The Natural Economic Order/Part III/Chapter 14

Free texts and images.
Jump to: navigation, search


The partisans of the gold standard ascribe the great absolute and relative economic development of the last decades to the gold standard. These millions of factory-chimneys belching forth smoke are the modern equivalents of sacrificial altars, and they express the nation's thankfulness for the gold standard

There is certainly nothing surprising in the assertion that the monetary standard can cause, or make possible, an economic revival. For money makes the exchange of wares possible, and without exchange of wares there can be no work, no profit, no traffic, no marriage. When the exchange of wares is interrupted, factories shut down.

The assertion, we repeat, contains nothing at first sight surprising. On the contrary, manufacturers, shipbuilders and other employers. when asked whether they could produce more wares with their present machinery and staffs, are unanimously of opinion that production is limited only by the sale of their wares. And money makes sales possible—or makes them impossible.

That this eulogy of the gold standard should contain a tacit assumption that its predecessor, the bimetallic standard, hindered economic development also causes no surprise. For money, if it can bring progress, can also, evidently, hinder progress. More important results can be ascribed to money than economic prosperity or the reverse during a few decades.[1]

After the adoption of the gold standard by Germany, German landowners complained of the fall of prices and of their difficulties in finding money to meet the interest on their mortgages. The German import-duties were devised for their protection, and without this protection many farms would have come under the hammer. But with prices falling, who would have bought these farms? Large estates would have been formed, just as under the Roman Empire, and the downfall of Rome has been ascribed to its latifundia.

The assertion of the advocates of the gold standard contains, therefore, nothing remarkable, but it requires proof. For German economic development could have had other causes; the school, the many technical inventions which made work fruitful, German wives who provide a numerous and healthy stock of workers, and so forth. There is, in short, no lack of competitors eager to snatch the laurels from the gold standard.

Proofs, then, are needed. We must find some criterion for the quality of money. We must determine whether the gold standard has so facilitated exchange that the expansion of economic can be ascribed to this cause alone.

If the gold standard has facilitated the exchange of products the result must be increased safety, speed or cheapness of exchange, and this increased safety, speed or cheapness of exchange must cause a corresponding decrease in the number of those engaged in commerce. This is too obvious to require further explanation, if we improve the roads that serve for the transport of merchandise, the efficiency of carters increases, and if the amount of merchandise to be carted remains the same, the number of carters must diminish. Since the introduction of steam, sea traffic has increased a hundred-fold, yet the number of sailors has diminished.

The same result should occur in commerce if the gold standard is to the cowry-shell standard as steam power is to wind, or as dynamite compared with a wedge.

But with the gold standard an exactly contrary development can be observed.

"The middleman's activity (that is, commerce) used to claim about 3 or 5% of the workers; it now claims 13 or 15, sometimes even 31%. This activity (the cost of commerce) forms an increasing proportion of price", says Schmoller (Commerce in the XIXth Century, Die Woche).

Commerce, instead of growing less difficult, grows daily more difficult. With gold as the medium of exchange not fewer but more persons are required to exchange the wares, and these persons have a better general education and a better commercial training. This can be proved from the German statistics of occupations.

1882 1895 1907
Population of Germany 45,719,000 52,001,000 62,013,000
Total number of workers 7,340,789 10,269,269 14,348,016
Persons engaged in commerce 838,392 1,332,993 2,063,634

From these figures we see that the increase in the number of persons engaged in commerce has far outstripped the increase in the total number of German workers (industry, commerce, agriculture). The total number of workers has increased from 7,340,789 to 14,348,016, or 95%, whereas the number of those engaged in commerce has increased from 838,392 to 2,063,634 that is 146%.

These figures are a clear proof that since gold has been adopted as the medium of exchange, commerce has become more difficult.

It may be objected that during the last decades many producers have gone over from primitive methods of production to the division of labour, especially in the country, where less and less is produced for personal consumption and more and more for the market. This of course increases the number of merchants required. Few spinning wheels, for instance, are now in use, and the village artisans paid directly in kind (barter) have had to give way to factories.

Again a worker, thanks to improved methods of production, now produces more wares, judged by quantity or quality, than formerly. Thus a much greater mass of wares is brought to market, and this also increases the number of persons engaged in commerce. If one merchant is required to sell the calico produced by 10 weavers, then, other things being equal, two merchants are required if the 10 weavers, with improved looms, produce twice as much calico.

This objection is valid, but on the other hand it should be remembered that commercial work also has been greatly facilitated by organisation and invention. We have the decimal coinage, introduced with the German gold standard (though it is independent of the gold standard, as the English currency system proves), the metric system of weights and measures, commercial staffs trained in better schools, co-ordinated laws of commerce, consulates, extraordinary postal facilities, (cheap letter postage, parcel-post, postcards, money orders, collection of cash through the post, etc.). Add to these telegraph and telephone, stenography, typewriters multigraphs, cash registers, cheques and current accounts, more efficient methods of advertising, consumers' co-operative societies; in short, the countless improvements introduced into the technique of commerce during the last thirty years. Finally, the better technical training of the business man must have increased his power of selling merchandise. If technical training has not done so, it is superfluous, and the merchant is a fool who pays a higher salary to a trained assistant. For he pays the higher salary because he believes that the trained assistant does more work, that is, sells more merchandise than his untrained colleague.

If the increase in production is compensated by the increased efficiency of commercial organisation, then the increase in the proportion of those engaged in commerce retains its fun force as evidence against the alleged advantages of the gold standard.

But the above figures give only the number of persons engaged in commerce, and we are more interested in the gross profit of commerce. This, to judge by appearances, has certainly increased. It cannot be deduced directly from the number of those engaged in commerce, since the average income of persons engaged in commerce is higher than that of any other workers.

To judge the effect of a monetary reform upon commerce, it would be necessary to calculate statistically the gross profit of commerce, that is, the difference between the factory price and the retail price of each product. Retail price, less factory price, equals the gross profit of commerce. It would be possible to calculate in this way the cost of commerce to a country and the efficiency of its monetary system. There is reason to believe that such statistics would prove the well-known assertion that commerce at present consumes one-third or more of the total production! Of 1000 tons of production 333 tons fall to the traders.

  1. Gesell: Gold and Peace ? (spoken at Berne, 1916). (See page 117).