Money and profit-sharing : or, the double standard money system

Front matter

CORNELL

UNIVERSITY ilr

LIBRARY

Preface

Throughout the preparation of this fragment, which is now offered to the public as a contribution to the discussion of the Money Problem and the Labour Problem, this writer has endeavoured to subordinate all other considerations to the desire (1) to make a popular presentation of a scientific subject rather than a scientific presentation of a popular subject ; (2) to accept as far as practicable the generally received nomenclature of economic science ; (3) to present the subject briefly, and as far as practicable and consistent with the truth, as it manifests itself to him, in the language and from the points of view which have been most generally accepted as rational " at the bar of common sense " ; (4) to avoid giving undue prominence to phases of the science, not immediately connected with the particular questions discussed, which tend to give rise to fruitless disputes among economists, emphasising rather those phases concerning which there is substantial agreement ; (5) and to avoid making a representation of economic phenomena which might create an impression in the minds of any class or sub-class of society that they have been, or are being, deliberately and intentionally oppressed or defrauded by any other class or sub-class of society : the viii Preface

outcome of reforms brought about by pitting the egoistic interests of one class or sub -class, against the egoistic interests of another class or sub-class of society does not appear to warrant the belief that such a method facilitates the establishment of " Peace and goodwill among men." " A house divided against itself cannot stand."

The Appendices have been embodied as a means, not only of illustrating the particular economic questions discussed, but also of exhibiting this writer's idea of society as an organism, and the relation which the department of economy, and the other organic departments, bear to each other and to the organism of society.

According to this idea we are required to apprehend society as existing in nature, and yet as being distinct jfrom nature. This is a fundamental distinction discovering the natural (physical) order of phenomena and the social (speculative) order of phenomena as being seemingly opposite in their tendencies, and contradicting each other, yet, nevertheless, as fulfilling each other, as being the reciprocals of each other, in that they are unified in the universal order of phenomena.

The law of the natural order is the law of the survival of the physically, animally, fittest ; the law which says, " An eye for an eye, and a tooth for a tooth " — the law of egoism.

The law of the social order is, or should be, the law of the survival of the morally, intellectually, fittest; the law which says, " If thine enemy hunger, feed him ; if he thirst, give him drink " — the law of altruism.

Preface ix

From tlie at-one-ment of these two laws, allowing eacli its full weight of influence, proceedeth the law of the universal order, the law which says, "As ye would that men should do unto you, do ye also unto them ; " and, "As ye would not that men should do unto you, do ye not unto them " — the law of reciprocity, the law of co-operation, the law of humanity.

Again, according to this idea of society, we are required (1) to apprehend society as a unit, as a single organism ; (2) to apprehend society as divided into three organic departments ; and (3) to apprehend these departments as subdivided into sections and functions.

To indicate the view of society, or of any department, section, or function thereof, apprehended as a unit, as a single organism, the term objective is used.

To indicate the view of any department, section, function, or member of society apprehended as a constituent unit of society, or of any compound social organism, the term subjective is used.

(1) To indicate the phase or condition of society apprehended as unifying itself so as to become a single organism, or the phase or condition of any department of society apprehended as unifying itself so as to become a single organism, the term organisation is used.

(2) To indicate the phase or condition of society apprehended as separating itself into departments, the term departmentisation is. used.

(3) To indicate the phase or condition of any

X Preface

department or section apprehended as subdividing itself into functions, the term functionisation is used.

Of the functions of any organism some are for the purpose of (1) governing — directing and controlling; some are for the purpose of (2) moving — transporting, or circulating ; and others are for the purpose of (3) using — expending, or consuming the materials, or produce necessary for its sustenance, fecundity, and continuity. The terms government, movement, usement, are used for the purpose of distinguishing these three classes of functions.

The physical (objective and subjective) section of Political Economy, dealing with quantities of commodities, is subject to the law of the natural order.

The speculative (objective and subjective) section of Political Economy, dealing with values of commodities expressed in terms of money, is, or should be, subject to the law of the social order.

The at-one-ment of these sections of Political Economy is attained unto and maintained in the degree in which, anywhere and at any time, the actual economy of society conforms to, corresponds with, and is thereby made subject to the law of the universal order.

The conception of economic phenomena as being divided into physical and speculative categories, and subdivided into objective and speculative categories, is not regarded by this writer as being inconsistent with the teachings of the masters who have created the science of Political Economy, and brought some

Preface xi

light out of darkness, and an order out of the previously existing chaos.

If such a conception of economic phenomena be irrational its immediate exposure will prevent this writer from wasting any more precious time in developing such a conception. But if the conception be rational it cannot but help to further the development of the science. Whatever of truth there may be either in the proposed solutions of the particular problems discussed, or in the general view of the science presented, will, in the white light of impartial criticism, be speedily detached from the errors which are the consequences of the subjective limitations of the writer.

It is admitted by all that the economic organism of society is, somewhere and somehow, defective ; the need of the ever present hour is that this organism be carefully, diligently, thoroughly, and dispassionately examined ; and such defects as may be proven to exist therein, and for which efficient and sufficient remedies can be prescribed, be treated with the least possible delay and according to the methods which may reasonably be calculated to produce the minimum of friction, in those parts of the organism most immediately affected, and also in the organism as a whole, with the maximum of correction in the defective parts of the organism. It is only thus that we shall be able to enter into "the rest that remaineth." When this truth shall have been accepted by "the consensus of the competent," when, for all practical purposes, unanimity shall have been reached with reference to xii Preface

any particular reform, then legislation, making the principles of such reform incarnate in society, is the order of the day, otherwise there will be schism engendered within the body of society, and our aim and object is, or should be, to attain unto and to maintain the unity of society.

This fragment has been written by one who has but very little leisure to devote to the investigation of complex social subjects. The writer is conscious of its incompleteness, and of its many other literary defects. He trusts, however, that an indulgent public will not be too severe in its judgment because of these defects. He must also apologise for the degree of positiveness with which he has written upon subjects concerning which it is manifestly much easier to fall into error than to discover truth.

KiLLARNEY,

St. Saviour's Road, St. Helier, Jersey, July, 1908.

SUMMARY OF CONTENTS

This book deals with a criticism on the Double Standard Money System (which must not be confounded with Bimetallism), as set forth in "Inter-Temporary Values" and " The Trust and the Gold Trust," which appeared in the Bankers' Magazine for September 1907, and draws attention to the very injurious consequences, to the industry and commerce of the nations, of the continuous violent fluctuations in prices, resulting, in ever increasing frequency, in the crises and the panics, which have prevailed throughout the West ever since the monetary legislation, of the period from 1871-73 to the present time, began to be effective, which has destroyed, for international monetary purposes, the use of one half of the world's supply of the precious metals.

It also deals with the problem of Profit-Sharing as a means of reconciling the subjective divergencies of the particular and temporary interests of employers and employees which are, for practical purposes, more noticeable than the objective harmonies of their general and permanent interests, these being more obscure and remote from the immediate concerns of every-day life.

The objects aimed at and pointed out in this book, and in the other economic writings of the author, are : —

(1) That Values are distributed in Time as well as in Space, and vary in Time as well as in Space, thereby necessarily giving rise to the distinction between : —

{a) Contemporary Values,

and (6) Inter-Temporary Values, xiv Summary of Contents

similar to the recognised distinction between : —

(c) Local Values,

and (cZ) International Values. #

(2) That the exchange value of Money varies inversely with the exchange value of Commodities, therefore Money ALONE cannot be either a just or an equitable standard for the regulating, adjusting, and settling of inteB-temporaey

BUSINESS TRANSACTIONS.

(3) That, besides its jluctuating exchange value or general purchasing power, Money, unlike all other ARTICLES OF WEALTH, has jixed legal-tender value or GENERAL DEBT-PAYING POWER Created by statute law.

(4) That the regular and normal operations of Section 6 of the Coinage Act, 1870, and the other provisions of the laws regulating the legal-tender or general debt-paying functions of money, regulating the settlement of all inter-temporary TRANSACTIONS OR DEALINGS, cxacts either more or less than the just and equitable claim, accordingly as the circumstances of production and exchange, during the period, from the inception to the maturity, of an inter-temporary transaction or dealing, have depressed or elevated prices.

(5) That the intermittent but permanent tendency of Money is to appreciate in exchange value, as the progress of the economic arts — industrial, commercial and financial ejiciency — reduces cost of production, and as abundance reduces price.

(6) That under the existing legally established economic order, for practical business purposes working-men are divided into three great groups : —

(a) Capitalists or the Creditor Glasses,

(b) Entrepreneurs or Employers,

and

(c) Labourers or Employees.

That the active business of production and exchange is carried on by the Entrepreneurs' or Employers' Group, who

Summary of Contents xv

secure for themselves the direction and control of the whole of both the capital and labour of the nation, and also the legal custody and control of the whole of the produce resulting from the general economic co-operation of all classes of working-men, by undertaking in advance to pay : —

{d) Fixed sums of money to Real Estate Merchants, Bankers, Common Carriers, &c. &c., in the form of Rent, Interest, Freight, &c. &c., as value in exchange for the services of these economic functionaries, and for the use of their fixed and circulating capital, that is, for the use of their wealth employed in the production and exchange of wealth ;

(e) Fimd sums of money to Labourers, in the form of Salaries or Wages, as value in exchange for the services of those economic functionaries who are employed in the direct and immediate handling of the material and instruments of production, that is, the fixed and circulating capital employed in the work of the production and exchange of wealth — in full satisfaction of all the claims of both the Capitalists' and Labourers' Groups of working-men upon the whole of the final product of the general economic co-operation of all the classes of the three great groups of working-men.

(7) That the practical effect of this legally recognised economic arrangement enables the Entrepreneurs' or Employers' Group, di/reetly and immediately, to appropriate for their own use exclusively the whole of the Profit, or Surplus Produce, resulting from the general economic co-operation of all classes of working-men.

(8) That the practical effect of the intermittent but PERMANENT TENDENCY of Money to APPRECIATE in exchange value, conjoined with its exclusive and fixed legal-tender xvi Summary of Contents

value or general debt-paying power, enables the Capitalists Group, or the Ceeditok Classes of the nation, indirectly amd ultimately, to appropriate, for their own use exclusively) an intermittently but permanently increasing, and an excessive and inequitable share of the Profit, the Surplus Produce, resulting .from the general economic co-operation of all classes of economic functionaries in the work of the production and the exchange of wealth.

(9) The evil consequences resulting from this exclusive and concentrated appropriation of the whole of the Profit, or Surplus Produce, of the general economic co-operation, by the Capitalist and Entrepreneur Groups of working-men, are: —

(a) The periodic excessive accumulation of wealth in the hands of the members of these two groups ;

(6) The periodic absence of available wealth in the hands of the Labourers' Group to constitute effective demand for the purchase and consumption of the accumulated wealth ; so inevitably, there are : —

(c) The ever recurring periods of " Hard Times," of " Trade Depressions," of " Commercial Crises " in the midst of Abundance.

(10) The Remedies suggested as means for reducing these recognised evil consequences to their lowest terms, ujith the minimum of distu/rbance to the existing economic order, are : —

(a) The legal establishment and generalisation of the Wage Co-operative System of Profit- Sharing — under which both Entrepreneurs or Employers, and Labourers or Employees will participate equally, each according to his work, in business profits and losses, and so all the members of these two groups of working-men will be all the time equally

Summary of Contents xvii

interested in the final product of their conjoint work, and the need for resorting to the "Strike" or the "Lock -Out" will cease to exist. (6) The legal establishment and generalisation of the Double Standard Money System, under which there will be suitable and effective provision made for regulating, adjusting and dividing equally, between Lenders and Borrowers, Creditors and Debtors, in every inter-tem/porary transaction or dealimg, the variation of Values in Time resulting from either the appreciation or the depreciation of Money — dividing equally between them, the " Unearned " increment, and the " Unexpended " shrinkage.

(11) It is claimed that the combined influences of the Wage Co-operative System of Profit-Sharing and the Double Standard Money System will popularly, constantly and equitably regulate the distribution of wealth between all classes of working-men, so that the toiling millions, equally with the leisured few, will legally obtain their fair share of the Profit, the Surplus Produce, resulting from the general economic co-operation of all classes of working-men, " unto

EACH ACCORDING TO HIS WOEK."

(12) That this constant periodic wide diffusion of wealth — one half oi the Profit, the Surplus Produce — among the toiling millions of the Labourers' Group, will constantly and periodically constitute effective demand for the other half of the Proifit, or Surplus Produce, remaining in the hands of the Entrepreneurs' and Capitalists' Groups, and so will constantly prevent the periodic recurrence of " Hard Times," of " Trade Depressions," of " Commercial Crises " in the midst of Abundance.

(13) That under the Double Standard Money System, the appreciation or depreciation of money being equally divided between lender and borrower, creditor and debtor,

I

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Summary of Contents neither could be the exclusive gainer or loser by the creation of fictitiously high or low prices, so the powerful influences of the Capitalists' and Entrepreneurs' Groups would all the time co-operate so as to secure the utmost stability of prices practicable. Those engaged in the Extractive and Constructive industries could then enter upon enterprises, destined to increase the sum of physical wealth available for human use, with a degree of confidence, as to the money value of the output, nowhere now attainable, thereby enabling them to employ peofitably, and to operate constantly and progressively, the whole of the available CAPITAL AND LABOUR OF THE NATION, and in SO doing simultaneously take ONE STEP forward in the direction towards the solution of the Money problem and of the problem of the Unemployed.

(14) In dealing with the economic conditions, now existing throughout the West, the author groups the phenomena into what he regards as the four fundamental categories : —

Representing wealth, and the increase or decrease of wealth, in terms of quantities of Commodities.

(a) The Physical Category

(b) The Speculative (^"P'^'^^^'^'^^7"*^*^'^"?*^^^ /-, . { crease or decrease oi wealt

Category

(c) The Objective Category

(d) The Subjective Category m- wealth.

[ in terms of Money.

Representing wealth, and the increase or decrease of wealth, in terms relating to the ensemble of the interests involved.

The National or Corporate point of view.

Representing wealth, and the increase or decrease of wealth, in terms relating to the unit of the interests involved. The Individual or Personal point of view.

Summary of Contents xix

(15) In Appendix E of "Inter-Temporary Values," the practical application of this fourfold grouping of economic phenomena to the actual operations of business, under existing commercial and industrial conditions, has been most exhaustively illustrated, and the business results summarised and compared, under : —

(a) The existing Single Standard Money System,

and under (6) The Double Standard Money System.

(16) In Tables I., II. and III. of Part III. of "Inter- Temporary^Values," the persistent evil consequences of the Single Standard Money System, particularly its baneful influence upon the extractive and constructive industries, are pointed out and illustrated by facts obtained from Board of Trade publications ; and in Parts VI. and VII. of that work the superior merits of the Double Standard Money System, as a means of red/ucing to their lowest terms all fluctuations in the exchange value of commodities, which are the souree of our constant economic troubles, are most clearly shown.

The

Double Standard Money System

In the Banhers' Magazine for September 1907 reference is made to a pamphlet containing two essays, by the present writer, entitled " The Trust and The Gold Trust," ^ as follows: "Mr. Smith regards . . . the exclusive coinage of gold as the standard of value in the United Kingdom and the British Empire as a disadvantage — if we understand him correctly — to all classes except those connected with banking and money dealings. We have, however, to add that if this policy is injurious to all other classes of society, it must, incidentally, be injurious to them, as they only prosper when others are prosperous. Hence we may entirely clear them from any selfish interest in this matter. They simply carry on their business under the direction of the laws of the country, which enjoin the principle of a monometallic standard. Mr. Smith would go further. He would desire to establish an Index Number, to be established by the Board of Trade, according to which prices would be regulated. Impossible as such a standard of value would be to work, the idea is

' Messrs. Kegan Paul, Trench, Trubner & Co. Ltd., 1907.

A attractive to many minds, and there can be no doubt that the differences in the purchasing power of money, which are constantly taking place, impose great difficulties upon trade. The system of Corn Rent, by which many transactions were regulated, proyided for many years an exceedingly good basis of computation, but recent alterations in the cost of production and transport have made this basis an unstable one, and it is much to be doubted whether one more dependable can be found."

In that pamphlet, and more fully and in greater detail, in another entitled "Inter-Temporary Values, or The Distribution of the Produce in Time," there is set forth and illustrated the ^ Double Standard Money System, which differs from the existing Single Standard

• The Double Standard Money System must not be confounded with Bimetallism, which offers only an additional and an alternate metal out of which, unrestrictedly, unlimited legal tender money may be coined on private account. Bimetallism practically doubles the metallic money

BASES OF ALL THE BANKING TRIANGLES OF ALL THE NATIONS for both

national and international monetary purposes. To understand, in some degree, what the doubling of the bases of all the banking triangles of all the nations would mean to Entrepreneurs, seeking unsuccessfully to borrow Capital for the increase and expansion of solid business enterprises, and consequently to unemployed Labourers, seeking work and finding none, please see the paper read by Mr. E. H. Holden, M.P., Managing Director of the London City and Midland Bank Limited, before the Liverpool Banking Institute in December 1907, extracts from which will be found in Appendix No. VI. on pp. 191-195. See also pp. 207-209 and Table B of Appendix VI.

Under the Double Standard Money System, in every inter-temporary transaction, there would be legal provision made for determining "and for dividing equally, letween lenders and borrowers, creditors and debtors, any variation in the exchange value of the unlimited legal tender money metal or Tnetals at the maturity of the transaction, as eompa/red with the exchange value of such money metal or metals at the inception of the transaction.

The Single Standard Money System exists to-day throughout the

Money System — whether monometallic with a single monetary unit, or bimetallic with a double monetary unit — in that it contemplates —

1. The creation of a Department of Values as an annex to the Treasury or Board of Trade.

2. The publication by the Department of Values — (a) Daily — of an Official Price Current, embracing all of the forty -five representative articles of physical wealth, the prices of which now form the basis of the Board of Trade Index Numbers.

(&) Monthly — of Index Numbers similar to the Board of Trade General, Group and Special Index Numbers.

3. The legal distinction between contemporary and intei'-temporary transactions.

4. The legal definition of what shall be deemed an inter-temporary transaction (as has been done for purposes of discussion only on pages 29 and 30 of " Inter- Temporary Values," and on pages 43 and 44 of " The Trust and The Gold Trust ")•

West, in India, and in Japan, resting, for mternational luonetary purposes, upon Gold Monometallism exchmveh/ ; and the Single Standard Money System existed througtout the West and in India prior to 1871-73, resting, for both national and international purposes, upon Silver and Gold Bimetallism at the legally established ratio, practically, from and after 1803, of 15'5 of Silver to 1 of Gold, or at any of the other ratios of exchange mentioned in Appendix No. VI., p. 217.

Under the Single Standard Money System it is decreed by law that, in every inter-temporary transaction, the settlement shall be according to the exchange value of the wnlindteA legal tender money metal or metals alone at the MATURITY of such a transaction, and not otherwise/ witliout any reference whatever to the ecchange valvs of the money metal or metals at the inception of the transaction.

5. The amendment of Section 6 of " The Coinage Act, 1870,"^ so that " suitable and sufficient provision may be made requiring that in every inter-temporary transaction there shall be (1) a double standard of value — (a) money, and (6) some other article of physical wealth other than gold (or, in the event of the re-establishment by international agreement of the monetary conditions which existed prior to 1871-73, other than gold or silver) to be selected, agreed upon, and recorded at the inception of the transaction ; requiring also that at the maturity of such a transaction there shall be (2) an equal division, between creditor and debtor, between lender and borrower, of any variation in the value of the article of physical wealth so selected, agreed upon, and recorded, in comparison with money, as determined from an Official Price Current, embracing every staple article of industry and commerce, to be published daily by the Board of Trade, in the same manner as the prices of wheat, barley, and oats are now regularly published in the London Gazette, for the purpose of regulating and determining the sum of money (speculative wealth) payable to the tithe owner under the provisions of the Tithe Commutation Laws,

For determining- standard value at the time of the periodic or final payment of the principal and interest due on account of national or municipal loans, the Board of Trade General Index Numbers could be used, together with money, in all such transactions ; and any

* See Appendix I., p. 145.

of the Board of Trade Group Index Numbers could be used, together with money, in any transaction where the joint interests involved would thereby be more equitably represented and adjusted than by the use of any single article of physical wealth together with money." ^

Under the Double Standard Money System business dealings would take place, exactly as at present, between man and man direct from start to finish — from the inception of every inter-temporary transaction until its maturity.

At the inception of every inter-temporary transaction, all that would be required, in addition, in any contract entered into under an amended section 6 of " The Coinage Act, 1870," would be the selecting and recording of some article of physical wealth, or an Index Number, as the REauLATOE, for adjusting and distributing, between the parties to the contract, at the time of settlement, any variation in the value of the Regulator article which may take place, between the date of the inception and the date of the maturity of the contract.

At the maturity of the transaction, when the settlement is about to be made, the parties to the contract would refer to the Official Price Current or the Index Numbers to note the variation in the value of the Regulator article, and by means of the simple calculations ^ shown on pages 32 to 34 of " Inter-Temporary Values,"

1 « The Trust and The Gold Trust," pp. 44 and 45.

2 See Appendix II., pp 158-162.

and on pages 46 to 50 of " The Trust and The Gold Trust," distribute this variation of value equally between themselves. The Double Standard Money System is therefore not less popular and automatic in its operations than the existing Single Standard Money System. Under each system the authoritative function of the State would be Declarative only in all matters relating to money and to other business standards.

As navigators now regulate their chronometers, and sail the high seas, aided by Greenwich Standard Time and the other publications of the astronomers installed at the Greenwich Observatory ; so, under the Double Standard Money System, business men would manage and settle their inter-temporary dealings with the aid of the Official Price Current, declaring, from day to day and every day, what is the Standard Price of each of the forty-five representative staple articles of physical wealth, and of such other relative publications of the economists who, under the Double Standard Money System, would be needed and installed at the Department of Values.

The Settlement Point being, everywhere and always, the mean between the standard price of the Regulator article at the inception of the transaction, and the standard price of the Regulator article ai the maturity of the transaction, as shown in the Official Price Current.

The Single Standard Money System as embodied in the Act 33 Vict., cap. 10, which is essentially a modern edition of the Act 56 George III., cap. 68, is based upon the legal fiction, that " gold is of the same value all over the world " and at all times ; and it fixes £3, 17s. lOJd. per oz. as the legal-tender- value or general debt-paying-power of gold, however its exchange value or general purchasing power may vary.

It attempts to establish a legal monetary order resting upon the fiction of the fixity of the value of gold} a fiction contrary to the realities of the known monetary order, as manifested on the markets and exchanges of the world, which prove that the variations of the value of gold, in space and in time, are as diverse as the variations of the Price Currents which are published broadcast every day throughout the length and breadth of the whole realm of economic efibrt.

Ignoring the realities of the market and the exchange, which show the incessant variations in the value of gold, the law establishing the Single Standard Money System has, in aiming at an impossible fixity of value in gold, neglected to make any provision whatever for adjusting and distrihuting, according to some " reasonably mutual principle," the inevitable variations which are continually taking place in its value, and so under the existing money system the fluctuations in the value of all articles of wealth attain unto their maximum dimensions.

On the other hand the Double Standard Money System resting upon the realities of the market and the exchange, which prove that the value of gold is —

1. Constantly varying in space and in time.

2. That it varies inversely in its relation to every other article of physical wealth, and so cannot be, as the single and exclusive standard, either an equitable or an accurate representative of commodities — physical wealth.