Money is an instrument of exchange and nothing else. Its function is to facilitate the exchange of goods, to eliminate the difficulties of barter. Barter was unsafe, troublesome, expensive, and very often broke down entirely. Money, which is to replace barter, should secure, accelerate and cheapen the exchange of goods.
That is what we demand of money. The degree of security, rapidity and cheapness with which goods are exchanged is the test of the usefulness of money.
If, in addition to this, we ask that money shall cause a minimum of trouble by its physical properties, we make a claim that is valid only if the purpose for which money exists is not thereby defeated.
If security, acceleration and cheapening of the exchange of goods can be achieved by means of a form of money which cannot be harmed by moth and rust and which besides, can be conveniently hoarded, then let us, by all means, have such money. But if this form of money diminishes the security, rapidity and cheapness of the exchange of goods, we say: Away with it!
Knowing that the division of labour, the very foundation of our civilisation, is here at stake, we shall select whatever form of money is suited to its necessities, quite regardless of the wishes or prejudices of individuals.
In order to test the qualities of money we shall use no scales, crucibles or acids; neither shall we scrutinise some coin or consult some theorist. We shall consider, instead, the work done by the money. If we observe that a certain form of money seeks out goods and conveys them by the shortest route from the workshop to the consumer; if we notice that goods cease to congest the markets and warehouses, that the number of merchants diminishes, that commercial profits shrink, that no trade depressions occur, that producers are assured of a ready disposal of all they can produce while working at full capacity, we shall exclaim: This is an excellent form of money! - and we shall hold to this opinion even if, on closer examination, we find that the money in question is physically unattractive. We shall consider money as we consider, say, a machine, and form our judgement exclusively on its efficiency, not on its shape or colour.
The criterion of good money, of an efficient instrument of exchange, is: -
How inefficiently the traditional form of money functions as an instrument of exchange has been demonstrated in the previous part of this book. A form of money that necessarily withdraws when there is lack of it, and floods the market when it is already in excess, can only be an instrument of fraud and usury, and must be considered unserviceable, no matter how many agreeable physical qualities it may possess.
Judged by this criterion, what a disaster was the introduction of the gold standard in Germany! At first a boom, fed by the millions taken from France, and afterwards the inevitable crash!
We introduced the gold standard because we expected an advantage from it, and what other advantage could we expect from a change of our monetary system than greater security, cheapening and acceleration of the exchange of goods ?
But if such was the purpose, what was the justification for the introduction of the gold standard to achieve it ? Gold coins, neat round shining toys, were expected to facilitate, accelerate and cheapen the exchange of straw, iron, limestone, hides, petroleum, wheat, coal, etc., but how that was to be done nobody was able to explain; it was simply a matter of faith. Everybody - even Bismarck - relied on the judgement of the so-called experts.
After the establishment of the gold standard, just as before it, the exchange of goods consumes 30, 40, and sometimes perhaps 50% of the entire output. Trade depressions are just as frequent and just as devastating as in the days of the thaler and the florin; and by the increased number of dealers we observe how slight is the mercantile power of the new money.
The reason why the mercantile power, the power of exchanging goods, of this money is so slight, lies in the fact that it has been over-improved - improved, that is, exclusively from the view-point of the holder. In fixing upon the material for mousy, only the buyer, only demand was considered. The goods, supply, the seller, the producer of the goods, were entirely overlooked. The very finest of materials, a precious metal, was chosen for the manufacture of money - just because it offered certain conveniences to the holders of money. Our experts did not pause to consider that the holders of goods in selling their products had to pay for these conveniences. By the selection of gold as money-material, the buyer has been allowed time to choose the most favourable moment for the purchase of goods, and in granting this freedom the devisers of the gold standard forgot that the seller would be forced to wait patiently in the market till the buyer chose to appear. Through the choice of the money-material, demand for goods was placed at the discretion of the owners of money and delivered up to be the sport of caprice, greed, speculation and chance. Nobody saw that the supply of goods, owing to its material nature, is at the mercy of this arbitrary will. Thus arose the power of money which, transformed into financial power, exercises a crushing pressure on all producers.
In short, our worthy experts when considering the currency question forgot the goods - for the exchange of which the currency exists. They improved money exclusively from the point of view of the holder, with the result that it became worthless as a medium of exchange. The purpose of money evidently did not concern them, and thus as Proudhon put it, they forged "a bolt instead of a key for the gates of the market". The present form of money repels goods, instead of attracting them. People do, of course, buy goods, but only when they are hungry or when it is profitable. As a consumer everyone buys the minimum. No one desires to have stores, in planning a dwelling house the architect never includes a storeroom. If every householder were today presented with a filled storeroom, by tomorrow these stores would be back on the market. Money is the thing people want to own, although everybody knows that this wish cannot be fulfilled, since the money of all mutually neutralises itself. The possession of a gold coin is incontestably more agreeable than the possession of goods. Let the "others" have the goods. But who, economically speaking, are these others ? We ourselves are these others; all of us who produce goods. So if, as buyers, we reject the products of the others, we really all reject our own products. If we did not prefer money to the products of our fellows, if instead of the desired yet unattainable reserve of money, we built a storeroom and filled it with the products of our fellows, we should not be obliged to have our own products offered for sale in expensive shops where they are, to a great extent, consumed by the cost of commerce. We should have a rapid and cheap turnover of goods.
Gold does not harmonise with the character of our goods. Gold and straw, gold and petrol, gold and guano, gold and bricks, gold and iron, gold and hides ! Only a wild fancy, a monstrous hallucination, only the doctrine of "value" can bridge the gulf. Commodities in general, straw, petrol, guano and the rest can be safely exchanged only when everyone is indifferent as to whether he possesses money or goods, and that is possible only if money is afflicted with all the defects inherent in our products. That is obvious. Our goods rot, decay, break, rust, so only if money has equally disagreeable, loss-involving properties can it effect exchange rapidly, securely and cheaply. For such money can never, on any account, be preferred by anyone to goods.
Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether. For such money is not preferred to goods either by the purchaser or the seller. We then part with our goods for money only because we need the money as a means of exchange, not because we expect an advantage from possession of the money.
So we must make money worse as a commodity if we wish to make it better as a medium of exchange.
Figure 4. Free-Money, American Currency.
This $100 note (bill) is shown as it will appear during the week August 4th - 11th, thirty-one ten-cent stamps ($3.10) having been attached to it by its various holders on the dated spaces provided for the purpose, one stamp for each week since the beginning of the year. In the course of the year 52 ten-cent stamps ($5.20) must be attached to the $100 note, or in other words it depreciates 5.2% annually at the expense of its holders.
Figure 5. Free-Money, British Currency.
Free-Money, British Currency, is issued in 1-shilling, 5-shilling, 10-shilling, £1, £4, £10, and £20 currency notes and in perforated sheets of stamps resembling small postage stamps, value 0.5 d., 1d., 2.5d., and 5d., which are used for attaching weekly to the notes, to keep them at their face value. A penny stamp must, for example, be attached weekly by the holder to the above £4 currency note which is divided into 52 dated sections for this purpose. The note is shown as it will appear during the week August 4th - 11th., 31 penny stamps having been attached to it by its various holders, one stamp for each week from the beginning of the year. In the course of the year 52 penny stamps (value 4s. 4d.) must be attached to this £4 note, or in other words it depreciates 5.4% annually at the expense of its holders.
As the owners of goods are always in a hurry for exchange, it is only just and fair that the owners of money, which is the medium of exchange, should also be in a hurry. Supply is under an immediate, inherent constraint; therefore demand must be placed under the same constraint.
Supply is something detached from the will of owners of goods, so demand must become something detached from the will of owners of money.
If we decide to abolish the privileges enjoyed by the owners of money and to subject demand to the compulsion to which supply is by nature subject, we remove all the anomalies of the traditional form of money and compel demand to appear regularly in the market, independently of political, economic or natural conditions. Above all, the calculations of speculators, the opinions or caprices of capitalists and bankers will no longer influence demand. What we term the "tone of the Stock-Exchange" will be a thing of the past. As the law of gravity knows no moods, so the law of demand will know of none. Neither the fear of loss nor the expectation of profit will be able to retard or accelerate demand.
In all conceivable conditions demand will then consist of the volume of money issued by the State, multiplied by whatever velocity of circulation is permitted by existing commercial organisation.
All private money reserves are automatically dissolved by such compulsory circulation. The whole volume of money issued is in uninterrupted, regular and rapid circulation. No one can any longer interfere with the public monetary administration by putting into circulation or withdrawing private reserves of money. And the State itself is under obligation at all times rigorously to adapt demand to supply - an obligation which it can fulfil by issue or withdrawal of trifling sums of money.
More than that is not needed to protect the exchange of goods against any conceivable disturbance, to render crises and unemployment impossible, to reduce commercial profits to the rank of a wage, and in a short space of time to drown capital-interest in a sea of capital.
And what do the priceless advantages of compulsory monetary circulation cost us, the producers, who create the money through the division of labour ? Nothing but renunciation of the privilege of infecting demand with our arbitrary will, and, through it, with greed, hope, fear, care, anxiety and panic. We need only abandon the illusion that we can sell our produce without someone else's buying it. We need only pledge ourselves mutually to buy, at once and in all possible circumstances, exactly as much as we have sold. And in order to secure reciprocity for this pledge, we must endow money with properties that will compel the seller of goods to comply with the obligations incidental to the possession of money; we must compel him to convert his money into goods again - personally, if he has any need of goods, or through others, to whom he lends his money, if he has not.
Are we then willing to break the fetters that enslave us as sellers of our produce, by renouncing our despotic privileges as buyers over the produce of our fellows ? If so, let us examine more closely the unprecedented and revolutionary proposal of compulsory demand. Let us examine a form of money subjected to an impersonal compulsion to be offered in exchange for goods.
Description of Free-Money
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