restrictions . upon theiamount of issue, and. invalidation of· contracts· specifying limi.ted liability are, equally with his ttfirst-lien" privilege~ unwarrantable invasions of individual and associative liberty, and, as such, entirely at variance with .·the great doctrine ·0£ which his essay is, in the main, so excellent an exposition. In a letter to the editor of Liberty Mr. Wright at.. tempted to defend himself, and from his statements it became evident that he .had not considered the use of anything but gold as a basis for!.banking. Mr. Tucker then went· more deeply into ·tha phase of the problem, a;s well as into other related aspets of mutual banking: IT.• now. app.ears that .the. p.OSsibili~y of a.nything else... t..ha.n gold as adequate security for. paP5.r money is a conception which Mr. Wright's mind. never~.efore entertained.' When .

I.•·S·v•..e..ak.•.of. p.a·p.er. money base.d...•.U.. p.. on. adequate secur.ity and ye•••.tnot •• upon gold, he opens .wide his yes and asks: .What can you mean? Why, my dear Mr. right, the very keystone of Anarchistic economics, so far as finance is concerned, is ft. the proposition to extend •from gold to all otliercommodities that right. of direct representation in the· currency which gold now·. enjoys exclusively. The prohibition, or ruinous taxation, .of money issued directly against .miscellaneous se curities· is the chief denial of freedom. pf. which the banking monopoly js ~uilty, and the right to so issue money is the 138 INDIVIDUAL LIBERTY chief liberty which freedom in banking will bestow upon us. How this right may be utilized and the tremendous changes that would folloW' its exercise are things not explained in «Social Statics." To understand them Mr. Wright must lay down his Spencer and pick up Colonel Greene, whose ((Mutual Banking," though temporarily out of print, will probably be republished soon. If Mr. Wright will then read it carefully, our discussion will proceed more profitably. Meanwhile I will briefly examine the facts and arguments which he now offers.

For proof of the possibility of a solvent demand currency without a dollar-for-dollar coin reserve he advances the solvency of the Suffolk Bank and the Scotch banks. I answer that the case of the Suffolk Bank must be con sidered in connection with the history of the whole State banking system then prevailing. That history is one long succession of failures of banks intrinsically solvent but unable to. meet sudden demands for gold. During such an experience everything does not fall; something has to stand, and people naturally reserve their confidence for the institution which has the greatest reputation. The Suffolk Bank stood, not because it was solvent while other banks were insolvent, but because the noteholders knew that the men at the back of it were men of great reputation and wealth who could and would supply it with coin in case of need. The illustration is really an u~fortunate one for Mr. Wright, since by it he cites an entire banking system in which institution after institution, with assets far exceeding liabilities, were· forced to suspend for lack of ready coin.

The solvency of the Scotch banks is due mainly to the following facts: first, that the stockholders in every bank except the three old~st of these institutions are liable to the whole exent of their personal fortunes for the bank's debts; secondly, that Scotch law enables property, both real and personal, to b~ attached with exceptional ease; third, that every note issued by a bank in excess of its average circula tion for the year ending May I, 1845, must be represented by an equal amount of coin in its coffers; and, fourth, that all new banks of issue have been forbidden since 1845. I do not deny that under such conditions demand notes can hold their solvency without a full coin reserve; but ,certainly Mr.

IN D I V I D U ALL I B E R T Y 139 Wright~ust ,withdraw his assertion that free banking pre vails in Scotland. It is surely an invasion to prohibit banks run on the plan of lin1ited liability. But where these are not prohibited and where there is otherwise perfect freedo1p. in •banking, there will be no banks on the plan of qnlimited liability, for, they could get no business. Wealthy men will not jeopardize their entire fortunes without beingr:oundly rewarded in the shape of dividends, and borrowers will not pay four, five, or six per cent. for the notes· of an unlimited. liability bank when they can get adequately-secured notes from a.limited-li~bi1ity bank for less than one percent. It should be added here that, however true the statement may have been when HSocial Statics" was written, it is not true now that no Scotch bill has ever been discredited. Two of the largest Scotch banks suspended in 18'57, and oneo£ them, the Western Bank, went entirely to. pieces; and, if my memory is correct,. Scotland •has .known one or two serious bank failures within the last· twenty years. ..

Mr. Wright is mistaken as to the n~cessary conditions of a ~ccorner." A commodity may be cornered whether there are any promises to deliver it in existence or not. It can be cornered to induce a scarci~y and consequent rise in price. Now, ,this rise in. price would surely be much greater, and therefore also the incentive. to·.create a corner, if the corner would give rise to. a panic and thus cause a tremendous arti ficial demand. And it.is precisely this that happens when gold is .cornered and demand notes are in circulation. There is just as much incentive for the speculator when he knows that he can frighten people into calling for ten millions on a certain day as when he knows that some one has promised to pay· ten millions on a certain day. Furth~rmore, the incentive· il'l;the former case would be very' much greater than.in the latter if the oblig'ation to pay the ten millions w.erein the latter case contingent upon the happening of a very improb able thing. Now with mutual banking! such would be the case. If the banks of New York held notes of borrowers to the amount ofa million dollars and all maturing on th~ same da.y, .and. if the million dollars (or slightly less) which the banks had issued in· their oWli hotes to these borrowers were redeemable in gold ata later day if not presented on the earlier day for. redempti?n by a re-exchange. of notes, the 140 INDIVIDUAL LIBERTY borrowers, by turning in the bank-notes in fulfilment of their own obligations to the banks, would wipe out the banks' indebtedness of a million, with the exception of per haps two or three thousand dollars, the percentage of bad debts being very small. Thus gold would be needed only to settle this trivial balance, and so slight a demand would furnish very little incentive for a corner.

I have now examined all the evidence adduced by Mr. Wright to show that demand notes can surely stand against a run (the only question that I am now discussing with him), and I claim, on the strength of this examination, that the evidence leads to precisely the opposite conclusion. Mr. A. W. Wright has an interesting article in Electrical Engineering onccGovernmentalism versus Individualism in Relation to Banking." It is thoroughly and avowedly An archistic, and is written in answer to criticism directed against Mr. Wright's financial views by the so-called Professor Gun ton. Mr. Wright's paper is admirably brave and earnest, and presents the case for liberty in banking with great force. Nevertheless, there are grave heresies in it,-among them the assertions that it is impossible to get bank-bills into circula tion without agreeing to redeem them on demand, and that (Can IOU cannot be made secure· without totally destroying the economic reason for its existence." The reasons for the existence of an IOU are two in number: first, the desire of the giver ·of the IOU for an advance of capital; second, the generally-felt necessity of a circulating medium. Prac tically these two reasons are but one, since the desire of the giver of the IOU for an advance of capital is almost always a demand for that form of capital which will most readily buy all other forms,-that is, currency.

Now, to say that a man who needs more capital than he has, but who already has an amount of capital sufficient to enable him to secure his IOU by giving a mortgage, has therefore no reason to issue an IOU, or to say that suchan IOU, when issued, will not be received by others in exchange for goods because it is secured, is to go to the extreme length of possible economic absurdity. Yet it is precisely what Mr. Wright has said. He should have said, on the IINDIVIDUAL LIBER TY 141 contrary, that, unless liberty in banking will result in the issue of. IOU's as secure as the •best financial mechanism can make. them,. this liberty itself win lose much the weightier part of its reason for existence, becoming merely one of many petty liberties,-good enough in themselves, but not scream ingnecessities, or pregnant with great. results. If financial liberty will not result .in a secure currency, it will do nothing to lessen, the exploitation of labor. But in Anarchistic eyes the. destructive effect of liberty. upon •. human exploitation conStitutes ninety-nine per cent. of its value, and, if it will not .have.· such effect, Mr. Wright. is wasting his time· in writing sixteen:-page articles in its. favor.

In all polemical writing there frequently occurs the necessity of interpreting the language or statements of an author. Such an oCGasionaroseconcerning· a .sentence in Col. WilliamB. Greene's work on CCMutual Banking," . which tttade necessary the following analysis by the editor of Liberty: SOME months ago Comrade Henry Cohen wrote a letter to the. Conservator in which he declared that the ultimate of the mutual bank note is not. redem,ptiori, but· cancellation. He may-not. have used exactly these words,· but they do .not misrepresent the position that he took. The object of his letter was to show that the mutual· bank note is not redeem able in specie by its issuer. Ina.later issueof the Conservafo1* I undertook to correct Comrade Cohen, showing that, while cancellation. by· re-exchange f,or the borrower's note would. be the-usualmode of disposing of bank notes at maturity, their ultimate,.properly speaking, is .redemption in specie by the bank, since that v;rould he the course adopted incase of a borrower's .insolve'1cy and consequent failure to take up his own note given to the bank; and I intimated that.the author of ltMutual Banking" would not have died a peaceful death, could he have foreseen that .some.of hi~ disciples would rep resent him as favoring. an irredeemable currency.

When I said this, I. was unaware that a .single sentence cOtl1d.• be quoted from UMutual Banking" in support of Com142 I N D I V I D U ALL I B E R T Y rade Cohen's view. But Hugo Bilgram, seeing the letters in the Conservator, promptly wrote to me, calling my attention to the fact that, of the seven provisions constituting Greene's plan for a mutual bank, the seventh is that ((the bank sha;ll never redeem any of its notes in specie." Mr. Bilgram added that this sentence from ((Mutual Banking" is obviously in consistent with the rest of the work and seriously impairs its value, and, finally, he endorsed my position that a currency, to be reliable, must be ultimately redeemabl~ in a fixed amount of a specific commodity. Soon came also a letter from Cohen, in which, fresh from his editing of (tMutual Banking," he desired to know how I explain the very sentence cited by Mr. Bilgram. I now answer unequivocally that I do not attempt to explain it, and that Cohen would have been jus tified in pointing to it with an air of triumph, instead of asking me his modest question. When I wrote to the Con servator, I had forgotten that this sentence occurs in ((Mutual Banking." In fact, I never at any time could have been thoroughly aware of it. I first read the pamphlet in 1 87~.

Possibly I read it again a year or two later. During the last twenty years or more, though I have often re-read single pages, I have not read it from end to end. In 1872 the sub ject was new to me. I was greatly interested in it, and the pamphlet made a deep impresion on me, suggesting to me a thousand thoughts; but my· boyish unfamiliarity with dis cussions of finance made it impossible for me to subject each and everyone of its statements to that searching criticism which such a book would now rec.eive at my hands. The subsequent clarification of my thought was effected largely by personal intercourse with Colonel Greene himself. During the five years following 1872 which constituted the closing period of his life (he died at Tunbridge Wells, England, in 1877 or 1878) I had the privilege of his acquaintaace, and enjoyed many a long talk with him on the subjects in which we were most interested. It should be remembered that even then ((Mutual Banking" had been published almost a quarter of a century, and that in the meantime its author's thought, while not fundamentally changing, had undoubtedly matured, and· his methods of· presenting it had become more careful and precise. Now, in all our talks on finance, nevet on~e did he give expression to the doctrine laid down in the senINDivIDUAL LIBERTY 143 tence cited by Bilgram and Cohen;. on· the contrary, all. our arguments proceeded on the assumption. that a· mutual bank 1l0te.would be a claim. (though not a demand claim) on its issuer· for. specie. to the amount of its face.

In determining, then, whether Cohen' s interpretation·· of Greene or my own is the correct one, my testimony as to.·the conceptien of mutual banking which Tderived from Greene personally must be considered,· as well as the· inconsistency between the sentence ci.ted. a.nd.Greene'sproposa.l to ha.vethe nQtes secured .by .property salable under the hammer. .This inconsistency is seen as soon as we ask ourselves in what form payment would be made for propertY' sold under the hammer. It would have to be made either in specie or in. bank notes. Now, we calilnot assume that it would be made in bank notes, unless ~ealso· assume, •first, that it is· possible to float a· large· volume of mutual bank currency merely oil the strength of members' agreement to receive· it in trade in lieu of its face in specie, so thatno one would ever present a note . to the bank, even after m~turity, .for ·redemption in specie, _ arid, second,.that the insolvent borrower or his assignee would always consent· to . receive in bank notes so much·· of ,the proceeds of the sale as might remain to hi,s credit after satis faction of· the bank's claim,--both of which, in my view, are assumptions •of unwarrantable •violence. The payment, then,· would be made .in specie, and this specie.•. wo.uld have to be used partly in paying the balance due to the insolv,ent borrower.·and partly in calling in the bank notes which .the insolvent borrower had failed to pay in at the maturity of his obligation. But such calling in would be specie redemp tion, which is forbidden· in the. sentence cited by Cohen.

It seems tome'; then, that we are forced to the conclusion that this sentence was written carelessly by Colonel Greene, and that he really intended to say only that the bank shall never agree to redeem any of its notes in specie on demand. This conclusion is .further justified by Greene's provision for the acceptance of specie by the bank,. at caslightdiscount, in payment of debts due the. bank, and his failure to provide any means of disposing of the specie so accepted. The pre sumptionis that he expected it to be used in redemption of notes. (Let me •say, parenthetically, that I. dissent from Greene's .• proposal. to· receive specie at a-discount. Such dis144 IN D I V I D U ALL I B E R T Y crimination might properly be made against bank bills re deemable on demand, but it would be absurd fora bank to discriminate against, and thus discredit, its own chosen stan dard of value.) Another fact of significance in this connection is that, of the seven provisions laid down in the fourth chapter of «Mutual Banking" as constituting the author's plan for a mutual bank, everyone except this questionable seventh is carefully embodied, almost word for word, in the petition for a general mutualbanking act which constitutes the fifth chapter, while this questionable seventh, though of the great est importance if it means what Cohen thinks, is omitted altogether.

I maintain, then, for the various reasons urged, that. Colonel Greene did not believe in an irredeemable currency, and I sug gest that, in subsequent editions of HMutual Banking," an editorial foot-note should adequately qualify the misleading sentence that has occasioned this discussion. Nevertheless, it clearly becomes me to apologize to Comrade Cohen for <Ccalling him down" so abruptly, when he really had at his back evidence of seemingly considerable strength. The question of the redemption of mutual bank notes in specie was still engaging the attenion of some of the students of the problem, Mr. Cohen still contending that the author of CCMutual Banking" did not expect the mutual banks to handle specie at all; and Mr. Francis D. Tandy arguing that, even with definite maturity dates, a great many of the. notes of the mutual bank would become payable in specie on demand, or else the bank would be compelled to accept from borrowers, in can cellation of loans, nothing but notes that have reached maturity, in which case the borrower might be obliged to pay a premium to obtain such notes. Mr. Tucker argued the matter still further with both his critics: AT the time when Colonel Greene wrote HMutual Bank ing," the banks of issue in vogue were the old State banks IN D I V I D UA L LIB ER T Y 145 professing to redeem· their notes in specie on demand. It was this system which he had to· comba~and the entire assault of ((Mutual Banking" is upon a demand-note currency.

There being no other currency in the people's mind, he had not to guard against other ideas. Consequently he declared themutual·bank-notes' .independence of hard money in lan guage so absolute and unqualified as to give some color to the latter-day claim made by Henry Cohen that his plan excludes specie-redemption at any· time and under· all cir cumstances. If the passages which Mr. Cohen quotes in an other column are to be construed with all the rigor that he seems f;o de/sire, they absolutely exclude the use of the specie dollar; but that Colonel Greene contemplated no such exclu sion. is undoubtedly shown by his declaration that no paper bill of less than five dollars .·t>hould be issued, in which. case dis¥se of. the specie doUar would mean disuse of all dollars, for the. specie dollar would be the only dollar in existence. The alternative, then, is to construe these passages liberally rather than literally, and in the light of the fact that an essential feature of the Mutual Banking plan is the provision ofa collateral to serve .for the redemption of notes not can celled in the ordinary fashion. Despite the .keen intellectual quality shown in CCMutualBanking" as a whole, it contains here· and •there obviously inexact statements that .will not bear analysis. There is, for instance, the declaration that the mutual bank is by its nature incapable of owing anything, -a. clear absurdity if .vigorously insisted upon insteado£ being interpreted by the context; for Colonel Greene else where defines the issue of· mutual money as an exchange of credits,-anexchange inconceivable between two parties one of whom is by nature incapable of indebtedness. I might take up the cited· passages seriatim, but it is needless, for my general answer covers the ground.

Possibly Mr. Cohen's suggestion that the security for un cancelled notes would be converted by sale partly into bank. :notes•.. and partly into gold, the. former •. to satisfy the .bank's claim and the latter to satisfy the borrower's equity, ·meets my argument that the collateral would have to be converted into gold because of the rights of.· the borrower,-though I have •. some doubts as to· the practicability. of. the plan,-but my argument that the collateral couId not be converted into 146 I N D I V I D U ALL I B E R T Y bank-notes unless these bank-notes had first shown a greater power of general circulation than they would be likely to acquire by a mere agreement of mem~ers to receive them in trade regardless of redeemability in specie remains untouched. To be sure, Mr. Cohen urges that the notes will float if enough members join to insure their immediate convertibility into all marketable products; but to assume that a membership of this size and variety can be obtained, and that the non -enforcible agreement of the members to receive the notes in trade would inspire the same confidence in them that would be inspired by an enforcible agreement of the issuer to redeem them in specie, is to beg the question. It is this consideration-the necessity of inspiring confidence in the notes-that makes it desirable that the notes should mature,-that is, be made re deemable by the issuer under definitely-prescribed conditions.

Which brings me to Mr. Tandy's criticism. His error lies not in his logic, which is sound, but in his false premise, namely, that the tendency of the matured note to flow back to the bank is' no greater, and perhaps less, than the tendency of the unmatured note to so flow back. If this were true, then the conditions ultimately resulting would not differ mat~ rially from those obtaining. under a demand-note currency. But it is not true. Most of the mutual banks would prob ably be banks of deposit as well as of issue, and large sums of circulating currency would be constantly passing through their hands, as a result of which they would be able, not only by their individual efforts, but by their associative efforts taking effect through· the clearinghouse, to call in matured notes, paying out in their stead unmatured notes previously paid in by borrowers in cancellation of loans. Mr. Tandy hints, to be sure, that there would be a counter-effort on the outside ·to corner matured notes in the hope of their going to a premium. I do not think this in the least likely, for people seldom execute movements which may be so simply and easily thwarted. It would not take a very expert financier to knock such a corner in the head. Suppose the bank notes were promises to pay in gold, dollar for dollar, thirty days after presentation at maturity or later, but subject to a proviso that all notes presented later than, say, ninety days after maturity should be liable, at the option of the bank, to a discount from the face value at a percentage rising in the INDIVIDUAL LIBERTY 147 ratio of the period of delay. How long, in Me. Tandy's opinion, would a corner in· matured notes last under ·such cir cumstances? He has discovered amare's-nest.