Science of value; a cash market

Front matter

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X^(> SCIENCE OF VALUE

A Cash Market

Chapter I Light

ALONG time ago, in far away China, a magician, disguised as a beggar, went about the streets of the city crying "old lamps for new, old lamps for new, who will trade an old lamp for a new one?"

The people who heard him, said "Who does this fool think we are, to be so easily taken in by his cry 'old lamps for new' no one could afford to do that, he must be a cheat." The disguised magician came to the palace of Aladdin, who was in the country hunting. You will remember Aladdin was the shiftless and lazy son of a poor tailor Mustapha, who became possessed of a magic ring, and calling up the genie of the ring was given an old lamp. This lamp had the power to grant every wish of Aladdin that money would buy, and he soon became the most important man in the city, married the princess and lived in a palace.

When the old magician came to the court yard of the palace, and the princess being told he was offering to trade new lamps for old ones, she gave him Aladdin's wonderful old lamp for a new one, and then the magician was able to take the palace and princess from the city before Aladdin returned from the hunt. But Aladdin having the magic ring called up the genie of the ring and discovered where his princess and his palace had been taken, and was soon in possession of his lamp, his palace and his princess again.

I am going about the highways and byways of the city to again test the people, who have old lamps crying "new lamps for old, who will trade an old lamp for a new one?" This new lamp has the magic power to grant every wish money can satisfy, but the lamp is also controlled by the genie of a magic ring.

The genie of the magic ring has power over a great sum of money, billions of dollars, not in use, and it is this money the new lamp will supply to gratify your every wish; it is not money now in use, but is new money to do new buying that only the cash market can bring to you.

I have no use for the old lamps. I only wish the people to discard them and see the light from the new one, and let the old ones go below to the melting pot where they may suffer for the sin of so long keeping the world in darkness respecting this wonderful amount of new money.

The new lamp is called A Cash Market. You make your wish for what the market can supply and rub the lamp in the right way as Aladdin was required to do. The money will appear to grant your wish, as with Aladdin.

The first instruction to go with each lamp is to rub it in the right way, and by so doing, wipe out all the debts upon property, billions and billions of dollars of them. As soon as these debts disappear the genie of the magic ring will come, bringing the money that debts have held out of use and promise to return in the future.

The wise men who will not trade the old lamps for the new ones will say: "We have heard this same talk about returning the billions of dollars, debt has taken, getting this money the same as cash is all bosh. This lamp will call up an evil genie who will repudiate our debts, and make us forget our solemn obligations."

By no manner or means will debts be repudiated; the creditor is not to lose a penny. On the contrary he is to be paid on the nail, and that is where we get advantage of him — by being able to pay on demand. The new lamp will enable every property to secure its value in money and pay its debts. The creditor will not want his money when he finds that it can be had on demand, but will gladly take a better security than the one he now holds. Each and every property will be worth

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its value in money because each will be required to insure this value, and all working together will supply the money to pay as fast as it will be called for. This insurance of the value of the property will be based upon its income, which means upon its time to live, the same as life insurance, and the money will be paid the same as bank deposits are paid, by having a reserve set aside for this insurance fund.

To thus insure over a hundred billion dollars' worth of property, means that the value of land must be cut out because such value cannot be insured, and it is only necessary to make a very simple change in the book keeping of banks to supply the required reserves.

The deposit accounts of banks will merely change from one side of the bank ledger to the other side. One-third of the total deposits will only be required to make this change. All other deposits will be released to increase the general circulation of money. This reserve being used to convert the value of property into money on demand.

The whole stock of money in the United States consists of about three and a half billion dollars in cash, and more than eighteen billion dollars in bank credit, payable in cash on demand. This deposit money is supposed to supply an unlimited elasticity to the currency by which all possible demands from the market will be supplied, and every sale may have a margin of profit.

To be thus able to use five times as much credit money as we have cash it has been necessary to set aside one half the cash to pay this credit on demand, and when we fail to get the benefit of credit in an elastic currency we also lose the use of half the total cash.

For reasons, to be hereafter explained, the elasticity of bank deposit credit — by which it performs all the work of cash — has become a total failure so far as supplying capital with its money is concerned. We only use about four billion out of a total of eighteen billion, and this four billion must be cancelled in cash as fast as it is being used, and becomes a substitute for the cash held in reserve.

We have an enormous total of more than a hundred billion dollars worth of capital that should be liquid, exchangeable for money on demand, and the failure to make this capital liquid forces it to depend upon a speculative market when it seeks to sell, and makes it subject to violent changes in its price from which enormous fortunes have been taken.

The lack of an elastic currency, for the benefit of the security market, makes the innocent suffer with the guilty in creating fraudulent capital, and a fall in prices occurs when these frauds must be liquidated. All prices suffer as a result, and wealth concentrates to a small creditor class who buy in bankrupt property at half its true value.

The next question is — Can banks spare six billion dollars from the investment side of their accounts and transfer the deposits to the reserve side? We must remember, in this connection, that a cash market is the only market nature permits, and that bankers as well as all others finally depend upon the extent of the market, and this plan greatly extends the cash market for the general benefit.

If the general market is to be so extended, that it will be able to sell all that labor can send, and sell it at a profitable price, the billions of dollars now idle and invested by banks as capital must become liquid and instead of representing only six billion dollars in capital must make a hundred billion dollars worth payable on demand, and instead of all capital being deprived of its natural market, it then can be sold on demand at a standard price determined for it by its own rate of interest or dividend.

That capital may sell for its value in money on demand each corporation must set aside a bank reserve equal to one year's rate of interest on its whole issue of securities outstanding, this reserve will then create a market for its own securities in buying and selling them. The great gain to capital will come

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by allowing it to do its own financing, to be able to sell its own securities by competing with banks on equal terms for the money of depositors, paying the security on demand the same as the bank promises to pay its deposits on demand.

Each corporation will be required to call in and cancel its polyglot assortment of cat and dog securities, and replace them with a new issue in which there is no underground or concealed passages to defraud the public, and the only limit to the quantity of securities will be the amount the company can maintain on a cash basis. The reserve to protect capital will be in the hands of a trustee, who will redeem the securities to the extent of the reserve, and as fast as he redeems them will again sell to the public to replenish the reserve, thus making a market for securities, and taking the market from present stock exchanges. All changes in price will then be abolished and there need be no exchange in which to make prices.

When the demand for money in redeeming securities exceeds the supply, and the trustee can not sell as fast as he must redeem, the capital of such corporation will be thus reduced automatically until it meets its demand, and the corporation must make good its reserve at the expense of its dividends.

On the other hand, if the corporation is accumulating a surplus, which it does not need for its own development, it may automatically increase its capital to the full amount it can sustain in a cash market by paying stock dividends.

This first glimmer of light from the new lamp, being an unaccustomed light, may appear a bit hazy, but other rays will be forthcoming to illuminate this part of the subject as well as other parts connected with it. Remember the magic lamp and the magic ring is to make a mere change of debts into credits payable on demand, to merely change the accounts on the books of banks so that one-third of the total deposits will change from being invested as capital into a reserve that will make all capital payable in money on demand.

A cash market means a market in which no unsold goods will accumulate because no buyers may be found at a profitable price, not only will this market take up present supplies, but it will take all that labor and capital can send, at the same margin of profit.

This margin of profit is expected to create such a demand for labor to produce the goods and capital as to send wages to the highest point the market can pay, which point will be reached when wages equal the selling price of its product and includes the money taken from labor in profit.

This is, beyond doubt an unheard of market, a very Aladdin's market, where everything will be sold at a profit except property in land, which can not maintain a price payable in money. The money now spent for land and the debts that have kept this money out of circulation will then be used to buy the surplus of labor and capital.

It will be a very remarkable market, without competition between laborers reducing wages, and without competition between sellers reducing the standard rate of profit — a market in which the greatest anxiety will be found in getting labor to increase the supply that may always bring its profit, with no cost of land to pay, money will accumulate so fast from profits that every one will have plenty of it, and nothing to spend it for but the products of labor and capital.

Such a market means an enormous increase in spending money in the hands of about forty million laborers, and will advance the wage rate from the present lowest level that the least aniount of money in the market will pay, ten dollars a week, to the highest level the most amount of money can pay, forty dollars a week.

The cash market will have no trouble in maintaining the high wage rate for we already know that the higher wages go the easier they are to pay on account of the increase in profit money they carry, and we know that wage money circulates very rapidly, turning over six times a year. If you would see how easily bank deposit money may give rise to an elastic

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currency — employing labor, and building up an industry — the rapid development of the automobile business will supply the most fitting example. This business absorbed about five hundred million dollars of new capital in about ten years, by using bank deposits and converting them into cash in building factories, buying material and employing labor.

An automobile is a form of capital rather than a consumable commodity, altho it is rapidly consumed. Being a form of capital, its money must come from sales to owners of bank deposits rather than from sales of cash paid to labor. By selling machines to owners of bank deposits the currency became so elastic as to not only supply this business with all the money it could use, but it developed new profits that more than replaced the deposits, besides building up the new business as a total gain.

The cash market will extend this process of making an elastic currency by adding about thirty million new bank accounts to the present supply, giving to each laborer a surplus he need not spend for his living, allowing him to become a bank depositor. The old lamps I am most anxious to get out of the way by trading new ones for them, are lamps that put this money question in the gloom, by claiming that the supply of money in banks has nothing to do with the employment of labor, or with the increase in wealth, while the truth is clear that money has everything to do with success in business, and profit money is most vital to every undertaking. The real issue is between Cause and Effect. Our failure in solving social problems comes wholly from treating effect as cause.

Chapter II The Quantity Of Money

IF money is the Cause of activity in business the quantity of it becomes very important, and if the amount of business we may do is limited by having a cash market, the greater this market the greater must be the quantity of money, in circulation. In taking up this very complicated question of quantity we will limit it at first to the quantity in the commodity market where we do practically a cash business, and where we may easily see the amount of money we use and find it to be about sixty million dollars a day, and for the time forget that we should be using a like sum each day in the security market.

We pay out in wages of every description each day the sum of sixty million dollars, and we collect the same amount every day from the expenses of laborers and their families. This is the limit in quantity of cash, it carries profits, but these profits are also paid in wages so that this one sum includes all the actual money in use. We do circulate other money in buying or making exchanges between property owners, selling one property to buy another to adjust values to changing conditions, but this does not add to or take from the total quantity.

The sum of sixty million dollars paid in wages each day, must be balanced by collecting sixty million dollars the same day from consumers of every kind so the supply will balance the demand. We use the same money over and over again, and there is little trouble in following this circulation, while the trouble of following the circulation of credit is much more complicated.

A child should be able to see that we have no unlimited source of money to draw from, and are compelled to use the same cash over and over again. This limit in the quantityfixes an absolute limit in the amount of business if we have no elastic currency to increase the limit.

Let the ones who claim the quantity of money has nothing to do with our ability to employ labor or sell goods, consider the effect of reducing the total quantity of more than three billion dollars to the sum of sixty million we use each day, for, if we collect as much each day as we pay each day, why do we need more than one day's supply? Here is the point calling for new light.

We cannot get along with only one day's supply of cash on account of the different paths which the money takes after it is paid to labor, and when it returns from the consumer, each day's supply paid to labor must travel to the far ends of the earth and return before it may be used over again, and, while it is making this journey, we must have a quantity to draw upon day after day, until the first day's supply returns, that quantity will then allow us to collect the same amount every day by having a dollar in store at any place we need to pay a dollar in wages, and at any place we can sell a dollar's worth of goods.

If our supply was limited to the wages of one day only, it must have sixty days to return and only one million of the sixty would return each day and goods could only be sold to this amount, the owners of goods would then be compelled to return to barter where each man carried his own stock and took it bodily to a central market where it was traded bodily with another man.

But when a supply of money is being paid out, while stocks of goods are accumulating, the value of the goods, and the wages of the labor producing them is being carried by the quantity of money with benefit to all and at no cost. The employer of labor can pay from this stock of money before he sells the goods, and the merchant can sell his stock from the same supply before paying for it.

Being able to pay spot cash comes from having a stock of money on hand that balances the wages of labor paid for producing it. This is what limits the market to a cash basis. We can have no greater market than the wages of labor, and if the elasticity of money will not increase wages beyond this cash supply, our cash market will be limited by it, and all buying, not done with cash, must create debts.

The distribution of money throughout the body politic, along with the distribution of goods by which money and goods are instantly converted into each other, is the same as the distribution of living corpuscles throughout the blood by which every part of the body is nourished. We daily manufacture the supply of blood from the food just as we daily manufacture the commodity supply, and like commodities the blood goes to the heart and is then sent to all parts of the body to be consumed. The living corpuscles in the blood do the work of laborers who have money to spend, for it is these workers in the blood who apportion it to each part of our bodies.

This quantity of blood, and of living corpuscles with which it is filled, is like the stores of goods on hand combined with the quantity of money to balance goods, so as to make instant exchanges. We cannot depend on a supply of blood to only fill the heart because we only need a heart full to pump at any one pulsation, so we must have on hand more than one day's supply of goods and money.

The supply of blood the heart pumps into the arteries at one pulsation, and the supply the heart exhausts from the veins at the same pulsation, depends upon having the veins and arteries full of blood, and upon a new supply being manufactured every day from the stomach to replace the amount consumed, the same being true with goods and building material.

The food taken into the stomach is being rapidly digested, which only means to us that it is being converted into a liquid from which the living workers, in the arteries surrounding the digestive tract, manufacture our blood. The digestive tract containing this liquid blood food is walled off from the channels in which the blood circulates so that no part of this digested food, not intended for blood, shall get into the system, but must pass out in the sewer of the body. Surrounding the walls of this digestive tract will be found a fine network of blood vessels from which the corpuscles are at work manufacturing blood which then goes to the heart to be pumped into its channels in the body.

After the supply of blood reaches the heart it has a long way to travel, leaving the heart in great channels which grow more numerous as they subdivide, finally branching out into millions of hair like tubes on the surface of the body. At this limit, in the outward journey, the tiny network of arteries is exactly balanced by similar network of veins into which it discharges its blood on its return to the heart.

The living corpuscles in the blood are like the living laborers who have money to spend, and are profitably employed. These laborers make up the whole activity of the body politic the same as the corpuscles in the blood and tissues make up the whole activity of our life.

The fact that the government may arbitrarily coin the primary money, and must so coin it to establish equal units of value in dollars, dimes and cents, makes such money appear to be artificial when, in fact, it is a natural evolution and controls all process of production and trade. The government has no power over the value of money itself, and no real power over its quantity which is determined by the cost of labor, no power over its circulation, nor over its functions in making prices and wages, which rise and fall according to natural laws. As limited as is this power of coinage, the government has even less power over credit money, the functions of which are more important than cash; for credit supplies the business of the world with fi\5e times as much money as cash, and without it profits could not arise and business must perish. To make the distinction clear between coinage and credit— suppose we begin with no money and coin sixty million dollars a day to pay the prevailing rate of wages of every description? After the first sixty million dollars gets into the hands of labor it will scatter all over the world, and we must keep on coining money at this rate, if we would continue to employ labor, until we saturate the demand for cash. At the end of about sixty days we will find the demand for cash saturated, all its channels will be filled, sixty million dollars will then be spent each day to supply the wage money for the next day, and coinage will stop and wages will have fixed the limit in quantity at a certain level of prices for goods. It will then be evident that the cost of labor has fixed the quantity of money, and that the total wages spent for goods will also fix the level of prices for goods, or as much as is so spent will fix the price level, but the cost of these goods will fall below this level for the reason that only about half the quantity of money was paid to produce goods.

But there is, an important difference between fixing the quantity of money and fixing its value. The cost of labor does not fix the value of money which may seem queer, but is true nevertheless and quite simple. The value of money is determined by the equal relation between the wages of labor and prices of its products. This relation is only to be secured in a cash market where wages will buy its entire product at the market price. The value of money depends upon an equal demand and supply of money, the supply being paid out as wages and the demand coming from the sale of the labor product. But how can this be interfered with? How can there be a greater demand for money by the sale of products than the supply of money paid to labor to produce them? The demand may include a profit above the total sum paid in wages, products selling for more money than was paid as cost. But where is this extra money to come from? It comes temporarily from money earned by the labor of the past, and is supplied to pay this difference between demand and supply but is then charged up to labor as a debt on account of labor's failure to receive wages that buys back its own product.

Suppose that in newly coining a supply of cash we have been paying out new money for sixty days and have a quantity on hand of sixty times sixty million dollars, which, however, is balanced by stocks of goods on hand not all sold during this period, we have these stocks on hand and a market level of prices and wages depending upon sales of sixty million dollars a day. Now instead of a supply that fills all the channels, suppose we reduce the total to only the sixty million we spend and collect in one day, and cancel all other money? The result would be that this sixty million requiring sixty days to complete its journey would only return one million each day instead of sixty, and fifty nine million dollars' worth of goods could not be sold unless it was on credit, waiting for money to come in. All production would then adjust itself to the million a day market instead of the sixty million a day, and of course in such case a revolution must result, and a government so stupid would perish from the earth. This may seem absurd; if business must adjust itself to the quantity of money, may it not be true that we should be doing as much business as labor and capital may supply? And is it not true that our failure to do a business of two hundred million dollars a day instead of sixty may be found in the low wages we pay and collect from labor, and the fact that such wages will not buy all the product labor can send to market?

When the market has a surplus of goods that can not be sold at the price level prevailing, the practice is to sell on credit and thus prevent a decline in prices, adjusting the market to the short supply of money. These debts only mean the hope of getting this extra money by increasing its time of returning, which turns out to be a vain hope. The debts, that are being contracted to fill a gap in a short supply of cash, arise from the fact that nature demands a settlement with labor in a cash market, and to make this settlement on a cash basis she carries all unsettled claims in suspense by having them carried by a quantity of money. Goods are all expected to move and be settled for by the time new goods from a new circulation of money takes their places on the shelves of the merchant or on farms. When we contract debts in the commodity market we soon discover the law demanding a settlement of cash about every sixty days and find that goods not paid for generally represent lost money, but in the property market where credit money controls the situation there is a vast difference in creating debts.

The money paid out for labor and material in building, may not return to the builder from rents until after fifteen or twenty years, and on account of this slow return the cash settlement with labor, for the buildings it keeps sending to market every year, may be indefinitely postponed, and then wages can not buy these buildings in a cash market. Debts may increase in the property market until each and every income property has been encumbered with all the debt it can carry, and these debts will then represent the money labor failed to get as wages, which debts had to be created to fill the gap in the short supply of money when the demand for the sale of buildings could find no money in the hands of labor to buy them. Debts keep on increasing in the property market until they represent half the value of all accumulated wealth and also represent the share of that wealth which should have been paid to labor in wages but which was denied to labor in the circulation of money. We keep on accumulating debts upon new wealth as long as such debts do not seriously interfere with the commodity market, and if we will realize that property debts fill up the vacancy made by the cost of land in its demand upon money, this interference with the commodity market will not be hard to find.