Financing the people and abolishing crime

Preface

A condition has arisen in the industrial and economic affairs of the United States which the existing financial system cannot meet. Productive enterprises are perishing for lack of operating capital, and the financiers frankly admit they cannot supply this need without danger of losing their loans. These financiers are rapidly becoming more ''conservative" and are withdrawing loans from the small enterprises and extending an ever-increasing amount of credit to the large concerns. This means that the financiers are deliberately taking the business from the small business man and transferring the wealth accumulating enterprises into the control of the larger ones. Wealth is thereby congested in the hands of the few and poverty disseminated among the many.

The purpose of this volume is to suggest a way to overcome these disastrous influences, and propose a financial system which will enable all classes to share in its benefits. While meeting these requirements as a financial system it also acts as a preventive of crime; and incidentally pays the government expenses without further tax levies.

The Author.

Jacksonville, Fla., 1922.

Chapter I A New Financial System Imperative

In 1911, President Wilson stated: "The great monopoly in this country is the money monopoly. So long as that exists, our variety and freedom and individual energy of development are out of the question. A great industry is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the control of a few men, who, even if their activities be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their money is involved, and who, necessarily, by every reason of their own limitation, chill and check and destroy genuine economic freedom.

"This is the greatest question of all ; and to this statesmen must address themselves with an earnest determination to serve the long future and the true liberties of man."

This sentiment was expressed before President

Wilson became the Chief Executive of the nation, but the concentration of credit, which was characterized as such a menace at that time, has continued with increasing virulence down to the present date; and the great money monopoly of that date is a far greater monopoly at the present time. And, anomalously, this menace increased and the monopoly thrived beyond precedent, and without molestation, under the administration of the man who so vividly portrayed the evils in the statement above quoted; and during eight years' incumbency as Chief Executive no effort was made to remove the menace nor even check the monopolistic growth.

This statement is not made in disparagement of President Wilson. It is recording the prevailing attitude of American statesmen toward financial and industrial monopolies. Ambitious statesmen will see the public unmercifully imposed upon and plundered rather than go counter to the wishes of these powerful combinations of capital and thereby incur their certain opposition at the following election.

FINANCE AND INDUSTRY UNBALANCED American industry, production and finance are not, at present, working together harmoniously. And a new financial system is needed that will harmonize with industrial expansion and meet the needs and requirements of the public. Business and industry have so outstripped the financial system that it no longer promotes their growth and development, but is now a very heavy load for them to carry. It wohW seem like an extravagant expression to charge a total absence of any financial system; I will, therefore, content myself at this stage of the discussion, by stating that the present one is grossly inadequate to permit a maximum production and consumption of the necessities and comforts of life.

Right now America needs increased production. The financiers so state. But what are they doing to alleviate this condition? Are their activities controlled by any desire to bring relief along this line? Or rather is not their business directed along lines that will bring them the best security and net them the largest profits, and this, regardless of whether the customers are engaged in stifling or increasing production? Is the financier influenced to any degree in the question of putting his money behind a productive or a non-productive business? These matters, while grave as viewed from the public standpoint, are entirely ignored and passed without consideration by the financiers when placing their loans ; and the greater the need of productive industry the less likely it is to get financial assistance. As the needs of industry increase finance turns its back and faces in the direction where need is not pressing and where easy money prevails and securities are ample.

This disposition has produced a very peculiar condition in economic and industrial affairs. The value of the annual production of finished commodities, after eliminating all double and cumulative valuations, is right at $25,000,000,000. These products go to the consumers at an estimated cost of $68,000,000,000. This indicates a $43,000,000,- 000 gap to be filled between the ultimate producers and the ultimate consumers. These finished commodities must pass through many hands, and receive large accretions of profits and expenses to bring their total value up to the maximum of $68,- 000,000,000.

The clearing-house reports, for 1919, show that the business transacted through the banks exceeded $325,000,000,000 for that year. In 1920, and 1921, this business had increased to more than $400,000,000,000 annually. Other billions of business did not go through the clearing houses and is not, therefore, included in these figures. This huge total business was developed from the basic products put out by farms, mines and factories; and, as before stated, carried a value of approximately $25,000,000,000. This large aggregate business developed from that base represent a turnover that is increasing prices beyond endurance. On each dollar's worth of finished products a business in excess of fifteen dollars is developed. And the profits made on these transactions, and which are added to the cost of the commodities between the producers and the consumers, amount to $43,- 000,000,000 and more. Thus a commodity having a primary cost of one dollar has a retail price of nearly three dollars when passed to the consumers. Stated differently, the consumers pay one dollar to the producers and nearly two dollars to the agencies intervening between the producers and the consumers. It is, therefore, evident that if the production could be doubled the intervening concerns could make their aggregate profits by the addition of one dollar to the producers' price, thereby enabling them to release the commodities to the consumers at two dollars for every dollar paid to the producers, thus selling for two dollars what formerly cost three. This would double the producer's aggregate receipts and give the intervenors a wider base upon which to spread their profits.

While this increased production is needed, and advised b> the financiers, they are inferentially advising that it must be accomplished without their assistance. They are deliberately restricting credit to "gilt edged securities'' and those having "ratings that will enable them to be easily marketed."

TWO KINDS OF CREDIT There are two kinds of credits and if these are kept in mind, and the finances of the country properly adjusted to the needs of the two, a great good will result.

One credit is a productive, or constructive, credit. This is the one that backs productive enterprises and enables them to supply the demands of the public. These enterprises, as we have seen, are needing more, rather than less, credit, and to deflate productive credit will tend to reduce production and ultimately increase the price of the things produced. If a maximum credit could be extended to production a maximum output of mine, factory, and farm products would result. This would tend to reduce prices to the consumers. High prices usually result from a deficiency of productive credit coupled with an excess of speculative credit. If the farmers had a financial system that would back them, when they need assistance, they could double the farm yield with ease. On account of having no financial system applicable to the farming industry this needed assistance is not available, and the farmers are working against a handicap that limits their production to individual efforts without material financial support.

Banks withhold credit from farmers as a class. This outlaws them under the present financial system and curtails production of these necessary products, with the result that it injuries the farmers as a class by reducing their incomes, and injuries the public as consumers by greatly increasing their outgo on a smaller consumption.

The second kind of credit is that extended to non-productive enterprises. This includes the credit given to business, speculators and middlemen. Most credit is extended to this non-productive group. This is where business and industry overbalance production. President Harding stated the fact recently that nearly half of the wealth of the United States is invested in farms. In the face of this fact it is proposed to extend a loan of $1,000,000,000 to this industry while the railroads with less than twenty per cent of the farm values are being extended favors much in excess of this amount. The total credits now extended to various industries and enterprises in the United States is much in excess of $100,000,000,000, and the farms with nearly half of the basic wealth are permitted to use about 6 per cent of the credit, and this is extended as a benefaction and classes the farmers as beggars.

Productive enterprises generally fall in the same category as the farms but not so severely— the smaller enterprises being denied credit while the larger ones generally get sufficient. Something near twenty per cent of the credit of the country is extended on production and 80 per cent on activities whose profits and expenses represent the difference between what the producers get and what the consumers pay. Thus about four times as much credit is extended on these non-productive undertakings as on the ones that put out the basic products which feed business and industry. This large amount of credit extended to the non-productive undertakings enables the business and speculative enterprises to pass these basic products through three to six, or more, hands before reaching the consumers. The profits and expenses attaching to the process of passing through these various hands produces the two dollars increase on every basic dollar of output, — 200 per cent raise above the producers selling price. This condition is brought about by extending greatly more credit to pass commodities from the sources of production to the consumers than is placed upon the enterprises engaged in putting out these commodities.

Relief can only come through an equalization of the credit and adjusting it to meet a custom that has suddenly developed a very serious condition. An intelligent deflation of the speculative credit would deflate industry that is now so expanded that it is doing a business in excess of §325,000,000,000 annually on the basic products valued at something like $25,000,000,000, and adding to this value near 200 per cent for the public to pay.

WASTING FREIGHT FACILITIES THIS SPECULATIVE FEATURE OF BUSI- NESS IS REFLECTED IN THE TRANSPORTA- TION PROBLEMS. When the farmers are wanting cars to move their crops the speculators are utilizing them to transport merchandise from one speculator to another. According to the railroad statistics the freight handled in 1919, was valued at $150,000,000,000. The original value of this freight was not $25,000,000,000. This gives some idea how many times this huge freight tonnage was loaded and unloaded — hauled from one dealer to another — in order to bring its total value up to the $150,000,000,000 mark.

A withdrawal of this speculative credit would force commodities to go to the consumers to find a market. The tendency now is for one speculator to find another as a purchaser for his stock of merchandise, and thus retain it from the consumers until the prices become so inflated that there is no longer any speculation in it. This method must waste a very large per cent of the freight facilities and congest freight traffic to the extent of demoralizing legitimate business.

STIFLING LITTLE BUSINESS

The determination of the financiers to extend credit only on gilt-edge securities, having a commercial rating, is a direct assault on Little Business. Only securities that have a marketable value with the large financial institutions must be accepted. The small country bank now accepts paper with the understanding that it may be cashed in the large central banks if it comes up to their requirements. The opinion of the local banker is no longer controlling, and he makes the loans to meet the whims of the city banker who is probably thousands of miles removed from the customers. This means that the customers must have a commercial rating to get the desired consideration at the hands of the concerns who have the money and credits to loan. This withdraws the credit from the small business whether productive or non-productive. Under this arrangement the small business must go; and it is very rapidly disappearing as an economic or industrial factor, and the banks are making no efforts to save it.

The banks had rather loan large amounts to a few than small amounts to a large number. It is easier, less expensive and safer under the present methods. It is a matter of business for them to encourage large loans and discourage small ones. This is the policy banks are following and it is building up the large enterprises and destroying the small ones.

The farmers, and business men of small means, who cannot get sufficient financial support to operate individually, abandon the effort and become a wheel in the large machine where they can get a "living wage" and the machine gets the profits which result from their labor.

This tendency to concentrate credit on large concerns has been increasing with marked rapidity in recent years, until at present, even under favorable conditions, the small business is shut off from a participation in the country's credits. Bankers state frankly that they have as many large loans as they can handle, and, therefore, do not care to handle small ones. As long as capitalists want the maximum of credits they will be extended to small business very gingerly, and as long as they are withheld from small business there will be an increased demand for the loans among the large concerns. It is a policy that works everything into monopolistic control. The very fact that credit is denied to small business gives the banks more large loans to take care of. In this way banks are building up their largest and best customers and at the same time helping them remove their small rivals.

When the order goes forth to curtail credit the large enterprises are not frightened to any degree. They know that they will continue to get the necessary credit, and that the withdrawal of credit will let down many of their small competitors.

LABOR OUTLAWED

Labor with an estimated intrinsic value of $200,000,000,000 to $300,000,000,000 has no rating in money circles and, therefore, has no credit to lose. It has an estimated value in excess of all tangible wealth and, yet, it stands outlawed under the rules of the financial monopoly. A ban is thus placed on 35,000,000 of the country's producers excluding them from the benefits flowing from a financial system. There are more than 35,000,000 on the farms who by reason of their small individual holdings are placed by financiers in the same class with labor. By adding to these two great divisions of American citizens the small business, which is outside of the favor of the financiers, a total in excess of 80,000,000 of the population is easily obtained, who are living outside of the established system; while a bare ten per cent are able to get maximum requirements.

The vast majority of these outlawed citizens are the wealth producers of the country, and, yet, financiers will not assist them to do this indispensible work; but are ready to extend large sums to the ones who speculate on these products as soon as labor releases them.

It is not the fault of productive labor that it is denied credit ; the fault is in the system. The immediate need is for a system that is also a labor system. It must be willing to go into the fields of production and help do some of the drudgery. If a farmer can produce crops to the value of $1,- 000 without capital and to the value of $2,000 with the necessary capital, the new finance must be willing to help produce the larger amount. It must work for a maximum production instead of a maximum manipulation of wealth after it is produced.

Small business should be re-established and supported otherwise the people will degenerate into mere machines and lose the originality necessary for developing and maintaining a maximum production.

Labor ought to be capitalized. There is no reason for not including labor in any scheme of finance. If labor is out of employment it is not consonant with civilized government to require it to resort to begging or stealing to support the family. This new finance might require more detail in its operations because it would be a financial system applicable to the whole population.

If the government should nationalize the medical profession; and these national physicians should adopt the policy of selecting the strongest and most healthful ten per cent of the population, and give to them all medical attention, the plan would, at once, be pronounced as a farce — that is American finance. The ten per cent who are financially strong and healthy, and could, therefore, get along measurable well without assistance, get practically all credit, while about 80 per cent who are financially weak and, therefore, need help, are denied it.

Chapter II The Fundamentals Of An Adequate System

If the present financial system is insufficient it is well for us to determine what are the requisites of one that would meet the present-day needs of business and industry. There are certain axioms which, if properly understood, will materially assist in arriving at an unquestioned conclusion. These axioms will first be presented.

First. No business or industry can operate successfully, under present conditions, without adequate capital.

Second. Every business and industry, therefore, in order to be of the greatest good to the country, and succeed individually, must have the necessary support and financial backing.

Third. The financial system which the government establishes is the one to which all business and industry must resort to get the necessary operating financing; and when this system fails an individual or concern of any kind success is not probable.

Fourth. Small enterprises are as deserving of favor in the extension of this financial support as are the large corporations.

Fifth. A financial system then should be one to which all could go for assistance in times of stress.

Sixth. Since the life of every business and the happiness of the whole people depend upon the workings of the financial system, it should not be subject to the control of any set of men or organizations; but it should be so adjusted and regulated that every individual can participate in its benefits to the extent of his faculties.

The correctness of these axioms will hardly be questioned by any one, and they show the implicit dependence of private and corporate success and growth upon the system of finance which the government provides to supply their needs and requirements. The financial system is the greatest and most important part of organized government. I will not even except the criminal statutes. A community can organize and provide protection against the outlaws, but it cannot overcome the withering and blighting influences of an inadequate financial system. The prosperity and happiness of every individual, and the success of every enterprise, are dependent upon the establishment of a proper financial system to which all may go for their succor and strength and those life-giving qualities, which it alone can give, and without which assistance every enterprise must perish.

If the government should establish a system of canals, throughout the country, for the purpose of furnishing the farmers with an irrigation system to water their crops in times of drouth, the mere establishment of such a system would be wasted effort unless there followed proper regulations for the distribution of the water to the farmers in time of need. Merely excavating the ditches and canals and turning the water into them would not make it an adequate irrigtation system, however, elaborate it might be in description. To make it a success there must be some provision for distributing the water to all parts of the canals so as to save the crops from the withering drouth and burning heat. The regulations for the distribution of the water are as important as the system of canals, for without distribution of the water it would simply be a skeleton system of canals and the irrigation would be ^irely lacking — it would be a canal system and not an irrigation system.

Then again, a few men of large capital, might pay a stipend to the receiver of the water at the "in-take" of the system and thus induce him to deliver the entire water supply of the system to them for their own private use, and, thereby, cause a total loss of all farm crops beyond the limits of the holdings of these large capitalists. The small farmers must have a year of want and hardships and privations, and begin the next year's operations under oppressive difficulties and with a shortage of funds due to the crop failure the previous season.

But with the new season the capitalists again inform the keeper of the "in-take" that they can use all water which is furnished to the system of canals, and that they will pay him the established price so that he need not bother with that innumerable list of farmers who clamor for their share of the water in order to save their crops from ruin, and who could afford to buy water in very small quantities only. This keeper of the "in-take" being a business man quickly decides upon his method of procedure. He can see no reason for bothering to distribute the water to millions of individuals and then employ a large list of collectors to get the pay for this water so widely distributed. So he does the sensible and businesslike thing and turns all water of the entire system into the holdings of the large capitalists who will pay cash and thereby saves the bother of keeping a long list of accounts, and entailing a heavy expense in their collection. Of course, he sees only his interest in the transaction. The fate of the farmers who are denied water is a matter of no concern to him. He is not to assume their troubles when he can so easily avoid them, and at a largely increased income to himself. If the water passes through his control it would be the acme of absurdity to refuse to turn it to where it will net him the larger profits at greatly reduced expenses and trouble. To refuse to accept this offer of the capitalists would black-list him in the business circles and catalogue him among the weak-minded philanthropists.

His reputation, business success, as well as his personal income, forces him to disregard the plea of the millions of farmers and confine his dealings to the few large capitalists who can easily handle his entire water supply. The visionary idealists may condemn him for adopting this course; but it is human nature, and people must be dealt with as human and expected to do the natural things. The keeper did what the business men generally would have done, and are doing daily. Under the arrangement the capitalists enlarge their holdings and grow enormous crops and experience unbounded prosperity; the small farmers, who are denied a participation in the distribution of the water, must close down and quit business. Under such a system of canals — for it is not an irrigation system they are under — the small farmers cannot compete witli the large capitalists who are freely extended an abundance of support in times of need and, therefore, these small farms cease to be economic factors in supplying the needs of the American people, and the whole field of agriculture becomes monopolized by the few large concerns who receive all the benefits of the legislation in behalf of the farming industry, and withhold even a modicum from their small competitors. It is quite apparent that this irrigation system extended only as far as the water went in the canals. The people who lived on the canals beyond the water supply, certainly cannot be said to have lived on an irrigation system, however extensive the canal system may have been.

THE FINANCIAL CANALS

The United States has established a skeleton system in which is placed the money and credits of the whole nation. The banks and financiers are the channels through which all credits and monQy must pass in being distributed to beneficiaries. These financiers may dispose of these moneys and credits at their option and in such way as to net them the largest incomes, and no complaint against an unequal and unjust distribution will meet with any consideration at the hands of the government, for the government has turned the whole control of the credit over to the financiers. The government has established a system, and provided so that all money and credit shall automatically pass into this system, but where it goes from there the government refuses to say. If the system refuses to release any of this money and credit into business circles, it has the option of doing so, and it thereby can shut down every business and industrial institution in the land, and the nation and the public would be perfectly helpless to defend themselves. The business and industry can prosper only to the extent that this system releases this money and credit to productive enterprises and to the enterprises which distributes the commodities among the people. And as a natural corollary only the enterprises among which these financiers distribute this working asset, called money and credit can operate successfully; those from whom it is withheld must immediately cease all activities where capital enters as an important factor.

The statement that all money and credits must pass through this established system conveys a very indefinite idea to a large portion of the pubhe. It is understood that all money, or practically all, is in the hands of the banks and financiers, but the credit is looked upon as something invisible, intangible and therefore inconsequential.

CREDIT WEALTH

The wealth of the United States consists of two general classes; tangible and intangible. The tangible wealth includes all material, visible property, such as lands, buildings, equipment, machinery and merchandise. All material wealth is estimated to be worth about $200,000,000,000. There is another $200,000,000,000 valuation in the credit wealth. That means that the total amount of private and public loans that it would be safe to make on the present tangible wealth is $200,000,000,000. This latter wealth, as a factor in production and distribution, is worth many times more than the total material property of the country. It seems unreasonable to assert that $200,000,000,000 of credit wealth will accomplish much more than that amount of material or tangible wealth, and yet to get the proof it is only necessary to analyze business and industry. More than 95 per cent of the business of this country is done through that part of wealth which we call credit. It moves nineteen times as much business as cash does and it moves many times more than cash could. If a few capitalists want to launch a new enterprise and have $1,000,000 cash to start with, they will put practically the whole amount into lands, buildings, machinery and equipment; and they will depend on their credit to finance the operations of the enterprise. With the million dollars of material wealth they will probably have in excess of that amount of credit with which to operate the business. And, as stated previously, this amount of credit will transact many times the business that the same amount of cash would. This may be illustrated in this way:

If a concern has $1,000,000 invested in a plant, well equipped with every necessity for a modern establishment of its kind, and then has no credit nor operating capital, the plant is a worthless piece of property until it gets that magic force called operating capital to put it in motion. This operating capital may be cash or credit, or both. If the concern has cash and no credits its business will be confined to what it can do on a cash basis, and the amount of business that can be done without credit is so small that very few enterprises can long survive by operating on a strictly cash basis. It is true that many firms claim to operate on a cash basis but, instead, they have the very best of credit and use it to the maximum. Suppose that a firm in New York has a capital of

$100,000, and its trade will consume 100 carloads oi goods per month. The goods which the firm handles are purchased from California. A wire is sent to the California house to ship the 100 carloads the first of every month until further notice. The order is accordingly entered and the shipments are made as requested. These shipments will keep the New York company supplied and the business will move along very nicely. The company has the $100,000 working capital and pays for the goods as they arrive. This is called doing a cash business.

Another firm in New York, just by the side of the one mentioned, has $100,000 but has no credit attribute that it can use ; so it must pay cash. It cannot wire for the shipment to come forward. The cash must be sent before the goods will move. The $100,000 is sent by mail and in due time reaches the California house and the 100 carloads of goods are shipped. If these cars move with the rapidity that characterizes American freight movements, namely, 26 miles per day, it is readily seen that more than three months will intervene between the date of shipment and the date of arrival in New York. This firm's capital is now tied up in stock and no further goods can be ordered until this shipment is disposed of and the cash received from the sale. It will probably require at least three months to dispose of the goods and collect the cash ready for making another order. The company trying to transact business on a cash basis turns 100 cars of goods within six months; the firm who has the use of the credit which belongs to the capital and is really an attribute of it, has its 100 cars coming every month. The credit attribute which this firm is permitted to use is bringing in sufficient supplies to keep the business moving at normal, while the firm who is denied this credit can hardly last in competition with the one who may use credit freely. This is an exaggerated case, but it is illustrative and gives some idea of some of the difficulties of operating any business or enterprise without credit as an asset. It is difficult to estimate the relative advantages of credit over cash as an operating agency, but it is probably about as 5 to 1 — - one dollar of credit being equal to five dollars of cash in moving business. This estimate would make the $200,000,000,000 of American credit equal to five times that amount of cash as a moving agency in business.