Necessity for a Standard of Value

Excerpted from the book;
Individual Liberty: Selections From the Writings of Benjamin R. Tucker
Vanguard Press, New York, 1926
Kraus Reprint Co., Millwood, NY, 1973.

In the early 90's, the Galveston News had on its staff an exceptionally able and clear-thinking editorial writer. Liberty frequently reprinted his editorials. Concerning one on "The Functions of Money" Mr. Tucker wrote the following article for the News:

I entirely sympathize with your disposal of the Evening Post's attempt to belittle the function of money as a medium of exchange; but do you go far enough when you content yourself with saying that a standard of value is highly desirable? Is it not absolutely necessary? Is money possible without it? If no standard is definitely adopted, and then if paper money is issued, does not the first commodity that the first note is exchanged for immediately become a standard of value? Is not the second holder of the note governed in making his next purchase by what he parted with in his previous sale? Of course it is a very poor standard that is thus arrived at, and one that must come in conflict with other standards adopted in the same indefinite way by other exchanges occurring independently but almost simultaneously with the first one above supposed. But so do gold and silver come in conflict now. Doesn't it all show that the idea of a standard is inseparable from money? Moreover, there is no danger in a standard. The whole trouble disappears with the abolition of the basis privilege.

The News printed the article, but followed it with a rejoinder in which it attempted to maintain its previous position. In the columns of Liberty, then, Mr. Tucker proceeded with the discussion:

First, I question the News' admission that a measure of value differs from a measure of length in that the former is empirical. True, value is a relation; but then, what is extension? Is not that a relation also, - the relation of an object to space? If so, then the yardstick does not possess the quality of extension in itself, being as dependent for it upon space as gold is dependent for its value upon other commodities. But this is metaphysical and may lead us far; therefore I do not insist, and pass on to a more important consideration.

Second, I question whether the News's "countervailing difference between a standard of length and a standard of value" establishes all that it claims. In the supposed case of a bank loan secured by mortgage, the margin between the valuation and the obligation practically secures the noteholder against loss from a decline in the value of the security, but it does not secure him against loss from a decline in the value of the standard, or make it impossible for him to profit by a rise in the value of the standard. Suppose that a farmer, having a farm worth s 5,000 in gold, mortgages it to a bank as security for a loan of $2500 in notes newly issued by the bank against this farm. With these notes he purchases implements from a manufacturer. When the mortgage expires a year later, the borrower fails to lift it. Meanwhile gold has declined in value. The farm is sold under the hammer, and brings instead of $5,000 in gold, $6,000 in gold. Of this sum $2500 is used to meet the notes held by the manufacturer who took them a year before in payment for the implements sold to the farmer. Now, can the manufacturer buy back his implements with $2500 in gold? Manifestly not, for by the hypothesis gold has gone down. Why, then, is not this manufacturer a sufferer from the variation in the standard of value, precisely as the man who buys cloth with a short yardstick and sells it with a long one is a sufferer from the variation in the standard of length? The claim that a standard of value varies, and inflicts damage by its variations, is perfectly sound; but the same is true, not only of the standard of value, but of every valuable commodity as well. Even if there were no standard of value and therefore no money, still nothing could prevent a partial failure of the wheat crop from enhancing the value of every bushel of wheat. Such evils, so far as they arise from natural causes, are in the nature of inevitable disasters and must be borne. But they are of no force whatever as an argument against the adoption of a standard of value. If every yardstick in existence, instead of constantly remaining thirty-six inches long, were to vary from day to day within the limits of thirty-five and thirty-seven inches, we should still be better off than with no yardstick at all. But it would be no more foolish to abolish the yardstick because of such a defect than it would be to abolish the standard of value, and therefore money, simply because no commodity can be found for a standard which is not subject to the law of supply and demand.

At this point Mr. Alfred B. Westrup, who believed that to talk of a standard of value was not only a delusion but a misuse of language and whose ideas had been referred to in the controversy, took a hand in the discussion. Mr. Tucker then turned his attention to him:

Mr. Westrup's article sustains in the clearest manner my contention that money is impossible without a standard of value. Starting out to show that such a standard is a delusion, he does not succeed in writing four sentences descriptive of his proposed bank before he adopts that "delusion." He tells us that "one of the conditions in obtaining the notes (paper money) of the Mutual Bank is that they will be taken in lieu of current money." What does this mean? Why, simply that the patrons of the bank agree to take its notes as the equivalent of gold coin of the same face value. In other words, they agree to adopt gold as a standard of value. They will part with as much property in return for the notes as they would part with in return for gold. And if there were no such standard, the notes would not pass at all, because nobody would have any idea of the amount of property that he ought to exchange for them. The naivete with which Mr. Westrup gives away his case shows triumphantly the puerility of his raillery at the idea of a standard of value.

Indeed, Comrade Westrup, I ask nothing better than to discuss the practicability of mutual banks. All the work that I have been doing for liberty these nineteen years has been directed steadily to the establishment of the conditions that alone will make them practicable. I have no occasion to show the necessity for a standard of value. Such necessity is already recognized by the people whom we are trying to convince of the truth of mutual banking. It is for you, who deny this necessity, to give your reasons. And in the very moment in which you undertake to tell us why you deny it, you admit it without knowing it. It would never have occurred to me to discuss the abstract theory of a standard of value. I regard it as too well settled. But when you, one of the most conspicuous and faithful apostles of mutual banking, begin to bring the theory into discredit and ridicule by basing your arguments in its favor on a childish attack against one of the simplest of financial truths, I am as much bound to repudiate your heresy as an engineer would be to disavow the calculations of a man who should begin an attempt to solve a difficult problem in engineering by denying the multiplication table.

I fully recognize Mr. Westrup's faithful work for freedom in finance and the ability with which he often defends it. In fact, it is my appreciation of him that has prevented me from criticizing his error earlier. But when I see Individualists holding Anarchism responsible for these absurdities and on the strength of them making effective attacks upon a financial theory which, when properly defended, is invulnerable, - it seems high time to declare that the free and mutual banking advocated by Proudhon, Greene, and Spooner never contemplated for a moment the desirability or the possibility of dispensing with a standard of value. If others think that a standard of value is a delusion, let them say so by all means; but let them not say so in the name of the financial theories and projects which the original advocates of mutual banking gave to the world.

Another phase of the standard of value problem, concerning currency and its convertibility, was thus treated by the editor of Liberty:

To avoid misunderstanding, it should be stated that, when Mr. Yarros urges the substitution of convertibility into products for convertibility into gold as a quality of the circulating medium, he does not refer at all to that convertibility in point of right which is guaranteed by the issuer of a note, but simply to that convertibility in point of fact which exists when a note finds ready circulation. He means to say that the currency of a mutual bank, while not redeemable in gold on demand at the bank, will be to all intents and purposes redeemable in products on demand at the store of every dealer. His position is correct, but his new use of the words "convertibility" and "redeemability" will lead to much misunderstanding when not accompanied by such an explanation as that which I have just given.

A similar use of these terms in a previous article by Mr. Yarros led a Philadelphia correspondent to ask me what, even supposing that gold were retained as a standard of value, would maintain the equality of a paper dollar with a gold dollar if the paper dollar were redeemable, not in gold, but in commodities. The gentleman evidently supposed Mr. Yarros to mean that mutual currency would be redeemed in commodities by the bank. If such were the case, then, to be sure, the value of the mutual money would be measured, not by gold, but by the commodities in which the bank agreed to redeem it. Gold in that case would no longer be the standard of value, its function as such being performed instead by the commodity chosen by the bank for redemption purposes. My correspondent was guilty of an absurdity in supposing gold to be still the standard in such a case, but he was led into this absurdity by Mr. Yarros's use of the term "convertibility," which was not easily intelligible to one not perfectly familiar with the mutual-banking idea.

Mutual money will be expressed in terms of some chosen standard of value; if gold be chosen, then in terms of gold. it will be based, not necessarily or probably on gold, but on notes given by the borrowers and secured by mortgage on the borrower's property. It will not be redeemable in gold on demand at the bank. It will circulate readily, and without depreciation, if the bank has a good standing with the community and with the clearinghouse. It will be redeemed, in the vast majority of cases, by a re-exchange of it for the borrowers' notes against which it was originally issued. That is, the borrower himself will present at the bank notes equivalent to those which he received from the bank, and will get in exchange the notes which he gave to the bank and a cancellation of the mortgage on his property. If he does not do this, the mortgage on his property will be foreclosed, and the property will be sold at auction. It will be sold for gold, if gold is what the holders of the bank's notes desire. And it is this fact-that such a sale of the property ensures an ultimate redemption in gold if demanded - which will maintain the equality of mutual money with gold.

The liability to misinterpretation is increased by Mr. Yarros's statement that "the government could not issue currency redeemable in products, since it hasn't any products." The indication here is that a mutual bank issuing currency redeemable in products must have products. But this is contrary to the mutual banking idea, and equally contrary, I am sure, to the meaning that Mr. Yarros intended to convey, - namely, that the government could not issue currency that would circulate, to borrowers mortgaging no property for its security. The Anarchists maintain that government should not engage in the business of issuing money, but there is nothing in the nature of mutual banking that makes it impossible for the government to carry it on; and, if it decided to carry it on, it would not need products (beyond those mortgaged by borrowers) in order to issue a circulating currency any more than a private banking enterprise would need them. The statement of Mr. Yarros tends to confirm the reader in the mistaken idea that under mutual banking the bank notes will be redeemed in products at and by the bank.

In a letter to the editor of Liberty, Mr. Steven T. Byington reported a discussion which he had had with a professor of political economy and in which he had taken the position that, in order to maintain the value of mutual money and to keep the notes of a mutual bank at par, all property pledged to the bank as security should be appraised in terms of the standard of value, and that the loans offered should never exceed a certain ratio to this appraisal. He also contended that the steady supply and demand would keep the value of the notes at a steady ratio to the standard in which the property was appraised. Mr. Tucker then analyzed and criticized those ideas:

In comment on Mr. Byington's letter, I can say at once that with him I should oppose any legal restriction of the denominations of the notes issued by mutual banks. It is probable that Colonel Greene himself would oppose such restriction, were he alive today. It must be remembered that his "Mutual Banking" is an economic rather than a political treatise, and was written at a time when the philosophy of Anarchy had been scarcely heard of in this country. Nevertheless I consider it an exaggeration to say that Greene, to keep mutual bank notes at par, "would depend wholly" on this restriction, or even on the customers' contract to take the notes at par with the standard. I have not a copy of "Mutual Banking" at hand, and do not remember whether there is any sentence in it which warrants Mr. Byington's statement; but, even if there is, it is none the less an exaggeration (by the author himself) of his real position. For the customers' willingness to make this contract depends in turn upon their knowledge that the notes will ultimately command their face value at the bank. As soon as the general public, through time and experience, becomes possessed of this knowledge, the customers' contract may be dispensed with without the least impairment of the value of the notes. The restriction and the contract were, in Greene's mind, only devices for making plain to the public the truth upon which he Placed his real dependence, - viz., that, if the original borrower of the notes should fail to meet his obligations to the bank, the security for the notes would be converted into the actual commodity adopted as standard, and this commodity used in redemption of the notes. It is this great fact that will always keep mutual bank notes at par. And it will do this whether the 'standard is actually coined and in circulation, or not. Nothing is needed but the standard's presence in the market as a commodity. The market quotations of the price of gold per grain serve the purpose as well as the actual circulation of coined dollars.

Mr. Byington's plan for keeping the notes at par doesn't make as great an impression upon me as it did upon his professor of political economy. He seems to think he has made a discovery. But all that is true in his plan is old and has long been accepted as a matter of course, while all that is new in it is in flat contradiction with the cardinal truth about mutual money which distinguishes it vitally and eternally from all forms of fiat money. Outside of those who deny the possibility of a standard of value (a quantity which may safely be neglected), no believer in mutual banking within my knowledge ever dreamed of appraising the property pledged as security in anything but the standard. It is largely for this purpose that a standard is necessary. A safe ratio of notes issued to standard valuation of security is another point that the defenders of mutual banking regularly insist upon. Greene urges two dollars of security for each., dollar-note. Competition between the banks will fix this ratio. Those banks adopting a ratio which unduly sacrifices neither safety or enterprise will get the business. These two points of Mr. Byington's plan - appraisal in terms of standard and ratio of issue to appraisal - are very good, and they have grown gray in their goodness. But, when he assumes that the value of the notes issued will be regulated by their supply and demand, he becomes a financial heretic of the worst description.

There is nothing more certain (and oftener denied) in finance than the statement which Colonel Greene, in "Mutual Banking," prints in small capitals, - that mutual money differs from merchandise money (and, I may add, from fiat: money also) in that it is absolutely exempt from the operation of the law of supply and demand. Be there more of it, or be there less, the value of each note remains the same. The hypothesis of free and mutual banking excludes on the one hand any legal limitation of the supply of currency whereby each note would acquire an extra value due to the enforced scarcity of the tool of exchange, and, on the other hand, any inflation of the currency to a volume exceeding the basis or sufficiently approaching the limit of the basis to inspire an appreciable fear that the notes are in danger from a possible depreciation of the security. Now, within these limits no change in the volume of the currency can by any possibility affect the value of the individual paper dollar. The value of the paper dollar depends not at all upon the demand and supply of paper dollars, but altogether upon the demand and supply of the kinds of property upon which the paper dollars rest. And, unless these kinds of property themselves depreciate sufficiently to endanger the notes, each paper dollar is worth a standard dollar, neither more or less. Mr. Byington's plan for maintaining this parity by providing steadiness in the demand and supply of notes is worthless, then, for two reasons: first, of itself it could do nothing toward accomplishing its purpose; second, without it its purpose is otherwise accomplished. I do not know how to respond to Mr. Byington's request that I describe more fully the method of this accomplishment. If he will try to point out just what it is that he does not understand, I will try to make him understand it.

Mr. Byington, in his letter in another column, asks me what would maintain the par value of mutual bank notes in a community where every borrower promptly meets his obligations to the bank as they mature, in the absence of any contract binding the individual parties thereto to receive the bank notes at par. Mr. Byington's hypothetical community is one in which every man in it is as certain as of the daily rising of the sun that every other man in it is thoroughly honest, absolutely capable, infallible in judgment, and entirely exempt from liability to accident. Such must be the case in any community where there is and can be absolutely no failure to meet financial obligations. In this ideal community the necessity for collateral as security for mutual money vanishes. But so also vanishes the necessity of any agreement to take the notes at par, for it is perfectly certain that then the notes will be so taken whether such an agreement exists or not. And the knowledge of this fact, arising out of the absolute certainty prevailing on every hand, would be more potent in maintaining the par value of the notes than any confidence based on contract. The supposed community, however, is, if not an absurd impossibility, at least too remote a possibility to be considered. During the pre-millennial period it will be necessary to count on the element of risk in considering banking problems. While risk remains, collateral will be a necessity. Now, this collateral, instead of being a subsidiary security, is the final dependence of an who use the money. Even those who contract to receive the money make this contract mainly because they know the collateral to have been deposited or pledged. All the other devices for security are merely props to this main bulwark. Abandon this bulwark, and, until risk disappears from the world, bank notes will depreciate. Maintain it, and, though all the props be removed, the notes will remain at par. People who live by buying and selling merchandise will always take in lieu of a gold dollar that which they know, and which other dealers know, to be convertible into a gold dollar if the occasion for such conversion shall arise. In answer to the closing paragraph of Mr. Byington's letter, I need only point out that to use the fact that mutual money will be at par with the standard as a reason for dispensing with the cause that maintains it at par with the standard is to reason in a circle.

Mr. Byington was still not quite satisfied, and, in order that Mr. Tucker's meaning might be made a little more clear to him, he asked for answers to the following questions: "In the ideal community of perfect men, what would make it certain that mutual-bank notes would be taken at par, if there were no contract to take them at par?" and "In the present world, what will maintain the value of a mutual-bank note which has good collateral, if 'all the props be removed', or if that particular prop be removed which consists in the contract to take the money at par?" To which the editor of Liberty replied:

It's an ideal community of perfect men, from which, by the hypothesis, failure to meet financial obligations is absolutely eliminated, mutual-bank notes would circulate, even if unsecured, because this very hypothesis implies a demand for these notes, after their issue; borrowers must regain possession of them in order to make the hypothesis a reality, and those from whom the borrowers buy will accept the notes from them in the first place because they know - again by the hypothesis - that the borrowers must in some way recover them. They will circulate at par because, being issued in terms of a commodity standard, and redemption by cancellation being assured, there is no reason why they should circulate at a figure below their face. Or, at least, if there is such a reason, it is incumbent upon Mr. Byington to point it out.

In the existing unideal world the collateral securing a mutual-bank note would guarantee its holder that, unless the original borrower buys back the note in order to cancel therewith his own note held by the bank, the bank itself will ultimately convert the collateral into the commodity agreed upon for redemption purposes and with the proceeds buy back the note. Therefore it is precisely this convertibility, even though conversion is not to be had on demand, that will maintain the value of the mutual-bank note.

The mutual bank will never show anybody that paper money which is never convertible can ever be made steadily useful in an unideal world, either with or without a government fiat. For such is not the truth, and neither the mutual bank or anything else can establish an error.

Mutual banking, it is true, is not a cardinal doctrine of Anarchism. But free banking is. Now, free banking will lead to mutual banking, and mutual banking is the greatest single step that can possibly be taken in the direction of emancipating labor from poverty. Mutual banking, then, is as intimately connected with Anarchism as though it were one of its cardinal doctrines. Liberty is valuable only as it contributes to happiness, and to this end no single liberty is as necessary at present as the liberty of banking.

Because the editor of Liberty considered it important to demolish ""the most specious plea" that had yet appeared for "the notion that a monetary system is possible without a standard of value," he asked Mr. Hugo Bilgram to review Mr. Arthur Kitson's "A Scientific Solution of the Money Question." Mr. Bilgram performed the task in a masterly manner, and Mr. Tucker added the following caustic criticism of Mr. Kitson's book:

It often happens that some of the most active men in a movement are not its most rational exponents. The movement for freedom in finance is an instance of this truth. Two or three of its most enthusiastic propagandists are basing their advocacy upon propositions regarding value and its measurement which are so absurd that I have to blush for the rational utterances which I find in their company. If I were interested in some great discovery in mechanics, and if others interested with me were to persist in bringing it into ridicule by associating it with, and even basing it upon, a professed solution of the perpetual motion problem, I could not feel a deeper sense of humiliation for my cause than I feel when I receive a new book, written by an earnest comrade, in which the social ends that I seek are defended on grounds so laughably untenable that they give rational men a warrant for entertaining a suspicion of our sanity. Such a book is Mr. Kitson's, which, in asking for freedom in finance for the purpose of creating a monetary system professing to estimate concrete values in the terms of a valueless abstraction, is liable to do more harm to the cause of financial freedom than all the writings of the orthodox economists. It may seem that, in calling upon one of the ablest living writers on finance to expose an error so childish, I have trained a columbiad upon an egg-shell. Yet, after all. one is seldom set a more difficult task than that of dealing with those forms of error which fly in one's face with a flat and fatuous denial of truths so nearly axiomatic that they do not admit of much elucidation. Of this task Mr. Bilgram has acquitted himself triumphantly. Mr. Kitson's theory of an invariable monetary unit is riddled completely. If Mr. Kitson will set himself to answer the question asked him by Mr. Bilgram regarding the value, in terms of the invariable unit, of several commodities assumed to have certain exchange relations on the day following the adoption of this unit, he will begin to appreciate the difficulties of his situation. I would like him to deal also with a problem of somewhat similar character which I will set him. Suppose that today, April 20, 1895, Mr. Kitson's monetary system goes into operation. Suppose, further, that, in his preliminary tabulation of the exchange relations of commodities as existing on April 20, he finds that 48 ounces of silver = i ounce of gold = .200 ounces of copper; and that he takes 11 ounce of gold, at its valuation of April 20, as his invariable unit. A year elapses. On April 20, 1896, the exchange relations of silver, gold, and copper, in consequence of variations in the supply and demand of these commodities, are found, we will suppose, to be as follows: 48 ounces of silver = 3 ounces of gold = 300 ounces of copper. Now let us leave copper out of consideration for a moment. If on April 20, 1895, when 48 ounces of silver were worth 1 ounce of gold, 1 ounce of gold was worth 1 unit, then on April 20, 1896, when 48 ounces of silver are worth 3 ounces of gold, 1 ounce of gold is worth 1/3 of a unit. So far, so good. Now let us take copper into consideration once more, but leave out silver. If on April 20, 1895, when 200 ounces of copper were worth 1 ounce of gold, 1 ounce of gold was worth 1 unit, then on April 20, 1896, when 200 ounces of copper are worth 2 ounces of gold, it ounce of gold is worth 1/2 of a unit. But we have just proved it to be worth 1/3 of a unit. That is to say, starting with the same data and following two parallel and irrefutable lines of argument, we arrive at contradictory conclusions. And by taking other commodities into account and applying the same argument in each case, it could be shown that, with Mr. Kitson's "invariable" unit, an ounce of gold at any given moment would have a thousand and one different values, all expressed in terms of the same unit or denominator. In dealing thus severely with Mr. Kitson's book, I am moved by no unfriendly spirit, and I have no inclination to deny that it contains much valuable truth, - truth that would be of great service to liberty were it not "queered" by pages of intolerable balderdash. I would like the work to be read by every person who has previously familiarized himself with the literature of free and mutual banking. But no work could be better calculated to fill the mind of a beginner with confusion and that of a keen opponent with contempt. For this reason I cannot include it - much to my regret-in the literature of Liberty's propaganda.

Concerning Mr. Tucker's criticism of Mr. Kitson's book, Mr. Victor Yarros submitted some quotations from Proudhon which seemed to indicate that that great economist did not believe in the necessity for a standard of value. The editor of Liberty thus analyzed the quotations and discussed them:

I do not consider the question thus raised of very great importance. However momentous the standard-of-value question may be in itself, it is of very little consequence on which side of it any given writer stands, unless, first, he takes a position so clearly and unmistakably that those who read him most attentively can agree, at least broadly, as to what his position is, and, second, brings arguments to bear in support of his position sufficiently weighty, and sufficiently different from the arguments adduced by others, to exercise an influence where other arguments have failed to induce agreement.

I do not accept Proudhon or any one else as a financial authority beyond question. There is more than one important point in his banking plan to which I cannot give assent. Proudhon has made a signal and a revolutionary contribution to economic science by his overpowering demonstration that the chief hope of labor lies in the power of monetization of all its products, power now allowed only to one or two of them. For this he has my lasting gratitude and honor, but not my worship. I grant him no infallibility, and I reserve my right to differ when his declarations do not commend themselves to my reason. On the matter now at issue his works do not throw much light. In his numerous volumes of financial writings references to the standard-of-value question are casual, incidental, and rare. Even if they were clearly against the standard-of-value theory, they would call for little attention or opposition from me, because they are inconspicuous, because they are assertions rather than arguments, and because they are not basic in his financial plan. With Mr. Kitson it is different. He places his opposition to a standard of value at the very foundation of his theory, he pretends that it is basic, and he even declares that with a standard of value the free-money theory becomes ridiculous. It is necessary therefore, to attack him in a way in which it would not be necessary to attack Proudhon, even could it be shown that the latter's references to a standard of value are clearly antagonistic to it. But, were it necessary to attack Proudhon, I should not hesitate to do so. I have no gods.

But now to the merits. I claim that Proudhon acknowledged the necessity of a standard of value; that the passages cited from his writings in Mr. Yarros's letter are not clearly and conclusively against the theory of a standard, but are capable of another explanation; that one or two other passages can be cited which are so clearly in favor of the theory of a standard as to exclude any other explanation; and that most important of all - a standard of value is adopted both in his Bank of Exchange and his Bank of the People.

Let us examine first the quotations cited by Mr. Yarros, - four in number. The first, which speaks of Law, Ricardo, and the economists as "always taking metal as a standard of value," does not thereby antagonize the theory of a standard of value. The most that can be gathered from it is a hint that Proudhon considered that, when all values should be "constituted," to use his phrase, perhaps a better standard than metal might be found. It is fair to presume that, if he had been opposed to a standard, he would have said "always taking a standard of value." The phrase actually used implies opposition to metal rather than opposition to a standard.

The proposal, in the second quotation, to destroy the royalty of gold and to republicanize specie by making each product of labor current money does not necessarily mean anything more than an intention to strip specie of its exclusive privilege as a basis of currency and to give each product of labor the liberty of representation in the currency. In fact, Liberty and the free-money advocates who believe in a standard have always been in the habit of using these phrases from Proudhon to express exactly that idea. The concluding portion of the second quotation obviously refers to paper based upon metal and not simply expressed in terms of metal; and its language, like the language of the first quotation, implies opposition to metal rather than to a standard.

The third quotation simply establishes the undisputed point that Proudhon did not believe in a currency redeemable in specie. This is an entirely separate question from that of the necessity of a standard of value. It is perfectly possible, theoretically, for a bank to issue currency on an understanding that its members are pledged to receive it in lieu of a definite quantity of a definite commodity, without any promise or intention on the part of the bank to redeem it in the said commodity or in any other commodity. True, I do not think that such a currency is practicable; that is to say, I do not think that, the world being what it is, such a currency would circulate. This is one of the important points, already referred to by me, on which I disagree with Proudhon. But it in no way concerns the standard-of-value problem.

A greater stumbling-block is the fourth quotation. I do not pretend to know the thought that lay in Proudhon's mind when he wrote it. But I do know that he could not have intended to exclude the idea of the necessity of a standard, for this is proved by the sentence immediately preceding it, - a sentence which Mr. Yarros's correspondent could not have understood, since, if he had understood it, honesty would have forbidden him to omit it. Here it is: "Each subscriber (to the Bank) binds himself to receive in every payment, from any person whomsoever, and at par, the paper of the Bank of Exchange." At par, mind you. At par with what; if you please? Evidently at par with some chosen standard; and, no other standard being specified, evidently at par with the ordinary specie standard. In the absence of a standard of value, to talk of any currency as receivable at par is to use a nonsensical phrase.

So much for the passages cited. It may be said of them, as it may be said with truth of many other passages in Proudhon's writings on many other subjects, that it is to be regretted that they are not more explicit. But it cannot be truthfully said of them that they establish Proudhon's opposition to the adoption of a standard of value.

Look now at the evidence on the other side. First of all, - there is the passage which I have cited in the last paragraph but one. As I have pointed out, the words "at par"" absolutely necessitate a standard of value, and exclude any other explanation. This is sufficient in itself. Even if a passage were to be discovered indisputably denying the necessity of a standard, it would prove only that Proudhon had flatly contradicted himself.

But this is not all. In the chapter on value in the "Contradictions" these words occur: "In geometry the point of comparison is extent, and the unit of measure is now the division of the circle into three hundred and sixty parts, now the circumference of the terrestrial globe, now the average dimension of the human arm, hand, thumb, or foot. In economic science, we have said after Adam Smith, the point of view from which all values are compared is labor; as for the unit of measure, that adopted in France is the "frank" The small capitals here are Proudhon's own. Now, a franc, like a dollar, is a definite quantity commodity - four and one-half grammes of silver alloyed with half a gramme of copper, - and any one who will read this passage carefully, and especially in connection with its several pages of context, will see that the author means to point out a precise analogy between the adoption of a definite amount of extension embodied in a material object as a standard of length, and the adoption of a definite quantity of labor embodied in a definite commodity as a standard of value; yet it is this very analogy which the opponents of a standard deny and attempt to ridicule. This passage also is conclusive; it excludes any other interpretation.

Above all, however, and finally disposing of the subject, are the provisions contained in the constitutions of the Bank of Exchange and the Bank of the People. No note was to be issued by the former for any sum less than twenty francs (four dollars), and it was specified in Article 18 that the Bank would make change in coin. This is unintelligible except on the hypothesis that a franc in the Bank's paper was to be kept at par with a silver franc. For, if the silver franc were worth more than the paper franc, it would be ridiculous for the Bank to pay out a silver franc when it owed only a paper franc; and, if the silver franc were worth less, it would be equally ridiculous to suppose that any one would take it from the Bank in lieu of a paper franc. Again, in Article 21 of the act incorporating the Bank of the People, we find this: "Every producer or merchant adhering to the Bank of the People binds himself to deliver to the other adherents, at a reduced price, the articles which he manufactures or offers for sale." At a price reduced from what? The phrase can mean only that the merchant agrees to put a premium on the Bank's paper. Now, a premium implies a standard. More conclusive still, if possible, is Article 24, which says: "All consumers, whether associated or not, who desire to profit by the low prices guaranteed by the producers adhering to the Bank of the People will turn over to the Bank the coin intended for their purchases and will receive an equal sum in the Bank's paper." That is to say, Proudhon's Bank was to issue its notes against coined gold and silver among other things, franc for franc. Need more be said?

Besides this direct evidence there are circumstantial considerations of much force. One of these is that a thinker like Proudhon, writing many volumes on finance with the intent of revolutionizing it, - of making the sun rise in the west instead of in the east, as he once expressed it - would unquestionably have argued at great length the standard-of-value question, if he had dreamed of denying for a moment the current view that money is an impossibility without a standard. But the fact is that he said very little about the question, and in the little that he did say, instead of always taking pains to make his language clear and unmistakable, sometimes expressed himself carelessly, as one is apt to do when speaking upon a matter where he does not fear misinterpretation.

A second telling circumstance is that Colonel William B. Greene, a disciple of Proudhon who enjoyed with him for years in Paris a personal acquaintance and a considerable intimacy, did not, when noting in his "Mutual Banking" certain points of difference between Proudhon's plan and his own, even hint at any difference regarding the necessity of a standard of value, although Colonel Greene himself, who saw the importance of a clear position on this matter, treated the question at some length in another part of his pamphlet. There can be little doubt that, if there had been any difference between them on this point, Colonel Greene would have alluded to it either in "Mutual Banking" or in his later writings on finance. It is further significant that in the many conversations regarding Proudhon and regarding finance which I have had with Colonel Greene, he never signified in the remotest way that Proudhon rejected the standard-of-value theory.

Believing that it has cleared Proudhon of the charge that he entertained the Kitsonian absurdity, the defence rests, and awaits the plaintiff's rebuttal. I hope no one will suspect Mr. Yarros of being the plaintiff's attorney. He is not. It is simply as a juror that he makes his request for information.

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