The Natural Economic Order/Part IV/Chapter 5 L

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L. The Disciple of Proudhon

With the introduction of Free-Money our whole programme has been fulfilled. The goal towards which we had been groping has been reached. What we had hoped to attain by means of complicated, vaguely-conceived institutions such as exchange-banks and co-operative societies, namely a perfect exchange of goods, has been realised in the very simplest and easiest way through Free-Money. What did Proudhon say:

"In the social order reciprocity is the formula of justice. Reciprocity is defined in the maxim: Do as you would be done by. Or translated into the language of political economy: Exchange products for products, buy your products mutually from one another. Social science means simply the organisation of mutual relations. Give the social body a perfect circulation, that is, an exact and regular exchange of products for products, and human solidarity is assured, labour is organised".

And Proudhon is right, at least as regards the products of labour, though not as regards the products of the land. But how can this regular exchange of products be realised? What Proudhon himself proposed for the achievement of this perfect circulation was impracticable. Even on a small scale, a goods-bank as conceived by Proudhon was unworkable, so how could the whole economic body have been organised on these lines?

Again, he ought to have investigated why we failed to buy each other's produce, as complete and regular exchange demands. That was the question to be answered first of all, before he set about Proposing remedies.

Proudhon did indeed suspect that there was something wrong about metal money; for did he not call gold "a bar to the market, a sentinel guarding the gates of the market with orders to let no one pass". But he never tried to find out exactly what was wrong with money, although this was the point at which his investigations should have started. It was his failure to do so that led him astray. In raising labour, or the result of labour, the commodity, to the level of ready money (that is, gold) Proudhon thought he had discovered the solution of the social problem. But why was it necessary to "raise" goods to a higher level, what was there in gold (then money) that placed it above the level of labour?

Here, in this idea of raising goods to the level of gold, lay Proudhon's error. He should have inverted the proposition and said: "We wish money and goods to circulate on the same level, so that money shall never be preferred to goods; goods thus becoming money, and money goods. Let us therefore debase money to the level of goods. We cannot alter the qualities of goods and endow them with the advantages inherent in gold as a commodity. We cannot make dynamite harmless, or prevent glass from breaking, or iron from rusting, or furs from being eaten by moths. Goods invariably have natural defects; they decay, they are subject to the destructive agencies of nature - gold alone is exempt. In addition to this, gold has the privilege of being money and, as money, of being universally saleable; and it can be conveyed from one place to another without appreciable expense. How, therefore, can we possibly raise goods to the level of gold?

But the opposite procedure is easy: Money is adaptable; we can do with it as we please, since it is indispensable. Let us degrade it to the level of goods, let us give it qualities that win counterbalance the evil qualities of goods".

By the introduction of Free-Money this logical idea has now been put in practice, and the result proves how much truth and just observation is contained in Proudhon's pithy phrases, and how narrowly he missed the solution of the problem.

With the money reform, money has been debased to the level of goods, and the result is that goods are at all times and in every situation equal to money. "Buy your products from one another", said Proudhon, "if you wish to find markets and employment". That is now done. Demand and supply have been welded into one by the new money, just as they were when exchange was effected by barter; for everyone who in those times brought goods to the market took other goods home with him. So there was always as much produce going out as coming in. Since the introduction of Free-Money the money realised by the sale of goods is immediately converted into goods again by the purchaser, so a supply of produce now causes a demand for the same amount. The seller, who is pleased to be rid of what he had to dispose of, finds himself compelled by the nature of his money to put into circulation again the money yielded by his sale, either by purchasing commodities for his own consumption, or by building a house, or by giving his children a better education, or by improving his live-stock and so forth. If he is not attracted by any of these possibilities he lends the money to others who need goods but, for the moment, have no money. Other expedients, such as hoarding the money; or making the loan of it dependent on interest; or purchase of goods only on condition that they yield a profit; or calculated waiting for better prospects, are no longer possible. You were compelled by the nature of your products to sell; and now you are compelled by the nature of your money to buy, there is no alternative. In rapid succession, compulsorily, purchase now follows sale, and money passes from hand to hand. In good times and in bad, in victory and in defeat, money pursues its orbit through the market as steadily as the earth revolves around the sun. Demand now appears as regularly in the market as labour in search of employment or goods in search of a purchaser.

Buyers at first, indeed, complained about being compelled to get rid of their money. They called this compulsion a restriction of their liberty, an attack upon property. But everything depends on what you mean by money. The State proclaims that money is a public means of intercourse and that it is managed solely in the interests of the exchange of goods. And these interests demand that the sale of goods shall immediately be succeeded by an equivalent purchase of goods. But experience proved that the mere wish that everyone should of his own accord, and for the benefit of all, at once put into circulation the money he receives was not in practice sufficient to ensure a regular monetary circulation, so it was necessary to introduce into money a force compelling it to circulate. This was done and the aim was realised.

Anyone unwilling to be deprived of the liberty of dealing with his property at his own pleasure and discretion, may, if he prefers, keep his produce, his undoubted property, at his own house and sell it only when he needs to buy other products. If he prefers to keep hay, Iime, trousers, tobacco-pipes, or whatever his produce may be to selling them in advance for Free-Money, he is at liberty to do so; no one will prevent him, and nobody will complain. But if through the agency of money, he has been relieved of the burden of his own goods, he must remember the duties which he has assumed as a seller and as a possessor of money; he must allow others to benefit by the circulation of money. For the exchange of goods is based on reciprocity.

Money must not be a resting place in the interchange of goods; its role is transitory. The State manufactures money at the public expense and cannot tolerate the abuse of this means of intercourse by others for purposes foreign to the exchange of goods. Nor is it just that money should be circulated gratis by the State, for the cost has to be paid out of public funds, and many citizens make little use of money. That is why the State levies an annual duty of 5 % on the use of money. In this manner the State ensures that money is not misused for speculation, exploitation, or as a medium of saving. Only those who really need money, the medium of exchange, those, namely who produce goods and wish to exchange them for other goods, now make use of money. For all other purposes it has become too expensive. Above all the instrument of exchange is now strictly separated from the instrument of saving.

What the money reform demands of the man who has sold his goods is mere justice: "Now buy goods in order that others may get rid of theirs." But this demand is not only just; it is also wise, for to be able to buy other goods a man must sell his own. Buy, therefore, that you may be able to sell all your own products. Otherwise to be a lord as buyer, you must be a slave as seller. Without purchase, no sale; and without sale, no purchase.

Purchase and sale combined make up the exchange of goods; they are, therefore, parts of a whole. With metal money Purchase and sale were often separated by a lapse of time; with Free-Money they are made to coincide. Metal money separated goods by inserting between sale and purchase an interval of time, interested delay, greed of gain and a thousand other forces extraneous to exchange; Free-Money, on the contrary, brings goods together by making purchase follow close upon sale and by not allowing time or space for extraneous forces to intervene. Metal money, according to Proudhon's dictum, repeatedly quoted in this book, was a bar to the market; Free-Money is the key.