Selected Correspondence from 1943 to 1952

(correspondence is in chronological order)

To William T. Foster (January 27, 1943)

There are, as you know, endless fictions, fallacies and fetishes in the theory of money, and I would like to follow the strategy of dumping them all into the laps of those who believe in political money and let them go on in the interminable task of trying to explain them. I would, on the other hand, invite those who choose the nonpolitical path, to join in the constructive effort of developing a new theory which at least, does not inherit the confusions of the old. It is a privilege to make original errors. You will note that the issue policy for the valun system is the central unsolved problem, and this alone is grist enough for minds that would mill and mull.

To Henry Morgenthau (April 10, 1943)

The word stabilization now so much used in political parlance, seems to mean in the Unitas Plan the act of rigging the market on the currencies of the member nations. Why cannot foreign exchange be natural? Why should not nations benefit from good fiscal policies and suffer from bad ones, the same as private corporations?

The endeavor to fix exchange rates springs from the fallacious belief that trading through depreciated currencies is unfair. This fallacy holds that when a currency becomes discreditable, the holder thereof has a trading advantage over those who hold currencies that are more creditable, and that therefore nations undertake to depreciate their currencies.

Now no nation but one ever deliberately undertook the depreciation of its own currency, and that one happens to be the one of which you are fiscal officer. It failed to accomplish its purpose, because it had not dawned upon our statesmen that the dollar is the criterion of all currencies, and that a criterion cannot depreciate in terms of itself. All nations that have depreciated their currencies have done so in terms of dollars, and in each case they merely recognized a fait accompli forced upon them by the natural operation of supply and demand. In other words, they acknowledged a fact beyond their control and reduced the "gold content" (dollar content) of their unit.

What is gold dissociated from the dollar? Is it not an inert metal that, because of artificial pricing, has been produced in excessive, supply, and if the dollar were withdrawn from it today, would it not plummet in price? By marriage, gold was lifted to a parity with the dollar, but as the dollar sinks to the level of the actual value of gold, gold will divorce the dollar on grounds of non-support. You will recall how in 1934 the President raised the price of gold and expected all prices to rise in salute, but they remained sitting. This time as the dollar falls, gold, like all other commodities, will remain standing.

In other words, gold is a value of and by itself, and the dollar is an entity of and by itself. The dollar will continue to be the monetary criterion of the world, but in the end it will probably follow all other national units to extinction through inflation.

It does not require a convention of nations to make a unit the world standard; it is in the nature of the credit concept that all monetary instruments are and must be weighed in the scale with the best. Since the pound surrendered its premiership, there has been nothing but a dollar standard throughout the world, and gold has nothing whatever to do with it. That the dollar can lift the price of gold above its actual value is merely a demonstration of the dollar's power. But the time is coming when it will no longer be able to do so. Since the United States is the only nation that supports gold, we will then have an end of the gold standard nonsense.

To Leverett Saltonstall (July 1, 1943)

The political monetary system inevitably trends toward political centralization. The reason for this is that the central government denies to the several states participation in the monetary system, reserving to itself a monopoly of the issue power. By resort to this power, it is enabled to practice paternalism, and thus it draws to itself supplicants and pressure groups that the states are powerless to serve. In exchange for its grants and largess, the central government gains the fealty of its beneficiaries and thus undermines the prestige of local governments. It seems all-powerful because of its apparent ability to create riches by creating money, which is actually dilution of the money supply and which manifests in inflation, the cause of which the people do not understand. The state and local governments, on the other hand, must collect their taxes the hard and obvious way. Hence they are limited in their expenditures and thus in their power. In this way, the central government builds up a vast bureaucracy that reaches into the jurisdictions of state and local governments and harasses their citizens with regulations that discourage the spirit of enterprise and dull the sense of freedom.

To William M. Bellamy (November 3, 1943)

The classical theories of interest no longer have relevancy, because the lending industry is largely socialized and the interest rate is no longer determined by demand and supply. Its basis now is a pure gratuity or subsidy, and is determined solely by political expediency.

The time is coming when the banks will not be able to subsist on the present rate, due to the inflationary increase in their expenses, unless the volume is very much increased. It is just as easy for a bank to lend two or three dollars as one, and since there is no hazard in lending to the Government, the coming squeeze may be relieved by the automatic action of inflation, in that the Government will be obliged to borrow more from the banks as inflation progresses.

I say obliged on the assumption that the present policy continues. In fact, however, the Government is in no wise dependent upon the banks. The reverse is the case, since the Treasury may at any time it chooses merely issue checks against itself, and such checks would clear through the banks just like bank checks. This may be the ultimate resort, but in the meantime the Treasury has the problem of keeping the banks on an earning basis. Therefore, the Treasury will compensate the banks for their increasing expenses by increased volume of loans until the end. Otherwise it will be obligated to raise the rate. This alone determines the future of interest rates.

To Willard T. Chevalier (November 11, 1943)

Fair exchange is a process whereby the producer sells his energy in one form and buys it back in another form. Thus the individual produces all the things he acquires, just as he did before exchange was introduced; he merely makes more and acquires more. Since the individual is the fountain of all wealth and the rightful acquirer thereof, and since to effect his productive-consumptive cycle he must utilize money to mediate his exchanges, is he not also the only rightful fountain of the money required for such exchanges? What has the Government to do with it? Could not men work and exchange by means of money even if there were no political government?

The premise of the prevailing monetary theory is that money issuance is a sovereign political power, and that government must either issue money for producer-traders or authorize banks to grant the power to a selected few at a price. Since the individual's ability to produce is dependent upon his ability to exchange, is it not obvious that to place the power to create the means of exchange in the hands of a privileged group gives to those privileged ones the power to control the individual's capacities either by design or by error with resultant miscarriages?

The power to produce wealth and the power to produce the means of exchanging such wealth must be coextensive and reside in the same person. This is the premise of personal enterprise money.

To William Langer (November 23, 1943)

The only way to get anything from government is to organize a party or pressure group. But how can we get anything out of an empty vessel? Does not everything drawn from government have to come from the people, and is not therefore any organized effort to draw anything from the government a conspiracy against others in the constituency?

Is democracy a conception of equal rights and equal service under government, or is it a game whereby those who gang up get special privileges at the expense of the unorganized? Now I realize that the first definition is the ideal, and the second is the practice, and that the idealists invariably lose out to those who play practical politics. Therefore the tendency of government is to degrade itself and, by evolutionary processes, ultimately to destroy itself, as a greater and greater element in the constituency reaches the conclusion that it must either rob others through the agency of government or be itself robbed through that agency.

Random (1944)

All about are evidences of the frustration of the political means of attainment. Every political project is stalemated. Governments that have failed in their respective sovereign spheres pursue the folly of internationalizing their problems.

Typical of this is the Bretton Woods effort to stabilize the various political monetary units--for the destabilization of which each of the participating governments is to blame. Here we have the spectacle of the perpetrators of destabilization posing as the proponents of stabilization, whereas it is but an international league of counterfeiters for the purpose of establishing standards of counterfeiting practice.

"Fundamental disequilibrium" (FD) is a phrase used in the protocol, and it means out of bounds. A certain tolerance is extended by the fraternity to any straying member, but a fundamental disequilibrium may result in expulsion from the lodge. FD means that the member has been issuing counterfeit out of ratio to the practice prevailing among the brothers, and, thus, has disturbed the relativity of the currencies of the brotherhood. For instance, if the prevailing watering of the currencies with counterfeit is fifty per cent, all members are honor-bound to try to stay within this ratio so as to maintain parity of debasement.

In fact, this scheme requires counterfeiting. If a member refrained from it, its currency would rise out of bounds with respect to the others, and thus it would be guilty of FD. Counterfeiting is recognized as a prerogative of all members, provided they counterfeit only the currency of their own nationals. But if the league is to hold together and the racket is to be preserved, the standards of practice must be respected.

This is another political effort wrong in principle and infeasible in practice. First, the participants must agree on parities before the freezing, called stabilization, can begin. But troubled waters do not freeze, and there is no calm in prospect. Even if it should ever get started, it would be doomed to fall apart, because standards of malpractice are difficult to maintain.

Random (Undated)

The accomplishments of the arts and sciences have been exclusively in the making of things. The consequent facility in production has not had a coordinate development in distribution - in the swapping of things.

Swapping began by direct action and evolved into the indirect method through the use of money, an instrumentality which has ever been shrouded in mystery. With a complete lack of science in the art of swapping, it is no wonder that we have suffered so many social ills; it is more a wonder that we have progressed so far as we have.

Life depends upon the ability to swap. He, who has nothing to swap, has no social security. But he who has something to swap should have social security, and he can have it - if the monetary instrument of indirect swapping is at his command.

The more the arts and sciences develop facility of production through the specialization of labor, the more important indirect swapping becomes, and hence the greater the need for money, the instrumentality thereof.

Intercourse among friends is on a direct swapping basis without the mediation of money, and this zone widens as the base of indirect swapping, by means of money, widens. Thus our culture depends upon our ability to expand our indirect swapping by means of money. A society that has few indirect swaps has few direct swaps or amenities. The mastery of money is therefore a cultural accomplishment. The more we command money, the less mercenary we become, for the greater the facility of money in our basic swaps, the greater is our freedom from the use of money in our direct, or social, swaps. This is because the facility of basic swaps so increases our wealth that, in our social relationships, value accounting is submerged in the greater value of free and generous fellowship and indulgences. Only a society that is money wise at its base can enjoy priceless social interchanges at the top.

To Spencer Heath (April 6, 1945)

I read your little essay, "The Inspiration of Beauty," and shall re-read it several times before I shall be able to extract all of the good that you so thoughtfully put into it.

I have always realized that I was working in the foot-hills of a sublime thought, but have not felt competent to paint the beauty of the exchange relationship. I am convinced that in you I have found the person who can present the beauty of the exchange idea. This letter is the confession of a tyro and salute to a master.

To the editor of Money (May 1945)

Various readers and non-readers of Private Enterprise Money have likened the valun system of private enterprise money to the plans of Proudhon and Greene. I would like to make the distinction clear.

Proudhon, who saw clearly that it is the labor of the people that gives substance to money, proposed a mutual credit plan for the issuance of bills of exchange in terms of the franc. Greene, the American Proudhon, proposed a mutual credit plan for the issuance of currency bills in terms of the dollar. There have been other mutual credit plans, usually called Giro plans, in Europe. All these accept the political monetary unit and make no effort to limit the government's issue power. They are aimed at escape from the restrictions and impositions of the banks, but not the perversions of government.

A mutual money plan, to be successful, must be restricted to private enterprisers (employers, employees, and self-employers) so far as issue power is concerned, because they both buy and sell and, thus, redeem as well as issue. Any mutual credit plan can be perverted and ultimately ruined if the government is given the issue power.

Under the valun system, governments-national, state and local-would be entitled only to class B membership, thus limiting them to drawing against a credit balance, whereas all private enterprisers would be permitted to draw against a debit balance, the only method by which money can be created.

To the editor of Money (August, 1945)

July Money carries a letter by George A. Startup addressed to me in which he states, "Please stop trying to confuse the people more by talking about money to be issued by private enterprisers.

To avoid confusion, let me summarize. Broadly speaking, there are now three schools of monetary thought: a) those who denounce Government money issue and bend the knee to the banks; b) those who denounce the banks and bend the knee to the Government; c) those who denounce both banks and Government and bend the knee to nobody, while asserting the exclusive right of the citizen to issue money to negotiate his exchanges.

Mr. Startup is of the second, and I am of the third. Those who like to bend the knee to some power will choose the first or second school. Those who are self-reliant, self-assertive, and have private initiative, all typically American qualities, will align with the third group, leaving those of the first two groups to fight each other.

However, I must remind Mr. Startup that in the battle of the knee-benders, neither side can quote the Constitution in its support. It is not true, as Mr. Startup states, that "the Constitution places the power to issue money in the monopoly of the Federal Government." Article 1, Section 8, states that Congress shall have the power "to coin money and regulate the value thereof and of foreign coin." Thus the exercise of the power is optional and not mandatory. Nothing is said about exclusive power or monopoly. There is nowhere any prohibition against the people issuing money. It is true, that such money could not be made legal tender without Government sanction, since the state governments are forbidden to make anything but federal coins legal tender. But legal tender is immaterial, since even the Government accepts checks in payment of taxes.

The same section quoted above also provides that Congress shall have power "to borrow money on the credit of the United States." Here is another optional power. Congress can issue or not, borrow or not; so, both groups of knee-benders can call theirs "Constitutional money." In other words, "Constitutional money" doesn't mean anything. The only possible unconstitutional money would be an issue by a state government as legal tender.

Let's not muddy the waters by misquoting and misusing the Constitution, which is perfectly neutral in this fight. We are all free to align ourselves with any of the three schools. The third school (private enterprise money) has the advantage in that it doesn't have to pass a law or engage in politics. It depends upon voluntary cooperation.

To Laurance Labadie (December 1, 1945)

This is a report on the references you gave me: Henry Meulen, Free Banking, 1934

He quotes approvingly from Whittick, Value and an Invariable Unit of Value (Lippincott 1896), page 244, to wit:

"Are not two sparrows sold for a farthing?" A money system could be built upon this starting point. If two sparrows are sold for a farthing, prices of all commodities whose values were determinable could be expressed in farthings. The farthing might be a myth, and yet from it the proportions of all wealth might be determined. How absurd it would be to attach the sparrows in perpetuity to the farthing.

This conforms to the concept of abstract value, and recognizes that only precedent and practice are required to establish a monetary unit. Yet Meulen denies this by attacking "the sparrows in perpetuity to the farthing," when, on page 238, he says,

Few of the millions of people who exchange ordinary commodities actually desire gold; yet, when gold becomes cheaper, prices of all goods must increase, to the confusion of all debt contracts.

This is the theory that the raising or lowering of the price of gold affects all prices - a theory that was disproved by the policies of Roosevelt. It does not seem that Meulen has the abstract value concept.

Alfred B. Westrop, The New Philosophy of Money, 1915

He also accepts the theory of the influence of the "standard" commodity over all commodities, in these words, page 93:

The purchasing power of "standard" money is affected by the rise or fall in the market value of the "standard" commodity hence this purchasing power must vary.

His book does not live up to its title, as it merely proposes a mutual banking plan within the existing philosophy and the existing unit.

Arthur Kitson, A Scientific Solution of the Money Question, 1894

I am delighted to find myself in full concurrence with him on the basis for a monetary unit. On page 135, he says:

The language of commodities was created as soon as their relationship was ascertained in terms of the quantities (either by weight or volume) of anyone commodity, whether gold, silver, wheat, or whatnot; and if from that instant prices had been reckoned without returning to the standard commodity for successive comparisons and valuations, we should have had an absolute method by which the variations in prices of each and every commodity would have been correctly registered, including the variations in the standard commodity itself. A commodity can only be considered a standard at one particular instant.

I have likened the starting of a unit to the keynote of an orchestration - to be lost and forgotten the moment the play of pricing has begun.

Kitson and Whittick, as quoted above by Meulen, are the only writers I know of who have expressed the same idea that I have expressed, and I thank you for leading me to them.

I also found in Kitson's book passages worth copying in support of private enterprise money. Beginning at page 276, he first quotes Spencer thus:

"So constantly have currency and government been associated," says Herbert Spencer, "so universal has been the control exercised by law givers over monetary systems, so completely have men come to regard this control as a matter of course, that scarcely anyone seems to inquire what would result were it abolished. Perhaps in no case is the necessity of state superintendence so generally assumed, and in no case will the denial of that necessity cause so much surprise.

"That laws interfering with currency cannot be enacted without the reversal of state duty, is obvious; for either to forbid the issue, or enforce the receipt of certain notes or coin in return for other things, is to infringe the right of exchange-is to prevent men making exchanges which they otherwise would have made, or is to oblige them to make exchanges which otherwise they would not have made."- Social Statics.

Then Kitson proceeds:

To the average man, a currency that has not the authority or stamp of government is inconceivable; and yet there is no good reason why communities should not create and control their own currency without the aid or intervention of governments, just as they incur debts or liabilities without such aid or intervention.

In the chapter on Credit, I showed first that the large proportion of the business of all commercial nations was done upon a credit basis; and second, that circulating credits constituted money in the strict scientific sense, and that whilst a large amount of personal credit was stationary, still a considerable proportion did circulate, and so performed all the functions of money. It therefore follows, that in spite of legislative acts, and in spite of the assertions of certain writers that "law and law alone creates money," the greatest volume of money is now created by the people themselves, without the aid or knowledge of governments. In fact, were it not for the power that individuals have of creating credit, the volume of the world's commercial transactions would be reduced to a mere fraction of what it is now. Whilst, therefore, as a matter of fact, the commercial world does create the greater portion of the world's currency, in form of bills of exchange, drafts, credit notes, etc., the effect of the legal tender act and governmental interference, is to force people to build credit upon an unstable, insecure basis. The entire volume of commercial currency is built upon that of the government, so far as domestic exchanges are concerned, and is liable at any time to be overturned by the manipulation of those in control of the government currency.

How anyone who is familiar with the history of the coinage and currency of Europe, or acquainted with the financial history of the United States during the past fifty years, can imagine that the control of currency is safer in the hands of the governments of these countries than in the hands of the people, is astounding.

A nation, whose currency is controlled by its legislators, is like a town built in the vicinity of a volcano. Its inhabitants never know at what period they may be enveloped in ruin.

Governments cannot exercise the function of controlling the currency without violating the one function by which their right to existence is generally recognized, viz, the administration of justice. The issuance of money must be free, in order that industry and commerce may be free; and commerce must be free in order that people may be free. Freedom to life necessitates freedom to maintain life, and this involves freedom of exchanges. Denial of free money is, therefore, a denial of freedom to life.

It is astounding to me that Kitson, after thinking so clearly and fundamentally on money, should have since lapsed into a political money reformer instead of devoting his life to promulgating private enterprise money.

To Raymond J. McNally (April 10, 1946)

After money has been created, i.e. when one holds currency or book credits, it is evidence that one has delivered something to the market and has a claim upon the market. Such claim is transferable for a consideration. But the creation of money is purely a self-service based upon the mutuality of credit that the monetary system rests upon. I see no justification for interest here. If the participants in a monetary system wanted to charge each other interest, it would seem to me like taking in one another's washing.

To Raymond J. McNally (April 10, 1946) (b)

The essential idea in the valun proposal is that credit is based upon a pact of traders, and that pact may be anything that is mutually agreeable. Such a pact might even accept the administration of one man with power to extend or diminish credit, and it might permit such a person to make a profit or suffer a loss from administration. Such a set-up would apparently please you. As for myself, I would prefer to take part in a system where the members laid down certain principles under which the officers operated and then rewarded such officers for efficiency with adequate salaries. That private operation or a profit motivated system is necessary is contradicted by innumerable non-profit stock and commodity exchanges, chambers of commerce and trade associations and business and professional clubs.

To Fyke Farmer (July 10, 1946)

As you truly say, “the individual as a human being is not recognized by what is called 'international law.'” Nor is international law recognized by the individual. Whence cometh this thing called international law? By what right do governments establish relations with each other? Can the citizens, even if they would, delegate to their national government the power to intervene in the affairs of another or compromise its sovereignty? The power to establish diplomatic relations is not and cannot be delegated; therefore international law is beyond all law, in the democratic sense.

I see no need for international relations, and I am sure there is no demand for it, except from special interests that have no respect for the rights of others. It is the provocateur of war. "A decent respect for the opinions of mankind " dictates that no national government have any opinions or policies pertaining to the affairs of other governments or peoples. The conscience and culture of one people should be allowed to react directly upon other people without the intervention of governments. The urge for world government, whether its advocates realize it or not, is an effort to abolish international relations. Is it the shortest way?

To Floyd B. Odium (October 11, 1946)

That the value of the shares of an investment trust is determined by the value of the underlying corporate shares is a matter of common knowledge. But it is not realized that the dollar, in terms of which these corporate shares are expressed, is itself a share certificate of participation in the general market of goods and services. It follows from this that every corporation is but an investment trust basing its stock on the underlying monetary stock.

Any corporation executive and stockholder knows that when a corporation declares a stock split, each outstanding share is proportionately diminished in value. But how many comprehend that when the dollar supply is increased without commensurate increase in the underlying capital of goods and services, that a stock-split has been executed? As the dollar goes down, corporate stocks must go down in value regardless of their nominal quotation on the stock market.

The basic stock of the economy thus is the monetary stock. Any businessman who has the necessary bank credit, has the power to issue this basic stock. Therefore, when issued by a producer, the underlying capital

69 for the monetary stock is maintained share for share, and parity is preserved. But when the monetary stock is issued by one who does not offer goods or services to the market, it constitutes a stock-split, and each unit in circulation is proportionately reduced in power. Banks ordinarily do not qualify such an issuer among private borrowers. But the sky is the limit when the Government borrows and issues dollar splits.

To Floyd B. Odium (October 11, 1946) (b)

It is apathetic commentary that many of our businessmen extol free enterprise and in the same breath uphold price control. Free enterprise means freedom to determine price. Thus a prohibition against the determination of price is a prohibition against free enterprise. Instead of defending their vital right of mutual agreement between buyer and seller, they undertake to operate in a straight-jacket and join in the aspersions cast upon those businessmen, known as "black-marketeers," who are the real defenders of free enterprise, upon the continuance of which all our liberties depend.

To Merwin K. Hart (June 10, 1947)

The organizations which you list are some of the conscious left-wing organizations; the unconscious left-wing organizations, such as yours, are those of the so-called right wing.

There are no truly right-wing organizations, because it has not dawned upon society that the political monetary system that prevails in every nation is fundamentally socialistic. To point the finger at conscious socialists is self-deceiving, for it implies that others are not socialists. The finger should be pointed as well at the professing individualists who accept the socialization of the monetary system and are naive enough to believe that we can have a free-enterprise system in spite of it.

Random (December 20, 1947)

Under the valun system, savings would not lose their value through deficit financing, and people could save and insure against hazards without fear of their savings being watered down in value. Such saving is a mark of prudence. A money hoarder, on the other hand, is one who insists on giving value without receiving value--a monetary masochist. He harms no one but himself, if his extraction of money circulation does not starve exchange, and it cannot if money creation is not controlled by a monopoly.

To William v. Burnell (March 12, 1948)

Your mind seems to be seeking an answer to the question, what makes money circulate? The ultimate answer to that question is the indispensability of money. Man will use anything to serve the purpose of money in the absence of something better, but will always seek the best. The best is that which attracts him by its superior stability, not that which rests upon legal compulsion.

For the first seventy years in our Republic only gold and silver coins were legal tender, yet by far the greater amount of business was transacted with letters of credit and private banknotes, and today all governments, federal, state and local, accept tax payments in checks which are, of course, not legal tender. Legal tender merely means that a creditor may require payment in currency. We are not concerned with plans of compulsion; we are planning a unit that will be preferred.

To Ralph W. Manuel (May 7, 1948)

It is so unusual to find a banker who feels a social consciousness in his work sufficient to ponder the problems of money and banking, that when one meets a thinker like yourself, he is especially appreciated. The banking business is burdened by statutory laws, yet the natural laws governing it are apparently not understood by either the legislators or the bankers themselves.

The contract or the meeting of minds between buyer and seller that forms the basis of money is extremely difficult to define. In fact, it may be questioned whether money has any existence, in a dynamic sense, except at the very moment that it is occupying the minds of traders in the actual process of exchange. I hesitate to assert that money exists only in motion, but I recognize a difference between a bookkeeping record of money and money in action.

It is an interesting speculation whether the volume of money actually in existence at anyone time is merely that which is actually in process of exchanging, and whether the record of issues is but authorized or potential volume and the exchange act a process of creating and retiring money from the potential supply. In other words, whether the substance of money is manifested only in exchange action, and whether it becomes a dormant entity after exchange, subject to reactivation by the next buyer.

If money exists only in motion, or if only the active units activate the demand-supply effects upon the price system, are not the other units (so-called savings) practically non-existent, except as potential re-issues?

We understand that the monetary circle has its birth in the issue by one who has credit in the monetary system, and its death is accomplished by the issuer as he turns from buyer to seller. Between his issue act (by buying) and his retirement act (by selling) there are a number of intermediate traders. These may be without credit in the monetary system, and, at least in this monetary circle, are not primary or initiating issuers. But since we recognize that they have the power to retire money from the circle, must we recognize the power to restore money to the circle as a power of re-issue? Do they not, as you have contemplated, have the power to affect the consequences of the credit which brought the circle into existence, and thus share with the initiator the responsibility for making money a benign agent?

Whether every person in the monetary circle is responsible for its equitable operation or only the issuer, is a question that touches the essence of the money compact, which, as stated at the outset, is extremely difficult to define. Is the pledge upon which money rests a pledge of only the issuer, or does it involve also the acceptor? Does the intermediate acceptor in the money circle affect the interests of the past members of the circle and the potential future members by interrupting or breaking the flow, or is the reaction solely upon himself?

It is because questions like these are unanswered, and in many cases not even posed, that I get much satisfaction out of the opportunity for experiment that the valun system permits. Each valun bank would adopt its own credit policy, and it is on credit policy that most of the unsolved problems hinge.

To Felix J. Frazer (September 15, 1948)

I have found that the general impression of my proposal for a private enterprise monetary system is that I advocate the taking over the control of money by big business. Yet I have at no time advocated this. When I use the terms private enterprise or private enterprisers, I include employees as well as employers. To get away from the general interpretation of these terms, I am in my recent writings using the term personal enterprise. I hold that the money issuing power is inherent in every producer and potential producer and is not delegatable. The recognition of this principle is society's security against economic reverses, because it enables money supply to spring automatically at the point of need.

Under the valun system, it is just as feasible for employees as for employers to start or join a valun bank and to secure credit upon which to issue valuns. After the board of governors is established, there will be nothing to prevent you from setting up a valun bank with any type of enterprisers you may prefer and can get. So please don't continue to have the impression that there is anything aristocratic or snobbish about the valun plan. Under the valun system, neither politician nor banker nor big businessman will be able to withhold from the little fellow the power to issue money if that little fellow has enough initiative to exert it.

To Felix J. Frazer (September 15, 1948) (b)

We are in agreement that the basis for all wealth is labor, and from this must follow the principle that all money credit is based upon labor. But do you include potential labor with realized labor, or commodities? I do. I hold that an unemployed potential producer has as sound a basis for money credit as the possessor of realized wealth. All that a money issuer promises is to accept money in exchange for his goods or services, and to deny that an unemployed man is a justifiable money issuer is to assert that he will not accept money when it comes his way, in other words, will not take a job if offered to him.

From Spencer Heath (November 1, 1948)

The ideal business organization for supplying exchange facilities would be the one that supplies, by the exchange process, the most services to the whole general public, and is thereby in best position to redeem all the tokens that it issues when buying from them. When the numerous owners of public communities unite their ownership in the service of their inhabitants doubtless they will supply them with many common services, including exchange services.

To R. Harland Shaw (April 6, 1949)

We disagree upon the necessity of stipulating a specified sum of a specific commodity for which the valun would be exchangeable. I hold that this is gratuitous, and you hold it vital. This is the old specie versus fiat controversy that has raged from the beginning of the political monetary system. It involves the effort to legitimize the illegitimate, namely, government issue, and has the further purpose (on the specie side) to supply a particularization deemed necessary for the certitude of the unit.

Since, under the valun system, we abandon the impossible effort to legitimize government issue, the first named purpose has no relevancy to our problem. The second purpose, namely, the convertibility or "deliverability," as you state it, I grant you, has relevancy to any monetary unit. But it is not an issue in the valun system, because the system permits its presence or absence accordingly as its operators believe to be sound. The question is to be resolved empirically by competition.

For instance, if you were conducting a valun bank under your proposed policy, you would ask the board to print on your currency a specie promise. I, on the other hand, would omit this pledge and rest acceptability upon the power of competition to maintain the parity and constancy of the unit. If your plan proved preferable to traders, your bank would attract business and mine would lose business.

I believe that the experience would prove the reverse; while, of course there would be no objection on the part of any trader to convertibility, I believe that there would be no preference. If this were true, your bank would have a competitive handicap by reason of the necessity of investing capital in the commodity reserve, thus imposing a greater overhead with consequent higher charges for exchange service, which would force traders to a non-convertible exchange.

As I conceive the function of a valun bank, it would be merely to administer the credit of its account holders, and not to underwrite their losses, except to charge each a sum for an insurance reserve against losses and to establish a parity of units issued by each account holder through each bank. For a bank to guarantee its account holders that any particular commodity would be available at a fixed price, would be a hazardous undertaking, and entirely uncalled for.

Nevertheless, as you see, there is room in the valun system for both the specie and fiat advocates. I should think that you and your fellow specie advocates would welcome this, the first opportunity you have had in all history to demonstrate to the world that your theory is correct.

So far as I know, there is but one piece of currency in the world that is "deliverable," as you call it. That is the United States silver certificate. Yet we see no preference for it manifested by the public over bills that merely promise other paper. Nor is there demand for redemption - "deliverability." This, by the way, demonstrates that the specie principle may be operable with the fiat principle in the same monetary system. Before 1934, we had the gold certificate as further demonstration.

If, however, you believe that we cannot play marbles with different colored marbles, or that different colored marbles cannot be par in the game, let me remind you that you will have the same opportunity that I hope to have to present views to the board of governors when that body is formed.

You come fresh to the battle, but I, after fifteen years of advocating nonpolitical money, have grown weary of frustrating side issues.

To Mildred Loomis (May 21, 1949)

In your effort to classify me among the "ists," please catalogue me solely as a valunist. I do not concern myself with social ends, but with means. I believe that with a true monetary system, the individual can avoid what he dislikes and bring his full power to bear in the attainment of his aims. To identify myself with any cause other than monetary reform would hamper my efforts in my chosen work, as it would create the impression that the valun system is designed to attain particular ends, whereas a true monetary system is without bias and is but a tool for the attainment of aims, regardless of what these aims may be.

Social reformers are divided into many movements, and each has its pro and con. None of these issues can be resolved under the existing political monetary system; which frustrates the operation of economic democracy, a process that can operate only by means of a true monetary system. If one tenth of the energy expended in attaining ends could be consolidated upon realizing the means, the world's problems could be quickly solved.

Random (Undated)

The purpose of money is solely to facilitate exchange and competition, and not to regulate exchange. It must have no governing power whatsoever. It must be the ever ready handmaiden of every trader who wishes to buy anything, anywhere, anytime, and for which he can deliver an equivalent value. It must not influence him to buy or not to buy; it must not color his opinions or aims; it must not impede evil impulses or impel good ones; it must not strive to augment some men's wealth and diminish other's. It must be neutral and insensible to moral considerations and all economic and political inequalities. It is an instrument of individualism, the servant of all men in the process of exchange. Through it, all the moral and immoral forces exert their influence, but it is itself neither moral nor immoral.

Money is the mathematics of value and must remain as impartial as mathematics. It is the function of the trader's mind to evaluate commodities, and it is the function of money to mathematize such evaluation, i.e. to express in numbers and fractions the value determined by the trader, but not to influence such determination.

The natural issuer of money is the trader when acting in the capacity of buyer, and the sole aim is to serve him and others in their desire to trade with one another. Among the trading group will be some who are smarter than others, some more acquisitive, some more active, some more cunning, some more frugal, some more ambitious. Other differences that are natural to the human species must also exist. Regardless of what the human animal is and how many varieties there be, it is not the function of a monetary system to either approve or disapprove any characteristic, nor to promote or oppose any tendencies nor exert any leveling or paternalistic influence.

The valun therefore must exert no modifying influence upon exchange except to remove modifying influences and thus assure natural exchange. Man will continue and should continue to trade for private advantage; this self-seeking is nature's way of intriguing men into social progress.

To Curtis E. Calder (May 27, 1949)

I note that the International Relations Committee, National Association of Manufacturers, of which you are chairman, asks the Government to clarify the respective roles of government and private enterprise in the pursuit of the President's "bold new program."

We may be sure that the constructive part will be supplied by private enterprise and the destructive or socialistic part will be provided by government. What amazes me is that businessmen and especially deliberative bodies are always willing to join these two antagonistic forces and thus promote socialization, which always gains by such mergers.

The ideals of the "bold new program" can be and will be realized by business only in proportion as it separates itself from political action. This will come when businessmen make their practices conform to their anti-socialist professions.

If you and your Committee members really believe in the efficacy of private enterprise to promote human welfare and will consider a world plan of action to this end, entirely divorced from political action, I shall be pleased to submit such a plan.

From Arvid L. Frank (June 1, 1949)

Mr. Calder has referred to me your letter of May 27th regarding the recommendations which the International Relations Committee has formulated on the President’s Bold New Program.

We appreciate the interest you have taken in the matter, and assure you that we are cognizant of the importance of the role of private enterprise in constructive accomplishment in the development of backward areas.

We have associated in our work many distinguished monetary authorities, and call upon them freely for advice on the monetary phases of our program.

To Arvid L. Frank (June 4, 1949)

Responding to yours of the 1st in reply to my letter to Mr. Calder.

I never had any doubt that you have on call many distinguished monetary authorities, but would it ever occur to you to ask any of them to submit a plan of action completely divorced from political action, or would any of them voluntarily offer such a plan, as I have done? The answer to both questions is no. So the NAM goes blithely on imagining it is a defender of the private enterprise system, while at the same time playing right into the hands of the socialists.

I enclose my recent pamphlet The New Approach to Freedom which I dare you to read, even though I should be intimidated by your rebuke for presuming to offer a suggestion.

To Curtis E. Calder (June 4, 1949)

I enclose copy of my answer to your vicarious response to my letter of the 27th ult. [sic]

Your name was prominently featured in the press release, and you were willing to accept credit as chairman of the International Relations Committee for the deliberations of the Committee. The moment, however, you were called upon to think, you took refuge behind a hired man, who in all probability prepared the publicity putting the words in your mouth.

How long must the real friends of private enterprise suffer from the mis-leadership of prominent business organizations such as the NAM, which is encumbered by prominent businessmen who are too lazy to think and who resort to canned publicity releases prepared by hirelings who don't dare to think?

How long, oh how long?

P.S. You will note that I have sent my pamphlet directly to Mr. Frank so as to save you the trouble of referring it to him.

To the editor of the New York Times (August 19, 1949)

The composite credit of private competitive traders, based, as it is, upon actual exchange of goods and services, forms the only substance of money. The different national monetary units are merely various dilutions of this substance. It is more correct to say that there is money in each unit than it is to say that each unit is money.

It is for this reason that Gresham's law projects in the words, "bad money drives out good money," a misconception of money. Good and bad are not proper terms to apply to money. Money is invested to a greater or lesser degree in various monetary units, the distinction being quantitative and not qualitative. That units with a lesser money content are proffered by buyers rather than those of larger content is but a natural manifestation of the bargaining instinct.

To M. S. Lurio (November 11, 1949)

Enclosed is a draft of the proposed constitution of the board of valun banks. The purpose is to make it as simple as possible and, except for the projection of a principle, to leave the board free to exercise judgment on the questions that will arise.

In the prospectus of the New York Valun Bank, you will observe that the word money does not appear. The process of the bank is described as "trading by transferable credits," which is really a definition of money. I am continuously at cross purposes between the impulse to make a truthful statement and to yield to expediency as a defense against the reactions that spring from the universal ignorance and superstition of money. In the present promotional effort, I have used the terminology current in business, and yet I inwardly rebel in calling the overdraft bookkeeping entry on the books of the bank, "credit."

This is really not credit in the accepted sense, as it delivers nothing of intrinsic value. It is merely authorization to the member in a debit position to tender a check or checks to some suppliers--who are the actual extenders of credit if they accept the tender. And they do not extend credit to the remitter, but look to some other members to make good. A valun check, like a dollar check, is merely a draft on the market where the real creditors and debtors function, while the bank is merely the bookkeeper.

Now, should we call the bookkeeping entry which authorizes the remitter through the process of red ink figures to tender checks to the market, "credit?" Or should we adopt a more honest name, such as "overdraft power" or "initiating power” or "unearned drawing power," as distinguished from earned drawing power, which is based upon an entry resulting from the deposit of a check which is evidence of having delivered value to the market? Or should we, for expediency's-sake, leave undisturbed the psychology established by banking practice and let account holders and the public think that the bank actually extends credit?

To David Diamond (January 31, 1950)

One of the collateral purposes of the valun plan is to diminish and ultimately abolish the use of currency in payrolls, and thus diminish the use of currency in general. Currency is indispensable, but its present uses are excessive. This is due to its general use in payrolls, and to the unattractiveness to employees of the present checking method.

Under our plan, each employee will be entitled to a check account with an overdraft power with which he immediately can draw checks, thus making it possible for the employer to make up payroll once a month. To accomplish this, the employer will be supplied with a payroll check about the size of a letterhead, on which he will list the employees and the various sums to be credited to their accounts. This will be mailed to the bank, where the various sums will be entered as deposits to the accounts of the various employees. No checks will be issued to the employees, and thus will be obviated the necessity of their making individual deposits. This will dispense with a great amount of detail.

To A. L. Giberson (May 16, 1950)

I have made several approaches to cooperatives, as it seemed to me and others that they were constituted ideally for the valun project for two reasons, to wit: they are drawn together by a common principle and interest and are organized mostly along lines of human necessities, and, second, their employees are more disposed to cooperate than the employees of non coops.

Before the valun or any other plan can gain wide usage, it must enter payrolls, yet this is impossible until the system has broad representation among dealers in consumers goods to bid for the employee's interest.

The dean of the Cooperative movement in America, Dr. James Peter Warbasse, has endorsed the valun plan and mentioned it in his latest book, The Cooperative Way, page 113.

I am enclosing copy of a circular letter now going to a selected list of manufacturers and wholesalers. If this brings response evincing interest, I shall ask them to sponsor the plan to their retail trade, as I find that the retailer asks whether he can pass valuns on to the wholesaler.

To Percival C. Brundage (October 14, 1950)

As long as accountants fail to understand that the monetary concept is the basic concept in accountancy, they will be frustrated in their efforts to bring business facts into proper focus. It is as absurd for them to undertake to present true mathematical analyses of business performance, with the politician continuously changing the power of the unit, as for an artist to paint true pictures with colors mixed by another.

To Holgar J. Johnson (November 9, 1950)

As a constant reader of your excellently edited Money Matters, I see in it reflection of the deep concern that is held by the insurance companies over the progressing inflation. I wonder, however, how much they hope to sweep back the tide with a broom of words. Is there not some quest for action to be taken by the companies themselves to preserve the tremendous equities involved in life insurance?

I wish to go on record as forecasting the complete collapse of the political monetary system in total inflation with no possible point of stabilization. When the insurance companies are prepared to entertain this possibility, I shall be prepared to present my plan for stabilizing their income and outgo on a monetary unit dissociated from the dollar and proof against inflation

To Ivan Firth (February 12, 1951)

Inflation is not a condition of imbalance between goods supply and money supply, for such imbalance cannot occur. Money cannot be issued without an exchange of goods and services, since it is not an entity apart from exchange but springs out of exchange, nor can it be issued unilaterally, since every issue of money requires the tender of it by a buyer and a tender of value by a seller. Hence the two sides are always synchronized and always in balance. Thus, if there were no spurious monetary units injected, the price level would remain constant, though, of course, individual commodities would rise and, reciprocally, others would fall, thus balancing the rises with the falls.

To Ivan Firth (February 14, 1951)

Trade is a process of finding affinities, and it is, of course, more difficult to find direct affinities than by vicarious process. If one of two traders can give the other an instrument that will ferret out his affinity, it follows that trading may be consummated to a much greater extent than if dependence is had upon the mere chance that two traders can satisfy each other's wants.

This transforms trade from a bilateral to a multilateral operation. To accomplish this transformation is the sole and all important function of money - the ferret of affinities.

To Garet Garrett (May 7, 1951)

Our libertarian writers paint a drab picture of the decline of private enterprise and the rise of political enterprise. The political means of attainment is seductively turning the minds of the people from the economic means.

Education is futile to overcome this trend. The cause of the trend must be displaced by a mechanism whereby the trend will be in a wholesome direction.

The Welfare State is one that robs Peter to pay Paul, and its success lies in the fact that Paul is fully aware

77 and grateful for the benefit received while Peter is bewildered over the identity of the robber. He is apt to blame the tradesmen over whose counter he pays his shrunken dollars, and thus private enterprise is doubly punished.

The whole deception operates through a perversion of the monetary system. Many of us suspect this, but our remedy is the usual stereotype - education and a return to sound money. But to attain sound money we must advance, not return, because we never had sound money.

What we had in the "good old days" was unsound money only partly developed. The power to degrade the monetary system and thus sabotage private enterprise existed before Roosevelt, but he was the first to release it beyond the power to arrest. The egg has been hatched, and the chicken grows rapidly. "Sound money" advocates propose to put the chicken back into the egg.

The power of government to make paternalism seem practical, and thus insidiously to socialize the economy, lies entirely in the fallacious belief that government can and does issue money. An understanding of the essence of money shows that no government ever has issued or ever can issue genuine money. Their professed monetary issues have precisely the same effect upon the money supply as a farmer produces by taking the milk pail to the pump-not a larger supply of money or milk, but a mere dilution.

We bewail the ignorance of the people on economic and political matters, but the real cause for dejection is that our businessmen do not know the difference between real money and counterfeit. Because they and the would-be educators of the people accept the fallacy of political money power, they are unconscious socialists. This unconscious socialism is universal; so the task of restraining the onward march of the Welfare State is more gigantic than we have realized, if undertaken through popular education.

However, we need not educate the people on money or economics. We need not tear down the present political monetary system. No governmental or political action is called for. If we realize that only private enterprise can organize and conduct a true monetary system, one that will be stable and sound and inflation-proof, we need but to set it up, and the people will not be slow to secede from the false and join the true.

To Edward Boykin (May 22, 1951)

A friend has shown me your excellent article in the New York Times of May 13; on the 1874 Green back Bill.

In those days, the means of inflating the circulation was by printing currency. The modern way is to print bonds, sell them to commercial banks, then print checks to draw against the bank balance and let the currency expand according to public demand. This is the smarter way of using the printing press. It fools the people.

You will recall that the Act of May 12, 1933, gave Roosevelt the authority to direct the Treasurer to issue greenbacks up to $3 billions, which authority he did not use. He used the roundabout method and increased the circulation by many times this amount with not a single banker crying out, "printing press money. " You see, the greenback way pays no interest, while the bond-check-currency printing-press method does, and that stops the mouths of the wise and deceives the public.

The practice by government of inflating the circulation is now in its third and last phase. The first was by debasing coins, the second was printing currency, and now it is by the method above described. This is the end of the trail; all governments are now perpetrating this ultimate fraud, and I see no escape from total inflation, not only national but worldwide.

To Ivan and Gladys Firth (June 15, 1951)

A friend asked me to review this old book, and since it covers a period before your time, I thought you might be interested in reading this first draft.

Review of W. H. Harvey's Coin's Financial School

The tattered and faded book from which these photostats were made awakens nostalgic memories of the last decade of the nineteenth century, when depression-inspired pursuit of the solution of the money problem made passionate partisans of all men. Those were the days when one could get at least emotional exhilaration out of an otherwise dry-as-dust subject.

The "free silver" crusade of the late eighteen-nineties marked an epoch in American history. It was the all-time high for popular interest in the money problem, approached in fervor only by the Andrew Jackson campaign against the Second United States Bank. It divided the nation not only politically, but also geographically. Had the depression continued until the end of the decade, there might have been a schism between the West and South against the East, for the latter was considered by the former as "the enemy's country.”

Josh Billings said, "The less people know, the more they suspect." The people, knowing little about the cause of the misbehavior of money, instinctively became suspicious. The demonetization of silver, called "the crime of 1873," served the need for the emotional surge. Added fuel was supplied by the suspicion that England had inspired the "crime."

The "gold bug" partisans for the gold standard against bimetallism were equally off the beam of reason, and answered their opponents with invective and diatribe. A veritable groundswell lifted all men into the air. While the free silverites were no more rational than the gold bugs, the writings of "Coin" Harvey gave a scholastic background to the former, for they were written in pedantic style and were widely read.

The torrent of hot words reached its climax in the presidential campaign of 1896 with William McKinley, the Republican candidate, opposed by William Jennings Bryan, "the boy orator of the Platte," who stampeded the Democratic convention with his impassioned speech concluded with the peroration, "thou shalt not press down upon the brow of labor this crown of thorns nor crucify mankind on a cross of gold." Though the campaign was a contest of passions, the race was not decided by the amount of heat generated, but by cold and brutal strategy conceived by Mark Hanna, the McKinley manager who enlisted the banks to pressure manufacturers to post ultimata on their plants. In cases where the plants were closed, a promise was made that they would open immediately after election if McKinley were elected. On the open plants, the poster carried the threat that they would close if McKinley were not elected.

But for this thrust at the breadbasket, the silverites might well have carried the election. For the force of their crusade much if not the major credit, must be given to "Coin" Harvey. His technique merits examination.

Harvey’s style of writing was popular mainly because he personalized the subject by boldly using the names of prominent Chicago businessmen and bankers and publishers as stooges to appear at his "school" to ask the questions he wished to be asked, and brought off each fictitious encounter with a personal triumph of his little hero, Coin. The tactic second in importance was his liberal use of cartoons. He artfully professed throughout the book that he appealed only to reason and abjured sentiment, but as one comes to the end of the book one discovers that he used the method of Mark Antony at the grave of Caesar, for he climaxed with the most incendiary words.

While the conspiracy theme of the "crime of '73" is not referred to in the book proper, there are appended two chapters of his A Tale of Two Nations, wherein the fiction is given form with the arch conspirator being the English "Baron Roth." The reader can easily supply the second syllable. " A certain Senator," the American co-conspirator and mercenary, is easily identified as John Sherman, author of the "infamous" Sherman Act that demonetized silver. Such were the tools with which the little master, Coin, biased the minds of his readers.

After the presidential election had put out the fire, what resulted from the great conflagration? The silverites had argued that the demonetization of silver had cut half the base from under money, thereby reducing circulation and bringing hard times. The gold bugs had maintained that "sound money" could be had only with a gold base. Silver was not remonetized, and the gold standard held full sway until another and worse depression which overtook the nation in 1930-1933, brought forth the theory that the trouble came from trying to maintain any metallic base. In 1934 gold was demonetized, and we are today without any "redemption money.”

So it was all much ado about nothing. The partisans of one metal and the partisans of two metals were not talking about money at all. They were merely debating, in their torrid fashion, whether the Government should peg the price of one metal or two. But the Turkish bath was good for the nation, because it got some poisons out of the system.

So intricate are the machinations of money and so complicated are the causes of its misbehavior, that it baffles even calm reasoning, and solution is hopeless when emotion confounds logic. The moral is that there will never be a solution of the money problem through groundswells and prairie fires.

To John Chamberlain (April 10, 1952)

Your booklet containing "The Faith of the Freeman " is written with such sincerity in the cause of private enterprise, that I assume you will welcome comments. I hang my hat on this quotation: "In terms of current labels, the Freeman will be at once radical, liberal, conservative and reactionary. It will be radical because it will go to the roots of questions."

I wonder if you will go to the root of the money question. In your recitation of the proper functions of government, you do not mention money control. No doubt you take that for granted, as your readers probably do also. I do not imply that you approve of the monetary policies of the present and past administrations. But you probably have not posed the question whether the state can, under any conditions, provide a monetary system that is not adverse to a free economy. Yet so long as you do not tackle this fundamental question, your other soundings will be immaterial.

You denounce, and rightly, such interventions as "tariffs, quotas, exchange control, bilateral treaties, import and export prohibitions or restrictions, government price supports, subsidies, or loans to favored industries," etc. This constitutes your credo as a professed friend of private enterprise. Like all other "friends," no darts are aimed at the political presumption of monetary control. This precinct you hold sanctuary.

With the monetary system socialized, the state can yield on all your protests, and still the economy will be progressively socialized by diluting the money supply with issues of spurious money. The state can even abolish all formal tax levies, thus creating the appearance of a taxless Utopia and giving society a free ride to its doom. You are, in fact, spreading the opium unconsciously, as you state: "It is imperative that those who already believe in a market economy, limited government, and individual freedom should have the

80 constant encouragement of knowing that they do not stand alone, that there is high hope for their cause."

Thus, within the purview of your iconoclasm, leaving untouched the superstition of the State's most stupefying icon, the more success that attends your efforts, the more you contribute toward the vulnerability of private enterprise, which you undertake to defend.

The universal attitude of private enterprisers and economists is to attribute the power and duty to the State of supplying the monetary medium to the economy, reserving only the right to bellyache over the consequences. This shows that at bottom, our whole society is tainted with paternalism. The blame for the political perversion of the monetary system must be placed upon society. For it has tried to escape the task of rationalizing the subject and has thrust the problem upon the Great White Father, who is just as ignorant as to what constitutes money but is, of course, glad to grasp power.

The monetary system must be alienated from the state and its control assumed by private enterprise. To accomplish this, businessmen must be roused from their private "initiative," and journalists can serve the public interest by ringing the alarm, not by soothing words.

To Ludwig von Mises (April 10, 1952)

You deplore the fact that the prevailing number of economic teachers and writers are of the Leftist persuasion. From the viewpoint of the Radical Right, there are no others. The so-called academic or conservative or classical teachers and writers are merely different categories of socialists, because they all accept the socialization of the monetary system. Can you name any "capitalist minded " authors, teachers, businessmen, bankers or taxicab drivers, here or abroad, who do not accept the state control of the monetary system?

The economy functions by means of verbal and written contracts, and under a monetary system, these contracts are all expressed in terms of the monetary unit. Hence the meaning of the monetary unit is the meaning of the contract. With the state's power to change the meaning of the monetary unit, it holds complete pervasive power over the economy. To admit this all-pervasive intervention while objecting to collateral ones, is to swallow a whale while gagging at minnows.

To Bennett Chalis (September 12, 1952)

A pipe through which water flows has capacity, but the power that moves the water lies elsewhere. The same is true of money. The monetary unit is merely the conduit through which purchasing power flows, such purchasing power lying in the commodities or values exchanged. Therefore the student of money must be careful not to fall into the error of thinking that money has purchasing power. Things are purchasable only with things. This unchanging law is just as operative under a monetary economy as under a barter economy.

To F. A. Harper (October 1, 1952)

I have now read with pleasure, for the second time, your pamphlet, "Inflation."

I have looked for areas of agreement between your ideas and mine, because I would be particularly pleased with such concurrence. Ever since reading your The Crisis of the Free Market, published in 1945, I have regarded you as an exceptionally clear thinker.

I would say that we agree that: a) Governments can and do issue counterfeit money, and that b) such issues act as insidious taxation. We only partially agree as to the genuineness of any issue of "money" by any government.

Your designation as counterfeit (impliedly) applies to issues against deficits only. This makes the criterion of genuineness one of balancing the budget. As I see it, the professed issues of money by governments, national, state and local, cannot be genuine, because they are not the criteria of free exchange, i.e. a tax levy is not determined by free exchange, which is the only area in which money can be invoked.

I raise this distinction to lay a more fundamental objection to governments undertaking the issue function, although the distinction is really academic. Governments have no need to issue "money" where they have the courage to balance their budgets by frank taxation. Are you not saying, for all practical purposes, therefore, that all issues of professed money by governments are counterfeit?

It is not clear whether you use the word money in the sense that I do. I regard, as the primary monetary form, a draft against a drawing account established by a credit administrator of the monetary system. Thus the currency form would be but a conversion of a check, the primary form.

I read your pamphlet eagerly looking for some suggestion of a remedy for legalized counterfeiting, and found this on page 23:

A step in the right direction…….would be to compel the government to live within its income. This means limiting government expenditures, strictly and absolutely, to taxes that are openly acknowledged to be taxes. This means prohibition of the concealed and deceptive tax of inflation.”

Compel and prohibition are words of coercion that apply to Government measures over the citizen, but not in reverse. We cannot prevent the Government from following political expediency, and it certainly is expedient in practicing paternalism to hide the taxation under deficits by means of counterfeit money issues. To do otherwise would be to let the socialist cat out of the bag.

Even if it were possible to force Government to a balanced budget policy, it would not avert disaster, because of the more than $100 billion of bonds in the hands of private parties, which, of course, have not yet been monetized. When the demand for cashing comes, as come it must, the Government will have no place to go to get the necessary cash to "redeem " these bonds but to the banks, and this flood of counterfeit dollars will wreck not only the dollar but the Government itself. Business must build its own monetary system to save both itself and government from utter chaos.

May I discuss with you the point you raised at the conference relative to the "insurance" provision in the valun plan? Perhaps you think its purpose is similar to the Federal Deposit Insurance Corporation, but it is not.

My visualization of the problem is this: Each bank in the monetary system is the mechanism of a community of money issuers, all using the same name, dollar or valun, etc. These issues pass into the common stream of money. Yet the varying credit policies of the various banks with their varying loss ratios suggests that there be introduced some compensatory factor to make them par. Or should we ignore these discrepancies, as has been done in all monetary systems to date? The tendency of defaults of money issuers is to unbalance the money supply with the values supply, producing slight inflation. But there is an offsetting factor in the loss - which may be considerable - of our currency through various natural causes. What do you think?

To Paul L. Poirot (June 21, 1952)

Frank Chodorov's piece entitled "Shackles of Gold" turns out to be a confession rather than an accusation as the title had led me to expect. It is the old-time religion, humbly expressed and pleasantly intoned for the ears of the faithful of the Gold Standard League.

Chodorov has discovered that "money was invented by traders long before any government thought of monopolizing it." What escapes him is that traders have continued to issue all of the money in circulation and will ever be the sole issuers of money. He does not realize that no government ever has or ever can monopolize money issuance, because the so-called money issue of government cannot circulate of itself. It can only flow by blending with the real money issued by traders. The farmer cannot produce a salable commodity from the water pump alone; he must first get the milk from the cow and then inject the water into it to make diluted milk.

The nonsense about gold convertibility as a converter of counterfeit money into genuine: Does regulating gamblers make them any the less gamblers? This is not a perfect analogy, since in the case of counterfeit money the regulator and the regulated are the same. Nonetheless, the gold bugs do not seem to realize that we have gold/dollar convertibility on a sufficient scale to prove that it is no deterrent to the issuance of counterfeit. As you know, foreigners may convert dollars into gold, and yet gold piles up in Fort Knox. Also, there is no diminishment in the domestic gold miners' conversion of gold into dollars.

During the Civil War, the Government suspended convertibility. After serious debate for years, it restored convertibility on January 2, 1879, under tense fears of a run on gold. But the conversion worked in reverse; more gold flowed into the Treasury than flowed out.

When Roosevelt ordered the people to turn in their gold at $35 an ounce, they responded with alacrity.

The people, today, can get the substance silver not only in exchange for silver certificates, but for any bills. Yet there is no demand for conversion.

It is disconcerting that businessmen, realizing that there is something wrong with the monetary system, try only to get the counterfeiter to purify itself, instead of taking in their own hands the exclusive power and responsibility for the medium of exchange. It shows that they are at bottom paternalistic, willing only to whine against the socialistic trend which the political monetary system makes inevitable.

Random (Undated)

Are you not willing to give your IOU when you want to buy something, provided that that IOU is payable only in your services or goods? Of course you are. Everybody is. It merely means creating sales for yourself. We are all willing to issue our IOU's. Now all we have to agree upon is that we will all accept one another's IOU's. Thus we really redeem our own IOU's by accepting anybody's IOU's. Since, therefore, it makes no difference where the IOU originated, individual signatures need not appear thereon, and we can adopt standard pieces of printed paper and coins….

From Paul L. Poirot (September 11, 1952)

It is not clear to me why the details of a valun banking system are included at all in your presentation. Does that not presume an impossible insight into the results of freedom?

Let us say, for example, that I am in theoretical opposition to our public highway system; I would prefer privately owned and controlled roads. Must I presume to know how or where or why or when individuals would voluntarily develop a system of highways? Or shall I leave that development to the voluntary efforts of individuals, some of whom are more facile than others? The question, I suppose, is one of strategy: How can I best persuade others to give private roads a trial?

Private money must be a credit instrument, a promissory note, for which some individual assumes responsibility. I can issue a promissory note without a bank's signature. I cannot circulate it as money except among those who have faith in my productive capacity, in my ability to deliver the promised goods or services. Within the trading circle of my immediate family, we use such a system, based upon unwritten "scrip" and unworded "promises." Credit is sought and received and honored strictly on the basis of personal acquaintance. Is there any other way of promoting the use of private money within a larger social circle than the family, except on that basis of faith in the individual? A man's money cannot possibly be any better than his word - his honest effort to redeem his promises.

I can see how voluntary credit insurance might be a profitable business adjunct of a private monetary system. I might well elect to patronize a bank which specialized in character reading and insuring the credit of individuals, just as I now buy term insurance to cover my outstanding debts. Certainly, I would prefer to "shop around" among competing bankers for that particular service, just as I now shop for life insurance or any other commodity or service. I would abhor a universally acceptable valun if I thought it depended upon, or might somehow lead to the development of, a single central bank or credit clearing house. I am trying to say that I do not care to know in advance precisely how the valun banking system might develop under private enterprise. But I am sure we could depend upon private competitive enterprise to coordinate and blend into a workable arrangement a series of individually developed and originally highly variable valuns.

I should not attempt to offer an exhaustive list of the means to be followed toward the end of perfecting a private monetary system. For to attempt such a thing would be in itself a denial of faith in individuality and private enterprise. Let the best man work out the best means.

To Paul L. Poirot (September 15, 1952)

If we assume that the money issuer's commitment is a promise, we, of course, involve a moral question. But the money issuing act does not involve a promise, and hence there is no moral element involved. Therefore, there is no need of having the act of money creation underwritten by credit insurance. The reciprocating action of the private enterprise money issuer, i.e. his compulsion to bid for money with his goods or services, as against his bidding for goods or services with money, makes the involvement of a promise entirely gratuitous, and, in fact, irrelevant, since there is no identification of creditor and debtor in the act of creating money. The promissory note that is customarily required by bankers from the "borrower" involves no loan of money. It is but the initial step in the creation of new money, which is not actually created until the "borrowers' " draft upon the "loan" is accepted in the market in exchange for values. Even then, there is no credit since the acceptor of the draft does not know whether it is drawn against black ink or red ink.

There is, in the commercial sense of the word, no credit involved in money creation. Commercial credit involves a specific creditor and a specific debtor, and arises out of the transfer by the creditor to the debtor of goods or services or already existing money. Though it is not recognized by the users of money, there is implicit in the monetary system a faith that none will be admitted to the issue power other than private enterprisers, who, for the reason stated above, keep the redemption power in constant balance with the issue power.

In the valun plan there is free competition among the banks in the system. Some may operate under a broad

84 credit policy, others under a narrow one. Some may operate by the present practice of requiring "borrowers" notes, some by merely allowing overdrafts. Some may charge interest while others may depend upon service charges, or both. Voluntary associations of workers or other groups might organize a bank. Does this not give the flexibility and freedom of competition that you seek?

The plan not only provides for competition within the system but also recognizes that the system as a whole must be exposed to competition and that it cannot grow into a universal system unless it responds to men's impulses for freedom of action. Other than the exclusive use of the name valun, there is nothing monopolistic about the plan. All its procedures are subject to the crucible of competition; it cannot begin as a universal system but must earn that status.

From Paul L. Poirot (September 16, 1952)

The step of running the valuns through a theoretical bank seems unnecessary to me; All the bank does is to endorse a personal note, giving it negotiability. The original signer is still responsible, as a debtor, to redeem his promise, no matter who finally appears as his creditor. Any responsible person could serve the banking function of insuring the creditor against the debtor's default. That is strictly a business service. Let any enterpriser do it. Call him a banker if you please, but all he really does is endorse a promissory note. I can't see how you get to the point of view that valun holdings do not reflect the extension of credit to the original signer of a promissory note. Either the banker or the ultimate creditor - the person who finally claims redemption - extends the credit. But credit it is, or so it seems to me, involving persons who trust one another.

To Paul L. Poirot (September 19, 1952)

Commercial credit is a relationship of a specific creditor and specific debtor, arising out of the transference of some value. It rests on faith in the moral responsibility and competence of the debtor, whose default inflicts loss on the creditor.

Banking credit, on the other hand, or money-creating credit, is social - without specific creditor or debtor. It is the money-creating process. It arises from an implicit compact among a group of traders to honor the requisitions of one another that conform to the rules of the monetary system as administered by a central bookkeeper and credit administrator, commonly called a bank. Its operation is as follows:

1. The bank establishes a drawing account for the prospective money issuer by entering a sum on its ledger. This is called a loan, but involves no transfer of money or value by the bank. It involves no deduction from the resources of either the bank or its depositors. In fact, it manifests itself as an increase in total deposits.

2. The "borrower" draws a draft upon his drawing account and tenders it to a trader who delivers value therefor. This exchange constitutes the issuance of money by the "borrower"- buyer and backing of the money by the seller, who becomes a creditor, not of the money issuer but of all the traders in the monetary system. The money issuer becomes debtor to the monetary system.

3. The money circulates, and thus creditor is replaced by creditor until it finds a customer for the issuer, who then returns value in exchange for the value received in the initial exchange. The money is thus retired.

Throughout the whole process, there has been no credit in the commercial sense of the word. The banker gave no money or other value. The "borrower," with the acceptance of his draft by the seller, created the money. If the "loan " should be defaulted, the banker would lose nothing, because he would merely distribute the deficit over the accounts of all his depositors through his charges for service. Nor would this constitute a loss to them because, but for the monetary system, trading would have to be by barter, and that would be a real loss.

All parties to a monetary system are either creditors (those who have surpluses) or debtors (those who have bought more than they have sold) of the whole system, but no individual is creditor or debtor to any other individual. There is no moral factor involved in money issuance, because the issuer acts as a redeemer of money by merely following his acquisitive instincts. He is eager to exchange his goods or services for money, for it is by this process that he gains his profit. To do otherwise would be to boycott himself. He may fail to "make" money and thus fail to act as a money redeemer, but, if so, it is contrary to his intentions.

But does the moral factor enter at no point in a monetary system? It enters very profoundly if the actors know what they are doing. Alas, all participants in the monetary system, as well as the politicians who make the rules, are innocent of infidelity to the basic faith upon which the system rests. This faith is the unwritten and unconscious pact that exists between the banker and the whole group of trader participants. It resides in the observance of the rule that none but private competitive enterprisers be admitted to the money issuing power. This observed, the monetary system automatically functions for good only. Ignored or contempted, it just as automatically miscarries.

From Paul L. Poirot (October 2, 1952)

I’m still confused as to the difference between commercial credit and bank credit. You seem to be saying that it is possible somehow for everyone to trust everybody without your first trusting me, and vice versa. I would concede that a banker might be a highly useful promoter of this ideal of mutual trust, but doesn't his value in this respect depend entirely upon his personal assumption and fulfillment of responsibilities? I can’t see that the mere presence of a banker automatically relieves all debtors of their responsibilities and all creditors of their fears of loss. If obligations are outstanding, it strikes me that they must be assessed against some individual.

To Paul Poirot (October 9, 1952)

Your effort to understand the social nature of money credit as contrasted with bilateral credit may be cleared up if you will ask yourself this question: What becomes of the "losses" or "charge-offs" in the banking business? Are they borne by the bank or included in the costs of doing business and therefore borne by the bank's customers?

To be sure, if these items become excessive, the bank may be unable to pass them on to its customers, since its charges for services might not meet competition. There is an optimum point at which the charge-off percentage is neither too large, reflecting laxity, nor too small, reflecting ultra conservatism. This point can be arrived at only by free competition among banks, a condition that has not existed under the politically controlled monetary system with its many provisions of capital and surplus requirements and, above all, by reason of the limitation of currency supply.

Banks, incidentally, do not fail because of insolvency, but rather because of their inability to meet sudden and enlarged demands for currency. This limitation is purely gratuitous, as there is no sound reason for the distinction between check money and currency money.

From Paul L. Poirot (October 10, 1952)

The multilateral credit media to which you refer means to me that many persons have collaborated in its creation. In other words, a lot of people may agree that it's all right for me to trade with valuns, if I choose. But it seems to me that the multilateral arrangement ends there. I can't understand how private money or

credit can be anything other than bilateral. One responsible person grants credit which another responsible person has requested. If this credit instrument is then negotiable, that doesn't make it multilateral; it just substitutes one debtor or one creditor for another, still leaving only two persons directly involved. The original credit instrument may go through hundreds of hands in that fashion, promoting one trade after another, but never are more than two persons directly involved at any given stage of this process.

To Paul L. Poirot (October 18, 1952)

You are quite right in your statement that "The multilateral credit media…means…that many persons have collaborated in its creation…but never are more than two persons directly involved at any given stage of the process."

In other words, monetary media move by the displacement of creditor after creditor until they are retired by the issuer/debtor, there being at all times one creditor and one debtor. But the creditor's claim and the issuer-debtor's are vis-à-vis the market and not between two individuals, both of whose identities are merged in the compound which is called social credit. Failure of the issuer-debtor to retire an equal number of monetary units, by his sale of goods or services, imposes a cost on the whole body of exchange participants. These costs are distributed to all the exchange participants through the charges rendered for banking services.

These costs, however, are not losses to anyone, because they are the price for escaping the much greater cost of doing business by the whole-barter method. The method of finding the optimum of such costs is competition among banks, since they are reflected in the charges that banks must make for their services to their customers.

This virtuous social credit process is inherent in any monetary system; it is, in fact, the criterion thereof. Unseen and unsung, it has gone on raising man’s living standards and will continue to do so unless it be overcome by the antisocial counterfeiting practices of governments, than which there could be no greater calamity.

Previous page

Next Page