ULRICH von BECKERATH, Berlin, 1882 - 1969
Must Full Employment' Cost Money?
The Financing of Public Works
Without Recourse to the Money Market.
According to Milhaud's Proposals;
With Some Remarks on the Latter
By Ulrich von Beckerath (Berlin)
The German issue was published in volume 1, January/May 1935 of Annalen der Gemeinwirtschaft, Genf. The present address of this organization is: Annals of Public and Cooperative Economy, Liege, 45, quai de Rome Belgium.
Reprint is free and desired by all parties concerned provided the source is fully mentioned.
The English translation was made by G, Spiller, London, and has been slightly revised by the editor of this series. No objections would be raised against better translations.
This Peace Plans issue is the second of a special issue of three, all dealing with the principles and practice of free banking or monetary freedom as a contribution to economic, social, political and international peace.
The next issue will reprint the third and last lengthy contribution of Ulrich von Beckerath on the subject and was likewise written under a camouflage title, one designed not to arouse the suspicions of the authorities and yet to indicate the essence of his detailed monetary freedom proposals: "Public Insurance and Compensation Money the Possibilities of Developing Insurance Facilities in Asia in Colonies and New Countries through applying the Milhaud System; together with Same Reflections on this System.
In spite of this inconspicuous title, it deals really with the principles of economic and especially currency policy, with monetary freedom vs. monetary despotism, demonstrating them by application to one particular example, which is of great importance to all newly independent countries trying to develop their natural resources.
For technical reasons the numerous italics in the original could not be repeated in the original PEACE PLANS edition, duplicated from wax stencils, using just one typewriter, one with a very small typeface, to enable me to include this whole book in one PEACE PLANS ISSUE. Some of the italicized passages were indicated by spacing, though and for this edition they are usually italicized.
How B. wanted the text to look can probably be best judged by the German editions, to be scanned-in later.
In his references to earlier contributions published both in the Annals of Collective Economy (Geneva) and in separate volumes, the author always cites the "Annals" only. The article repeatedly mentioned in Chapter VIII corresponds to the author's paper in "Ending the Unemployment and Trade Crisis", Williams & Norgate Ltd., London, and has been published in the previous PEACE PLANS issue No. 9, as plan 190.
Advice to libertarian readers: You will have to remember when and where the book was written and will thus have to read, sometimes, between the line. I admit that this will be difficult for some and if only because of the smallness of the print. (In the original edition. Here I used size 12 and bold print, to facilitate legibility.) The Editor, [John Zube] November 2,001.
EDITORIAL
Ulrich von Beckerath, in writing his three treaties of which this issue reprints the second dealing seemingly only with monetary freedom, seems to have followed G. Chr. Lichtenberg's advice:
"No work of art, particularly no written work, should show the effort it has cost. An author who desires to be read also by generations to come must not fail to drop hints for whole books; thoughts for dissertations, in any paragraph of a chapter, so that one gets the impression that he can afford to give away thousands of them, free."
Be it as a result of a special effort or that it came natural to him, one gets this impression of his writings, anyhow. When I began to systematically collect reform ideas, about 12 years ago, I counted once more than 200 in my collection which had been thought up, developed or at least passed on by him. Therefore 1 am inclined to believe that his exceptionally stimulating way of writing (at least for discerning readers) came natural to him. He used to write a great number of letters of comparable thoughtfulness.
Why did he nevertheless remain in relative obscurity?
(Probably Laotse's remark: "To be appreciated only by a few belongs to my value." - gives part of the explanation. Another explanation is one of the favorite quotes of a friend, Robert Cowin: "Communication takes place only between equals." If your mind is not somewhat close to that of Ulrich von Beckerath, on at least some points, then you will more misunderstand than understand his messages. - J.Z., 25.11.01.)
His way of thinking is out of fashion and society has not yet developed the special institutions required to give new ideas their greatest chance for success - by providing them with a truly tree and worldwide market. His writings are so full of provocative thoughts and useful suggestions that they almost amount to the ideal book of which G.Ch. Lichtenberg speaks, a book which contains an interesting thought on every page, a book Lichtenberg stated, for which he would have crawled to for hundreds of miles (from Goettingen to Hamburg) on his knees! - to get a chance to read it. But, do not get your hopes up. You will not understand his message easily by merely skimming through the pages. It requires slow and careful reading, perhaps repeated reading and, after all, as Lichtenberg also said: "A book is like a mirror, if an ape looks into it then indeed, no apostle can look out of it." Don't feel offended by this warning. Did not the same Lichtenberg say: "Man, among all the animals in the world does most closely resemble the ape"?
(One might add that when even a gifted author may have battled to express himself-well enough by his own high standards, then one should not expect a fast and superficial reading of his text to clearly reveal to an ordinary mind what he intended to convey. Some books are not written for relaxation - but to make you think! And that can be hard, slow and also exhausting work, so that one cannot read such books comfortably, easily, in a single sitting, confident that one has fully understood the author. Naturally, I can only speak for myself. - J.Z., 29.11.01.)
Furthermore, should you feel neither racial pride nor shame, you might console yourself-with another remark by Lichtenberg: "The Hottentots call thinking the scourge of life. "Que des Hottentots parmi nous!" exclaims Helvetius. What a beautiful motto."
When, alas, usually only by chance and all too rarely, one comes across books as thoughtful as those of von Beckerath and if one has any aspirations towards self-enlightenment, one is inclined to say again with Lichtenberg, to oneself-and to others, both, hopefully and desperately, that the greatest as yet unexplored and undeveloped area on earth lies right under one's hat.
I will make it relatively easy for you, though. I do not expect you to crawl on your knees, for a long time, to get hold of a copy of such a book. I get it delivered right to your door. But, please remember, I myself-had to slave with pen, typewriter, duplicator etc. for about 300 hours to do this for you. Do you appreciate this service? Then subscribe or, if you have already done so, recommend this publication to others and see whether you could further a normal reprint or at least a review.
I would not have sent you this pamphlet if I had thought that you are one of those of whom the same Lichtenberg said: "There is much talk about enlightenment. But, my God, what good is all the light when people have no eyes to see, or those, who have them, do purposefully close them?"
But in case you should be inclined to save yourself-a lot of hard thinking and simply condemn all money reformers as mere crackpots and cranks then, please, let me quote Lichtenberg, once again, in defence: "They are as foolish as a man, going forward, seems to be in the eyes of a crayfish."
Any young man looking for adventure and, yes, personal danger, in this over-regulated, excessively restricted and truly mismanaged world of ours, may be hereby reminded that, if he takes up the study of these proposals and uses them as a compass, then he might become one of the first pioneers who will introduce monetary freedom, thus protecting or re-introducing most other liberties. Nobody, so far, who takes up this journey of discovery, exploration and pioneering development has to fear much competition
and anybody could reach the top by conducting the first successful pioneering experiment which is copied afterwards by most others. While more and more discovered already that the true frontier now is freedom, most of the other explorers have not even heard as yet of this new frontier, although it is the most decisive one.
Should you find it hard to work your way through the labyrinthic thickets and the swamps, over the mountains and across the flooded rivers of monetary theory, then please, do not forget that you can undertake this exploration from the ease of an armchair. If it were all that easy then you would have much competition and hardly a chance to excel.
Furthermore, the day cannot be much further away when this kind of spiritual toil will be more appreciated than mere readiness to expose yourself-to physical chores and dangers. But, if it is such a danger you desire, do not worry; you will get all you want of it - once you try to apply your newly gained knowledge in practice. Just have a look at the penal clauses suppressing monetary freedom - even in "democratic" countries.
If you ever tried to apply your new knowledge of money and finance to the task, for instance, of properly financing a revolution against a totalitarian regime, you could experience all the dangers you could possibly ask for. (There is, by the way, no other monetary system which is more suitable, for this very purpose.)
Consider this issue as one of 500 miniature but rather expensive space probes, sent out to find, and bring into contact with each other, the all too rare moral and rational beings who have already invaded this planed but are, as a result of some technical failure, isolated from each other. I mean particularly the few ethical and rational beings interested in restoring and establishing voluntary and completely free exchange relationships on Earth, relationships which are automatically mutually beneficent and peace promoting, relationships which could be introduced in a tolerant way, without forcing the adherents of the various other systems and isms to participate and leaving them free to join any time they should feel like it.
I have tried with these remarks to induce you to read this booklet. I realize, though, that if even the threat of nuclear war, has not yet made you inclined to study, hopefully and as objectively as possible, ANY sensible approach to avert it, then there is, anyhow, hardly a hope that YOU will do something positive to avert this danger.
Let me now try to give you some indication of the scope of Beckerath's proposals which his title and his headings because of time and place of writing could not fully reveal.
The author is one of the most radical and thorough adherents of a free market or laissez faire economy. He explains a free market theory of full employment which does not leave out the most important factor: monetary freedom. He wants to introduce free market and laissez faire principles, free, voluntary and honest dealings, even in the sphere of exchange media and standards of value, thus setting the economy, the market and thereby the individual really free. Most other advocates of a free market stop short of this and are, in this respect, still statists - central planners or managers or, if they are already in doubt about this, their position, they have no unprejudiced, rightful and rational as well as detailed libertarian alternative to offer.
This book, in spite of its title, contains various other proposals, e.g., how to end an inflation, how to stop a run on the banks without compulsion or deception, how to reformulate & realize the right to work and the right to the full proceeds of one's labour, how the workers could rightly and peacefully get access to the means of production, changing from wage "slaves" or mere employees into independent producers. He shows how to finance unrestricted international trade and investments, proposes the abolition abolition of all central banks with any privileges and coercive powers, as well as the abolition of the so called unemployment insurance offices. He points out a way how, without new legislation, and without a violent revolutions within the present imperfect society, the standard of living could be doubled by making use of all economic resources with the help of the new financial means he describes.
Regarding his seemingly main and most important topic, public works, he shows clearly where the limits of the effectiveness of State activity are in this sphere and that the conventional means so far employed by the authorities are hopeless failures, since they only shift over employment opportunities and even tend to increase unemployment.
He shows to what extent and by what unconventional means the local authorities in distressed areas could provide employment for the unemployed and turn otherwise unsalable consumer goods into public works investments.
U. v. Beckerath was a radical decentralist and e.g. perceives the need and explains it for a great number of small local issuing centres.
He advocated the abolition of aggressive compulsion in every sphere but particularly that of money and currency. Only very few economists have, like him, recognized the defect in the popular concept of Gresham's Law and have as well defined it.
Hardly any concessions to currently prevailing opinions will be found in this book but many refutations of communist or other statist opinions.
Revisionists will find numerous interesting historical observations in it and the advocates of a free market will find that it sheds some light on the question why the free market philosophy had so far no more success.
To those acquainted only with the English and French Liberal tradition, he points out that a comparable Prussian tradition existed - and how revolutions can be avoided through timely libertarian reforms.
His libertarianism is indicated e.g. by his development of "proposals . different from all others in that they call for no new laws but merely for the annulment of the existing ones." (page 119) and by remarks like the one on page 121: "So ... long as the effective demand is not regarded as the most important basis for the value of money and people believe that the value of money is created by Government fiat, so long will people consider the State omnipotent and will turn to it for aid in every emergency. ..."
His uniquely tolerant approach is characterized by tolerance towards the practical but tolerant realization of ALL other proposals, a tolerance supported by the firm conviction that the best, those most in accordance with freedom principles will finally win out under such conditions.
In other words, he advocates experimental freedom in the social and economic sphere and even individual secession from the State. In the sphere of monetary reforms, he welcomes experiments undertaken by other tolerant reform groups - as opportunities for gaining valuable experiences. This does not prevent him, of course from thoroughly criticizing their theories.
While in this book he speaks up only in favour of a free gold market and a gold standard based on this market alone and not on a gold redemption obligation of the issuing banks (i.e., a type of gold standard which most of the defenders of the "classic" gold standard have not yet investigated and which is unknown to most of their enemies, too.), he does in reality favour full freedom of individuals to accept for all their private contracts a standard of value according to their own free choice.
His derogatory use of the word "capitalism" may require some explanation for libertarian readers in America and inclined towards the teachings of Ayn Rand. He uses it in the popular meaning still common in Europe and much of the world now, where "Capitalism, the Unknown Ideal", is still largely unknown. He does not object at all against a laissez-faire capitalism in the classical liberal meaning, or the one revised e.g. by Ayn Rand or Prof. Galambos. On the contrary, he extends it to the sphere of exchange media and value standards, even to the sphere of "competing governments" or "volunteer communities" that are only exterritorially autonomous. Naturally, in this particular title, and at the time and place that he wrote it, he could not freely develop and explain such an suggestion.
Proof for this contention will be found e.g., in his remarks about a free market, about free transferability of property and in his proposals for turning dependent workers into independent property owners.
What he calls capitalism and fights against is a condition which inevitably results, when most people are ignorant of their own economic affairs and are not even interested in taking sufficiently care of them, but simply remain largely unthinking "etatists" or "statists", letting themselves be misled by the nose, into poverty or even death, by a Fuehrer, a Stalin, Mao - or a democratically elected con-man and power monger.
In short, I do believe that every libertarian for whom approaching individual freedom does not only mean the mouthing of general phrases concerning its desirability, and some all too obvious pro-freedom changes, cannot fail to read this contribution with great interest.
(The very few sales of these monetary freedom titles indicated to me that there are not many such people around. - J.Z., 29.11.01.)
In the only review of Peace Plans 9 which has so far come to my notice (WORONY, Canberra 11/5/67, "Monetary 'Cranks' have a Point".) the reviewer states that "the philosophy of the French economist Bastiat, author of "Economic Harmonies" oozes from every paragraph, ..." I accept this as a high praise, rather than as a criticism and it will be this in the eyes of all who have bothered to read Bastiat himself-instead of relying on commentaries. If you have read some of Bastiat's works then you can hardly fail to notice the superficiality of most arguments raised against him. The reviewer further classified these ideas as old fashioned and not up to date by stating: "Common to all contributors is that the works of no economist since 1930 are discussed, indeed none since 1880 are seriously examined." Here the reviewer overlooked that the
contributions were mere reprints of articles published in 1934, 1895 1934 and 1935. Furthermore, that rare studies are pursued here concerning which here exists hardly any modern literature.
(Luckily, that has changed since then, but most of the modern authors, usually stimulated by some writings by Hayek on this subject, in 1975/76, have, like Hayek, still ignored the pioneering work on monetary freedom undertaken by what I came to call the "German School of Monetary Freedom". - J.Z., 26.11.01.)
Indirectly the reviewer admitted this by being unable to quote a single relevant modern tract, while at the same time mentioning several tracts of money reformers who merely want to increase or alter monetary despotism. In other words, modern research into monetary freedom has to take up research there where the old researchers, often as much as a 100 years ago, had left it. Beckerath partially explains in this issue, PEACE PLANS No 10, why, once the restrictive money and currency laws were passed, hardly any new research took place which investigated the possibilities of full freedom in this sphere.
(Old laws, however wrong and harmful, are all too often and by all too many, even scholars, taken for granted, as if they were laws of nature. - J.Z., J.Z., 16.11.01.)
White Ulrich von Beckerath, in this issue, explains and recommends the issue of non-coercive tax based paper money, without a gold cover, but with a gold weight accounting standard, and recommends it only as ONE instance of monetary freedom, others, condemning taxes altogether, condemned such paper money issues, too . Herbert C. Roseman, for instance, in his contribution: "The Economics of Scarcity versus the Economics of Liberty", in "A WAY OUT", Aug. 1966, quotes Laurance Labadie:
"With characteristic directness Labadie describes government issuance of money in the following simple analogy:
Joe goes to John and says, 'Give me a piece of pink paper the first of every month or I will beat hell out of you.'
'Where am I going to get the pink slips?' gasps John.
'From me,' Joe says, 'just bring me some potatoes or some lumber and I will give you some slips.' (Goods correspond to taxes.)
'John is relieved to know here is some way out of a beating by a bully, so he agrees. Besides, it has occurred to him that if he gets some extra slips he can use them in trade with some other blokes who need them in order not to get their blocks knocked off.
'One can plainly see that Joe's pink slips will circulate as money so long as Joe can make his threat good. The point is that these slips have value not because a good can be had with them, but because an evil can be avoided with them. As long as Joe (or Hitler or any Government head) can maintain an organization with tax-collecting power, whatever is taken in taxes will have value.
'If Mr. Hitler taxed you according to how much property you had, and if he measured the property in terms of how much gold it would command in the open market, then his tax tickets would be on a gold standard. A unit of gold of certain weigh and fineness would be the standard unit of value. Few of any economists explain value in terms of this kind of robbery.
'In a just arrangement, in its initial aspect, an IOU or pink or green paper claim on something circulates as a substitute for that thing or service. This form of credit permits exchange without exchanging the things. (Barter is practically impossible in a complex society.) The IOU or paper money exchanges goods among many producers until it finally gets into the hands of the issuer, when it can be torn up without loss to anybody. ... If a paper money is convertible into gold, this is the simplest and most authentic kind of gold standard. But, as indicated above, a paper economy could be said to be on a gold standard without gold having any direct connection with that money."'
Judging by this, one might assume that R. and L. would condemn the issuing of State paper money without legal tender altogether, would expect all others to accept their view of the State and know everything about private paper money issues before any monetary reform is attempted. This ignores that most people, rightly or wrongly, still hold taxes to be necessary and, collectively, as statists, desire most of the State services paid for out of tax revenues. ("Returns" from the "inflation-tax", confiscations and anticipation of future taxation included.) They do not consider these services as wrong and harmful, although, objectively, in many or most cases, this is the case. Under such circumstances it is worthwhile to inquire how present day State income and expenditure might be regulated from a monetary angle to avoid both, inflation and deflation, as far as they are caused by the present day mismanagement of a centrally issued and coercive currency.
By asking that local authorities should be given the right to issue e.g. municipal paper money (mind you, without any monopoly and without legal tender except towards the issuer!), a great reduction of centralized power might be achieved.
Furthermore, Beckerath nowhere demands any compulsion behind the levying of taxes as all essential for giving a State paper money a par value. By his comparing States with insurance companies and demanding, between the lines, exterritorial autonomy for such volunteer-associations and, particularly in his next lengthy contribution (to be published in' PEACE PLANS No. 11), he shows that the voluntary contributions that members have obliged themselves to pay, can likewise create a sufficient suction or reflux to keep paper money of such organizations circulating at par with their nominal value, for the usually only short time that will pass before they stream back. With regard to the statist mentality of most citizens, we have, even today, to regard most taxes as voluntary payments. Once voluntary and exterritorial State and community membership is introduced - all would agree with this.
Another argument for considering the decentralized issue of State paper money, without legal tender, using the value of gold units on a free market as standard, with favour instead of indiscriminately condemning it, is that it is really based on the same principles as the issue of private paper money. In both cases unsuitable assets never mind here whether in this case they were rightly or wrongly acquired are, as von Beckerath shows in detail, merely fractionalized and standardized like money to render them suitable for a wider circulation - until the original short-term bills, be they promissory papers of the State or of a private merchant, do mature and have to be redeemed with these newly created means of payment. Thus the decentralized issue of State paper money would be a step in the right direction and would enlighten wider circles about the techniques of issuing sound paper money.
Labadie does not express himself-quite clearly in this passage on a "gold-for-account" standard, a gold standard without gold redemption taking place - over bank counters. But this is a concept very difficult to put into words, Even if one considers taxation as robbery, it is certainly not explaining value in terms of robbery when a party imparts a certain gold value to its own paper money by declaring: In all payments due to me, I will accept this paper money as if it were so and so many grams of fine gold, no matter, what the free market rate of this paper money is in general circulation. This promise to accept a certificate creates a demand for it, makes it valuable and determines its value at least for the last bearer, even when there is not compulsion behind it (as is behind tax based money). Such a gold standard would still have a "direct connection" with gold, although gold need not be physically present at every transaction using this standard. But a free gold market and at least some actual turnovers of gold on this market are essential for it. To remain on par, any such gold clearing certificate must be at any time convertible on the free gold market not by the issuer into the physical amount of gold metal, the value of which, in goods or services, is promised by the issuer. I will not assert to have made the point any clearer - but at least I have expressed it in another way and that might be helpful for some.
Ulrich von Beckerath, Walter Zander and Heinrich Rittershausen are, by the way, free of the animosity of most other advocates of free banking against interest payment for middle or long term capital investments and expect directly, through monetary freedom, only a reduction of interest rates for short term credits or "turnover-credits". Here it must suffice to just point out this difference.
I would like you to keep in mind when you read this issue that there are about 200.000 unemployed concentrated in New York alone. How could this program be brought to their notice? If they or their leaders knew these proposals then, I believe, no power in the USA., no law, no court, no police force, neither the army nor the national guard, would be powerful enough to prevent their application.
Attempts forcefully to reverse a successful movement of such proportions would, at this time and place, resemble attempts to forcefully introduce a single religion or one party rule: Democratic governments, intent on remaining in the saddle, could not afford to arrest or shoot down 200.000 citizens, who are unarmed, inoffensive and whose only "crime" would consist in having supplied themselves with work, in ways not foreseen and understood by the government experts, simply by breaking some laws whose very existence is known only by a few, laws which are fully understood by an even lesser number of government supporters and which objectively benefit none but a handful of high officials in the Central Bank. But even the latter might earn higher salaries elsewhere. The monetary system proposed in these three special issues permits to carry out such
a monetary revolution within days. It might be expected that policemen and soldiers would not be any more inclined to obey orders for the suppression of such an experiment than English soldiers would have been prepared to invade Rhodesia and bombs its towns after its unilateral declaration of independence. The government would have to take into consideration, too, the votes not only of these 200.000 unemployed in New York, but as well those of their perhaps 600.000 to 800.000 dependents, friends and associates and those of the unemployed in other cities. In other words, it would have to legalize this experiment, very soon.
Although small-scale, e.g., village level monetary experiments would be economically possible, and could be successful, if not interfered with, such experiments would be only relatively safe for the instigators if undertaken on a large scale, i.e., at the same time and in many local communities.
(For our time it is important that under the communist Regime in Red China, even after a limited adoption of some free market economic practices, unemployment and under-employment has been estimated from a few dozen up to 200 million people. Once these people become aware of their self-liberation options through monetary freedom, the time remaining for the regime, as a territorially exclusive, centralized and coercive one, will be rather short. That change might be even more significant than the fall of the Soviet Empire, since its foundation, monetary despotism, has remained in its former territory. - J.Z., 26.11.01.)
Some ideas on such a monetary revolution are contained in peace plan No. 175, pp. 31 ff of PEACE PLANS 8. Other peace plans dealing with monetary freedom, unemployment and inflation and pointing out to, some extent, their relationship to war and peace, are: 33, 38, 39, 81, 110, 145, 151, 160, 168; 190 - 194.
Whenever I deemed it necessary or advisable to add some notes in the following text of von Beckerath's second lengthy contribution on monetary freedom, then I have added them and indicated them in brackets.
The text is, to my knowledge, complete. It includes even various sentences and at least one passage which had been left out, inadvertently or intentionally, of the former English editions. I hope that my software hasn't dropped any or too many passages. Sometimes I caught it "read-handed" and re-inserted the dropped paragraph.
The list of money reformers and the bibliography of Peace Plans 9 should be corrected and completed as follows:
Dieudonne Marcel and his publication should be crossed out. I acquired his booklet and, according to my very sparse knowledge of French, he stands close to Social Credit ideas.
Mr. W.A. Dowels address should be changed to: 92 Pitt St. Sydney.
Mr. Les Lovelock's new address is: c/o 37 Byron Ave. Coulsdon, Surrey, U.K.
Mr. Thomas J. Mc Givern, 2232 Durant, Apt, 308, Berkeley, California 94304, is accord. to Mrs. Loomis an advocate of free banking.
Mr. Robert Swann should be crossed out. His money reform ideas have, according to what I have read, so far, nothing to do with free banking. (Well, they are, small-scale and somewhat interesting monetary experiments but still stuck in some primitive notions on monetary freedom options. - J.Z., 26.11.01.)
The address of Mr. Paucitis, Karlis, has changed again to: 6412 Sandy St., Laurel, Maryland, USA. The addr. of KAPACO NOTES (now:"FREE STAR") is to be changed likewise.
The booklet "Property and Trusterty", a Study of the Possessional Problem", available from the School of Living, contains ideas and definitions regarding monetary freedom, from the pens of Ralph Borsodi and Laurence Labadie.
"I also share your sincere concern as regards Monetary Reform, which is one of the most urgent challenges now facing our Western World. As is sometimes said: 'ALL reforms await Money Reform.' " - Lowell H. Coate, President, Life Science International, Editor of LIFE SCIENCE, P.0, Box 2832, San Diego, Calif. 92112, in a recent letter.
Peace Plans 12 will again contain a number of diverse short plans and an alphabetical index for the more than 200 plans which will be included by then.
A d v e r t i s e m e n t Space: A$ 2.00 or US $ 2.50 per half page, A $ 4.00 or US $ 5.00 per full page: No more than 1 page per advertiser per issue. Cond.: Antitotaliarian!
I am happy to be able to announce that Prof. Dr. Heinrich Rittershausen who has written already several extremely valuable contributions to the theory of monetary freedom many of which are listed in the bibliography on p. 104 of Peace Plans 8 plans now, after retiring from most of his university work, another book which he considers to be his scientific testament. It will be titled : "Bankfreiheit jetzt". (Free Banking now!) If any of my readers want to supply him still with some free banking articles in English or French, which they think may have escaped his notice so far, his address is: 5 KoelnLindenthal,, Fustenburgstrasse 7, Germany.
(Alas, he was incapacitated by a stroke and died before he could complete this project. I found no manuscript of this title under his papers but this does not mean that it does not exist. What I found is an unfinished manuscript entitled "Geldtheorie" (Monetary Theory). A re-typing of the first 80 pages of this, which appeared to be outstanding to me, was either lost in the mail or mislaid by me. I hope that others will be able and willing to peruse his papers more thoroughly, to the extent that the are preserved in the University of Cologne or by his heirs. The latter, several daughters, some even with economics degrees, did not seem much interested in his work. How many valuable manuscripts were destroyed by uncaring relatives? Many, according to a published book on English economics writers in my possession. - J.Z., 26.11.01.)
I myself-would, naturally, welcome all the time further addresses and literature or references regarding monetary freedom. Joern Manfred Zube, ed. of PEACE PLANS, 35 Oxley St., Berrima, NSW 2577, Australia.
TABLE OF CONTENTS
| I. | Introduction .................................... 115 | ||||||||||||||||||||||||||||||||
| II. | The State as helper .................................. 116 | ||||||||||||||||||||||||||||||||
| III. | Some basic observations on the provision of employment by the State ............ 118 | ||||||||||||||||||||||||||||||||
| IV. | Some remarks on the economic and political significance of public works .......... 119 | ||||||||||||||||||||||||||||||||
| V. | Methods so far proposed for financing public works .................... 125 | ||||||||||||||||||||||||||||||||
| VI. | Considerations of some popular arguments in favour of State provision of employment, particularly by means of new and extensive public works ....................... 128
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| VII. | Some observations on Milhaud's theory concerning the provision of employment through purchasing certificates ............................... 144
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| VIII. | Some technical and, legal details of the issuing of purchasing certificates .......... 191 | ||||||||||||||||||||||||||||||||
| IX. | The practical realization of the Milhaud Plan ...................... 198
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| X. | Summary stressing a few differences between the Milhaud Plan and the current monetary system ............................ 201 |
Motto:
AH! NUMEROUS REMEDIES HAVE BEEN TRIED, BUT WHEN SHALL WE TRY THE SIMPLEST OF ALL: LIBERTY! - Fr. Bastiat in "Exchange", 1850
I. Introduction: The Present Position (1934)
The economic condition of the world could not be described more unfavorable than by stating that since Milhaud drew a picture of it in his writings it has not only seriously deteriorated but has become in certain respects even more desperate. The social reformer may well lose heart when he observes that precisely those measures which have converted the "crisis" into a catastrophe, are generally still regarded in all countries as right in principle, only that more diligent recourse to them is steadily insisted on. Control of external trading, foreign exchange laws, embargoes on payments ever new labour ordinances for the few still allowed to work, constant meddling with the currency, and the like, are today demanded even by those who until recently were opposed to these steps because they expected a "natural recovery" of the economy but have since lost their belief in such a self-cure.
Unfortunately perhaps fortunately, too the crisis has not only a technical, but also a moral and a political aspect. The masses feel that something is withheld from them: they are not clear as to what this is. They feel that they have been deprived of rights, but do not know what new rights to claim, However, to find a vent for their grievances, they demand in many countries that those of their rights, for which their forefathers fought and gave their lives, should be immediately annulled.
Freedom of the press, of public meetings, of speech, of association, yes, even religious freedom, continue properly only in a few countries and are there also exposed to violent attacks The masses demand food, but would nevertheless dearly like to kill those who import from abroad bread and butter and much else that a few years ago was regarded as heaven sent. They want work: perplexed they stand outside the factories and workshops which they may not enter. Who forbids them? The guard at the factory is under orders to shoot if any one should dare to enter and begin to produce something of what all the world is in need of. Why he must shoot, the guard does not know exactly, either. "Orders must be obeyed", that is all he knows.
People dimly suspect that some reflection might possibly prove advantageous. But, at the same time, they feel that underlying all what is happening, there is a meanness and abomination incomprehensible to them and they curse the "intellectuals" with their theories, who in the morally best case have "failed" (this no one can deny) and who are perhaps even responsible for the situation today, in which a good harvest is a cause of famine. Who knows! Away therefore with reflection and no more thinking. Instead, fight with your last strength and then yes, then we shall be exactly where we were before.
All of us have read Prosper Mérimée's Tamango, the story of how, 'under Tamango's leadership, the slaves on the slave ship "Espérance", successfully revolted. There, on the captured ship, stands the Negro prince; victorious, ambitious, recognized, having behind him the liberated slaves, who are ready to sacrifice themselves for him. The whites have been killed and thrown to the sharks. However, what is to be done next? The question is to turn the ship. How is this done- Tamango simply gives the steering wheel a kick.The ship turns and the masts break. What now? An emergency mast might be erected, but this presupposes some idea of seamanship and also some notion of how to handle sails. Tamango knows nothing of this, nor do the slaves. They only think that "the great fetish of the whites feels offended" and must be appeased. A libation of blood is offered to the compass. The compass does not respond. Magic is employed. In vain. The slaves shout; they drink spirits. Tamango demands better discipline. All to no purpose. Seamanship, and only seamanship, can avail.
Tamango, facing his liberated slaves, on the good ship "Expérance", is an image of many present day rulers before their subjects. They offer sacrifices to their own fetishes, and even to those of their enemies. Disciplinary measures become daily more severe. Freedom of speech is altogether abrogated. "Order" is daily more stringently enforced. The way the victims of starvation are to be thrown overboard - is minutely prescribed. All in vain, the ship refuses to budge.
(Compare the present concentration camps in Australia for illegal immigrants! - J.Z., 26.11.01.)
In the midst of this confusion, one man rises and exclaims: "Tamango, cease to offer sacrifices to the compass; cease to "discipline" us; drop your magic and leave the alcoholics their spirits. Instead, erect an emergency mast; sail! I'll show you how to do it."
Wil Tamango pay heed? Could there be for him a greater crime than not to pay heed, now? Or will he prove himself-to be the practical man he was when, during many years of experience as chief, he learnt how to deal with subjects? What will he do with the "theoretician"? That is the question. The "theoretician" in this case is Milhaud. Tamangos, of all countries! in Russia, in China, in Japan, and elsewhere, listen to him, and much will be forgiven you.
(He was careful not to mention Germany in this connection. Alas, not only the Tamangos but all democratic and republican leaders and their advisors have so far managed to ignore monetary freedom ideas and their solutions. - J. Z., 26.11.01.)
II. THE STATE AS HELPER
When, a few decades back, Max Stirner pointed out that the religion of our age had undergone a transformation and that the idea of the State had replaced in very many minds the older religious ideas, whilst the religious sentiment had survived and become directed to the idea of the State, no one probably took that remark of his really serious. Today however, we are faced by the practical effects of the new religion, effects so formidable that one may say that the basis of existence of half the world has greatly altered
during the last thirty years.
The essence of a religious sentiment is that it remains outside the sphere of conscious thought. Frequently, too this sentiment, which by its nature represents a feeling of reverence is mingled with experiences partly originating in sub-consciousness. These experiences then create in our consciousness concepts which psychologists call "fixed ideas", that is, ideas unaffected by criticism. Kant, in speaking of such ideas, writes
"Many conceptions arise in secret and obscure conclusions incidental to experiences, and afterwards are transmitted to other conceptions without even the consciousness of that experience itself-or of the conclusion which has first established the concept of the experience. Such conceptions may he called 'surreptitious'. Many of that kind we partly only delusions of imagination, partly also true; since sub-conscious conclusions do not always err." (I. Kant, Traeume eines Geistersehers, part 1, first footnote. )
The discussion of Milhaud's proposals has confirmed the suspicion that modern economics also, although seemingly based on the rock of reality, is full of "surreptitious" conceptions, but which nevertheless form an integral part of the new religion. A religion cannot be refuted. But what is possible, is to induce its adherents to respect the principle of toleration. Religions contemptuous of this principle, risk the fate of ancient paganism when it became fiercely intolerant under Decius and Diocletian. Tolerant religions, on the contrary, call for deferential regard only because of their tolerance. All fair minded thinkers will protect them.
The religion which has bestowed on the idea of the State what it abstracted from the older religious ideas, is still young and, like all new religions it is not tolerant. (Apparently, it did not exist before the Thirty Years' War, but by 1784 it predominated.) Its intolerance is a most serious matter, since its aim is not metaphysical but on the contrary directed to the realization of essentially material ends. Bastiat, under the immediate influence of an outbreak of statist fanaticism, wrote, in the "Journal des Débats" of 25 September 1848, his still remembered article "The State", which has lost none of its freshness. Bastiat writes:
"Reader, I have not the honor of your acquaintance but I bet you, 10 to 1, that for the last six months you have spun utopias and I bet you again, 10 to 1, that you mean the State should realize them.
"And you, fair reader, I am sure that you would very much like to see all the evils of suffering humanity swept away and that you would not object if the State could devote itself-to this task.'
"But oh! the unhappy State, like Figaro, does not know which side he is to listen to first. A hundred thousand voices, the press, and public assemblies bellow at him:
'Organize labour and the workers!
'Root out selfishness!
'Fight the arrogance and tyranny of capital!
'Institute experiments with manure heaps and eggs!
'Build railways!
'Construct irrigation works!
'Cover the mountains with forests!
'Introduce model farms'!
'Also model factories!
'Colonise Algiers!
'Provide the children with milk!
'Educate youth!
'Help the aged!
'Bring the town population back to the land!
'Confiscate all industrial profits!
'Lend money, without interest, to all who desire it!
'Liberate Italy Poland and Hungary!
'Promote the breeding of riding horses!
'Encourage art and train musicians and women dancers!
'Abolish commerce!
'But at the same time create a merchant fleet!
'Discover the truth and sow in our heads one grain of sense!'
"It is the function of the State to enlighten, to develop, to increase to fortify, to spiritualize and to sanctify the soul of a nation." (Bastiat quoted the last sentence from a work by Lamartine.)
That all these demands embody a strong religious element is obvious, first of all from the vehemence and fanaticism displayed by their supporters against the notion that anybody except the State should concern himself-with their realization. This may be easily verified in conversation with any contemporary, be it a worker or a high official, a manufacturer or a shopkeeper. Most of them will contend hat it simply immoral for individuals or groups to undertake something which the State, perhaps, could perform. It is true, that they cannot express their opinion in such an abstract form, but in any given case four out of five will not fail to testify to this, if asked.
A few modern laws have originated in this emotional complex, e.g., the German Act regarding the monopolization of the employment agency service by the State, of July 1922, confirmed by the Act of
16 July 1927. One would think that a Parliament, which is seriously combating unemployment, would support every agency providing employment and only legislate against abuses. The German Reichstag did not do this but, on the contrary, as a result of pressure by the Socialist Party of Germany and the Communist Party of Germany, passed a law which has certainly contributed to the increase of unemployment in Germany.
From ideas such as are involved in the above State monopoly, there is but a step to a completely statist economy. The idea is, of course, far from novel or the property of one party. It found particularly clear expression as far back as 1877 at the Geneva Socialist Congress. One resolution of this congress runs:
"All land and sites, all means of production shall become State property, The omnipotent State shall regulate production and consumption, down to the smallest businesses. The majority shall rule and administer unchallenged; the minority must acquiesce or emigrate". (Quaritsch, Kompendium der Nationaloekonomie, 4th edition, p. 40. )
Accounts of the pitiable conditions of life of the subjects of the omnipotent Russian State and of its incompetent bureaucracy (despite the ability and goodwill of individual officials), have made many believers in the idea of a totalitarian State pause and even declare that they broadly agree to a continuance of private enterprise so that the totalitarian State which by the way was always publicly rejected by Hitler and decisive National Socialists would then be distinguished more by a statist feeling of the subjects than by a State managed economy. More important even than this concession of politicians seems to be the fact that the Roman Catholic Church is recognizing the dangers in its own sphere threatening from the new religion and has decided to combat them. Pope Pius XI., who is respected also by non Catholics for his clear, philosophical spirit and his noble character, states in his otherwise also highly important encyclical Quadragesimo Anno, II/5):
"Just as it is wrong to withdraw from the individual and commit to the community at large what private enterprise and industry can accomplish, so, too, it is an injustice, a grave evil and a disturbance of right order for a larger and higher organization to arrogate to itself-functions which can be performed efficiently by smatter and lower bodies This is a fundamental principle of social philosophy, unshaken and unchangeable and it retains its full truth today. Of its very nature the true aim of all social activity should be to help individual members of the social body, but never to destroy or absorb them."
Such words, and much else stated by the Pope in his encyclical will remind the philosophical reader of the end, of the fifth chapter of the first section of the third part of Kant's work on religion, which it might be worth his while to re read.
III. SOME BASIC OBSERVATIONS ON THE PROVISION OF EMPLOYMENT BY THE STATE
The religion of statism is not only rooted in a sentiment of reverence. As Kant explained, this sentiment is the necessary basis of every superior religion, including the religion of the pure reason brought to light by him. Statism like so many other religions, is also rooted in the feeling of helplessness, coupled with the all too human and easily understood dislike to grapple with the troubles and dangers involved in effective self-help. Does not history report of the vigorous opposition of slaves and serfs when well disposed rulers wished to emancipate them? Unfortunately, a large proportion of the unemployed, as a sad economic and political experience, more particularly during the post war period, has taught us, possess little more desire for independence than the serfs in Pomerania, whom Frederick the Great could only with difficulty train to personal freedom, and with whom he finally succeeded so far that they no longer expected to be maintained by others. It is certain that for countless unemployed today, one might as well say for millions of them, the employer-employee relationship has practically become a category of thought and that for the moment they are unable to entertain proposals presupposing, in any way, self-help, independent thinking about the depression or indeed, an appreciation of the Milhaud Plan. Inasmuch as these unemployed are for the present not able to be more than mere employees, and since employers have
failed and are still not equal to the occasion, there is no option but for the State directly to employ this portion of the unemployed as is indeed their wish. The nature of the work whereon they are to be engaged and the manner of financing it, is the next problem. It does not however, necessarily follow from this that the other portion of the unemployed also to be counted by the million should be dealt with in the same way since this portion is quite able to associate in self-help organizations based on the financial principle of the Milhaud Plan.
IV. SOME REMARKS ON THE ECONOMIC AND POLITICAL SIGNIFICANCE OF PUBLIC WORKS
Before Milhaud it seems the following distinctions, of considerable importance for an understanding of the significance of public works, were overlooked
1. Public works which cannot be shelved without directly prejudicing the economic life of the nation. Such works include, e.g., the postal service and, where the railways are national property, the railway service. Also waterworks, gas works, ports, etc. must function continuously. Nor may the repair of bridges be neglected and highways and everything serving communications, nor the repair of public buildings.
2. Other public works, such as the construction of useful, but perhaps not absolutely indispensable canals.
The proper maintenance of the services mentioned under (1) is far more important, not only for the national economy but especially for the labour market of all countries than the initiation of the works suggested under (2), the plain reason being that the number employed on those works in all civilized countries is very large, that the work requires some special knowledge, and that the workers concerned cannot easily change their occupation. A discharge of only about a quarter of their number would increase unemployment more in most countries than even a financially robust State could manage to set to work by starting new public works, in fact, in some countries probably more than could be employed on really useful new public undertakings, even if finance for these works were assured..
Milhaud's system of purchasing certificates offers the possibility of resuming the full activities of State concerns which had to be curtailed because of the depression, as well as those of private concerns. It is obvious, for instance, that national porcelain factories, stud farms, printing shops, paper mills, mines, and all other State establishments working for the open market, may here be judged on the same principles as private enterprises.
Other State concerns, such as railway and postal services, as well as non-statist but still public corporations, such as electricity and water works, etc. do not work for the open market, but depend, nevertheless, on the sale of their products. All these public corporations are covered by the considerations set forth in Zander's article on railway money, which appeared in the Annals, 1934, 1 (peace plan 192),
There is no fundamental difference between Zander's railway money and Milhaud's purchasing certificates. In Zander's system' of financing, the influence on production of Milhaud's factor of orders placed is seemingly absent. But an enterprise like e g., a railway service, is not dependent on orders to be sure of sales - here sale of freight and passenger mileage. The monopoly enjoyed by such services ensures their turnover better than orders, whether the monopoly be due to a legislative enactment, as in the case of the postal service, or to a natural monopoly, as with most railways. A concern such as the German Railway (which is no longer a State service, but is economically like one, similar to the French and English railways), can count through its natural monopoly on a certain income of about 200 million marks a month and is in the same position accordingly, as if at the beginning of each month a bank placed to its credit 200 million marks. Zander reasons, in effect, that a safe credit of such magnitude should not lie idle, but should serve to provide employment. Zander then points out how this credit could be used to provide employment, by "minting" it so to speak, enabling the railway to dispense with using means of payment drawn from other economic domains and thereby to help the national economy almost exactly as if it received every month a present of 200 million marks for providing employment.
the above reflections suggest their extension to all public undertakings and the possibility of regarding their activities as a form of public works. The juridical and the general State administrations, despite any existing abuses, are still useful services and cannot cease their activities without injuring the economic life. (It is noteworthy, though, that in Imperial China, according to available statistics, there was only about one State official for every 10.000 inhabitants. In reality there were actually fewer, for the Chinese guilds frequently paid the State officials a pension in order that they should not govern with no disturbing result.) The Sate administration employs in any case a great labour force, and it may not be superfluous therefore to examine whether the financing of this type of work might also be organized on Milhaud's principles.
Viewed purely commercially, the State administration is financed by the State selling tax receipts and in return undertaking to maintain public order. It is true that the "purchase" of tax receipts is not an altogether voluntary process, for if the "purchaser" refuses to purchase, the State resorts to force. For this very reason, however, the "sale" of tax receipts is made very certain and is actually only checked where the' "purchasers" are without means of payment. The certainty of the sales also creates an invisible, but very real, State credit among the taxpayers. Hence, this credit of the State through taxation is to be regarded as being as real as the credit which the railway obtains from the public through its monopoly.
Well now, Milhaud's Plan requires that everybody; at least during a depression, before withdrawing means of payment from other economic domains and thereby reducing the purchasing power of others, should utilize his own outstanding assets for payments, provided of course he is in a position to do this.
This applies more particularly to those, whose creditors are voluntarily prepared to accept the credits in payment. The latter will always apply where the creditors themselves due to other obligations have payments to make to their debtors, as is regularly the case with the State. A financial balancing is in this way rendered feasible. Every creditor, - e.g., any supplier to the State, is thus, as taxpayer, a debtor to the State and all individuals with whom he has business relations are similarly situated. Hence it is quite in the spirit of Milhaud's theory to examine whether and to what extent the outstanding assets of the State, created (I would rather say, now: "imposed"! - J.Z., 26.11.01.) by taxation (which though invisible are not less real.) could contribute, by fractionalizing and standardizing these fractions of the total assets, to provide the population with means of payment and, through this, augmenting its purchasing power. The certificates would be State paper money but without compulsory acceptance in private payments.
What is more, we ought to find out whether the neglect to utilize that credit does not depress the general level of employment, as much as at present the neglect to issue railway money does and, likewise, the omission to issue private purchasing certificates.
In other words, we ought to inquire whether that part of public works which is and will remain the most important, namely, the general State administration, ought not preeminently now, during the depression, to be financed mutatis mutandis (with the necessary changes The Ed.) on the principles enunciated by Milhaud.
The importance of Milhaud's principles and their fruitful application in such supposedly completely different domains as industry, railway traffic, and the general State administration, may justify us in further illustrating these principles.
In the three cases referred to here, the principle is identical and only its technical realization is different. In all three cases outstanding assets are created, and these, with a view to their being more readily transferable and finally for the purpose of clearing, are divided into standardized notes which can thus be used as money.
The outstanding assets are:
(a) in private enterprises, visible ones: they are created by the placing of orders, and their fractionalizing is undertaken by a public or private bank, The notes are purchasing certificates;
(b) in public undertakings (or equivalent private undertakings), invisible ones: they are created by the undertakings being monopoly enterprises and the public therefore being unable, at least not without detriment, to dispense with their services. The fractionalizing is carried out either by the undertaking itself-or through a bank. The notes are railway moneys, electricity money, etc.
(c) in the State in provinces and in municipalities, also invisible ones: they are created by taxation.
The fractionalizing is undertaken either by the tax creditor or, what Lorenz von Stein deems more practicable, through a bank. The notes are Treasury paper money, provincial money, municipal money.
Jacques Duboin has expressed himself-with remarkable lucidity on the creation of Treasury paper money. (See Annals, 1934/1, Ending the Crisis, pp. 250-226.) Duboin also recognized that there exists a form of Treasury paper money which serves only for financial adjustment (clearing) between the State, its suppliers and its taxpayers, which has nothing to do with the monetary prerogative of the State and represents only the mobilizing of an assured claim. (This may be conceived as a claim of the State on those liable to be taxed or, vice versa: of the taxpayers and especially the suppliers, on the State.)
Proposals are discussed here and there today, suggesting that the payment for supplies delivered to the State should be made in such notes which would subsequently be accepted as read money by the taxation offices. In this connection see the substantial article "Le payement en blé", in the Temps of 6 November 1934. Such a method of facilitating the payment of taxes is, however, wholly different from paying taxes in kind, e.g., as permitted to the Polish peasants. Tax payments in kind signify progress only in so far as they prove that taxes may be paid without recourse to money. Otherwise this constitutes a decidedly primitive way, although it was for centuries customary in a civilized State such as the Roman Empire. (See on this subject Marx Capital, part 1, chapter III/3b who did not ignore the importance of means of payment in taxation, but who, owing to his extreme extremely statist attitude, was prevented from recognizing the interrelations seen and described by Milhaud and Duboin.)
The method proposed by Duboin was, as a matter of fact, applied in Germany for centuries and has only fallen into disuse during the last few decades. (See the introduction to the commentary of the German Cheque Act of 1908 by Prof . M. Apt, also the description of the Saxon cash tickets by Roscher, in "National Oekonomik des Handels and Gewerbfleisses", par. 52; further the Prussian Acts of 1814 and 1815 concerning payments for goods delivered to the State with "treasury notes ".) In the "Vier Gesetzentwuerfe" (Four Draft Laws) there is a draft relating to the mobilization of the outstanding assets created by taxation through State paper money without legal tender, which is adapted to modern conditions.
With regard to Milhaud's purchasing certificates, Zander's railway money, and Treasury paper money which is irredeemable and not legal tender, and which maybe also freely discounted, the following problem still awaits solution: How much of the credits created by orders placed, by monopolies, or by taxation may be utilized for the payment of expenses, without the fractionalized parts of these assets i.e., the purchasing certificates, the railway money, the State paper money being exposed to a discount in the open market?
The theory on the subject is likely to be discussed for some time yet, although the problem is essentially no other than that of the time validity of the bills discounted by the banks of issue, a topic often dealt with in the older bank literature. The practical aspect is simple: when the market value of the certificates on three consecutive stock exchange days stands at 99% or lower, then the limit is passed and a suspension of issues should ensue.
Although the theme of this monograph is really the creation of opportunities for employment by the starting of new public works, it was yet desirable to consider whether, by the maintenance of already operating public undertakings of every kind, a very appreciable part of the present unemployment could not have been avoided. This consideration was the more opportune inasmuch as the principles of Milhaud's payment theory are readily applicable here.
The State is confronted with a further problem. Suppose that it owns a railway, a few mines, and some gas and electricity works, all of which, owing to the depression, are only partially operating. Is the State to issue as many kinds of notes as there are public enterprises, that is, is, in addition to an irredeemable State paper money without legal tender, also railway money, electricity money and so on? This question should not be hastily answered in the negative by arguing for instance that a multiplicity of means of
payment is inconvenient for trade. Such an answer would involve an a priori judgment. It should not be forgotten that in the larger towns today, cheques issued by dozens of banks are in circulation without business transactions suffering thereby in any way. It is clear, of course, that a State should not simultaneously bring into circulation in any town, be it as immense as New York, say a hundred kinds of means of payment, but it is also clear that half a dozen different means of payment, each fractionalized, would occasion no embarrassment. This diversity of means of payment guarantees control by the public (a control which is indispensable for securing opportunities for employment) and greatly outweighs the slight inconvenience caused by the absence of a circulation of quite uniform means of payment.
However, not only is control by the public indispensable, but also the enlightening of the public about the precise nature of a circulating paper medium, and this is most effectively achieved when various kinds of paper money circulate concurrently without legal tender (i.e. when they may be freely refused). The man in the street should know that whilst, for instance, a gas works certificate of one dollar was given by the gas works to a gas worker (this enabling him to have employment at all), the certificate must be ultimately withdrawn from circulation if it is not to lose its value. The man in the street should further be aware that if his greengrocer will only accept this certificate for 90 cents, then the reason is probably that the gas works has issued too many certificates and that there is something wrong with the financial administration of the works. If this were not the, case, the greengrocer would accept it at its face value because he would be sure that he could freely pass it on to people who have gas bills to liquidate.
The man in the street should also know that financial defects in combines cannot be detected at once when only one kind of certificate is issued for gas, electricity, railway, and the general State administration.
Such an enlightenment of the public is the best safeguard against inflation, against financial mismanagement, and against labour discharges due to such mismanagement.
But the gasworks also must be in a position to correct, without delay, slight over-issues, such as may occur in any administration. In such a case the gasworks should be able to declare that (say) for the following seven days, its cashiers will continue to accept only gasworks certificates at par in payment of accounts, but other means of payment only at a discount.
More particularly, the different parties concerned should recognize that the slight inconveniences arising out of the diversity of the means of payment are compensated by increased work and that everybody who accepts them helps to ensure his own employment.
Although, therefore, the central idea of the purchasing certificates covers also irredeemable State paper money that may be freely refused, it would be a mistake to reverse the process of thought, which has enabled us to recognize this, and contend that if it were proven that State paper money is not only justifiable but economically necessary, we ought to be "logical" and finance all public works, both the immediately productive and the administrative, with State paper money.
In all countries of the world, at least four-fifth of the yearly economic production serves to maintain the population for that or the following year. The carrying out of repairs and of such works as cannot be safely neglected, including even the replacement of old locomotives and ships by new ones, falls within the same category. The production of durable goods only provides occupation for a small proportion of the workers of a country, certainly not more than a fifth, in most cases less than a tenth, of them. Notwithstanding this, most people demand that the employment situation should be improved through increasing the production of durable goods, especially through building operations and, since private enterprise cannot undertake the latter, the public authorities are expected to step in. It is correct that Milhaud has made proposals for financing public undertakings intended to produce durable goods, proposals which are an improvement on current proposals and contain an entirely novel economic element, that is, subscribing long term loans (destined for providing employment) with short term purchasing certificates. But Milhaud's greatest contribution is that he has recognized the extreme importance of labour devoted to the production of other than durable goods and has made proposals also to finance such labour, the laying off of which constitutes the real, problem of the depression. (Most critics have missed the fact that Milhaud has made two wholly different types of
proposals for providing employment. One of them is to utilize the presently unmarketable stocks as working capital for increasing employment and the other aims at re employing the labour power which is lying idle at present.
"Maintenance" works appeal less to the public than "additional" works which are only undertaken in order to raise the employment level. The many hundreds of projects relating to public works intended to reduce unemployment concern almost exclusively such works. Here, however, the distinction should be made between works of future usefulness, more especially such as on their completion permanently raise the level of employment, and other works whose usefulness is anticipated to be moderate, if as much and which are principally promoted to provide fresh work.
The first category comprises the construction of canals and ports, afforestation and the like. The construction of educational establishments and hospitals, the provision of sports grounds and so on, might be also counted among them, although these are only indirectly useful economically. Thus a country like Switzerland derives as much benefit from its schools and universities as say from its railways, great as the usefulness of the latter might be.
As an example to of the second category might be mentioned the paving of the roads of Jerusalem with white marble under Herod, to prevent that the 18.000 laborers, who had been engaged on the building of the great temple, should find themselves suddenly out of employment. (Josephus, "Jewish Antiquities", book 20, chapter 9.) Memorable, too are the national workshops of 1793 and 1848.
The low level of many a seemingly great civilization of antiquity is manifest from the fact that formerly populations and their rulers were frequently perplexed not only as to how to finance the re-employment of the workless, but how to find work for them at all, a most pressing problem in all such cases. Hence the first plausible undertaking that suggested itself-to the rulers or was recommended to them, was started, quite irrespective of its usefulness. (Think of how Louis XIV. excused the building of his palace at Versailles by saying that its construction provided work for the people.) That we have made some progress socially, follows from the fact that today there is no lack of proposals in any country of useful public works and that only the problem of financing them is left.
Seeing that public opinion has traditionally held in low esteem the economic importance of "maintaining" State undertakings, but has always regarded as of great consequence new and extensive public works, the latter, and schemes of how to realize them have a special political significance. Not infrequently politicians have come to the fore who otherwise would have remained in obscurity, because they supported the popular view of the crucial importance of extensive new public works. The history of the last 150 years proves hat no government desirous of remaining in office and no party aiming at power, may resist the performance of great public works by the State. Milhaud's proposals are therefore invested with high political significance since they indicate a way of how to finance such works neither involving new taxation or recourse to the money market (in the current meaning of the expression) nor a compulsory loan, salary cuts of State employees, or any of the other hated measures that have led to the fall of so many governments. That the Milhaud Plan, in addition, permits the setting on foot of measures against unemployment which are far more effective than a public works policy, is certainly no drawback.
A brief historical retrospect concerning the political significance of unemployment may not be amiss here: After the Revolution of 1848, the economic sufferings of the French people became greatly intensified. Coins had disappeared because a recent decree declaring the notes of the Bank of France legal tender caused a general fear of inflation. The Government added an emergency tax of 45% of the direct tax already raised; farmers dreaded the possible decreeing of compulsory deliveries of foodstuffs, as in 1793; the workers clamored for work, but none was forthcoming. Useful proposals stimulating self-help were entirely wanting.
Proudhon's proposals were also impracticable. His People's Bank would have had to close its doors within a few weeks because it, too, intended to issue notes covered by long-term loans. Proudhon, undoubtedly a
genius but evidently unacquainted with the history of banks of issue, did not know that this would not work. Bastiat, who was by far his superior, demanded free banks of issue conforming to the American system (which system was prohibited in 1863), but insisted that the notes must be redeemable at sight). This was likewise impossible in this crisis. Nobody apparently had practical proposals for raising the employment level, to which should be added that both Proudhon and Bastiat were misunderstood. One man, however submitted proposals which public opinion did comprehend and which had been carefully elaborated technically, namely Napoleon III. Shortly before the Revolution he published a few projects concerning the reduction of unemployment, which are still worth reading. Napoleon hoped to finance his schemes within the framework of the then prevailing monetary system.
When published, Napoleon's plans made a deep impression. After the June battle, when everybody felt that the unemployed workers would not be permanently satisfied with bullets in their stomachs, Napoleon was the only one who had to offer an at least technically practicable scheme for providing employment and thus he appeared in the role of a reformer who, under changed conditions, might be entrusted with the elaboration of new practicable schemes. Many historians appear to have under rated this circumstance. In their accounts, the rise of Napoleon appears only the result of clever intrigues and of brutal force. But France's belief that Napoleon was the man to abolish general unemployment through public works, and thereby to maintain the social order, was most probably the true cause of his rise to power.
Despite his serious shortcomings, Napoleon was assuredly sympathetic towards the masses, a sentiment which was sincere and which in our day forms the bond between leader and people. Where this sentiment is joined to insight into social interrelationships, as it was in a high although not yet quite sufficient degree in Napoleon, as well as to a keen sense of social justice, so that the leader unlike the Gracchi, does not merely take from one to give to the other, and where the Leader is also distinguished by a right feeling for the traditions of his people, he will, aided by a little good fortune, rout any merely bureaucratically minded government and take its place. On the contrary, where a ruler possesses all these qualities, he is the superior of any foe. We are not concerned here with purely theoretical aspects. Within the brief period that Milhaud published his first paper on how to overcome the depression, the old constitutional Governments in at least ten countries have been removed and replaced by such whom the masses believed to be sincerely interested in the solution of the unemployment problem, interested in something more than conventional rhetoric and in "measures" which truly are none.
Bismarck, Napoleon's great antagonist, offers another example. He, who had no government to overthrow but had to defend the mightiest government of its time; could not have maintained himself-and the dynasty for so may decades if he had not been most earnestly interested in the unemployment problem. (See his speech of 5 May 1884, quoted in the next section.) Men of Bismarck's caliber owe their success precisely to the courage with which they approach particular social problems, where others are satisfied with indulging in generalities. To cite a relevant instance: The productive cooperatives, which Prof. Graham so spiritedly and competently defended, in the Annals 1933/2, and which are assuredly destined to assist in the solution of the labour problem, were well known to Bismarck, who appreciated them in a way that was misunderstood especially in labour circles. In his Reichstag speech of 17 September 1878, he expressed himself-on the subject among other remarks as follows: "Then as regards the granting of State aid to productive cooperatives, I am not yet convinced that this would be impracticable. The attempt" (Bismarck himself-financed with 9.000 thalers a productive cooperative in Silesia)"? I am not sure whether under the influence of Lassalle's reasoning or under the influence of my own conviction, which I partly reached during a visit to England in 1862 it seemed to me that in the establishment of productive associations, which flourish at present in England, the possibitity is given of improving the lot of the working class and diverting to it a substantial portion of the profits of the employing class." (The Chancellor then turned to Lassalle's project, according to which Prussia was to spend 100 million thalers on the establishment of productive associations.) "If something of such a magnitude is to be undertaken, it is very likely that 100 million thalers might be required. Nor is this
scheme so very foolish or naive. The Ministry of Agriculture is engaged in testing agricultural methods. Experiments are also undertaken in industries. In combating unemployment and in the attempt to solve the ... social question through improving the lot of the workers, would it not be also useful to have recourse to such experiments? ... So far as I remember, my impression was that the whole of the manufacturing part of the equipment and of the working operations raised no difficulties. Obstacles were encountered on the commercial side: the disposal of the goods produced by travelers, in shops, in store houses, through samples. All this could not be accomplished in a sphere which the workers could survey."
In the sequel will be found remarks by Bismarck about the right to work, which are not less remarkable. What many peoples need today is a statesman having Bismarck's insight and energy, but who will this time not introduce new laws but will rather abrogate all laws relating to monetary matters that have been promulgated since 1914 (all countries have at least a few dozen of these, most a few hundred) in order to make room for the practical realization of the Milhaud proposals. These are different from all others in that they call for no new laws, but merely for the annulment of the existing ones.
V. METHODS SO FAR PROPOSED FOR FINANCING PUBLIC WORKS
In a civilized and progressive society, public works such as the construction and improvement of roads, canals, ports, dams, schools and the like, are the most useful that can be undertaken. Even when financial conditions are only half way to normal many laborers are always employed in that way (See in Goethe's introduction to his translation of Benvenuto Cellini's autobiography, his remark about the excellent paving of Florence, the maintenance of which afforded constant employment for many worker.) However, many of the public works started in any year, even those most useful, are burdens carried by the present generation for the benefit of the succeeding one. Momentarily they cost more than they yield. In times of financial stringency, public works of this nature are therefore the first to be curtailed. Of course: no sooner is this done, than the disadvantage of the restriction becomes obvious. First, owing to an increase in unemployment allowances, the poor rates rise at once and seriously. Only with difficulty and slowly does the public come to believe their Finance Minister that unemployment assistance is less costly than continuing men on work. Fiscally considered, the Finance Minister is right, although, economically considered, the capital which permits the undertaking of public works, namely machinery, raw material , provisions for the laborers, apart from men ready to work exists in great abundance. In addition, there is the loss occasioned to the population, and in the long run to the Exchequer also, of the absence of good roads, ports, etc. What is wanting is precisely and solely the means of payment, however zealously economists may warn the public not to mistake money for capital, and however much, in this connection, they seek to demonstrate by a series of sophisms that there is a shortage of capital. The public refuses to believe its teachers because daily it has before its eyes idle capital rusting machinery, moldering provisions in the shops, and stocks of unused raw materials. There is a deficiency in means of payment, that is all! But to provide means of payment is seemingly a very easy matter. Where there is a metallic currency, we know a priori that the means of payment exist, only that they may have to be made available. And where there is only a paper currency the "creation" of means of payment seems naturally even simpler. The situation as thus presented gives rise to tree classes of proposals for financing public works. Almost daily, in all parts of the world various authors are publishing schemes which fall into one of the following three classes :
another. This results therefore only in a shifting of opportunities for employment, but not in the generating of new ones. (See Milhaud s remarks in Annals, 1933, 2, p 171.) Similarly with loans if they are subscribed with existing means of payment, for the latter must be withdrawn for some time from circulation if they are to serve as a new investment.
Inflation is the incendiary torch wherewith we fire our own house in order to keep warm for a few hours. Inflation neither provides the means of payment for paying wages nor capital as should be emphasized in answer to one of Milhaud's critics. The effect of inflation on the supply of means of payment could be frequently witnessed in Berlin during the monetary crisis of 1923. The bank messengers, sometimes several hundred of them, queued up over night at the Reichsbank. Many of them brought stools with them. Towards noon they received then a small parcel of notes sufficient to last for a day. During all periods of inflation, similar observations were made.
In any case, it will be difficult to rouse in German workers enthusiasm for a new inflation, and one of the many causes why the present German Government has numerous supporters among the workers is that under it their is no fear of an inflation. In a speech on 25 April 1934, that attracted much attention, Reich Minister Goebbels stated: "The Government will never tolerate an inflation. It will keep the currency stable and will rather call upon the people to fight together for the stability of the currency than permit the currency to become the football of international exchange speculation.
(In fact, the Nazi regime inflated the currency, too, and also introduced the usual "remedies": price and wage controls as well as compulsory delivery quotas and rationing. Together with the legal tender paper money inflation by the following occupation forces, the mark was thereby reduced to about 1/10th of its
former purchasing power. Promises by totalitarians and "fundamentalists" are even less trustworthy than those by democrats, especially when they insist on upholding monetary despotism. - J.Z., 27.11.01.)
An appeal to the people to fight inflation would effectively rally them, provided that at the same time the Government permitted the people to establish work supply banks governed by Milhaud's principles and perhaps established a model one itself
Other Governments or parties that hope to attain to power tomorrow have less sound views on currency stability and are therefore wantonly playing with fire. (Unpleasant surprises may be prophesied particularly for Japan because of its monetary policy, and this in the coming few years.)
The mere existence of a forced paper currency stimulates the elaboration of plans to finance employment schemes simply by means of the note printing press. Such paper money allegedly acquires its value through its being a forced currency, that is through a Government fiat. This strongly suggests the printing of more paper money to finance therewith public works, and the ensuring of the circulation of the newly issued paper money likewise through Government fiat. In view of these opinions about the nature of paper money, it is really remarkable that inflations are not made much more frequently than they were so far.
The allegedly very abstract and purely theoretical question: Whence does money, and particularly paper money, derive its value - calls for a veracious answer. Life and death for a people may depend on it, Such an answer is, however, impossible as long as not only popular belief but science itself-derives the value of money from a Government fiat. And yet Knapp in his highly ingenious work "Staatliche Theorie des Geldes" (State Theory of Money), thirty years ago already, explained in detail that the State must of course somehow determine what kinds of means of payment a creditor shall be bound to accept when in doubt and that that means of payment is then to be regarded as State money, but that the State's power, let alone its right, does not go so far as to provide, by a mere decree, a definite gold value for any means of payment In other words, whilst Knapp sharply defined and carefully distinguished the concepts "debt discharging power of money' and "commercial value of money", many more recent writers constantly confuse these two concepts, frequently even with special reference to Knapp. It is exactly as if they had only read the first sentence of his work which, it is true, reads: "Money is a creation of law and order (Rechtsordnung).
The value of money is primarily determined by the effective demand for it, precisely as the value of commodities generally. To illustrate, in Germany the value of the total turnover is a billion (million times million) marks a year, about nine-tenth of which amount is liquidated without the passing of ready money. This means that the daily demand for cash alone averages about 300 million marks, which corresponds to the value of about 100,000 kilograms of fine gold (that is daily the equivalent to 10 spheres of pure gold 1 meter in diameter ).This demand represents a far sounder cover than that prescribed by
the Bank Act. So long however, as the effective demand is not regarded as the most important basis for the value of money and people believe that the value of money is created by the Government fiat, so long will people consider the State omnipotent and will turn to it for aid in every emergency, particularly for financing re-employment during a trade depression. And the following fallacy will last as long as this only supposedly logical association of ideas: If the State can impart value to money, it can without much difficulty impart value to that money which is printed and issued specially for financing employment and it would roundly neglect its duty if it did not use its monetary prerogative in this way for the public good.
This fallacy is supported by another and apparently inborn prejudice which reasons that the economic world can surely not be organized on such a detestable plan that its laws should, owing to a few insignificant defects in form, condemn to worthlessness paper money, even money "covered by real estate, issued for such a laudable purpose as the financing of reemployment.
Every Government that honestly protects the currency entrusted to it, is, precisely because of this, in danger of forfeiting the confidence of the population, where the latter believes that the Government could legislatively impart value to paper money.
All wealth, in the last resort all social relationships, are jeopardized if the masses finally succeed in imposing their erroneous views on the Government, seek to force reemployment by means of the note printing press, and cause the start of an inflation. Science has scarcely a more important, hardly a more urgent task, than that of enlightening the people on the nature of money and of means of payment.
In one of his proposals Milhaud showed that the financing of public works should be practically a synthesis of all three methods. He demands
A fresh printing and a fresh issue of means of payment would be, it is true, unavoidable, but not in the form of fiat money. One or more loans could have to be floated concurrently. These could be taken up with the new means of payment at their face value, never mind how high or how low the new means of payment are quoted in the open market. The subscribers to the loan would accept in their shops or factories the means of payment at par and unemployed workers, who desired to be re-employed, would do likewise. At the same time the State would agree that taxes may be paid with the new means of payment. The free quoting of the new means of payment would establish harmonious relations between the three measures adopted and would render impossible an inflation even if we assume the worst intentions.
Only in this and in no other way should public works be financed if the general level of employment is to be raised and unemployment is not merely to be distributed differently. Only thus and not otherwise can it be arranged that the new products should not compete with those already in existence which have remained unsold because of the depression, and only thus can it be made certain that the provision of fresh employment should cost nothing and should indeed be profitable from the first day. Very few methods of providing fresh employment possess this last advantage, perhaps apart from Milhaud's only the methods advocated in the "Vier Gesetzentwuerfe' and those of Henry Meulen, which he described in his work "Free Banking".
If, however the depression has gone already so far that the goods which were unmarketable at the commencement of the depression have deteriorated or been sold at ruinous prices, so that there is both a shortage of goods and a shortage of employment, as happened for instance, frequently in Spain during the 18th and 19th centuries, then new public works are not of a nature to augment employment. On the contrary, in such circumstances it is distinctly felt that the carrying out of public works imposes only an added burden on the present without bringing any relief for the moment. Apparently though, in no country today does such a desperate state of affairs prevail. On the contrary, very large stocks of goods, carried over from 1927 to 1930, still exist and flood the markets. Hence, and only for this reason, public works are probably suitable today to raise the general employment level in all countries, provided always that they are financed in accordance with the Milhaud Plan. The' primary condition is, once more, that a big loan to be subscribed with purchasing certificates be placed on the market which, not directly but
indirectly, will bring the unmarketable goods quickly to the consumer.
The Milhaud method of financing public works by means of loans which should not be confounded with his method of financing normal reemployment in industry combines the following advantages:
The following arguments, amongst others, are said to speak in favour of providing employment through public works:
Prejudice 1: "Private initiative has failed."
It may be granted that private initiative has conspicuously failed in providing general employment. Whilst it is currently believed that "capitalists" constantly plot how they may extract more "surplus value" from the masses, it seems as if the existence of so many million unemployed has not yet induced even one great or small capitalist to think out a plan of how "surplus value" could be extracted from these millions, a plan that would involve, of course that they should be set to work in the first place. From the monstrous fact that the worlds capitalists forgo at least 100.00 million gold francs annually, which they could readily earn by employing the workless, the masses could, if they felt inclined, deduce a quite different and truer conception of the nature of capitalism than that widely prevalent today.
(Until "employers" demonstrate their ability to employ every able and willing unemployed, or become at least aware of what prevents them from doing this and do fight these restrictions, they do not really deserve the term "employers" - for they employ only some of the people, some of the time. What would be a fitting term? The same applies to salesmen and shopkeepers - who do not really sell all they have to offer to all those who would want their goods and services, largely because they are only allowed to sell them for exclusive and forced legal tender and their potential buyers are not sufficiently supplied with this monopoly money. Until they come to comprehend the sales consequences of monetary despotism and fight for its abolition, they should also be suitably renamed. Any suggestions - J.Z., 27.11.01.)
Similarly, it may be granted that when private initiative fails as dramatically as it does today, the idea of State intervention readily suggests itself. Especially where a Government has furnished indubitable evidence of its ability to augment the national income, does it seem reasonable for the masses to appeal to it for advice and guidance. Such examples are, it is true, very rare and it would be worth while to make a collection of these during the last three thousand years. That collection, however, would probably only fill a very slender booklet. Still, an enlightened and well intentioned Government may also frequently be helpful, even where it
lacks expert knowledge and where the masses too, are hopelessly bewildered. Such an instance may be found in Prussia, after the peace of Tilsit in 1807, when the condition of the country resembled that which followed the Thirty Years' War. What we call today private initiative was entirely wanting. Statesmen like Freiherr vom Stein and Chancellor Hardenberg did not dream of undertaking themselves what they considered to be the concern of individuals. They did not dictate to the millers how far their corn should be ground; they did not fix "fair" prices for agricultural products; nor did they organize any "Nira" or "New Deal". They did something quite different. First, Stein and Hardenberg examined the question whether private initiative could develop at all. They discovered forthwith that even the shrewdest farmer, manufacturer, or merchant, whose enterprise might have employed hundreds, would, according to the legislation of that day, have been cast into prison if he had dared to do the right thing. Within three years, the two illustrious statesmen therefore abrogated some hundreds of old privileges and prohibitions, so that Napoleon, horrified, called them "the Jacobines of the North". (See Foerster, "Preussische Geschichte" (History of Prussia), vol. 6, p. 543.)
The language employed in Stein's and Hardenberg's laws and ordinances is in its way classical: chastely brief and rich in meaning. In that age, people would have been ashamed to print the text of a law, the language of which could be further improved. The somewhat extreme but wholesome dictum of Frederick the Great still possessed some force: Every commentary to a law only proves its defectiveness. (Thomas More, English Chancellor, expressed himself-to the same effect in his "Utopia".) Here is a miniature sample of Stein's style, quoted from par. 50 of the Administrative Instructions of 26 December 1808 for the Administrations in all the Provinces:
"It is most advantageous for the State and its component parts to leave industries to follow their natural course, to wit, not to favour or farther any of them preferentially by rendering them special assistance, nor, on the other hand, to hamper any of them in their starting , their operations, and their expansion." (See Jastrow, "Textbuecher" (Textbooks ), vol. 1, p. 25.)
Rarely in the history of the world have the governed manifested greater confidence in their governors than in the Prussia of that time, where the State appeared as liberator and endeavored to reduce statism (which conflicts with an enlightened conception of the State) in as many directions as possible. The present generation probably in all countries finds it difficult even to conceive such a mentality, a stance which was then by no means confined to Prussia: A work such as that of the Prussian Minister of State, Wilhelm von Humboldt, "Ideen zu einem Versuch die Grenzen der Wirksamkeit des Staates zu bestimmen" (A Contribution towards an Attempt to Determine the Limits of the Effectiveness of State Activity) would be probably no longer understood even among the intellectuals of America, Japan, or Russia. (Not in France The work was several times translated into French, also into English in 1854. At that time the arrogant pretensions of Bonapartism offered a thorough commentary on Humboldt's views. In Germany the centenary celebrations in his honor, organized by the Government and by those closely associated with it, found a warm response in all circles.
During the first quarter of the nineteenth century a number of Prussia's statesmen were deeply influenced by their teacher, Prof. Christian Jacob Kraus, 1753 - 1807, in Koenigsberg, an old and intimate friend of Kant. In judging instances of economic abuses, Kraus taught his students to ask themselves first: Why do the parties concerned not remedy those abuses themselves? Are they too weak, or too ignorant, or are they legally barred from helping themselves? (On this subject consult Roscher's "Geschichte der National Oekonomik in Deutschland" - History of Political Economy in Germany - , Berlin, 1874, 2nd. edition, 1924, p. 613.)
Freiherr vom Stein, too, who also attended Kraus's lectures, was want to ask himself-the same questions about each measure of his. Would it not be worth while today to ask ourselves why, in the first place, private initiative has failed?
We shall not repeat here what Milhaud has so lucidly and. impressively expounded in his writings: neither the absence of means of production nor of raw materials, nor of willing workers, nor of unlimited needs, stops any country from busily producing. What is lacking are the means of payment which bring these elements together and, first and foremost, permit the needs to express themselves as effective demand.
What may have been the cause that prevented so many well informed authors to recognize this? One mental obstacle is assuredly the modern conception of the nature of means of payment which assumes that the co-existence of private means of payment with State money basically infringes the States monetary prerogative. Those who entertain this view are inevitably blind to all possibilities of ending the depression which rest on the provision of new, private means of payment, even such which are fractionalized and standardized like money.
(It may be pointed out here, too, that Milhaud did not wish to rule out the State. He was even willing to assign it a leading part, provided it agreed to cooperate, but only in the sense of establishing a fiscal issuing office which, unlike the central banks of issue almost everywhere, would be without the privilege of its notes being fiat money. That office would be in the position of a fire brigade, an orphan asylum, or a hospital, the establishment of which is also not a State prerogative. In these cases the Stale merely acts as Exchequer, that is, in essence as a private person and even grants, for reasons of expediency, full liberty of action to private associations which would be impossible if a State prerogative were in question. This is well illustrated by the voluntary life boat associations in Germany, Great Britain, and elsewhere.)
However, the modern conception of a monetary State monopoly obsesses the minds both of authors and businessmen to such an extent that most of them regard as downright reprehensible any suggestion of issuing new and private means of payment fractionalized like money. (The tacit assumption that all private notes would have to be legal tender and could thus cause an inflation, does drive them likewise into opposition. - The Ed.) Such a conception prevents e.g. our merchants manufacturers; and others, among whom there are undoubtedly many sagacious intellects, from entertaining the idea of a private means of payment and from demanding permission to issue one. Owing to this widespread prejudice, a respectable businessman would no more think of this than, during a slump, to forge bills or to sell goods not his property however profitable the operation might promise to be. But everything would be completely changed and all mental blocks would be removed, if some Government expressly stated that whilst it intends to retain its coinage and minting prerogative it has no intention of claiming a monopoly in means of payment. The mere declaration of a Government that for the future standardized means of payment, fractionalized like money and not redeemable in specie, were not prohibited in principle a declaration which would cost the State nothing would in most countries resuscitate private initiative, just as Stein called forth unsuspected energies in Prussian farmers and millers - merely by ordaining that the trade in mill stones should be de-controlled. (Formerly a monopoly, which benefited the Exchequer to the extent of 2,000 thalers only. Owing to this monopoly, the milling industry was quite insufficiently provided with mill stones, and agriculture lost indirectly millions through it. See Max Lehmann, "Freiherr vom Stein , vol. 2, p 493.)
The almost world-wide prohibition of standardized means of payment is the greatest enemy of private initiative and thus the proper cause of the world depression. It must be withdrawn. In the following chapter on the monetary prerogative of the State (see VII/8), we shall have something further to say about this.
Admittedly, in some States private initiative would probably fail even if it encountered no legal obstacles. Milhaud's suggestion that the State might at first establish a model issuing office is therefore of great value and offers the only possibility for millions of human beings to overcome the depression. An office of the kind he suggests, might be compared to an old Prussian "Landschaft" or public mortgage corporation. Few people know that this organization was in substance imitated by all the land credit institutes of the world.
But a ruling out of private initiative was far from Milhaud's thought, nor is there so much as a hint of this in his proposals.
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Prejudice 2: "Unemployment is largely due to the hoarding of money. Public works lead to the discouragement of hoarding."
"When the State starts new and extensive public works and raises the money required for them by taxation and loans, it counteracts hoarding. Taxation and loans draw the money from its hiding places, whilst those engaged in public works bring it into circulation and promote thereby also an effective demand for goods and labour in private enterprise.
(a) Hoarding of Coins
Complaints regarding the prejudicial effects of hoarding money date far back. It is easily understood that such complaints were rife in times when coins of full value circulated, coins which, when withdrawn from circulation, could not be immediately replaced by other coins. If, for instance, in a country like France or Germany, all coins had been withdrawn in 1,700, a social revolution would have followed, as a large part of the population, especially the working class, did not know how to do without coins. (Le Trosne, in his "L'intérét social"; Paris 1777, appears to have been the first to direct attention to the great social significance of the possibility, in case of a deficiency of coins, of helping oneself-or being permitted to help oneself, with a money substitute or by a clearing operation. He also explained that ready money is only indispensable on account of the habits of payment of the working class.)
Considerations applicable only to metallic money should not be uncritically applied to paper money and even in the case of coins only then when the creditors of a country (e.g., workers, landlords and the Exchequer ) may legally claim such coins and may refuse other means of payment. Why is it necessary to draw this distinction? Because hoarded paper may be very easily replaced by other paper money, but hoarded coins only with great difficulty by other coins. Let us examine the problem more closely.
(b) Hoarding of Paper Money
How does modern paper money come into being? Either by a bank of issue accepting the bill of a private bill creditor for its own notes or by exchanging treasury bills for notes. In principle there is no essential difference between them, inasmuch as a treasury bill is nothing but a bill drawn on the taxpayers and accepted by them. This essential likeness was recognized long ago. In par. 143 of his "Finanzwissenschaft" (Science of State Finance), Roscher refers to an article on the subject in the "National Zeitung'' of 30 September 1869.
That the discounting of bills through the delivery of notes represents by its nature an exchange of bills which are unsuitable for making payments with for bank bills suitable for general circulation, is strangely enough still disputed, although the earlier differences of opinion on the subject seemed to have been removed by Adolf Wagner's work on the Peels Acts (Vienna 1862). In substance, a bank of issue only fractionalizes and standardizes the bills handed to it in a manner suitable for making payments. By this process, the note holder, in renouncing the interest on the bill, is insured in a sense against the insolvency of the original obligee. If this insight, arrived at already several decades back, had been adhered to,