XXII.William B. Greene

XXII WILLIAM B. GREENE William B. Greene, 1819-1878, American reformer and writer. One of the first men in America to advocate freedom in banking. He taught that interest for the use of money was caused by the State monopoly of banking, and the monopoly of gold and silver as money; that the monetization of all wealth and the organization of credit through Mutual Banks of Issue would reduce interest on money to cost, and that profits and interest on capital would fall. Held a debate on the Mutual Bank with Edward Atkinson in the town hall of Brookline, Mass., in the early seventies. Author of Mutual Banking, showing the radical deficiency of the present circulating medium and the advantages of a free currency; Socialistic, Communistic, Mutualistic, and Financial Fragments, including A Short History of Marriage and the Address to the Working People's International Association; and The Sovereignty of the People. The selections are from Mutual Banking.

Freedom in Money.—The most concise and expressive definition of the term "capital" which we have seen in the writings of the political economists is the one furnished by J. Stuart Mill, in his table of contents. He says: "Capital is wealth appropriated to reproductive employment." There is, indeed, a certain ambiguity attached to the word wealth; but let that pass: we accept the definition. A tailor has five dollars in money, which he proposes to employ in his business. This money is unquestionably capital, since it is wealth appropriated to reproductive employment; but it may be expended in the purchase of cloth, in the payment of journeymen's wages, or in a hundred other ways; what kind of capital, then, is it? It is, evidently, disengaged capital. Let us say that the tailor takes his money, and expends it for cloth; this cloth is also devoted to reproductive employment, and is therefore still capital; but what kind of capital? Evidently, engaged capital. He makes his cloth into a coat. But the coat is no longer capital; for it is no longer (so far at least as the occupation of the tailor is concerned) capable of being appropriated to reproductive employment; what is it then? It is that for the creation of which the capital was originally appropriated; William B. Greene 383 it is product. The tailor takes this coat, and sells it in the market for eight dollars, which dollars become to him a new disengaged capital. The circle is complete; the coat becomes engaged capital to the purchaser; and the money is disengaged capital, with which the tailor may commence another operation.

Money is disengaged capital, and disengaged capital is money. Capital passes, therefore, through various forms: first it is disengaged capital, then it becomes engaged capital, then it becomes product, afterwards it is transformed again into disengaged capital, thus recommencing its circular progress. The community is happy and prosperous when all professions of men easily exchange with each other the products of their labor; that is, the community is happy and prosperous when money circulates freely, and each man is able with facility to transform his product into disengaged capital, for with disengaged capital, or money, men may command such of the products of labor as they desire, to the extent, at least, of the purchasing power of their money. The community is unhappy, unpro^perou^, miserable, when money is scarce, when exchanges are effected with difficulty. For notice that, in the present state of the world, there is never real overproduction to any appreciable extent; for, whenever the baker has too much bread, there are always laborers who could produce that of which the baker has too little, and who are themselves in want of bread. It is when the tailor and the baker cannot exchange that there is want and overproduction on both sides. Whatever, therefore, has power to withdraw the currency from circulation has power also to cause trade to stagnate; power to overwhelm the community with misery; power to carry want, and its correlative, overproduction, into every artisan's house and workshop. For the transformation of product into disengaged capital is one of the regular steps of production; and whatever withdraws the disengaged capital, or money, from circulation, at once renders this step impossible, and thus puts a drag on all production.

384 Liberty and the Great Libertarians But all money is not the same money. There is one money of gold, another of silver, another of brass, another of leather, and another of paper; and there is a difference in the glory of these different kinds of money. There is one money that is a commodity, having its exchangeable value determined by the law of supply and demand, which money may be called (though somewhat barbarously) merchandise-money, as, for instance, gold, silver, brass, bank bills, etc.; there is another money, which is not a commodity, whose exchangeable value is altogether independent of the law of supply and demand, and which may be called mutual money. The Usury Laws.—A young man goes to a capitalist, saying: "If you will lend me $100, I will go into a certain business, and make $1,500 in the course of the present year; and my profits will thus enable me to pay you back the money you lend me, and another $100 for the use of it. Indeed, it is nothing more than fair that I should pay you as much as I offer; for, after all, there is a great risk in the business, and you do me a greater favor than I do you." The capitalist answers: "I cannot lend you money on such terms; for the transaction would be illegal; nevertheless, I am willing to help you all I can, if I can devise a way. What do you say to my buying such rooms and machinery as you require, and letting them to you on the terms you propose? For, though I cannot charge more than six per cent, on money loaned, I can let buildings whose total value is only $100, at a rate of $100 per annum, and violate no law. Or, again, as I shall be obliged to furnish you with the raw material consumed in your business, what do you say to our entering into a partnership, so arranging the terms of agreement that the profits will be divided in fact, as they would be in the case that I loaned you $100 at 100 per cent, interest per annum?"

The young man will probably permit the capitalist to arrange the transaction in any form he pleases, provided the money is actually forthcoming. If the usury laws speak any intelligible language to the capitalist, it is this: "The legislature does not William B. Greene 385 intend that you shall lend money to any young man to help in his business, where the insurance upon the money you trust in his hands, and which is subjected to the risk of his transactions, amounts to more than six per cent, per annum on the amount loaned." And, in this speech, the deep wisdom of the legislature is manifested! Why six, rather than five or seven? Why any restriction at all? Now for the other side; for we have thus far spoken of the usury laws as they bear on mere personal credit. If a man borrows $1,500 on the mortgage of a farm, worth, in the estimation of the creditor himself, $2,000, why should he pay six per cent, interest on the money borrowed? What does this interest cover? Insurance? Not at all; for the money is perfectly safe, as the security given is confessedly ample: the insurance is 0. Does the interest cover the damage which the creditor suffers by being kept out of his money for the time specified in the contract? This cannot be the fact,—for the damage is also 0,—since a man who lends out money at interest, on perfect security, counts the total amount of interest as clear gain, and would much prefer letting the money at one-half per cent, to permitting it to remain idle. The rate of interest upon money lent on perfect security is commensurate, not with the risk the creditor runs of losing his money—for that risk is 0; not with the inconvenience to which the creditor is put by letting the money go out of his hands,—for that inconvenience is also 0, since the creditor lends only such money as he himself does not wish to use; but it is commensurate with the distress of the borrower. One per cent, per annum interest on money lent on perfect security is, therefore, too high a rate; and all levying of interest money on perfect security is profoundly immoral, since such interestmoney is the fruit of the speculation of one man upon the misfortune of another. Yet the legislature permits one citizen to speculate upon the misfortune of another to the amount of eix-hundreths per annum of the 386 Liberty and the Great Libertarians extent to which he gets him into his power! This is the morality of the usury laws in their bearing on real credit.

Legitimate Credit.—All the questions connected with credit, the usury laws, etc., may be forever set at rest by the establishment of Mutual Banks. Whoever goes to the Mutual Bank, and offers real property in pledge, may always obtain money; for the Mutual Bank can issue money to any extent; and that money will always be good, since it is all of it based on actual property, that may be sold under the hammer. The interest will always be at a less rate than one per cent, per annum, since it covers, not the insurance of the money loaned, there being no such insurance required, as the risk is 0; since it covers, not the damage which is done the bank by keeping it out of its money, as that damage is also 0, the bank having always an unlimited supply remaining on hand, so long as it has a printingpress and paper; since it covers, plainly and simply, the mere expenses of the institution,—clerk-hire, rent, paper, printing, etc. And it is fair that such expenses should be paid under the form of a rate of interest; for thus each one contributes to bear the expenses of the bank, and in the precise proportion of the benefits he individually experiences from it. Thus the interest, properly so called, is 0; and we venture to predict that the Mutual Bank will one day give all the real credit that will be given; for, since this bank will give at 0 per cent, interest per annum, it will be difficult for other institutions to compete with it for any length of time. The day is coming when everything that is bought will be paid for on the spot, and in mutual money; when all payments will be made, all wages settled, on the spot. The Mutual Bank will never, of course, give personal credit; for it can issue bills only on real credit. It cannot enter into partnership with anybody; for, if it issues bills where there is no real guaranty furnished for their repayment, it vitiates the currency, and renders itself unstable. Personal credit will one day be given by individuals only; that is, capitalists will one day enter into partnership with enterprising and capable William B. Greene 387 men who are without capital, and the profits will be divided between the parties according as their contract of partnership may run. Whoever, in the times of the Mutual Bank, has property will have money also; and the laborer who has no property will find it very easy to get it; for every capitalist will seek to secure him as a partner. All services will then be paid for in ready money; and the demand for labor will be increased three, four, and five fold.

As for credit of the kind that is idolized by the present generation, credit which organized society on feudal principles, confused credit, the Mutual Bank will obliterate it from the face of the earth. Money furnished under the existing system to individuals and corporations is principally applied to speculative purposes, advantageous perhaps to those individuals and corporations, if the speculations answer; but generally disadvantageous to the community, whether they answer or whether they fail. If they answer, they generally end in a monopoly of trade, great or small, and in consequent high prices; if they fail, the loss falls on the community. Under the existing system, there is little safety for the merchant. The utmost degree of caution practicable in business has never yet enabled a company or individual to proceed for any long time without incurring bad debts. The existing organization of credit is the daughter of hard money, begotten upon it incestuously by that insufficiency of circulating medium which results from laws making specie the sole legal tender. The immediate consequences of confused credit are want of confidence, loss of time, commercial frauds, fruitless and repeated applications for payment, complicated with irregular and ruinous expenses. The ultimate consequences are compositions, bad debts, expensive accommodationloans, lawsuits, insolvency, bankruptcy, separation of classes, hostility, hunger, extravagance, distress, riots, civil war, and, finally, revolution. The natural consequences of mutual banking are, first of all, the creation of order, and the definitive 388 Liberty and the Great Libertarians establishment of due organization in the social body; and, ultimately, the cure of all the evils which flow from the present incoherence and disruption in the relations of production and commerce.

Our plan for a Mutual Bank is as follows: 1. Any person, by pledging actual property to the bank, may beccme a member of the Mutual Banking Company. 2. Any member may borrow the paper money of the bank, on his own note running to maturity (without indorsement), to an amount not to exceed one-half of the value of the property by himself pledged. 3. Each member binds himself in legal form, on admission, to receive in all payments, from whomsoever it may be, and at par, the paper of the Mutual Bank. 4. The rate of interest at which said money shall be loaned shall be determined by, and shall, if possible, just meet and cover, the bare expenses of the institution. As for interest in the common acceptation of the word, its rate shall be, at the Mutual Bank, precisely 0. 5. No money shall be loaned to any persons who are not members of the company; that is, no money shall be loaned, except on a pledge of actual property.

6. Any member, by paying his debts to the bank, may have his property released from pledge, and be himself released from all obligations to the bank, or to the holders of the bank's money, as such. * 7. As for the bank, it shall never redeem any of its notes in specie; nor shall it ever receive specie in payments, or the bills of specie-paying banks, except at a discount of one-half of one per cent. Ships and houses that are insured, machinery, in short, anything that may be sold under the hammer, may be made a basis for the issue of mutual money. Mutual banking opens the way to no monopoly; for it simply elevates every species of property to the rank which has hitherto been exclusively William B. Greene 389 occupied by gold and silver. It may be well (we think it will be necessary) to begin with real estate; we do not say it would be well to end there! As interestmoney charged by Mutual Banks covers nothing but the expenses of the institutions, such banka may lend money, at a rate of less than one per cent, per annum, to persons offering good security.

It may be asked: Whafc advantage does mutual banking hold out to individuals who have no real estate to offer in pledge? We answer this question by another: What advantage do the existing banks hold out to individuals who desire to borrow, but are unable to offer adequate security? If we knew of a plan whereby, through an act of the legislature, every member of the community might be made rich, we would destroy this petition, and draw up another embodying that plan. Meanwhile, we affirm that no system was ever devised so beneficial to the poor as the system of mutual banking; for, if a man, having nothing to offer in pledge, has a friend who is a farmer, or other holder of real estate, and that friend is willing to furnish security for him, he can borrow money at the Mutual Bank at one per cent, interest per annum, whereas, if he should borrow at the existing banks, he would be obliged to pay six per cent. Again: as mutual banking will make money exceedingly plenty, it will cause a rise in the rate of wages, thus benefiting the man who has no property but his bodily strength; and it will not cause a proportionate increase in the price of the necessaries of life, for the price of provisions, etc., depends on supply and demand, and mutual banking operates, not directly on supply and demand, but to the diminution of the rate of interest on the medium of exchange.

Mutual banking will indeed cause a certain rise in the price of commodities by creating a new demand; for, with mutual money, the poorer classes will be able to purchase articles which, under the present currency, they never dream of buying. But certain mechanics and farmers say: "We borrow no 390 Liberty and the Great Libertarians money, and therefore pay no interest. How, then, does this thing concern us?" Hearken, my friends! let us reason together. I have an impression on my mind that it is precisely the class who have no dealings with the banks, and derive no advantages from them, that ultimately pay all the interestmoney that is paid. When a manufacturer borrows money to carry on his business, he counts the interest he pays as a part of his expenses, and therefore adds the amount of interest to the price of his goods. The consumer who buys the goods pays the interest when he pays for the goods; and who is the consumer, if not the mechanic and the farmer? If a manufacturer could borrow money at one per cent., he could afford to undersell all his competitors, to the manifest advantage of the farmer and mechanic. The manufacturer would neither gain nor lose; the farmer and mechanic, who have no dealings with the bank, would gain the whole difference; and the bank— which, were it not for the competition of the Mutual Bank, would have loaned the money at six per cent, interest—would lose the whole difference. It is the indirect relation of the bank to the farmer and mechanic, and not its direct relation to the manufacturer and merchant, that enables it to make money.

When foreign competition prevents the manufacturer from keeping up the price of his goods, the farmer and mechanic, who are consumers, do not pay the interestmoney; but still the interest is paid by the class that derive no benefit from the banks; for, in this case, the manufacturer will save himself from loss by cutting down the wages of his workmen, who are producers. Wages fluctuate, rising and falling (other things being equal) as the rate of interest falls or rises. If the farmer, mechanic, and operative are not interested in the matter of banking, we know not who is. Let us suppose the Mutual Bank to be at first established in a single town, and its circulation to be confined within the limits of that town. The trader who sells the produce of that town in the city, and buys there such commodities—tea, William B. Greene 391 coffee, sugar, calico, etc.—as are required for the consumption of bis neighbors, sells and buys on credit. He does not pay the farmer cash for his produce; he does not sell that produce for cash in the city; neither does he buy his groceries, etc., for cash from the city merchant: but he buys of the farmer at, say, eight months' credit; and he sells to the city merchant at, say, six months' credit. He finds, moreover, as a general thing, that the exports of the town which pass through his hands very nearly balance the imports that he brings into the town for sale: so that, in reality, the exports—butter, cheese, pork, beef, eggs, etc.—pay for the imports,—coffee, sugar, etc.

And how, indeed, could it be otherwise? It is not to be supposed that the town has silver mines and a mint; and, if the people pay for their imports in money, it will be because they have become enabled so to do by selling their produce for money. It follows, therefore, that the people in a country town do not make the money, whereby they pay for storegoods, off each other, but that they make it by selling their produce out of the town. There are, therefore, two kinds of trade going on at the same time in the town,—one trade of the inhabitants with each other, and another of the inhabitants, through the store, with individuals living out of town. And these two kinds of trade are perfectly distinct from each other. The mutual money would serve all the purposes of the internal trade, leaving the hard money, and paper based on hard money, to serve exclusively for the purposes of trade that reaches out of the town. The mutual money will not prevent a single dollar of hard money, or paper based on hard money, from coming into the town; for such hard money comes into the town, not in consequence of exchanges made between the inhabitants themselves, but in consequence of produce sold abroad. So long as produce is sold out of the town, so long will the inhabitants be able to buy commodities that are produced out of the town; and they will be able to make purchases to the precise extent that they are able to make sales. The mutual money 392 Liberty and the Great Libertarians will therefore prove to them an unmixed benefit; it will be entirely independent of the old money, and will open to them a new trade entirely independent of the old trade. So far as it can be made available, it will unquestionably prove itself to be a good thing; and, where it cannot be made available, the inhabitants will only be deprived of a benefit that they could not have enjoyed,—mutual money, or no mutual money. Besides, the comparative cost of the mutual money is almost nothing; for it can be issued to any amount on good security, at the mere cost of printing, and the expense of looking after the safety of the mortgages. If the mutual money should happen, at any particular time, not to be issued to any great extent, it would not be as though an immense mass of value was remaining idle; for the interest on the mutual money is precisely 0.

The mutual money is not itself actual value, but a mere medium for the exchange of actual values,—a mere medium for the facilitation of barter. We have remarked that, when the trader, who does the outof-town business of the inhabitants, buys coffee, sugar, etc., he does not pay cash for them, but buys them at, say, six months' credit. Now, the existing system of credit causes, by its very nature, periodical crises in commercial affairs. When one of these crises occurs, the trader will say to the city merchant: "I owe you so much for groceries; but I have no money, for times are hard: I will give you, however, my note for the debt." Now, we leave it to the reader, would not the city merchant prefer to take the mutual money of the town to which the trader belongs, money that holds real estate and produce in that town, rather than the private note of a trader who may fail within a week? If, under the existing system, all transactions were settled on the spot in cash, things might be different; but, as almost all transactions are conducted on the credit system and as the credit system necessarily involves periodical commercial crises, the mutual money will find very little difficulty in ultiWilliam B. Greene 393 mately forcing itself into general circulation. The Mutual Bank is like the stone cut from the mountain without hands, for let it be once established in a single village, no matter how obscure, and it will grow till it covers the whole earth. Nevertheless, it would be better to obviate all difficulty by starting the Mutual Bank on a sufficiently extensive scale at the very beginning.

The Measure of Value.—-The bill of a Mutual Bank is not a standard of value, since it is itself measured and determined in value by the silver dollar. If the dollar rises in value, the bill of the Mutual Bank rises also, since it is receivable in lieu of a silver dollar. The bills of a Mutual Bank are not standards of value, but mere instruments of exchange; and as the value of mutual money is determined, not by the demand and supply of mutual money, but by the demand and supply of the precious metals, the Mutual Bank may issue bills to any extent, and those bills will not be liable to any depreciation from excess of supply. And, for like reasons, mutual money will not be liable to rise in value if it happens at any time to be scarce in the market. The issues of mutual money are therefore susceptible of any contraction or expansion which may be necessary to meet the wants of the community, and such contraction or expansion cannot by any possibility be attended with any evil consequences whatever: for the silver dollar, which is the standard of value, will remain throughout at the natural valuation determined for it by the general demand and supply of gold and silver through the whole world.

The bills of Mutual Banks act merely as a medium of exchange; they do not and cannot pretend to be measures or standards of value. The medium of exchange is one thing; the measure of value is another; and the standard of value still another. The dollar is the measure of value. Silver and gold, at a certain degree of fineness, are the standard of value. The bill of a Mutual Bank is a bill of exchange, drawn by all the members of the banking company upon themselves, indorsed 394 Liberty and the Great Libertarians and accepted by themselves, payable at sight, but only in services and products. The members of the company bind themselves to receive their own money at par; that is, in lieu of as many silver dollars as are denoted by the denomination on the face of the bill. Services and products are to be estimated in dollars, and exchanged for each other without the intervention of specie. Mutual money, which neither is nor can be merchandise, escapes the law of supply and demand, which is applicable to merchandise only.

Advantages of a Mutual Currency.—Mutual Banks would furnish an adequate currency; for, whether money were hard or easy, all legitimate paper would be discounted by them. At present banks draw in their issues when money is scarce (the very time when a large issue is desirable), because they are afraid there will be a run upon them for specie; but Mutual Banks, having no fear of a run upon them,—as they have no metallic capital, and never pretend to pay specie for their bills,—can always discount good paper. It may appear to some readers, notwithstanding the explanations already given, that we go altogether farther than we are warranted when we affirm that the creation of an immense mass of mutual money would produce no depreciation in the price of the silver dollar. The difficulty experienced in understanding this matter results from incorrect notions respecting the standard of value, the measure of value, and the nature of money. This may be made evident by illustration. The yard is a measure of length; and a piece of wood, or a rod of glass or metal, is a corresponding standard of length. The yard, or measure, being ideal, is unvarying; but all the standards we have mentioned contract or expand by heat or cold, so that they vary (to an almost imperceptible degree, perhaps) at every moment. It is almost impossible to measure off a yard, or any other given length, with mathematical accuracy. The measure of value is the dollar; the standard of value, as fixed William B. Greene 395 by law, is silver or gold at a certain degree of fineness. Corn, land, or any other merchantable commodity might serve as a standard of value; but silver and gold form a more perfect standard, on account of their being less liable to variation; and they have accordingly been adopted, by the common consent of all nations, to serve as such. The dollar, as simple measure of value, has—like the yard, which is a measure of length— an ideal existence only. In Naples the ducat is the measure of value; but the Neapolitans have no specific coin of that denomination. Now, it is evident that the bill of a Mutual Bank is, like a note of hand, or like an ordinary bank bill, neither a measure nor a standard of value. It is (1) not a measure; for, unlike all measures, it has an actual, and not a merely ideal, existence. The bill of a Mutual Bank, being receivable in lieu of a specified number of silver dollars, presupposes the existence of the silver dollar as measure of value, and acknowledges itself amendable to that measure. The silver dollar differs from a bill of a Mutual Bank receivable in lieu of a silver dollar, as the measure differs from the thing measured. The bill of a Mutual Bank is (2) not a standard of value, because it has in itself no intrinsic value, like silver and gold; its value being legal, and not actual. A stick has actual length, and therefore may serve as a standard of length; silver has actual intrinsic value, and may therefore serve as a standard of value; but the bill of a Mutual Bank, having a legal value only, and not an actual one, cannot serve as a standard of value, but is referred, on the contrary, to silver and gold as that standard, without which it would itself be utterly unintelligible.

If ordinary bank-bills represented specie actually existing in the vaults of the banks, no mere issue or withdrawal of them could effect a fall or rise in the value of money; for every issue of a dollarbill would correspond to the locking-up of a specie dollar in the banks' vaults; and every canceling of a dollarbill would correspond to the issue by the banks of a specie 396 Liberty and the Great Libertarians dollar. It is by the exercise of banking privileges—that is, by the issue of bills purporting to be, but which are not, controvertible—that the banks effect a depreciation in the price of the silver dollar. It is this fiction (by which legal value is assimilated to, and becomes, to all business intents and purposes, actual value) that enables bank-notes to depreciate the silver dollar. Substitute verity in the place of fiction, either by permitting the banks to issue no more paper than they have specie in their vaults, or by effecting an entire divorce between bank-paper and its pretended specie basis, and the power of paper to depreciate specie is at an end. So long as the fiction is kept up, the silver dollar is depreciated, and tends to emigrate for the purpose of traveling in foreign parts; but, the moment the fiction is destroyed, the power of paper over metal ceases. By its intrinsic nature specie is merchandise, having its value determined, as such, by supply and demand; but, on the contrary, paper-money is, by its intrinsic nature, not merchandise, but the means whereby merchandise is exchanged, and, as such, ought always to be commensurate in quantity with the amount of merchandise to be exchanged, be that amount great or small. Mutual money is measured by specie, but is in no way assimilated to it; and therefore its issue can have no effect whatever to cause a rise or fall in the price of the precious metals.

Credit.—We are obliged to make a supposition by no means flattering to the individual presented to the reader. Let us suppose, therefore, that some miserable mortal, who is utterly devoid of any personal good quality to recommend him, makes his advent on the stage of action, and demands credit. Are there circumstances under which he can obtain it? Most certainly. Though he possesses neither energy, morality, nor business capacity, yet, if he own a farm worth $2,000, which he is willing to mortgage as security for $1,500 that he desires to borrow, he will be considered as eminently deserving of credit. He is neither industrious, punctual, capable, nor virWilliam B. Greene 397 tuous; but he owns a farm clear of debt, worth $2,000, and verily he shall raise the $1,500! Personal credit is one thing; real credit is another and a very different thing. In one case, it is the man who receives credit; in the other, it is the property, the thing. Personal credit is in the nature of partnership; real credit is in the nature of a sale, with a reserved right to repurchase under conditions. By personal credit two or more men are brought into voluntary mutual relations; by real credit a certain amount of fixed property is transformed, under certain conditions and for a certain time, into circulating medium; that is, a certain amount of engaged capital is temporarily transformed into disengaged capital.