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MeulenBth section three
U. v. Beckerath, ... 6. III. 1950.
Dear Mr. Meulen,
Some points in which we agree completely in Free Banking are:
1.) The liberty to issue notes should be without legal restriction and should include everybody.
2.) The existing laws against swindle are sufficient to meet swindle in issuing notes.
3.) The right to refuse to accept notes should be as unlimited as the issue is. The observation of traditional manners and forms in business is sufficient to avoid misuses. (Example: If a landlord does not like the notes of a certain bank then he must say it seasonably, 3 or 4 days, or an the usage may be, before pay day.) Probably there will
arise a right, founded upon custom, as some years before in China - - with her numerous issuing banks and firms - - so that every creditor must accept "local currency", if it is not expressly and by agreement excluded.
(J.Z.: Development in China would have gone very different if most of its banks of issue would not have practised the metallic redemption spleen, too. - J.Z., 2.6.03.)
4.) The standard of value, by which the face value of notes is expressed, depends upon the issuer and nobody else. The issuer is obliged to express the standard's nature, on the notes, so well that no doubt can arise. (Examples: "The pound of this note is a bank note pound in the sense in which Mr, Meulen's book defines it. Or: " The gold unit of the face value is that of the bullion market of Liverpool quoted for one ounce. The last known quotation binds the banker." Etc. Silver, Corn, gas, an index, nothing should be excluded, if it is defined so distinctly that no doubt can arise.
5.) The time of validity of a note should be limited in a distinct manner.
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It you agree, then we are d'accord in all what is essential.
There seems to be a difference in predicting how the public will accept the notes.
I say: If we have complete liberty of issuing, there will soon be a state of affairs very different from that prior to 1844. At that time money, including notes, was scarce. The bad prescriptions concerning redemption allowed only a very restricted issue. The option clause protected, to a certain degree, the banker, against losing his store of gold coins or silver coinage, but did not take from him the obligation to keep such a store and to limit the issue correspondingly. But if notes are no longer scarce, then the public will, a short intervals, try to utilise the notes. (J.Z.: I suppose, he meant: by converting them into rare metals or redeeming them in rare metals, at least for some amounts they want to save in this form. - J.Z., 22.3.02.) Keeping notes (no longer scarce - J.Z.) for a long time in their pocket will then no longer be common usage. If then the possibility to so utilise the notes in not (very) convenient, then the public will refuse the notes.
It will and must be the banker's aim to arrange for many places where the notes are accepted at par, even if their quotation at the market is below par. In practice, there is only one possibility: The banker's debtors must all be obliged to accept the notes at par. (This is no innovation: Free Banking, page 81, lines 5 to 7 from the bottom.)
You say: The public will keep trust in the banker, and one effect of that trust will be, that the notes are used exactly as now cash is used. There will be no tendency to bring the notes soon back to the banker - - directly or indirectly via the banker's debtors.
I say: If the banker grants long-term loans (with his notes - J.Z.), he and his debtors are unable to realise the notes quickly, say all notes within a few hours. But such a necessity must be taken into consideration.
You say: Such cases will not occur and if they occur, the Bth-banks will be in no better position than my banks. That needs no proof.
I say: If the public, in a case of "panic" has notes that it cannot utilise, the note-holders will come to the banker and ask him, what to do. The case will not be quite desperate. The banker gets interest from the debtors and, therefore, he can say to the note-holders: Good people - - I convert your notes into gilt-edged securities bearing interest and convertible at my counters, or into securities of my debtors for goods, services or payment of debts, also into cash or other notes, if [and to the extent that - J.Z.] I get such means of payment. If the interest is high enough the public will, probably, be content. For secured high yield certificates there is always a demand. In the worst case, the owner of the certificate will exchange it against local currency, suffering a discount of 2-5 %, but - - if the interest is the usual - - very probably not more then 10 %.
My banker says from the first: Why the roundabout way? I begin by selling such certificates, just like Swiss bankers still do today (Bank-Obligationen), as everybody knows, who was at Basel and saw such Bank-Obligationen in the bank's display cases, ready to be sold. (3 1/2 % interest and a 5 year term were usual when I saw them in the year 1926.)
The difference will be: My banker never has any trouble with the public. Your banker goes the right way, after a considerable trouble with the public, which will even lead to some distrust against him and, in any case, might prevent him from issuing notes the future.
You say: The contrary will occur. No certificates will be necessary as the consequence of a run. But that people buy security certificates and use my own notes as a means of payment may occur, although not often.
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There are still some other points to be observed, which I tried to explain in several letters, one of 29.12.1948, and others.
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My system works only if existing goods are to be exchanged for other existing goods.
The intention of your system is: to exchange future goods for existing goods.
I say, that is easily possible with the help of interest.
You say: Interest may be replace by the trust of note bearers in the banker.
I say: The exchange of present goods for other present goods is essentially different from the exchange of future goods. For the former a transportation (railway, ship, car, etc.) is wanted, and the bank finances that.
The exchange of future goods is a "book"-affair.
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Our main difference seems to be that I believe in frequent "runs". (Their possibility or likelihood, even their desirability in B.'s system! - J.Z.) (The short expression may here be used, although the meaning is somewhat different from the word's former meaning). You don't believe in them.
Both of us do not know the future. But, judge for yourself: Who is "on the safe side"?
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Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 11. III. 1950.
Dear Mr. Meulen,
I thank you very much for:
1.) City Press of 24. II. 50,
2.) The Weekly Register of 24. II. 50,
3.) The Economist of 23. II. 50,
4.) "The Crisis of Liberty" by David Douglas,
5.) "The Individualist", Danville, Virginia. August 17, 1945 (No. 60),
6.) A cutting from The Times of February 21, 1950 ("Policy for Industry")
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Every issue of the City Press is interesting. A bad news I learn from issue of 24. II.: Mr. Alexander, whom I consider as a champion fighting on our side, although he demands redemption of notes, on demand by the bearer, lost the L 150 deposited by him a candidate for election. He could have used the money for better purposes.
On the other hand, I am glad that such a champion will not be occupied by non-productive parliamentary work and
can now fulfil the task for which nature has destined him: Fighting against the present state of English money. (If Alexander would know that a paper money without cours forcé is better than one not subject to the daily renewed investigations of a really free market, that could produce surprising results, simply because his tribune is such, that every Englishman must hear him.
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I learn from the issue that Chilean merchants sell dollar coins to Americans for the price of 47 dollars an ounce. Both governments, that of Chile and the USA permit that trade. In realty that means, I think, that the USA-Government confesses a depreciation of its paper dollar in the ratio of 35 to 47.
People like the Professor Spahr in New York should know the now paid price for gold coins and try to prove that, nevertheless, a redemption of paper dollars in gold coins, on demand of the bearer (which they desire) will be technically possible (at the old rate of 35 dollars per ounce - J.Z., 24.2.03). I think it impossible, in spite of the great store of gold in the USA.
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Although both - - Spahr and Alexander - - demand redemption at sight, there is a great difference between them. Alexander is on the way to our money system. Spahr is a strict defender of "exclusive currency". If Alexander would read your book, he very probably would become an adherent of Free Banking. Spahr certainly would not. Both are convinced that they are demanding the best for their country.
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The Weekly Register is as bad as it is interesting. At page 6 Peter Marriot says: "It is of no use to return to a Christian form of society unless the fundamental spirit pervades it."
What kind of spirit inter alia is required, the Distributionists may learn from the emperor Constantine, who is the real creator of Christendom - - a religion which already at his time had not much to do with the reforms proposed in the Evangiles. Peter Marriott seems not to know that the emperor (one of the greatest rascals of his time in private life, but a very intelligent man, who understood the art if governing), abolished the monetary system of the Caesars, whose unit was the Denar, a coin endowed with cours forcé and whose value was determined by the Caesars according to the requests of the public treasury. Constantine renounced the power of devaluating the Denar, abolished the name and replaced it by the "Solidus". 1 Solidus was 1/72 of a Roman pound, so that it contained 4.55 grams of fine gold, without regard to the fact whether gold coins were obtainable in the economic sectors of the debtors. Perhaps, at the time of Constantine, the value of gold was, to a high degree, dependent upon the annual supply of gold by the mines. (Some contest that and assert that the store of gold in the Roman empire was too great to be affected by the annual supply.) At any case, the system was honest, although imperfect, and no longer at the mercy of the Caesar. That progress was enormous. I am convinced that, at that time, many people said: The religion of such an honest Caesar must be good: let us accept it!
The Distributors do not talk about re-introducing honesty into the monetary system!
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Economist. News from the race fights in South Africa. The Whites in South Africa do not consider
1.) that their number is only about 3 millions,
2.) that the natives number about 9 millions and, probably, much more, since statisticians are finding great
difficulties in counting the people. In many cases young children and women are not counted. (The old
superstition - - II Samuel 24 - - still prevails in Africa that counted people must die.),
3. That there exists a strong temptation for Indian governments to make a war against South Africa - - 400 millions against 3 millions, aided (that is certain) by 9 million natives. This war will occur before another 20 years are passed. (B. was not much of a prophet! - J.Z., 24. 2. 03.) Then the Whites may be glad when their the conditions for their race will not be much worse than they are now for the coloured, Indians and Negroes. I am convinced
that the new Babur in India and a second Cetewayo in South Africa are already born.
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There is an article in the Economist: "Anglo-German Talks". The problem of paying for English exports to Germany with German exports, could be easily solved if people would listen, for some minutes, to their own reason. If the German imports from England would be paid for by German certificates which stated:
We, the issuer, accept this Certificate for the value of 100 Dollars (or 100 pounds, etc.) if the bearer buys anything in our shop or at our store and pays with the certificate.
The Dollar value is determined by the relation of dollars to German Marks at the Exchange of London. -
This certificate expires 5 years after the issue.
then the English exporters, who brought goods to Germany, could sell the certificates to the English government and receive pounds. The government may then determine what to do with the certificates. It may buy, within the next 5 years, things really wanted in England and not provided by the English industry. Or it may sell the certificates to other governments, which do wish to buy useful things for their country and made in Germany.
Under this system a German competition for English industry is impossible and, nevertheless, both countries enjoy all advantages of an English-German commerce.
These certificates will be at a discount on the Exchange of London. This discount must - - of course - - be paid by the Germans. I think that the discount will never be greater than about 5 % and often will be less. The German railway money, at the Exchange of Zurich, was often at par with the German Reichsbank Notes and the discount was always small. (My library being burnt, I cannot tell you the exact numbers.)
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From the pamphlet "The Crisis of Liberty" I learn that there exists in London a "Society of Individualists". The pamphlet, so interesting it is, disappoints me very much.
The author does not see, that the basis of the present attacks on liberty is the compulsion exercised against the people and every individual to accept the paper pound note for a gold pound. If the paper pound would not be endowed with cours forcé, all would be alright. At the bottom of the beginning of British slavery is the cours forcé. Obviously, the "Society of Individualists" does not see this. Nobody in England sees that. The political, social and economic significance of the cours forcé was fully pointed out by Adolf Wagner, Professor at first in Russia and then in Freiburg and later at Berlin, in his work: "Die Russische Papierwaehrung" (The Russian Paper Currency), Riga, 1868.
(This work honours Adolf Wagner no less than the emperor Alexander II, under whose reign such works could be published without danger for the author. If now an author would write such things, he would at once brought to a concentration camp.)
Especially interesting for your would be Adolf Wagner's "Die Geld- und Kredittheorie der Peel'schen Bankakte" (The Theory of Money and Credit leading to Peel's Bank Act), Vienna 1862, which, at that time, was considered to be by far the best critique of that 1844 Act. Wagner shared your standpoint in what is here essential. Wagner's influence was so great that the Prussian wars of 1864, 1866 and the German war of 1870/72 were carried out without cours forcé for the paper money. When, after the war, a new paper currency was introduced, the $ 3 of the Banking Act of 1875 prohibited for every federated German State the introduction of a cours forcé. Here also the influence of Adolf Wagner and his adherents was visible.
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The "Individualist", Danville-issue, says:
"There can be no inflation without increased credit."
The inflation of John Law in France, the Assignats-Inflation, and many others do prove that increased credit is by no means an essential element of inflation.
The American Individualists are men of good will - - certainly - - but they do not see things as they are.
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Kong Foo Tse was asked: What law would you enact as your first? His answer was: A law which prohibits the use of well introduced words in a new sense.
If Kong would live today, he would punish people, who changed the original meaning of the world inflation and took it simply in the sense of dearth (or dearness - J.Z.) and also those, who changed the original meaning of the world "socialism" and took it simply in the sense of State capitalism.
Originally, inflation meant an increase of the volume of fiat money beyond the amount that could at any time be used to pay taxes with. Socialism originally meant replacing private ownership of means of production with collective ownership, cooperatives included. (Tucker, "Instead of a Book". Now the English do no longer possess a word which expresses these notions and by that they are unable to talk about certain social and monetary reforms and - - unluckily - - the most important of all. (Well, at least for certain forms of socialism they do have: "voluntary socialism" as well as "cooperative socialism". - J.Z.)
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Very faithfully Yours - signed : U. v. Beckerath.
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U. v. Beckerath, … 24. III. 1950.
Dear Mr. Meulen,
The best result of our discussion was for me the confirmation that we do agree in all that is essential and even in very many details that may be considered as not essential.
Your statement, in your book's chapter: "An Invariable Unit of Value" (page 247):
"In ordinary economic language these two factors of value, desire and sacrifice, are expressed by demand and supply",
has been overlooked by economists for its simplicity and because it is so just that it seems self-evident after one has read it. But it is a very far-reaching statement and. if applied to the problems of our time, it may put these problems into problems into a new light.
Also your statements before the quoted sentence and the following - are in strong opposition to all definitions of value known to me. Most authors confound "demand" and "desire" or overlook that desire is that which brings a genuine demand into existence.
(In Prussia until 1816 and in other European States during the first decades of the 19th century, every family was obliged to buy a certain minimum of salt, if they desired it or not, and to pay the prescribed salt price.
Here the difference of demand and desire strikes the eyes (taste buds? - J.Z.) and seems to invite every economist to distinguish, in all prices considered, the "natural" element - - that is the desire - - from the others.
Your philosophy of price and value enabled you to criticise Professor Irving Fisher's "Compensated Dollars" so fundamentally, that this dollar should never have got adherents. The theory is now logically dispatched, and if the modern followers of Silvio Gesell, Major Douglas and others would not be sinners against logic, they would become aware of their spiritual death. But, as the existence of all churches teaches, an awakening from this kind of death is a rare and difficult thing and requires not only help from heaven but readiness to accept the help, too. You quoted the Professor Sidgewick's example, where he made clear, that by a "tabular standard" - - the father of the "compensated dollar" - - very probably and in many cases - - rich people would be favoured and the Poor had to pay more than they must pay if the tabular standard would not be introduced. From your philosophy follows immediately, that by no correction, either tabular standards or compensated dollars, may become just systems.
Modern adherents of the index number standards are the most fanatic supporters of modern "exclusive currency" - - to use W. B. Greene's suitable designation - - with its central banking and its severe punishment for using other means of payment than the authorised ones.
(J.Z.: Inventors or fans of special systems like to force everyone to use it. They are convinced that they are the best possible solutions and that, consequently, everyone, in his own best interest, ought to be forced to submit to them. They also manage, like religious believers, the fact of many different solutions being offered and that, therefore, the likelihood of their own being the best one, is objectively rather small, regardless of their own convictions or faith. The great risk of utilitarian actions, made with the best intentions, but quite ignoring the rights and liberties of other people, who do not agree but dissent. Only sufficient tolerance for tolerant actions can finally dissolve this problems of various idealists, true believers, revolutionaries, reformers and innovators fighting each other and the conservatives or status-quo-preservationists and reactionaries. To each his own - or: panarchies for all! Let them commit their wrongs and mistakes only among themselves. And let them benefit directly and immediately only form their own rightful and rational actions. - PIOT, J.Z., 24.2.03.)
(In Germany the supporters of index currency call themselves "Freiwirtschaftler", that is "freedom-economists", an expression created by Silvio Gsell and, perhaps, the most misleading one ever used by a political party.)
Desires can be multiplied and increased to every degree that one may imagine. If it is true, that desire is the basis of value, then the last good which may be produced by the most improved plant still possesses value, if it satisfies a desire. That is in strong opposition to modern economic theory. It teaches, that the world's capacity to consume is restricted. It considers the possibility of artificially reducing production by State interference as one of the greatest advantages of government planning. You will remember, that the American government reduced the area under wheat in 1949 by 17% for 1950, fully recognising, that the now produced wheat was far below the desire of the world. But - - the USA Government stated quite justly - - the 17 % would be without value, because neither the USA Government nor other governments found a means to transform desire into commercial demand.
That the free and private issuing of notes is the first condition for creating the transformation of desire into demand, is known to no government of the world, because no responsible statesman - - it seems - - read your book. There you pointed out how easy it would be, under a system of free note issue, to increase the demand for labour, or, what here would be the immediate consequence, the demand for labour products, to a higher degree than the offer of labour.
Future generations (if any - - atomic bombs) will may, that this is, obviously, the natural state of things, for everybody is inclined to consume as much labour as possible and to offer in exchange as little as he possible can. If desire is permitted to appear as demand (*), then that part of the social question, which Karl Marx believed to be the most important, is solved. That part is the returning of the surplus (Mehrwert) to labour. Under your system, wages and other recompenses of labour will rise, as long as the demand for labour continues, until the technically possible maximum is attained, and that maximum is the present amount of wages + surplus + avoided loss (by unemployment) + gain by improving the industrial and agricultural plant.
It may be that the latter element is by far the most important.
( (*) J.Z.: I would like to qualify this statement: The satisfaction of the own desires can only be achieved through the issue of sound notes, covered by the own goods, services and credits, as others are able and willing to accept the own notes at par, or close enough to par, that is, to the extent that the others desire the own goods or services or have to pay back debts to oneself. To that extent the mutual and unlimited desires will be balanced against each other and also limited by the monetary and mutual demand for the other's goods services and receipts for debt payments. At the same time, it is true, that in normal times, so much has been produced and is offered ready for sale in goods and services, that the ability of consumers to purchase these goods and services, is limited by their ability to offer themselves and immediately or very soon equivalent goods and services in exchange, in a process of unlimited division of labour - assisted by tools, machines and automation etc. - and free exchange. Moreover, by their limited ability to e.g. consume food items and to use more than, say, a dozen pots and pans, watches, thermometers, toothbrushes, cars or planes. The immense stocks of goods and services offered in every shopping centre, to the extent that they can be soundly and freely monetised, would constitute an enormous and so far unrealised monetary demand for labour, much larger than all the available labour could immediately offer in return and thus realisable only in fractions at a time, as far as turn-over credits are involved. [Beyond those amounts, their utilisation for investments in capital goods, by those willing to do so, can also be increased.] Unlimited desires of people, at least in some respects - how many have their own yacht and plane so far? - will keep people working and over-working themselves, to the limits of their abilities, while they will always be - - objectively - - free to limit their earning- efforts and their spending, reducing, rather than increasing their working hours. - J.Z., 24.2.03.)
By your system those classes, considered by Marx as exploiters, will become, in a short time, producers and, instead of consuming surplus, produce wealth for the whole community, and that without State planning and
concentration camps, but simply by setting free the economic forces that are already developed in society no less than the force to assimilate matter by digestion is developed in individuals and which works there all the better the less it is controlled.
(I think that part of social biology is very well pointed out in Bastiat's often misunderstood "Harmonies économiques".
(J.Z.: Marx considered not only the owners and exploiters of legally established monopolies as exploiters but all other owners as well, who do already now earn their living by management efforts or by making pre-done labour in form of capital available. Monetary and financial freedom and other economic liberties would merely do away with legally imposed monopolies - or leave only those which are freely and contractually agreed upon among volunteers. - J.Z., 24.2.03.)
The problem then to be solved consists in distributing the social product among the different groups of workers (the word taken in widest sense) as justly as possible. I think that the now hated labour market will solve this problem as it will solve the problem of abolishing exploitation and unemployment. Average people do not see that only a free labour market can solve such tasks and that the present labour market is not free. Merely the offer is free, the demand is restricted by the limited amount of the "exclusive currency".
(J.Z.: The use of the term "distribution" is misleading. At least the term "re-distribution" already indicates that some looting and loot sharing is intended. But "distribution" also applies that existing goods and services and properties are not already distributed. Under free private and cooperative property rights everything is owned and under freedom of exchange the owners are at liberty to exchange, and thereby distribute their products, services and properties as they please. No other separate "distribution" system is required than that of a free market, a market not only free for labour but also for exchange media, their value standards, negotiable capital instruments and, naturally, for all kinds of products, services, raw materials etc., for all capital goods, except those spurious and monopoly values that are only established by legislative interventions and impositions. - J.Z., 24.2.03.)
The great error of average people (to which belong politicians, ministers, authors writing in newspapers and "intellectuals") is to ascribe the bad effects of the present labour-market not to its restrictions, which they do not see, but to its very existence.
The superiority of your system consists in is philosophical foundation, which connects the essence of value with a technique to bring it into existence and to use it.
Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 25. III. 50.
Dear Mr. Meulen,
I reflected much on your question:
"What would happen, if the demand for metallic gold should become greater than the offer? Must not paper currency - - supposed to be at "libre échange"- - drop in value, the value expressed in gold?
My answer is: Your Bank-Pound Currency will, in this case, very probably drop, supposed that all commodities, goods and wages are priced in Bank Pound Units.
Here we agree completely, agree, too, in the opinion, that it would be a natural and economically not prejudicial process.
Another question arises:
What would happen? if
1.) all prices are expressed in weights of gold at, they were before 1914, one sovereign being the same as 7,988
grams of standard gold, 11/12 fine,
2.) all face values of the notes are expressed in weights of gold, too.,
3.) all debtors of the issuing banks are obliged to accept the notes at par in their business,
4.) the quantity of issued notes does not surpass the amount which, in the case of a panic may be exchanged, at
once, for goods and services ready for sale at the debtors,
5.) an absolutely free and uncontrolled bullion market is established,
6.) it would be permitted, for every possessor of bullion, to get it coined - - by the official mint or, as in China at
the time of the emperors, by private manufacturers. This freedom for owners of bullion was legally granted
before 1914. Every such owner, before 1914, had also the freedom to get medals manufactured whose
inscription was: 1 gram gold, 2 grams etc., although - - in Europe - - nobody used such a right.
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I think that several different cases must be distinguished:
a.) the demand for gold arises suddenly, for great quantities, but only for a short time,
b.) for a long time, so that, generally, the opinion prevails: This increased demand will be for ever,
c.) the demand arises among all people, say as a consequence of a new religion which requires for everybody holy gold vessels, gold statues of holy people, and such things,
d.) the demand arises among such people whose incomes are normally paid out in notes,
e.) the demand arises among people, who do not possess notes but goods, exchangeable for gold.
My opinion is, that a sudden demand for great quantities will simply remain unsatisfied. People will help themselves by debasing the fineness of gold and sell e.g. rings which contain 6/12 fine gold instead of 11/12. In inflation times that is the usual means to satisfy the demand for gold. (One of them, anyhow! - J.Z., 24.2.03.)
But I do admit, that there may occur extraordinary situations, where the increased demand is exercised by people quite willing to buy gold by a note of 2 grams face value, for which they obtain only 1 gram fine gold. That would mean, for a certain time, a depreciation of paper currency expressed in terms of gold weight. The time may vary from 1 hour (it will very seldom be more) to longer periods. I think that must be situations which, until now did not occur in history and are in themselves extremely improbable. But improbability is not the same as impossibility.
Please consider the following circumstance:
It the first possessor of notes - - say wage earners - - gave to gold owners two notes of 1 gram face value to obtain 1 gram of fine gold, so that in this transaction the note gets a discount of 50 %, the man who sold the gold is now interested to buy with the notes at the usual terms. The goes with the fresh get notes to a shop. He will insist that the shopkeeper will accept the notes at for their face value, that is at par. He knows that the loan contract between the banker and the shopkeeper provides for the shopkeeper's obligation to accept the notes at par, as long as he is a debtor of the banker. ("Free Banking", page 81, line 6 from the bottom.) So the time of depreciation of notes must be short. No businessman has cash in his pocket for long time. He is not inclined to loose interest. Consequently, he buys something or he deposits the notes with a bank. That this deposits will contribute to bringing the notes to par I will point out in one of my next letters.
But let me shortly remark that it is an old tradition in Germany (firstly used in Denmark, as far as I could ascertain) to prevent a discount of notes by offering, to every note-bearer, gilt-edged securities, bearing high interest, and which can be bought and paid by the notes at par, may the quotation be as low as imagined. At the time of the Civil War the USA Government used the same procedure. With greenbacks - - depreciated or not - - one could buy certificates of the same face value, bearing 6 % interest, payable in gold or in paper corresponding to the price of gold at the time of maturity of the interest coupons. The same was offered for the certificates themselves. Even for the German "Rentenbank-Scheine" of 1923 this procedure was still used. The number of certificates sold for Rentenbank-Scheine, which their owners believed to be depreciated or for which they feared depreciation, was very small, if I remember well, for only 15, 000 Rentenmark.
The bank, with which the notes were deposited, will hardly get rid of the notes, if they are not at par. Greene reports cases in the USA, where notes circulated at a discount without much difficulty. But at that time there were, in the little towns and villages, where the notes circulated, certainly not shops like Woolworth, where only notes at par are accepted. Artisans in villages may accept notes at a discount without much trouble.
I beg to write more about this matter in one of my next letters.
I forgot to remark, that if in a country creditors are entitled to demand gold coins, or the debtors promised to pay gold coins, and the borrowed money must be repaid and exactly on time, then a crisis arises, an extremely vehement demand for gold will be felt at every point of the country's economy, much more violent than the most extreme industrial demand may be. That demand is a quite artificial one. It may be satisfied, without any trouble, by a legal prescription, that the creditor must be content with paper, valued at a free bullion market.
In the whole of Asia, where no Western laws are introduced, creditors are not entitled to receive metal, but only "local currency", as was the term in Chinese documents. (Zander, perhaps, still possesses them. Please greet him cordially, if you see him.
In England such crises were several times ended by suspending the Bank of England's obligation to redeem its notes.
We agree completely, that credit should not depend on a stock of gold, and that an exportation of gold to its technical maximum should not prevent the granting of fresh credits, so as if no gold would have been exported. We agree also, that such a monetary system is possible and could easily be established.
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Aldred was not elected - - I think. A pity that he lost his L 150 1. He should have used the money to pay his debts.
"Mensch bezahle deine Schulden, ("Man, you have to pay your debts,
"Lang ist ja die Lebensbahn, For long is the course of life,
"Und du must noch manchmal pumpen, And sometimes you will have to borrow again,
"Wie du es so oft getan." As you have often done before."
- Heine, "Buch der Lieder" - Heine, "Book of Songs", tr. by J.Z.
The advantage for him, his friends and England is: He gets now the time to study the right of issue, to become aware, that it is a fundamental right, much more so than the right to strike and to riot, and, if a man like Aldred is convinced, then the true revolution made a step forward. (An anarchist, who never wrote about this right!) (Just like most others! - J.Z., 24.2.03.)
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I sent you the "Weltspiegel" of 8. I. 1950. There I underlined the news that the workers of the Maxhütte at Unterwellenborn (Thuringia) achieved a very considerable progress in revolutionary thought by calling the present Eastern system: "Plakat-Sozialismus". (Poster-Socialism - J.Z.) The expression is excellent - - I think and deserves international spread.
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You spent much money and three days of your rationed time to have intercourse with me! If I say merely: I thank you, it would not be enough, but I cannot say more. What consoles me is: We did not lose our time. Still three or four years of health or at least of activity and we will produce something worth to be known.
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Very faithfully Yours - signed: U. v. Beckerath.
The "Individualist's" February issue arose much interest among my friends. If you would send me still another copy or two, I would be very much obliged to you.
Bth.
(Alas, he didn't even have a photocopier, far less microfiche reading machine, a computer and scanner! - J.Z., 24.2.03.)
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U. v. Beckerath, … 26. III. 50.
Dear Mr. Meulen,
let me add to my remarks about monetary demand for gold in my letter of yesterday, that this demand was rarely really satisfied, at least not in the last decades of the old style gold standard.
For an interest of 7 % or more (in the years 1857 or 1873 for an interest of 1 % daily) creditors were ready to defer their claim to gold. Thus was satisfied the creditor's real desire, and that was not gold but profit.
If foreign creditors' claim to gold must be satisfied, it was mainly because, before the days of cable telegraph, it was impossible to deliberate with them. The demand for gold arrived - - say - - at the firsts of August and the day for paying gold was the first of September. It was not sure, that an English banker would get an answer, before the first of September, for an offer to pay a high interest to the American creditor for deferring his claim.
After the cable was in use, the shipping of metallic gold merely for monetary purposes became relatively rare, although it occurred from time to time by imperfect arrangements of bankers. These things were pointed out in a good book of the late Professor Liefmann at Freiburg, "Geld und Gold", printed 1918. (burnt.)
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If a commodity is made the basis of a monetary standard, then it wins new economic properties not observed before it was made a standard. The commodity may be gold or silver or corn (as in old Egypt) or cowry. After the good in made a standard, that is: after prices are expressed in terms of the good (weight units of the good) it profits from the fact the fact that all sellers tend to sell today for the same price as yesterday. This tendency is very strong.
The tendency to sell cheaper than yesterday is by far not so strong, but it is not zero. It arises merely from competition. (Or, expressed more exactly - - as Marshall taught: for the purpose of making selling easier, and this applies to monopolists as well.)
A little stronger is the tendency to sell at higher prices than yesterday. But the strength of that tendency is generally overestimated by average people. I apply to your commercial experience.
The same is, correspondingly, true for buyers. Their main tendency is to buy for the same price as yesterday. Their pressure for a lower price is not zero, but not strong and hardly felt at shops.
Their resistance against a higher price is much stronger and is felt at the shops. Shops are very unlikely to raise prices, as wholesalers know well. (Unless they are forced to do so by the continuing depreciation of the forced and exclusive paper currency. - J.Z., 24.2.03.)
The tendency towards a stable price level is the stronger the more persons are involved. It is a well known statistical fact, that shop prices are pretty stable for years, even when wholesale prices for the same articles vary much. The curve of index-numbers of retail prices offers a shape quite different of the curve of wholesale prices expressed in index-numbers.
Gold as a commodity varies much in price as a wholesale commodity (although less than every other good - - except [Professor Irving Fisher found that out] carpets [!!] ). It varies much less in price as a commodity sold in shops - - as rings, watch cases and such things. It can hardly vary in price if every owner of gold bars is permitted to coin the bars and so transform his gold immediately into purchasing power.
If gold is not the standard of value, that means: if prices are not expressed in weights of gold, the gold traffic concerns only a few persons, and therefore the resistance to price variations is relatively small, although it may be great, compared with the resistance other commodity prices find. But if gold is made a standard, so that prices are expressed in weight units of gold, every adult is concerned in price variations of gold to the extent of his income.
If in England prices would be expressed in terms of gold, England's 40 million adults (payers) would be interested every day for an amount of several shillings that the value of gold (the general price level) remains as stable as possible. Now, while prices are expressed in paper pounds of the bank of England, there are only (about) 5,000 persons immediately concerned about the price of gold every day. About 2,000 persons marry every day and buy rings, and about 3,000 persons (I estimate) buy golden plates, jewellery, golden watches, etc. The average amount daily sold may be, per sale, 5 or 6 pounds sterling.
The difference in economic resistance to variations in gold value may be seen from that estimation. Better statisticians than I and in a situation to get better information, may propose other numbers as a basis for estimates. But the principle which I want to explain is, perhaps, already clear.
By becoming a standard of value, gold plays the role of a retail sale commodity in whose price every adult is daily concerned and all what I said about the prices of commodities daily sold in shops, to a great number of persons, applies to gold if it is a standard of value. (The standard of value or the most widely used standard of value. - J.Z., 25.2.03.) Gold does not longer play this role when some other good, such as the paper pound of the Bank of England, is made the standard of value.
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The tendency of prices to remain as stable as possible, is to be observed even in times of big inflations, like that in Germany from 1914 to 1923. Although prices did at last varied daily and to a great extent, on most days they varied less than would have corresponded to the increase of paper money. Only from time to time there came a sudden rise by which the former resistance of the public was balanced. At the 23rd of October 1923 prices of victuals rose by 300 % in the course of the day. Severe riots broke out in the North of Berlin.
(J.Z.: He should also have noted that towards the end of that Inflation and in the expectation of further inflationary price rises, prices did often rise faster they the output of the note printing presses. This led to deflationary phenomena in the middle of this galloping inflation. But for long periods they limped behind the output of the forced currency. Towards the end it was no longer an exclusive one, since many emergency currencies were issued, with or without approval of the authorities, some of them on a gold basis. - J.Z., 25.2.03.)
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To every good chosen an a standard, gold, silver, the paper money of a bank, an element is attached which contributes, to the stability of its value, an element which was not attached to it before it was so chosen.
If gold would be chosen, then that element would by far outweigh all economic properties due to the fact, that the production per capita and year is at present only a few grams. (At this moment I have no statistics.)
The same would apply to silver. I see no reason why silver should be prohibited for people like Indians or Chinese, as a standard of value, if they or a part of their population (a commercial body in the sense of Jevons) desire to use it.
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The technical maximum of economic freedom will reveal - - by competition - - the best standard of value, that is the good, in terms of which other goods may be advantageously priced.
The possibility, that the paper pound of a well-managed bank is proven to be that good is by no means excluded and it should always be open.
The Egyptians curse for all people, who do not agree: "May their soul be as restless as the hat of a German."
Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 27. III. 50.
Dear Mr. Meulen,
If gold or silver or cowry are made a standard of value, that is: prices are expressed in weight units (or, in the case of cowries, simply in numbers) of these goods, the purely physical element of these goods is quite overwhelmed by the thus newly acquired economic and even social properties. The physical element may contribute in the case of gold (and, perhaps, of silver, too) to variations a proportion of 1 % or so - - I estimate. My assertion is based on the fact, that even at times of such an increase of the gold production, that the increase right after the discovery of America was very small in comparison to it, this increase was, nevertheless, several times correlated with a sharp decrease of prices.
(In the 80's and the 90's of the 19th century. The year 1883 - - others say the year 1895 - - was the year of the 19th century when gold's purchasing power was at its maximum. At that time the gold production was far greater than e.g. at the time of the discovery of the Californian gold fields.)
My assertion is also based on the fact, that at those times, when a fresh supply of precious metals was correlated with an increase of the general price level, there were quite obviously other causes working than the increased supply with gold.
(Si omnes patres sic, ego non sic - - Abaelard.)
After the discovery of America, in the whole of Europe the streets were much improved, ships were built in great numbers and millions of people, who were before paid in kind (also free artisans and peasants), i.e., were no part of commerce, became buyers of foreign goods. After transport avenues were created, it became possible for feudal lords to sell corn at distant places, while before it was without commercial value and consumed by his serfs and his family. Thus the price of corn had to rise and it would have risen even if no fresh gold would have been sent from
America.
Roscher says, that the art of salting herrings, invented by the Dutch Beuckel (in German still: einpökeln) caused an enormous economic revolution and was the real cause that the economic centre of gravitation wandered from Italy to Holland. By that art the people of Holland and other countries at the northern seas were suddenly able to buy goods, such as corn, which before had hardly any price.
(J.Z.: Elsewhere B. pointed out that it also caused the defeat of the Spanish Armada, whose high-placed guns could not be lowered enough to hit the majority of the English vessels, converted fishing vessels, which were low in the water, but whose guns could easily reach the vast bulks of the Spanish ships. Most history books do not stress such interesting details enough but rather engage in general speculations. - J.Z., 24.5.03.
Generally overlooked, by average economists, is the role of the fairs as clearing institutions. Roscher reports that at the fair of Lyons, on the clearing days, an amount of about 25 million ducats was made good by clearing. (The technique seems to have been better than the technique at the clearing house in London, which Jevons describes.)
From other centres of exchange no data are related. (As far as I know.) I am convinced, that during the Middle Ages the proportion of trade performed without cash was hardly inferior to the proportions of our time. If that would be true, then an increase or a decrease of the gold or silver supply would not have been of much influence upon prices.
The increase of the price level from about 1848 to 1857 is generally ascribed to the supply of gold from California. But the harvest of these years were mostly bad and the year 1855, with its extreme cold (4/5th of all birds in England died - - says Darwin) was decidedly a year of famine. In Germany - - e.g., the potato-harvest was as bad as the corn harvest. Mortality increased and natality decreased.
In Prussia there were more born than dead, per 1000 in the population:
(Statistical Yearbook for the Prussian State, 1913.)
1845 13.5
46 9.6
47 4.4
48 2.2
49 11.8
50 13.5
51 13.9
52 6.9
53 8.1
54 8.7
55 3.9
56 8.6
57 10.4
58 11.9
59 14.2
I do not believe that the supply with Californian gold contributed more than about 1 % to the increase of prices in the 1850's.
Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 28. III. 50. Your letter of 8 II. 50.
Dear Mr. Meulen,
Paying for German Imports. The possibility to pay for imports depends inter alia - - but essentially - - upon the prescriptions existing for the method of paying. Belgium is free concerning the methods. For Germany exists a code, whose weight I estimate to be at least one pound avoir du poids. Only a few people know all prescriptions. It is their job to know and to apply them. The more complicated the prescriptions are, the higher is their pay.
In German papers I read that smuggled goods (a very great part of the imports as well as the exports) are paid without delay and in a manner so that the foreign merchants are content. These methods should be studied.
The best manner to pay for German imports would be by Milhaud's purchasing certificates. (I refer to my former letters about these certificates.) You say - - and you are right - - that such purchasing certificates will be at a discount. But to what percentage can the discount grow?
Suppose a certain German commodity - - say a medicine, for which there is a demand - - can be paid for in Germany
a.) by 1,000 Dollars.
b.) by 4,200 Deutsche Mark West,
c.) by a Milhaud Certificate, face value 1,000 Dollars, on which is stated:
This Certificate is accepted for the value of 1,000 USA Dollars by XYZ, manufacturers of medicine,
if used as a means of payment for buying medicine within the next 5 years, etc.
(I refer to Milhaud's publications and my own in the Annals of Collective Economy.)
Value of Dollars as at the Exchange of London, New York, as the case may be.
Now suppose that a merchant at Montevideo is interested in buying the medicine. He can buy USA Dollars and buy the medicine with these Dollars. He can buy German Marks and buy the medicine with these Marks. He can also buy - - let me suppose - - purchasing certificates of a nominal value of 1,000 Dollars at the Exchange of London for 980 Dollars. Do you not think that he will do the latter? I think, that he will do it. If I am right, then the discount will not greater than 2 %.
The question arises, whether the German medicine manufacturer would not calculate higher prices if he knows, that his purchasing certificates will always be at a discount of 2 %. I do not think that he will have to. By paying part of his own expenses in such certificates will save him money and, probably, more than 2 %. Also other expenses of selling (advertising, etc.) are usually much greater than these 2 % and he does agree to bear these expenses but he should be unable to bear the 2 %? (Yesterday I read in an Australian paper that the Australian chicken grower gets only 20 cents for a kg. of chicken grown by him, while in retail they are sold for at least about $ 2 - 4 per kg. As high are the sales costs compared with the production costs, under present conditions, in at least some instances. - J.Z., 24.2.03.)
But concerning principle you are right. The possibility to use Milhaud Certificates does depend upon their discount. A discount of - - say - - 50% would make their use impossible if it prevailed for a long time (say, 6 months) and often.
(J.Z.: Here, too, the opposite of the popular form of Gresham's Law would prevail: The good monies would drive out the bad ones. As good ones would in this case perceived the ones with some small and regular discount but not those with a large and lasting or irregular discount. - J.Z., 25.2.03.)
The question arises, why did not the banks' debtors buy thed depreciated notes or borrow them, with the intention to repay their debts with them?
Say, the discount has been 10 %. Then a debtor - - say, a manufacturer - - could borrow the depreciated notes for an amount of (say) 100 L face value and 90 L market value. It the interest at the time of this transaction was 5 % p .a., then the manufacturer had to pay to his creditor, after a year, 95 L in cash. He pays, with the borrowed notes, at once his own bank, which the bank must accept for the face value of 100 L. The pro-fit of the manufacturer is obvious.
The desire of the manufacturer to repay his debt to the bank is diminished if the debt is a long-term debt.
I assume that the year 1846 there was less an over-issue than too much liberality of banks to grant long term loans (in their own notes - J.Z.).
If the archives of the banks were still preserved, one could get better information on the true nature of the crisis than is now possible.
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Silvio Gsell. The main error of Gsell is: He did not know or consider that the right of issuing notes can outweigh all effects of the most exaggerated hoarding, provided, that the country's creditors (landlords, workers, etc.) are not entitled to claim hoarded "exclusive currency".
The true nature of the Wörgl experiment I tried to explain in my book: "Does the Provision of Employment Necessitate Money Expenditure?"
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Meeting inflation by varying the contributions to unemployment insurance. (Proposition of the Conservative Party.) Scientists should protest against the misuse of the word "inflation". Inflation means increase of forced currency beyond that amount which can be used with the same advantage as before the increase, say, by paying taxes. Dearness is not the same as inflation, even if it may be the consequence of inflation. In the case here in question the means would be of doubtful effect. One must consider that, probably, the poverty tax must be increased to the same extent to which unemployment insurance contributions are diminished.
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F. A. Butler should be quite silent as long an he did not read your book.
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The continued correspondence with Runge revealed a great error of R. He believes (or believed - - I hope) that for mere clearing purposes, nevertheless, some amount of cash (exclusive currency) is necessary. Many people believe that.
(J.Z.: They do not distinguish between the cleared amounts, for which, obviously, no cash is required, and the amounts which cannot be cleared immediately and easily, i.e., the balance, which must either be paid in cash or for which further clearing arrangements, in the near future, must be arranged. The not yet cleared balance could be carried forward to the next clearing date or opportunity. - Particular truths require the ability to make those distinctions which particular cases do require. - J.Z., 25.2.03.)
At the Nazi-Time this was the official creed of the party, that is, of those few, who were able to distinguish clearing from torturing Jews. You know the "Giro-Bank" of Hamburg. It existed for about, 200 years and was founded on this error. ("Der Mensch ist dumm", says Richet.) ("Man is Stupid.")
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In an article of the celebrated Pearl S. Buck, "Dangerous Errors about China", I read that the food difficulty of China, in normal times is the selling of the victuals, not producing them. China has plenty of victuals, says Pearl S. Buck, but in cases of dearth or civil war victuals become scarce as in other countries, too.
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Very faithfully yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 29. III. 1950. Your letter of 16. II. 50.
Dear Mr. Meulen,
Scots Indep. As long as Gibson does not formally and as a thing of first importance acknowledges the Scots Right of Banking, his movement is not worth to be kept together. If Scotland would be governed by Englishmen acknowledging the Scots' Right of Banking (that is: of issuing notes without cours forcé) the step of progress would be like that from Darwin's original apes to Walter Scott's heroes. If Scotland would be governed by Scots, denying this right, then there would, very probably, be no progress at all.
There seems to be something tragic about free banking propaganda, you say.
"Alles Entscheidende geschieht trotzdem", says Nietzsche, who said many good and true things, although he was a bellicist. (Everything decisive happens - in spite of resistance. - J.Z.)
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Truth does not yet see the last consequences of Free Banking. Therefore it surprises sometimes with reactionary opinions. But you may take the editor's remark as a confirmation of my assertion in one of my letters:
Generally people think that Free Banking is a mere technique of banking. They would tremble if they knew that it is a claimed right. ("Du passé faisons table rase, foule esclaves debout, debout", that means Free Banking!!!) Tucker thought that the most revolutionary action possible at this time is the issuing of notes in spite of the laws prohibiting such an issue. For his time Tucker was in the right.
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Zwangskurs.
Your opinion is: Banks are able to grant loans - - payable in notes - - for a greater amount than the value of goods (services and credits - J.Z., 25.2.03.) at their debtors.
I say: They cannot, because at short intervals the public will try to get rid of the notes and will revolt, if people cannot buy for the notes goods, without delay and trouble.
Consequently, you take the country's resources into consideration.
I say: That may be a thing for granting credit in general, which is essentially different from note credit.
You think about the possibility to grant loans payable in notes, to such an extent, that the price level is rained.
I assert that such loans are practically impossible. If prices begin to rise, the public gets suspicious, goes to the shops and buys goods for its notes. If the public finds difficulties in buying them, it says: Never again will I accept a note of this bank! I have experienced that these bank notes are not to be realised. That has nothing to do with trust or distrust, the words taken in the sense of 1843.
Notes of the old style were, in England, 5 L-notes and in Scotland Pound Notes. Generally, most people never saw them, and their trust or distrust was of no importance.
The notes of future Free Banks will be in the same denominations as money is now. That changes all things fundamentally.
It may happen, that the note issuing banks of the future will get no deposits at all and undertake no deposit business, but merely work in cooperation with another bank doing deposit business. It that would be the case, then the deposit business will not be - - as you think - - a continuous test.
In my view it is the issuing bank's task to provide the means to pay wages (salaries & running expenses - J.Z., 25.2.03.) and so avoid unemployment (and many bankruptcies - J.Z., 25.2.03) in the cases, which occurred so often in earlier days: raw materials are at hand, orders as well, labour too, the machines are in order, but there is no money to pay wages with. Therefore, the workers must be dismissed, and once one factory has begun doing this, then a kind of economic chain reaction begins, which may affect more than 50 % of the country's workers.
To get long-term credit is no problem at times when there is no unemployment. The experience of centuries proves that.
Therefore, a note-issuing bank should not do long-term loan business, word understood in the sense of the old banking language. (I.e., paying out the loans in notes of the credit-granting bank.)
(J.Z.: The exchange of sound bills of exchange ["real bills"] for notes, with the bills representing goods already produced and sold to wholesalers and on their way to the retailers, is another matter, namely that of mere "turnover-credit", for a short period, essentially a clearing transaction within a "payment community", that is facilitated by a sound, optional and refusable [for all but the issuer and his debtor] paper currency issued for that purpose. Large bills, inconvenient for wage payments and consumer spending etc., are thereby replaced, through the "banking principle", in its most sensible meaning, by conveniently denominated bills of the same total amount. These banknotes are then, by their very nature, "clearing certificates" and should, perhaps, also be called that. - J.Z., 25.2.03. - They need no other cover or redemption than their power to mutually cancel the debts arising in any current division of labour and free exchange process within any particular payment community. Precisely because they are so immediately useful as "floating account certificates" or exchange media, in an ongoing mutual settlement process, they should be issued in very convenient denominations. Moreover, precisely of this clearing or exchange media process all the debtors of a payment community - those indebted to the issuing centre, must accept them at par, i.e., provide the required "readiness-to-accept-foundation" for them, while others must remain free to discount or refuse them. - Thus they can become a local ticket money or local currency and will, automatically, be kept within the limits for such a currency, provided only they and the goods and services that they turn over daily, are expressed in a sound enough and widely enough accepted value standard. - J.Z., 2.6.03.)
A problem has been, for decades and still is (to a lesser degree): Creating opportunities to invest on long-terms. I did write about that particular problem in former letters.
You say: "The future is always uncertain, and a prudent bank will keep some margin of reserve against possible eventualities."
(When even theorists, historians and writers of Free Banking books and articles, like Henry Meulen, still had such false ideas, and upheld them in the face of informed and intelligent criticism, then one should not be surprised that the vast majority of practical bankers had them and practised them. - J.Z., 25.2.03.)
My opinion is: Note issuing banks of the new type will - - at least in the beginning of their activity - - have no reserves, except the interest their debtors must pay. The reserve of a future bank will be the enlarged obligation of its debtors to accept notes at their face value in the debtors' businesses.
Example: The bank's outstanding notes amount to 100,000 L. The bank's "reserves" amount to 10,000 L. That will mean, that the bank found the possibility to get 110,000 L of its issue accepted, although presently there are only 100,000 L. still outstanding.
The obligation to accepting notes is in the best way founded upon additional loans from means belonging to the bank as a property.
(J.Z.: This last sentence is in B.'s "English", literally. It is not clear enough for me. Perhaps you understand him better in this instance than I do? He may have meant: Beyond the issuing bank's debtors' obligation to accept the bank's notes at par, a further issue of notes is best founded upon the bank's own property, from which it may grant loans, in its own notes, which, as its own IOUs, or clearing certificates or bonds, it would have to accept at par in repayments to itself. - J.Z., 25.2.03.)
I think that the possibility that the public will want to get rid of notes must always be taken into consideration. That desire of the public may arise without the occurrence of a real panic or a distrust in the banker. The Banking policy of old times did not take into consideration such a desire but thought it possible, to keep the notes always in circulation.
(J.Z.: Just as if they were coins. That is not surprising, since many to most thought them to be just paper substitutes for coins. - J.Z., 25.2.03.)
The great denominations of notes in old times (L 1 in Scotland, L 5 in England) demanded or permitted a banking policy different from the policy necessary in future.
Providing means for paying wages was obviously not the main task of banks of issue in the days before 1844 and not of the Bank of England, either, afterwards. (For a long period. - J.Z., 25.2.03.) By now wage payments will be the by far most important element in banking policy. (For note-issuing banks. - J.Z., 25.2.03.) I believe that this particular is of the greatest practical importance.
Runge. I, too, doubt R.'s starting point: "prices in Germany are too high" is well founded. I think that German prices are, rather, too low. That seems to be the general opinion in the whole world and seems to be the main reason why competition from Germany is feared. But on the other hand Runge is right: Although the "consensus sapienti" in always of some weight, here can be a doubt, whether the consensus is that of "sapienti".
Party programmes. What you say about Bevin is very interesting. "Tschau, tschau" as the Austrians say.
That the "Individualist" has no effect on Mosley was to be expected. The reasons are more honourable for the "Individualist" than for Mosley.
Ezra Pound. One cannot be at the same time a good poet and a good economist, says Proudhon. (The thought about Lamartine.) He could have mentioned Solon, who transmitted his economic views to posterity in verses, but is the first, who reported a devaluation. At his time paper was not yet in general use, and insofar he is excused for not having introduced Free Banking in Athens. Potsherds are not a good material for bank notes and were - - it seems - - the general material used in writing.
Conscription. To demand its abolition under the present circumstances is mere demagoguery. People will defend themselves against Bolshevism, and as long as no other means is found than conscription, this means must be regarded as morally justified.
(J.Z.: I cannot follow his logic here. If people will defend themselves, then there will be enough volunteers! But our primary job should be to become aware of and to defend allow individual rights and liberties against the own government. Then we will really have something worth defending and then there will certainly be enough volunteers. Moreover, then, we would hardly have to fear an attack, for the soldiers and officers then commanded to attack us would rather rise against their own despotic government or desert to a rightful government in exile, or several of them, all of them our allies against their despotic regime. Our example might then also lead to putsches or revolutions overthrowing despotic regimes and introducing free societies instead, just like on our side, all for voluntary communities only and all applying only their own personal laws to themselves. However, there are some rare instances, under current conditions, when fools have to be compelled to do the right thing. I believe even enforced military service against the Nazis was right - but it came all too late, was conducted all to wrongfully and irrationally and should have lead, on the side of the Allies, to really free societies, instead of more and more statist and nationalistic ones. Some of the exceptions were mentioned earlier in these letters. Generally, territorial governments are as inapt in defending people as they are in all other matters. However, people mis-educated by governments and kept in a perpetual kindergarten, even as adults, are not mentally, physically, financially and morally prepared for rightful defence actions. They rather engage in wishful and less than half-informed antics, and protests, like most of the recent millions of peace protestors. Indeed, they would rather not have another war. But they do not know how to prevent it, what really causes it, how to disable a tyrannical regime otherwise and do not care about the details, either. They rather put their feet into gear than their minds - in such matters and, by ignoring certain dangers, drift into desperate situations. They have no clear idea what makes for peace and security and what they could really do to achieve them and maintain them. Such interests are rare even among anarchists and libertarians, as I know from the response among them, to my two libertarian peace books, or, rather, from the lack of response among them to such writings. In this they are, mostly, just members of the common herd, exposing themselves to raids by the own wolves or foreign ones. Some dogs and cats have better senses regarding their own safety. - J.Z., 25.2.03.)
Conscription is not justified in cases like the Commune of Paris in the year 1871, where it was introduced. The citizens of Paris did not appreciate the advantages of the Commune highly enough to want to endanger their own lives and those of their families. The great number of "refractaires" under these circumstances is not surprising.
Nevertheless, a means can and should be found to respect the attitude of real conscientious objectors. In most cases, they are ready to do service in hospitals etc.
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The beneficial influence of freeing banknotes from cours forcé, and even from being a legal tender, is largely discussed in elder German monetary literature. It seems, in English literature it is rarely discussed. In the Prussian State Library (4 millions of volumes, now destroyed for the greatest part), I found no English book pointing out the probably economic influence of freeing bank notes from cours forcé. I found no more than three or four books of American authors on the theme. They were led to it by the greenbacks. The best book I found on the subject is that of the then young Professor Adolf Wagner, "Die russische Papierwaehrung", Riga, 1868. (The Russian Paper Currency. - J.Z.)
The elder German economic science always took it as self-evident that cours forcé is the condition qua non of inflation. "Vulgaer-Oekonomisten" and average editors often did not distinguish notes with cours forcé and others.
At the bankers' congress of 1908 one member had the courage to confess, that probably no other member present then knew, that German banknotes were not endowed with cours forcé, although this was explicitly stated in par. 3 of the Bank Act of 1875. And it 1875 it was considered to be a very essential matter. Then the government said: "People, you may accept the notes without distrust. They cannot be inflated, because they are not endowed with cours forcé." As much can the mentality change within a few decades.
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Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 30. III. 50. Your letters of 24., 30. and 31. I. 50. Your letter of 24. III. 50.
Dear Mr. Meulen,
let me first confirm the receipt of the 25 Deutsche Mark West. This was much more than I had spent.
Concerning the medicines, Pankreon, Ceadon, please let me know whether you intend to continue their use and if; whether you will find them at London, and if not, whether their importation to England is permitted. Then I will be - - I hope - - able to sent to you from time to tome some boxes to London.
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Prof. Niklas, speaking of the agricultural production in Germany. As I understood the speech of Niklas, he did not mean, that Germany has a surplus in the sense in which the word was understood in the year 1913. Germany's production recovered surprisingly (reason: freeing the economy from planning, price controls and such things), but it seems, it does not yet suffice in all "sectors". But vegetables are now produced in such quantities, that gardeners demand "protection". It the economy would be free enough, gardeners would change their occupation and Germany would import vegetables from Holland, etc. The same may become true of potatoes and, perhaps, of grain. My own view is: German agricultural production could be very much cheapened and thus increased that imports would only be necessary in relatively small quantities, if the plant would be improved.
In the years from 1945 - 1947 practically no tool could be obtained, no nail, no hammer, no thread, no needles, etc. Now ploughs etc. are wanted. If the Americans would not or need not, by order of their government, demand dollars, then they could get a great market for agricultural machines and implements.
Germany is now fully able to pay for all her imports. What she needs is exportation of her own bureaucracy. All other kinds of exportation and importation will then technically possible and would be without hindrance by the bureaucrats.
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The thing with the poets, reported in "New Statesman", is a pretty mystical one. Some mystics think that thoughts are beings endowed with vita propria and may manifest their life in several individuals at the same time or nearly at the same time. You know the fact, that the most strange ideas are sent to patent offices often at the same time, and in these cases certainly no intercourse of the two individuals was possible. I beg to write more about it in one of my later letters.
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Private Press Conference of Mr. R. A. Butler. Concerns the avoidance of unemployment he spoke de omnibus rebus et quibusdam aliis, but not of the one essential: to provide payment for the unemployed after getting employment.
The Right to work must today be claimed in the form of a Right of banking. Who knows that???
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Neither Aldred nor Butler even know of the existence of the Right of Banking. One of the reasons is: Free Banking, until now, has always been represented as a technical matter. The Individualist's standpoint must be: Good or bad - - it is our aim and we claim the right to do also those things (among ourselves - J.Z., 25.2.03.) that seem bad to other people. That abbreviates discussion and brings it to a very different track.
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Has Armand ever claimed the Right of Free Banking??? I am inclined to write a letter to him. It seems he understands German.
Your friend's statement, that prices in Berlin are in the average not higher than in London, seems to me well founded. In one of my next letters I will communicate to you some Berlin prices and then you may compare.
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Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 31. III. 50.
Dear Mr. Meulen,
at the time of the crusades there arose the fable of a book with the title "The Three Impostors". The book never existed, although some centuries later authors wrote books with this title, in order to get attention and a market for their book. The fable said, that in the book was explained, that Moses, Christ and Mohammed were impostors, whose crimes were glorified by other impostors, so that the two Testaments and the Koran did not deserve any esteem or trust. The fable said, moreover, that the pope had strictly prohibited the mentioning of the book and that owners would be pitilessly executed and very cruelly, too. It was generally believed, that the Templars
possessed the book and were no longer Christians but adored a god called Baphomet. This fable helped king Philipp much in the extermination of the order. Although he proceeded without justice, the subjects said: "Au fond il a raison!"
The good of all this nonsense was: There was a wide-spread feeling, that Christianity was not well founded and only upheld by the Inquisition. When the great enlightenment began, it found its field well prepared.
A similar effect took place in Germany by the prohibition of Nazi literature. The books - - and especially "Mein Kampf" - - became very rare. (Russian officers paid in the year 1945, in some cases of which I heard, 600 marks.)
But the very rareness of "Mein Kampf" has the effect that many youths are convinced: This book contains all political wisdom; there the Fuehrer pointed out how to nourish a people, how to give him the best organisation, how to organise an irresistible warfare, etc. "If the bourgeois-generals would not have betrayed him, he would now rule Europe", that's what many believe. (Some young fools only. - J.Z., 25.2.03.)
If the books still existed, the matter would be simple. One would tell the young people: "Here is, what the rascal wrote, and here is, what Goebbels wrote and said, and here is Germany's older generation, which followed this "wisdom". Be more intelligent!" The youth would certainly have tried the latter, and the older generation would now stand in a very bad light, the light that it deserves, insofar as it followed Hitler.
Prohibiting books has seldom in history been a good way.
(J.Z.: There may be a case for reproducing all their output - but always only with sufficient critical comments, from facts, reason and morality, to every of their wrongful assertions. That might not require more than a few CD-ROMs. A bibliography with abstracts to all the anti-Nazi literature should also be included there. - J.Z., 25.2.03.)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
I think you read the article in "News Chronicle" of 13.3.50, "The case of Seretse Khama" by Vernon Barlett, translated in "Die Bruecke" of 16.3.50. Your impression will have been the same as mine: Here is only one help: The application of the principles of individualism. The natives have a just claim to unexploited labour, and if the life in Kraals is preferred by them, there is no reason to refuse them a life organised in this way. Even if, in consequence, the gold mines would have to be closed for lack of workers. Let them be closed! May people, who want gold, pay for it so highly, that the natives are induced to leave their Kraals and work in the mines. And if the Boer-Government would know a little more of colonial history, then it not only would favour the immigration of Indians, but that of Chinese, too, and of other races. As already Aristotle said: Mutinies of slaves, on a large scale, are only observed when the slaves are of the same nation. That is true, too, if the slaves are freed, have become wage workers, but are for some reason inclined to a mutiny or a civil war against other races. If there are several races in the same country, one outweighs the other.
(J.Z.: The old maxim: "Divide and Rule!", which already the ancient Romans applied. The opposite to this rule and practice is the complete division into voluntary communities, by free individual actions (based on individual sovereignty and individual secessionism and personal laws) with none of these communities retaining a territorial monopoly of any kind. Then these communities can no longer be dominated by anyone, nor would they have any strong reason or motive to fight each other or to try to oppress each other. Any such attempt would arouse so much antagonism against it, that it could be rapidly squashed with a relatively small effort. - PIOT, J.Z., 25.2.03.)
Portuguese have always favoured marriages with coloured people. Experience taught them, that natives, married with whites, always are friends of whites, if they whites do not suppress them. History reports no sedition of natives in Portuguese colonies, although they are as badly administered as one may believe.
Very truly Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 6. 4. 1950. Your letter of 3. 4. 50., received today.
Dear Mr. Meulen,
I am very glad to learn that you are now at home and, insofar, in safety. The trouble of such a voyage, certainly intensified by your lack of money, thanks to modern exchange dirigism, would have been a serious matter for a nature less energetic than yours.
I hope that in the meantime you received my letter of 30. 3. 50, where I confirmed receipt of your 25 DM West. For every case, I confirm that you departed from Berlin on Friday, the 24th of March (12h).
My advantage from your visit was certainly greater than yours. I felt very bad, when you arrived, and always used a cane, when I must walk on the street. At the very moment, when you came, all such troubles had disappeared, and you know yourself, that I was able to walk several hours without trouble and cane.
If you see Zander please greet him cordially and hand over to him the enclosed copy. This copy is the result of a discussion which I had at the family Vierkandt. Both, the professor, born at 4. 6.1867, and his lady, born 10. 4. 1873, are extraordinary people. At first I took the lady for a little more than 50 and felt myself superior in age. (Her hair is not yet gray.) If our younger people possessed her energy and her intelligence, reformers like you and I would not encounter much resistance.
Last Monday there was present a couple von Natzmer, very sympathetic and intelligent people. (One of the family was a Field Marshal under Friedrich Wilhelm I of Prussia, another was a general at the time of the Napoleonic wars. After the convention of Tauroggen (30. 12.1812) it was his task to convince Napoleon that this convention was without military and political importance, so that the emperor would not undertake reprisals. But Napoleon judged this Convention from the right standpoint.
We talked of modern scientific literature and that there was no capital in Germany or Berlin to publish good literature, whose sale would require 10 years or so, that means, the normal time. I stated, that it would be very easy to get capital, more than necessary, by eliminating the bureaucratic and legal impediments, partly created by the ignorant German governments, partly by the Allies. I was sentenced to frame the sketch of a pronunciamento fit for a society, whose aim should be to fight against these impediments. Especially the Frau von Natzmer (between 25 and 30, I estimate) said to me: If I get from your sketch the impression that your ideas are no nonsense, I will do what I can to realise them, and if it should require many years. At the moment my impression is: the ideas are good.
If Zander, with his Bel-Color would still be in Berlin, he immediately would be concerned. Insofar the copy could be of interest to him.
Obviously, there is a limit where freedom from taxes for reconstruction purposes is no longer useful, say, to extend the time, for which the relevant law is valid, to more than two generations. Perhaps you will give Zander the tip:
Apply to the Jerusalem University Department for mathematical economics to propose general principles, which may apply first of all to Israel, but which will, after their publication, certainly be known in the whole world and kindle a vivid discussion, on using freedom from taxes as a means for reconstruction.
Let me remark, that in Germany, after all great wars, that means was used, last time in the year 1920, for capital invested in houses. In Prussia, after the great wars of the last 3 centuries, it was usual that the king furnished timber from the royal forests to everybody willing to build new houses or to repair damaged ones. Besides this was granted freedom from taxes for at least 10 years and often longer.
Very faithfully Yours - signed: U. v. Beckerath.
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U. v. Beckerath, … 7. 4. 1950.
Dear Mr. Meulen,
after our discussion about the gold standard we agreed, that the word "gold standard" is now used in England in a sense quite different from that in which it was used in the year 1850 and in which it is still used in the USA.
If the modern sense would be the right sense, a country without note-issuing banks cannot be on a gold standard, on the other hand, if it would be the custom in this country to fix all prices, taxes, debts etc. in gold coins, that would not be sufficient to constitute a gold standard.
I have tried to collect all details which until now economists believed to belong to a real gold-standard, the word used in the sense of 1850.
1.) All prices, wages and recompenses are expressed in gold coins or in the same money unit in which the face value of gold coins is expressed. But it is not considered as an attack on the gold standard if certain wages are not fixed in gold, say, wages of agricultural workers. Also, it may be permitted to certain classes of taxpayers to pay the tax by labour, say road labour for peasants, which still is the use in some districts of America. Such a use would also not be considered as being against the gold standard.
2.) All owners of gold in any form, especially in the form of ingots, are entitled to let it be coined into legal tender gold coins. This right is not restricted and is not subject to a supervision, except in cases, say, where the owner has probably stolen the gold.
3.) There in no restriction on transfers of gold in any form, from one citizen to another or from foreigners to citizens or to perform any other transfer of gold from one person residing in the State to any other, or from any person to a person residing in the State. This freedom includes all forms of gold, coins, goods and others, explosives like fulminating gold, perhaps, excluded.
4.) Pretended or real alterations in the value of gold cannot be maintained in fulfilling contracts, except in the manner that is agreed upon or legally prescribed. (Index standard and similar things.)
5.) Gold coins are endowed with cours forcé.
6.) Every creditor is entitled to demand gold coins.
7.) Debts are considered as being contracted in gold coins if there is no special debt clauses that appoints anohter measure of value.
8.) Bankers are obliged to redeem their notes in gold coins, at the face value of the notes, either on demand or with a delay indicated on the notes. (Option clause notes)
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If there is a silver standard to be described in the above 8 points, then the word "gold" is simply to be replaced by "silver".
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The authors of the Four Bills thought that points 6 and 8 are not essential, so that the respective laws may be repealed without repealing the whole of the gold standard, the word used in the sense of 1850.
I learnt from a collection of Persian laws that in Persia a creditor is not entitled to get gold coins, but must be content with "local currency" to the value of gold. That value is determined by the market price (of the local currency, reckoned in gold - J.Z., 25.2.03.) at the day of fulfilling the obligation to pay. But it is permitted to agree upon gold coins as a means of payment. These laws were from the time of Shah Nassr ed din.
Zander stated that in China there existed the same laws at the time of the emperors.
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It seems, that the English language does not contain a word quite adequate to the German "Gold-Rechen-Waehrung". (Gold-for-account currency or gold-clearing currency may come close enough. - J.Z., 25.2.03.)
By "Gold-Rechen-Waehrung" the Germans understand a standard, where prices etc. are expressed in gold units, but paid in local currency as the market price of gold may be, expressed in local currency. In the years 1922 and 1923 this Gold-Rechen-Waehrung was wide-spread in Germany.
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In the whole literature before 1914 the case was hardly discussed that the people may have a right to refuse means of payment which it does not trust and this without being obliged to give explanations. Only coins of prescribed shape and weight were excluded. Everybody had to accept them.
In Prussia, and in most other countries of Germany, the right, to decline all means of payment not being legal coins, was always acknowledged until 1.1.1910.
Obviously the investment policy of a banker must be very different
a.) if he must expect that his notes are refused, at short intervals (and be it only for a few hours), and
b) if he can trust that his notes remain as long in circulation, that his investment policy is not disturbed.
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The word "inflation" has lost its former sense entirely. The people - - not only in England - - are now no longer able to talk about such an increase of fiat money that the demand of the government for fiat money, exercised by taxation, is much less than the circulating amount of currency. And why are the people not no longer about to talk about this? Because the very words, necessary for such talks, are amiss.
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I think, that if it would be impossible to restore the original meaning of the word "inflation", then a new word must be invented to express what originally was expressed by "inflation".
Very truthfully yours - signed: U. v. Beckerath.
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(U. v. Beckerath, Some Notes on Gold, dated 14. 4. 50. - I don't know to which letter to Meulen he attached this note. - J.Z.)
1 troy ounce of water = 1.9 cubic inches.
The density of gold is 19.3.
Consequently, a troy ounce of gold = 1.9 : 19.3 cubic inches or, approximately = 1/10th cubic inch.
To find the length (= width = height) of a gold cube, weighing X troy ounces, firstly its number of cubic inches is to be determined. This is done simply by taking the tenth part. Of this tenth part the cubic root is to b extracted.
Example:
Length of a cube weighing 1 million of troy ounces.
The cube contains 1/10 of 1 million = 100,000 cubic inches,
The cubic root of 100,000 is 46.4
The length of the gold cube is o 46.4 inches.
By the following table the number of troy ounces fine gold to be found in the statistics may be easily converted into cubes, whose side length, in inches, is shown by the table.
Number of Length in inches
troy ounces: of a cube, weighing the number of troy ounces indicated in the left column
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10 1
100 2.2
1,000 4.6
10,000 10.0
100,000 21.5
1,000,000 46.4
10,000,000 100.0
11,000,000 103.2
12,000,000 106.3
13,000,000 109.1
14,000,000 111.9
15,000,000 114.9
16,000,000 117.0
17,000,000 119.4
18,000,000 121.6
19,000,000 123.9
20,000,000 126.0
21,000,000 128.1
22,000,000 130.1
23,000,000 132.0
24,000,000 133.9
25,000,000 135.7
26,000,000 137.5
27,000,000 139.2
28,000,000 140.9
29,000,000 142.3
30,000,000 144.2
31,000,000 143.8
32,000,000 147.4
33,000,000 148.9
34,000,000 150.4
35,000,000 151.8
I read in the "Tagesspiegel" of 13.4.50., that in the year 1948 the world gold production has been 24.2 million ounces and in the year 1949 = 24.9 million ounces.
That would be a cube of about 135 inches a side, or a little more than 11 feet.
Let us suppose, that of the 2. 25 thousand million inhabitants of our planet 1,000 millions are buyers, then the annual production would be 25 : 1,000 ounces per buyer or 480 : 40 = 12 grains per buyer.
About 1/3rd of the annually produced gold is used for industrial purposes.
The legal weight of a sovereign was 123.274 grains.
Thus the quantity of gold added to the world's stock of gold every year seems not great enough to cause an inflationary effect.
Signed: Bth. 14.4.50.
(The text is messed up. In the middle of the second page I find inserted, between the lines: "A little joke." Bth. may have meant this as the heading for this note. It is not really a joke but an indication of the relative insignificance of the annual gold production, in total size, in cubes, and in weight per person, especially when compared with the accumulated and still preserved gold stock - J.Z., 25.2.03.)
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18.4.1950.
Dear Mr. Meulen,
some days ago I received with much pleasure and many thanks the "Individualist", April issue. I hope to write some lines this week or next about the articles concerning Germany and Berlin; they are excellent.
Very faithfully Yours - unsigned.
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(U. v. Beckerath) 21. 4. 1950. Your letter of 19. cr.
Dear Mr. Meulen,
a specialist may laugh at it, but: In text books on physics one may read, that if an orange is placed between the two poles of an electrical machine and the machine operates, then the sparks pass through the orange and make it pretty transparent. The interior of the orange is - - I read - - to be observed. Perhaps you have a boy among your friends, whose school posses an electrical machine and whose teacher is ready to execute the experiment. If I understood the experiment rightly, then the question is (berechtigt) (warranted - J.Z.), whether it may be possible to make transparent the human body by a suitable alteration of the device used on an orange, without causing too much pain. (Or damage! - J.Z., 25.2.03.)
That the human body really may be made transparent to a certain degree can be easily observed in sunshine. My hands, e.g., not embarrassed with much flesh - - that's true - - are transparent in sunshine, so that the bones can be distinguished from the flesh.
If my idea should not be without foundation, then it is, perhaps, possible to get a better observation of your digestive apparatus than has been possible until now, and so to learn to know what really has been the trouble. I think that Roentgen-Photographs have been taken (for German physicians that would be the first, to take a Roentgen-Photograph), but it seems, they have not been sufficient.
(J.Z.: Here B. was behind the times. I remember that in my youth even better shoe shops had x-ray machines, that tested your newly shoed feet, to determine whether the fit was quite right. The dangers arising from such x-ray exposures was simply ignored in these cases. Later these machines were, very quietly, removed. I assume that this was before 1943, perhaps even before 1939. I was subjected to repeated compulsory x-rays in Berlin, at about the time that B. wrote this letter, as part of the fight against tuberculosis. When I came to Australia in 1959, compulsory mass x-rays were continued there, for the same purpose, under threat of considerable penalties for non-compliance, in spite of all protests that the radiation hazards thus caused for so many people, e.g., by additional cancer cases, may have far exceeded the savings of lives by discovering with this method some tuberculosis cases. Some years later, some sense finally penetrated to the authorities and this mass medical program was quietly discontinued, in spite of the resistance of the medical bureaucrats involved. - J.Z., 25.2.03.)
That your health id improving so slowly is a great impediment to our movement, but that it is improving, that is a consolation. At present you are the only man in England who demands the most important right of mankind, the right of issuing and accepting freely and without State control standardised means of payment. Even Guy Aldred, who calls himself an anarchist, does not go so far, obviously because he does not see such matters as clearly as an economist and reformer should see them. Once this right is established, then the technical and legal conditions, by which it can be exercised, will, very soon, be taught by experience, our common teacher. Our opinions will not be excepted, and what is now, perhaps, impossible to justify, in the other's opinion, will be demonstrated by reality or, it will be shown, in a clear manner, that it is not justified.
That brings me to your letter, one of the longest I ever had the pleasure to receive from you.
You say: " ... whether or not a man can sell his stock at a profit must always be speculative".
That is quite right under the present economic conditions. But by this statement the theme is not exhausted. The statement merely puts it in the right light.
I.
Jaques Bernoulli, in his "Ars conjectandi", the first work about the calculus of probability, first printed 1713, eight years after the death of this celebrated author and still in high esteem (burnt) said, that a certain, very small degree in probability in civil life must be considered as zero.
Example: A judge is convinced, that a man has committed the crime for which he was accused. But he admits, that if there were 10,000 cases like this, there probably would be one, where the accused is innocent, although all evidence seems to be against him. In such a situation - - says Bernouilli - - the judge should sentence the accused. Human beings are never so certain, that the certainty is an absolute one, except the fact that the man must die. Even this certainty may be considered as not being 100%, as long as it is merely derived from the fact, that men of more than (say) 200 or so years have never been found. You know, that Jonathan Swift, in one of the reports about Gulliver's travels, reports from a country, where from time to time were born "stultbruggs" (in the language of that country), immortal as men and the most unlucky creatures on earth. The philosophic Swift found out, that his report could not be considered as quite (that is 100 %) incredible, insofar as merely the "stultbruggs" are concerned. Suppose that mankind existed on earth for a million years (which may not be far from the truth) and that the average number of men was always 2,000 millions (which, very probably, is to high a number), then one can only say, that among the billions who have lived during the million years, none have been found who were not dead after at most 200 years. In the first reports of the Portuguese from Goa, a rich man is mentioned, who was several 100 years old, had generated more than 700 children end was hated by his countrymen because he was considered a usurer.
Buffon in his "Arithmétique morale" (burnt) says: The fraction 1 : 10, 000, proposed by Jacques Bernouilli as to be considered as zero in civil affairs, seems to be too large. A better fraction would be the probability for a sound average man to live still after 24 hours. Buffon estimated that probability at 1 : 100,000, which agrees quite well with modern life tables. That probability is - - says Buffon - - considered, by every man, as 100 % and, consequently, the opposite prohability as zero. As for myself, I am inclined to prefer Bernouilli's fraction of 1 : 10,000, because it is - - I think - - beyond human capabilities to distinguish such small probabilities otherwise than by calculus from other probabilities of about the same magnitude. 1 :1,000 - - from this standpoint - - seems to be a better fraction than even Bernouilli's 1 : 10,000.
If Bernouilli's or Buffon's considerations are admitted, then a probability for not selling one's stores may be considered as zero if it is less than one of the above mentioned values. To give an example: The probability that Lyons will suddenly cease to sell tea for some pounds, although the firm's and England's circumstances are not essentially changed, is certainly less than 1 : 10,000. So I would not hesitate to permit Lyons an emission of - - say - - 100 notes of one money pound each, with no other cover than the tea at Lyons' shelves and for which the notes may be used as a means of payment, although - - theoretically - - your objection, also in this case, is not without foundation. (Very probably, you will admit, that Lyons is good for much more than 100 pounds of uncovered (by gold or silver - J.Z.) notes.)
Here I need not point out the generalisation of the foregoing notes.
II.
It's an old point of German note issuing theory that only sold goods are fit to serve as a base for note issues.
The issue of notes does, in this case, serve to finance the sale.
(J.Z.: Not, directly, the primary sale of the factory to the wholesaler, but the sale of labour to the factory and the sale of consumer goods to the workers and the sale of the goods from the wholesaler to the retailer. By these certainties, under freedom conditions, it even assures the primary sale, in a continuously repeated process of production and exchange. - J.Z., 26.2.03.)
The note issuing bank hands out to the producer of the goods a loan (a short-term one, in its own notes, in exchange for his claim from their sale - J.Z., 26.2.03.) equal to the amount of the sold goods. The producer, who has meanwhile sent the goods to the man (firm) to whom he has sold them, pays with the help of the notes the raw materials, labour, services etc., which had been credited to him, when he proved that he would produce upon a definite order. From the people, who received the notes - - so supposes the theory - - the notes will find their way to the buyer of the goods, from there to the seller and from there back to the bank.
(The main flow will be from the producer to his workers and contractors and other suppliers, from them to the retail shops, from there to the wholesaler to whom the producer sold the goods. Since the verbal description of this process is always a bit unclear or even confusing, see my circulation charts on this process, in PEACE PLANS No. 41, now also available by e-mail from me, until they are available online or on CD-ROM. - J.Z., 26.2.03.
Thus, and in Germany, note credit was merely used to finance current production or current sales of the usual kind to supply the people (with daily needed goods and services. - J.Z., 26.2.03.).
Credit with newly issued notes was not used to finance machines, buildings and other means of production.
Without being guided by theory, the bankers had obtained very bad experiences with financing the means of production through note issues. The common saying was, and it was repeated in every book on banking: "Mit Bankgeld darf nicht gebaut werden."
(J.Z.: "One does not build with banknote issues". - Meaning with notes freshly issued only for this purpose and "covered" only by the building, once it is finished, or a claim against the builder. Long term loans, mediated through the bank or from its own capital are quite another matter. - J.Z., 26.2.03.)
It is true that some "reformers" asserted: As good a purpose, as the financing of means of production (and the construction of such real values - J.Z.) cannot have such a bad effect as the depreciation of the notes, if the loan is good in the commercial meaning of the word. The experiences were too bad and, although "practical men", like bankers, never read economists like Adam Smith, they knew cases enough, as Adam Smith reports them. They generalised these cases and were correct in doing so.
But the right theory, which proves that bank notes issued, where, instead, the issue of mortgage bonds would have been he right thing, m u s t get a discount, that theory was explained as early as by Adam Smith.
I myself think, that the German theory (Adolf Wagner, Roscher, Lexis, Lorenz von Stein, etc.) is correct. My critique of the theory is that it did not go far enough. As "buyers" the theory considered merely shopkeepers and other people not being the last buyers. I consider the shopkeeper's customer as the "last buyer". And I say:
These last buyers must be included in the system, if it is to work as well as it can. So I proposed, in my dissertation on Milhaud's propositions, that every worker, employee, peasant, employer etc. shall order his supply for a time in advance, at least for some months. These commitments should, I proposed, be performed on the well known scheme of "put", of "call" and "put and call" of the London Exchange. (In German: by "Vorpraemie" and "Rueckpraemie".)
Concerning the details of the technique I refer to my book on employment.
If the details should be found to be economically possible and would be applied, then the speculative moment, which you emphasise, is discarded. We agree, that the speculative moment does exist.
(J.Z.: Like all innovators, B. wanted to apply his "order- system" by consumers for produced goods, to be applied more widely than would really be necessary or expedient for the consumer. In practice, goods, from locomotives down to computers, are already widely produced only upon orders. But there are many other goods, which do not need advance orders in order to be regularly sold at market prices, fluctuating with their seasons, e.g., for standard fresh food items. For me the inclusion of workers and of all ordinary consumers - in the monetary freedom process means mainly, that the provision of means of payment for them, of wages, salaries, service charges, and thus of means of exchange for them, to buy whatever they want in the shops, even in "impulse-buying", is done freely and competitively. It means that these exchange media can and must be competitively supplied by all those, who offer these goods and services, namely the shops, the shopping centres, department stores etc. and their special local associations for the issue of optional local currencies. Only the issuers themselves [and their debtors by contracts] would have to accept them at any time at their face value, as legal tender, in all their sales and in all other debt payments towards them. The acceptance of such "shop foundation" money would constitute already a "generalised" order for consumer goods and services to the same amounts. That freedom, so issue such self-committing notes, purchasing vouchers, readiness to accept commitments, etc., would release an enormous monetary demand for labour, for more labour than the available employed, unemployed and refugees would be able to supply immediately. A large part of all the ready for sale goods and service could be liquidified for this, limited only by the readiness of potential acceptors to accept such notes in payment for what they have to offer, e.g. in work and services. At the same time, to the extent that such free note issues are used to finance, with very short-term loans, current additional production, with additional labour, it would assure sales of goods and services, to the extent that such issues are made for such purposes, since such goods and service warrants, in money denominations, have but one way to go: From their recipients, directly and indirectly, to the issuers, to be redeemed in their goods and services. But B. was right insofar, that all goods and services, whose sale is not sufficiently assured by current and wide-spread consumer demand, e.g., extensive and costly dental work, should, as far as is possible, only be produced upon orders, not merely by speculating upon their possible chances to be sold in a free market, without advance orders for them. I have certainly produced my libertarian microfiche without sufficient advance and even current orders for them and, as a result, most of them are still remaining unsold. However, I was clever enough to limit the number of duplicates, that I ordered from my service provider, for each title, to 100 only, so as to have at any time enough on hand, at least if no sudden and relatively large "run" develops upon any of my microfiche. More duplicates can be easily and rapidly ordered and then be automatically produced. To that extent my libertarian microfiche output is also only upon orders, a production upon demand. I can assure you that the monetary demand for it was so far very small and does not even cover more than a small fraction of the costs of expanding my PEACE PLANS series. To that extent it is still VERY SPECULATIVE, even after a quarter of a century of such production and sales attempts. But then I do not expand my series any faster than I can produce new titles and can afford to pay for their microfiche reproduction in one master copy and in 100 duplicates. - J.Z., 26.2.03.)
It is your opinion that it will be sufficient if a banker appreciates a borrower's character. But I assert, that the speculative risk (of not finding buyers at the time when buyers are wanted) cannot be removed even by the most careful discrimination of a borrowers character. The condition here to be fulfilled requires not only trust in the moral and usual sense of the word. It requires the possibility to make good the notes without economically hurting the bearer of the notes, and that at any time when the bearer wishes to "realise" the note.
Insofar, I am an adherent of the old "redemption on demand" requirement, but I say: The redemption in gold coins being impossible in times of a crisis, the redemption must be of a kind that is as good as possible. (Economically and psychologically possible.) The "making good" of notes in commodities and services is the second way. It also seems more natural and justified, because it has been proven (and is even self-evident - - as you explained in your book) that the note-bearers do not really want gold coins but they do want commodities like consumer goods and services. (I took considerable liberties here in rewording B.'s English formulations. - J.Z., 26.2.03.)
Let me add that it is not my intention to discard individual bankers as note-issuers. (Did Henry Meulen fancy himself as one such banker, some time, in his future and was therefore so committed to this ideas? - J.Z., 26.2.03.) At least they are necessary as competitors for other note-issuers. It may also be, that experience will proves them to
be the best note issuers. But, certainly, the mere f