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non serviam #11
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Contents: Editor's Word
Ken Knudson: A Critique of Communism and
The Individualist Alternative (serial: 11)
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Editor's Word
_____________
Ken Knudson's article is coming to and end. This is the second part
of the chapter on Mutualism. The next and last chapter is his "after-
word to communist-anarchist readers." And so, his article is complete.
For those who wish, the full article is available by ftp from
uglymouse.css.itd.umich.edu
together with the current and back issues of non serviam and some other
material relevant to Stirner. The files are stored in
/pub/Politics/Non.Serviam.
Paul Southworth (pauls@umich.edu) is responsible for the ftp site. If
you have trouble retrieving files, he is the man to write to.
Svein Olav
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Ken Knudson:
A Critique of Communism
and
The Individualist Alternative
(continued)
* * * * * *
Given the advantages of the division of labour, what is
to be the method by which man exchanges his products?
Primitive man devised the barter system for this purpose.
But it wasn't long before the limitations of this system
became apparent:
"Let Peter own a horse; let James own a cow and a pig; let
James's cow and pig, taken together, be worth precisely as
much as Peter's horse; let Peter and James desire to make an
exchange; now, what shall prevent them from making the
exchange by direct barter? Again, let Peter own the horse;
let James own the cow; and let John own the pig. Peter
cannot exchange his horse for the cow, because he would lose
by the transaction; neither - and for the same reason - can
he exchange it for the pig. The division of the horse would
result in the destruction of its value. The hide, it is
true, possesses an intrinsic value; and a dead horse makes
excellent manure for a grapevine; nevertheless, the division
of a horse results in the destruction of its value as a
living animal. But if Peter barters his horse with Paul for
an equivalent in wheat, what shall prevent him from so
dividing his wheat as to qualify himself to offer to James
an equivalent for his cow and to John an equivalent for his
pig? If Peter trades thus with James and John the
transaction is still barter, though the wheat serves as
currency and obviates the difficulty in making change."
[101]
Thus currency (i.e, money) was born. Many things have
served as money throughout the ages: slaves, gunpowder, and
- 50 -
even human skulls, to name but a few. The New Hebrides used
feathers for their money and in Ethiopia salt circulated as
the currency for centuries. But by far the most popular
medium of exchange became the precious metals, gold and
silver. There were several reasons for this: (1) Unlike
feathers or skulls, they have intrinsic value as metals.
(2) They are sufficiently rare as to impose difficulty in
producing them and sufficiently common as to make it not
impossible to do so. (3) Their value fluctuates relatively
little with the passing of time. Even large strikes - such
as those in California and Alaska - failed to devalue gold
to any appreciable extent. (4) They are particularly sturdy
commodities, loosing relatively little due to the wear and
tear of circulation. (5) They are easily divisible into
fractional parts to facilitate small purchases. For these
and other reasons, gold and silver became universally
recognised as standards of value. Certain quantities of
these metals became the units by which man measured the
worth of an object. For example, the pound sterling, lira,
and ruble were originally terms for metallic weight while
the drachma means literally a handful.
As long as these metals served purely as just another
commodity to be bartered - albeit a very useful commodity -
there was no inherent advantage in possessing these metals
as such. It was not until governments declared them the sole
LEGAL medium of exchange that gold and silver became
intrinsically oppressive. Governments, by monetising gold
and silver automatically demonetised every other item of
capital.* It is this monopoly which has been the chief
obstacle in preventing men from obtaining the product of
their labour and which permitted the few men who controlled
the money supply to roll up such large fortunes at the
expense of labour.
As long as the monetary structure was directly tied to
gold and silver, the volume of money was limited by the
amount of gold and silver available for coinage. It is for
this reason that paper money - backed by "hard money" - came
into being. The paper money was simply a promise "to pay the
bearer on demand" its equivalent in specie (i.e. gold or
--------------------
* A natural question arises here: "That may have been
true up until 40 years ago, but haven't governments since
abandoned the gold standard?" The answer is no. As long as
the United States government promises to buy and sell gold
at $35 an ounce and as long as the International Monetary
Fund (which stabilises the exchange rates) is based on gold
and U.S. dollars, the world remains on the gold standard.
- 51 -
silver). Hence the words "note" and "bill," which imply
debt. Governments were at first reluctant to issue paper
money. But the scarcity of money in an increasingly
commercial world soon forced them to recant. The men of
wealth, well aware of the threat that "easy money" posed to
their "hard money," insisted that such money be based solely
on the wealth they already possessed. Governments readily
fell into line. In the United States, from 1866, anyone
issuing circulating notes was slapped with a tax of 10%
until it was completely outlawed in 1936. The British
government was even more severe; it gave the Bank of England
monopoly rights to issue "bank notes" as early as 1844.
[102]
When a man is forced to barter his products for money,
in order to have money to barter for such other products
that he might want, he is put at a disadvantage which the
capitalist is all too ready to exploit. William B. Greene
was one of the first to observe this fact:
"Society established gold and silver as a circulating
medium, in order that exchanges of commodities might be
FACILITATED; but society made a mistake in so doing; for by
this very act it gave to a certain class of men the power of
saying what exchanges shall, and what exchanges shall not,
be FACILITATED by means of this very circulating medium. The
monopolisers of the precious metals have an undue power over
the community; they can say whether money shall, or shall
not, be permitted to exercise its legitimate functions.
These men have a VETO on the action of money, and therefore
on exchanges of commodity; and they will not take off their
VETO until they have received usury, or, as it is more
politely termed, interest on their money. Here is the great
objection to the present currency. Behold the manner in
which the absurdity inherent in a specie currency - or, what
is still worse, in a currency of paper based upon specie -
manifests itself in actual operation! The mediating value
which society hoped would facilitate exchanges becomes an
absolute marketable commodity, itself transcending all reach
of mediation. The great natural difficulty which originally
stood in the way of exchanges is now the private property of
a class, and this class cultivates this difficulty, and make
money out of it, even as a farmer cultivates his farm and
makes money by his labour. But there is a difference between
the farmer and the usurer; for the farmer benefits the
community as well as himself, while every dollar made by the
usurer is a dollar taken from the pocket of some other
individual, since the usurer cultivates nothing but an
actual obstruction." [103]
- 52 -
The legitimate purpose of money is to facilitate
exchange. As Greene shows, specie - or money based on specie
- accomplishes this purpose, but only at a terrible price to
the user. The solution to the problem is to devise a money
which has no value as a COMMODITY, only as a circulating
medium. This money should also be available in such quantity
as not to hamper any exchanges which may be desired. The
organ for creating such a currency Greene called a "mutual
bank."*
Before considering the operations of a mutual bank, I'd
like to look at how an ordinary bank functions. Let us say
that Mr Brown, who owns a farm worth a few thousand pounds,
needs 500 pounds to buy seed and equipment for the coming
year. Not having that kind of money on hand, he goes to the
bank to borrow it. The bank readily agrees - on the
condition that at the end of the year Brown not only pays
back the 500 pounds borrowed, but also 50 pounds which they
call "interest." Farmer Brown has no choice; he needs MONEY
because that is all the seed dealer will accept as "legal
tender." So he agrees to the conditions set down by the
bank. After a year of hard work, and with a bit of luck from
the weather, he harvests his crops and exchanges (i.e.
"sells") his produce - for money. He takes 550 pounds to the
bank and cancels his debt. The net result of all this is
that some banker is 50 pounds richer for doing a minimal
amount of work (perhaps a few hours of bookkeeping) at no
risk to himself (the farm was collateral), while Mr Brown is
50 pounds out of pocket.
Now let's see where Greene's idea leads us. A group of
people get together and decide to set up a mutual bank. The
bank will issue notes which all members of the bank agree to
accept as "money." Taking the above example, Mr Brown could
get five hundred of these notes by mortgaging his farm and
discounting with the bank a mortgage note for that sum. With
the notes, he buys his seed from Smith and some tools from
Jones. Smith and Jones in turn exchange some of these newly
acquired notes for some things they need. And so on until
the end of the year when Brown exchanges his farm produce
and receives for them - mutual bank notes. Does all this
sound familiar? It should, for up until now, from all
outward appearances, there has been no difference between
our mutual bank and an ordinary specie bank. But it's here,
--------------------
* Proudhon's bank, "la banque du peuple," is
essentially the same. For a detailed account of the
workings of each bank see Greene's "Mutual Banking" and
Proudhon's "Solution of the Social Problem" and "Revolution
in the Nineteenth Century."
- 53 -
however, that the change comes in. Mr Brown goes to the
mutual bank with his notes and gives the bank 500 of them
plus ONE OR TWO extra to help pay for the operating expenses
of the bank over the past year. The bank cancels his
mortgage and Mr Brown walks away thinking how nice it is to
be a member of such a wonderful bank.
Now notice that it was never mentioned that Smith and
Jones were members of the bank. They may have been, but it
wasn't necessary. Smith, the seed dealer, might not belong
to the bank and yet be willing to accept its notes. He's in
business, after all, and if the only money Brown has is
mutual money, that's all right with him - as long as he can
get rid of it when HE wants to buy something. And of course
he can because he knows there are other members of the bank
pledged to receiving these notes. Besides, Brown will need
at least 500 of them eventually to pay off his mortgage. So
Smith accepts the money, and he too profits from this novel
scheme. In fact, the only one who seems to be any the worse
is the poor usurous banker. But I'm afraid he will just have
to find himself an honest job and work for his living like
everyone else.
John Stuart Mill defined capital as "wealth
appropriated to reproductive employment." In our example
above, farmer Brown's 500 pounds is capital since he intends
to use it for creating new wealth. But Mr Brown can use his
capital in any number of ways: he may decide to use it to
buy seeds for planting corn; or he may decide that his
ground is better suited for growing wheat, or he may decide
to invest in a new tractor. This 500 pounds, then, is liquid
capital or, as Greene called it, disengaged capital. When Mr
Brown buys his seeds and tools, these things are still
designed for "reproductive employment," and are therefore
still capital. But what kind of capital? Evidently, frozen
or engaged capital. He then plants his seeds and harvests
his crops with the aid of his new tractor. The produce he
grows is no longer capital because it is no longer capable
of being "appropriated to reproductive employment." What is
it, then? Evidently, it is product. Mr Brown then takes his
goods to town and sells them at market value for somewhat
more than the 500 pounds he originally started out with.
This "profit" is entirely due to his labour as a farmer (and
perhaps to some extent his skill as a salesman). The money
he receives for his goods become, once again, liquid
capital. So we have came full circle: liquid capital
becomes frozen capital; frozen capital becomes product;
product becomes liquid capital. And the cycle starts all
over again.
A society is prosperous when money flows freely - that
- 54 -
is when each man is able to easily convert his product into
liquid capital. A society is unprosperous when money is
tight - that is, when exchange is difficult to effect.
Mutual banking makes as much money available as is
necessary. When a man needs money he simply goes to his
friendly mutual bank, mortgages some property, and receives
the notes of the bank in return. What this system does is to
allow a man to circulate his CREDIT. Whoever goes to a
mutual bank and mortgages some of his property will always
receive money, for a mutual bank can issue money to any
extent. This money will always be good because it is all
based on actual property which, if necessary, could be sold
to pay off bad debts. The mutual bank, of course, would
never give PERSONAL credit, for to do so would give the
notes an element of risk and render them unstable. But what
about the man with no property to pledge? Greene answered
this question as follows:
"If we knew of a plan whereby, through an act of the
legislature, every member of the community might be made
rich, we would destroy this petition and draw up another
embodying that plan. Meanwhile, we affirm that no system
was ever devised so beneficial to the poor as the system of
mutual banking; for if a man having nothing to offer in
pledge, has a friend who is a property holder and that
friend is willing to furnish security for him, he can borrow
money at the mutual bank at a rate of 1% interest a year;
whereas, if he should borrow at the existing banks, he would
be obliged to pay 6%. Again as mutual banking will make
money exceedingly plenty, it will cause a rise in the rate
of wages, thus benefiting the man who has no property but
his bodily strength; and it will not cause a proportionate
increase in the price of the necessaries of life: for the
price of provisions, etc., depends on supply and demand; and
mutual banking operates, not directly on supply and demand,
but to the diminution of the rate of interest on the medium
of exchange. But certain mechanics and farmers say, `We
borrow no money, and therefore pay no interest. How, then
does this thing concern us?' Harken, my friends! let us
reason together. I have an impression on my mind that it is
precisely the class who have no dealings with the banks, and
derive no advantages from them, that ultimately pay all the
interest money that is paid. When a manufacturer borrows
money to carry on his business, he counts the interest he
pays as a part of his expenses, and therefore adds the
amount of interest to the price of his goods. The consumer
who buys the goods pays the interest when he pays for the
goods; and who is the consumer, if not the mechanic and the
farmer? If a manufacturer could borrow money at 1%, he could
afford to undersell all his competitors, to the manifest
advantage of the farmer and mechanic. The manufacturer would
- 55 -
neither gain nor lose; the farmer and mechanic, who have no
dealings with the bank, would gain the whole difference; and
the bank - which, were it not for the competition of the
mutual bank, would have loaned the money at 6% interest -
would lose the whole difference. It is the indirect relation
of the bank to the farmer and mechanic, and not its direct
relation to the manufacturer and merchant, that enables it
to make money." [104]
Mutual banking, by broadening the currency base, makes
money plentiful. The resulting stimulus to business would
create an unprecedented demand for labour - a demand which
would always be in excess of the supply. Then, as Benjamin
Tucker observed:
"When two labourers are after one employer, wages fall, but
when two employers are after one labourer, wages rise.
Labour will then be in a position to dictate its wages, and
will thus secure its natural wage, its entire product. Thus
the same blow that strikes interest down will send wages up.
But this is not all. Down will go profits also. For
merchants, instead of buying at high prices on credit, will
borrow money of the banks at less than one percent, buy at
low prices for cash, and correspondingly reduce the prices
of their goods to their customers. And with the rest will go
house-rent. For no one who can borrow capital at one percent
with which to build a house of his own will consent to pay
rent to a landlord at a higher rate than that." [105]
Unlike the "boom and bust" cycles we now experience
under the present system, mutualism would know nothing but
"boom." For the present "busts" come when the economy is
"overheated" and when there is so-called "overproduction."
As long as most of humanity lead lives of abject poverty, we
can never speak realistically of "over-production." And as
long as each hungry belly comes with a pair of hands,
mutualism will be there to give those hands work to fill
that belly.
-----
REFERENCES
101. William B. Greene, "Mutual Banking," from Proudhon's
"Solution of the Social Problem," ed. Henry Cohen (New York:
Vanguard Press, 1927), p. 177.
102. "Money," "Encyclopaedia Britannica," 1965, vol. XV, p.
703.
103. Greene, op. cit., p. 180.
104. Ibid., pp. 196-7.
105. Tucker, "Instead of a Book" p. 12, Reprinted from
"Liberty," March 10, 1888.
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- "It is a vulgar mistake to think that *
- most people in Eastern Europe are miserable." *
- *
- -- Paul Samuelson in 1987, *
- Nobel Laureate in Economics *
- *
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