Flürscheim – Exchange Banks and Co-operation

from Michael Flürscheim
Clue to the Economic Labyrinth

Chapter IX – Exchange Banks and Co-operation

Exchange Banks

I CANNOT give a better explanation of Exchange banking than by reprinting that which I gave in my Pioneer of Social Reform, the official organ of the New Zealand Commercial Exchange Company, Limited, usually called the Exchange Bank, which I founded in October, 1898:

“The Commercial Exchange Company is a club whose members are men of different trades coming together to do business with each other. They are grocers, butchers, bakers, tailors, shoemakers, farmers, and so forth, who need each other’s products; but barter, the simplest way of getting them, is out of the question. Barter may do between two parties of whom each needs what the other wants to get rid of, but not between a hundred of whom number one wants what number two can spare, number two what three wishes to dispose of, and of whom finally only number one hundred has any use for what number one offers in exchange. Under such circumstances, a medium of exchange—money—is necessary to pass from one to the other until it returns to the party who began.

“We all know how our butchers, grocers, tailors, shoemakers, etc., obtain this medium of exchange at present, if they are not fortunate enough to own it through having received it in payment before they need it. They go to a bank or a loan office and borrow certain pieces of a yellow metal, called sovereigns, or in most cases they only obtain the privilege of drawing little paper scrips, called cheques, with which they pay each other, until finally, after the sovereigns or the cheques have passed from number one to number two, etc., and number one hundred has paid them to number one, they are repaid by number one to his bank. For the right of drawing these paper scrips the parties pay an interest tribute to the bank, and are only too happy if they are allowed to do so; for the banks are very particular, and do not allow everybody the privilege of paying this interest. They accept this tribute only from those who can supply sufficient security that they will repay the loan at any time at which the banks demand it. If the banks do not obtain such security they will not give the loan; they will not allow the parties to draw the little papers unless they have paid in a corresponding number of the yellow coins called sovereigns, or their substitutes.

“This is the way in which things have been going on for some time now, and have been getting unpleasanter the more prosperous the people became. This sounds strange, but it is a fact, nevertheless; for the greater prosperity of the people resulted in a more extended trade, and this trade extended much faster than the stock of yellow pieces, or—what amounts to the same thing—of gold bullion which the Mint coins free of cost for anybody. This had the natural result that it became more and more difficult to induce the banks to allow the drawing of the paper scrips called cheques, for the danger grew that such scrip-drawing without a previous deposit of the yellow metal, called overdrafts, might result in general bankruptcy of the banks and their debtors, for the . paper scrips are only accepted as long as the people believe that sovereigns can be obtained for them. The very moment there is any doubt about this, nobody wants the papers, but everybody will insist on receiving gold, refusing even other kinds of scrips called banknotes, which differ from the cheques only in being drawn on the banks by their presidents, and payable to anybody who presents them at the banks, without their subjecting him to the trouble of signing or proving his identity. Here, in New Zealand, the stock of sovereigns in the bank vaults amounts to only one-sixth of the deposits, which means of the amount of sovereigns due to parties who have brought sovereigns, or an order for sovereigns to the banks; arid this does not include the debt to the holders of banknotes who also have paid in gold for them, nor the debt of the Postal Savings Bank.

“Now, the very moment these depositors become afraid that they may not be able to obtain the gold due to them, they will at once call for it, or anyhow, those will do so who have a right to call for their gold at any moment, and these, including the holders of banknotes who have the same right, and the depositors at the Postal Savings Bank, have a claim about five times as large as the gold stock of the banks. As the banks are well aware of the danger thus threatening them at any moment—the threat has turned into a reality at different times already—they become more particular about giving credit, the more the excess of scrip circulation over the gold stock increases. We have such a period just now, for trade has increased very much all round, but the gold stock of the banks has not grown at all. Consequently, the demand for the paper scrips had to increase also, because without them no trade is possible, as the real sovereigns are too scarce to keep up our trade for a single day. The greater the demand, the greater the danger that the small gold stock might be depleted, and the more particular the banks are about giving credit, e^en at a high rate of interest. In this way it comes about that of all those people who want to trade with each other, a great many cannot obtain the right from the bank to draw the cheques they need to pay each other, and many cannot even get a loan from the loan offices; and if they do, they have to pay interest up to 60 per cent.

“Now, these people, or a certain number of them belonging to different trades, meet in their club, called the Commercial Exchange Company, and say to each other: “Are we not great fools? Why do we go to the banks and loan offices to obtain the right to draw paper scrips to pass them from one of us to the other, and finally to the banks again? Why not agree to draw those paper scrips upon ourselves, and to hand them back to ourselves? It may be done in a very simple way. We first appoint a number of trustees whom we call the Board of Directors. These print scrips somewhat like the banks’ scrips, called cheques and banknotes, only with the difference that these scrips are not payable in gold sovereigns, but in the goods and services which the members require from each other. In reality, the present scrips of the banks are nothing else for most of us, for we take them, not because we want gold for them—in fact, we take them though we know that if it came to the stretch we could not obtain the gold—but because we know that those whose goods and services we require take them in payment. If this certitude that those whose goods or services we wish for will take the scrips in payment is all we need, and if we who meet in this club require each other’s goods and services, all that remains to be done is that we agree to accept our own scrips, and then we can borrow these scrips from our trustees, who issue them for us, and repay them to the trustees when we have received them back from other members of the club. All we have to do to feel sure that we can safely accept the scrips from each other is to instruct our trustees to make sure that no member obtains the scrips on credit, unless we can absolutely rely that he will supply goods or services for them when some one of us calls on him for these goods and services. Of course, we shall give him a reasonable time for such delivery, because such time is given even where we come with sovereigns in our pocket. With millions of cash money in our possession, we cannot claim a pair of boots made to measure, at a moment’s notice, but must give the necessary time to make them,

“Here we have the whole secret of the Commercial Exchange Company. Its members supply to each other a means of circulation with all the qualities of that at present in use, merely leaving out the roundabout way of occasionally claiming gold pieces which are only wanted to pay for the goods and services which our papers promise directly. Thus we not only avoid the interest tribute due to the owners of the gold pieces, but the danger inherent to promises of things which do not exist. The task devolving on our trustees, to make sure of our members’ solvency, is easy when compared with that undertaken by bank managers. The most cautious of these cannot always avoid disaster, for nobody can be sure of always being able to deliver things which are not in existence. Our trustees are under no such difficulty, for the productive power of our members will always largely exceed the demands upon it. The general complaint of ‘Over-production’ shows that our trouble is not want of productive power, but the difficulty of selling the products. This difficulty will be at once got rid of when selling is no more exchange against a scarce commodity coined into certain round pieces of which not nearly enough can be obtained to satisfy the demand, but exchange against the products of others. Over-production will be a thing of the past, and also underconsumption; the main cause of insolvency will be taken out of the way—the discrepancy between productive and purchasing power. As, through our immense technical progress, productive power is far ahead of our wants, there can be no danger of our not being able to produce enough; and as, in consequence of our scheme, productive power and purchasing power are at a level, the difficulty of disposing of their goods and services will have disappeared for our members, and with this difficulty the principal cause of failure in business will be out of the way. Honesty, capacity, and freedom from dangerous outside debts, will therefore be the only criterions required by the trustees—by the Board of the Commercial Exchange Company—and the danger of loss by failures will be reduced to a minimum, for which a slight risk premium paid by the borrowing members will provide. Probably the time will come when this premium, including the club expenses, the cost of employees, printing, postage, office rent, etc., will not reach \ per cent, interest for the loans of the scrip (exchange paper). In the beginning, up to 6 per cent, is demanded to provide for a reserve fund; and as this reserve fund will be the property of the members, our debtors in reality do not pay the 6 per cent., for part of the amount is only money put from one pocket into the other. It is money saved for a rainy day.

“We hope that this short explanation will make clear to every one desirous of information what the Commercial Exchange Company really is. It is a club of producers and traders founded to furnish each other with a means of exchange, a set of counters, for the purpose of enabling them to trade with each other. There is nothing to prevent our club from gradually embracing all members of the community, and it is in the interest of every member to help to extend the circle so as to have it embrace all trades, so that anything wanted by the members can be supplied in mutual exchange. Then it will be the affair of the members to decide whether they wish to continue the club in its present form, or whether they prefer to merge it into that other club called the State of New Zealand, making of the old club a department of the larger club under the name of ‘The State Bank of New Zealand.’

“People who know the country tell us that in many places— Masterton, for instance—you see hardly any money. Everybody is in everybody’s books. The butcher in the baker’s, the baker in the grocer’s and tailor’s, etc. What does this show? Simply that the force of circumstances has compelled the people to recur to a clumsy and primitive barter system because the medium of exchange is not accessible. It clearly demonstrates that our metal money does not accomplish the economic work it is meant for. Why? Because it is not only a counter, but also a valuable and scarce commodity. What we want to do for these people is to supply to them a money which is nothing but a counter accessible to every one who can furnish security that he will not abuse the privilege. Instead of the clumsy mutual book-keeping of the parties dealing with each other, we furnish them with our paper counters, which enable them to transact their business with far less trouble. Even in a simple game of cards, where three or four, or even two, persons play with each other, it has been found convenient and labour-saving to substitute counters for book-keeping. How much easier must the work be—where hundreds and thousands of parties in one town, or hundreds of thousands in the whole country, have to keep account of their mutual transactions—if counters take the place of book-keeping.”

Owen’s Labour Exchanges

I may as well say at once that, though I am the founder of the institution whose methods are here described, I am not the inventor of the system. According to George Jacob Holyoake’s History of Co-operation, in which a whole chapter is devoted to “The Device of Labour Exchanges,” the American, Josiah Warren, was the originator of the idea, which he first communicated to the renowned socialist, Robert Owen, in 1826. Owen founded his first Labour Exchange, as the institution then was called, in 1832, in London. As was to be expected, the system had as yet many imperfections. The most prominent was the valuation of goods and services on the basis of labour time. Sixpence an hour was the price paid, though the labour of a skilful oculist might be worth two guineas or five guineas an hour. Who could appraise the value per hour of the chair painter and the landscape painter at the same sixpence?”

This was recognised by practical men, and it was urged that the “labour exchange needed the pawnbroker’s faculty of quickly seeing what a thing was worth. The institution of the three balls has no great credit for putting an extravagant value on articles it takes in; but without compelling a depositor to take the least he could, the exchange managers should have a clear eye to not giving more than could be obtained for an article in a reasonable time if they had to sell it to a stranger. No advantage is gained by giving more than the value obvious to the outsider; for the moment that becomes known—and such a fact soon gets diffused—the labour notes are depreciated in value; for it is said, and said truly, that the exchange notes have no equivalent behind them. Taking articles into the exchange which the public knew were not ordinarily saleable, and giving notes for them by which useful articles could be obtained, led in the same way to the depreciation of the note, and for the same reason—that there was obviously no available and equivalent value deposited to represent it. If a man of business went into an exchange and saw persons depositing chimney ornaments and fire-screens, and carrying out kettles, good hats, and sound pieces of bacon, he knew at once that things could not go on,”

As far as I can learn, the

American Labour Exchanges,

founded by G. B. De Bernardi about 1875, made use of Owen’s experiences by only advancing on the goods as much as they were sure to fetch, paying the balance after sale, which explains the success some of them realised. It is natural that Owen’s system of valuation proved a failure, and under such conditions it speaks volumes for the system that it effected the large turnover it had. “It was stated that in one week the deposits in the Gray’s Inn Road bazaar amounted to little less than £10,000, and that if 4% out of the 81/3%, said to be then charged for these deposits, were applied to the extension of the exchanges, there would be a disposable accumulating fund of £400 weekly; or if the deposits and exchanges proceeded at that rate £28,000 per annum would arise for that purpose. … At the Surrey branch in Blackfriars Road, which existed simultaneously with the Gray’s Inn Road place, the total deposits soon amounted to £32,000, and the exchanges to £6,000. The public everywhere undoubtedly took great interest in the new system of business introduced. … It was perfectly clear that their rapid popularity showed that they really hit a general need, and good sound management must make them a profitable speculation to all concerned. At first, tradesmen around them readily agreed to take labour notes, and numerous placards were issued, and are still extant (preserved by Mr. Place), giving this notice to the public. As many as three hundred tradesmen gave notice that the labour notes would be taken at their places of business, and in some cases the theatres made the same announcement—that labour notes would be taken at the doors. Of course, these tradesmen took occasion to run round the exchange themselves, and see what kind of deposits represented the value of the notes; and when they found unexchangeable articles taken in at an unsaleable price they began to decline to take the notes, or take them at an ominous depreciation. These banks of labour required to be managed by business men, and honest men, with someone to see that they were honest. Mr. Owen had a weakness for ‘respectable’ friends of the system, and some of these in one case a whole family of shrewd, talkative professors of the ‘new views’—got put upon the directory, in one exchange or other, to the exclusion of less pretentious, but really honest, good working adherents, who really cared for the affair, and these adroit managers did business with their friends and acquaintances, and sent in articles of their own by other hands, and loaded the shelves with useless things which they appraised at a reverential rate, and gave information to the receivers of the notes what valuable and saleable articles they could carry away in exchange. Sharp shopkeepers thus got influence at the exchange, and sent down the worthless stock in their shops, exchanged it for labour notes, and before the general public came to hand carried away the pick of the saleable things, with which they stocked their shops. As they put in their windows ‘Labour Notes taken here,’ they were thought wonderful friends of the exchange. With some of them the proper notice in the window would have been ‘Labour Exchangers taken in here.’ And these were the knaves who first began to depreciate labour notes and compare them to French assignates, and they well knew the reason why. On the other hand, there were honest and favouring shopkeepers who took the notes with a view to promote their circulation as currency, and gave saleable goods for them, who found themselves unable to obtain a fair exchange at the bazaar, and thus they became victims of the exchange scheme. The popularity and even profit of the deposit business were such that it bore this, until larger operations gave the thing a turn. These were the wholesale and general dealers, who systematically depreciated labour notes with a view to buy them up, which they did, and carried off all the saleable goods they could find at the exchange; and the silly people who first held the notes did not take time to find out what the depreciation meant. It is true these operators did not approve of the exchanges which appeared to threaten a new system of barter, and ingeniously devised means to discredit them and profit themselves in doing it. If Mr. Owen had been wise and vigorous in his choice of officers in the central exchange, the enemy might have been frustrated; but disinterestedness had become with him a second nature, and he took for granted the integrity of those who offered their services. When his suspicions were aroused, no man could see more easily or farther into a rogue than he. But, unfortunately, in those days these suspicions were generally awakened too late.”

In spite of all, the exchanges prospered, and the stroke which killed them finally had nothing to do with their practicability. The greed of a landlord, who—incited by the great success wanted the place in Gray’s Inn Road for himself, to open an exchange of his own, drove Owen out. In fact, as Holyoake has it, “Labour exchanges did not perish because they failed, but because they succeeded. As is the habit of enthusiasm, the advantages of labour exchanges were exaggerated.” They had to contend with the same difficulty as our

New Zealand Labour Exchange.

Not satisfied that it at once proved a means of mutual credit and of exchange which rendered trade possible, which encouraged production and consumption that otherwise would not have existed, members complained that mortgages or bank overdrafts could not be paid with the new money, that importers would not accept it in payment for their goods; and because the new money could not do everything from the very beginning, it was adjudged a failure by many, in spite of what it really accomplished. The circle was too small, as the people were holding back, one waiting for the other, all wanting to see the scheme’s success before they joined, and it could never become a success unless they joined. There were too many odds against me. In the first line I did so much for the cause, giving both my time and money freely, that others did nothing, or almost nothing. Then there was the fear of the banks, whose credit was needed and might be lost if they heard of the debtor’s membership in our company. As the large business houses are often those most dependent on the banks, they kept most shyly apart, and this crippled the work from the beginning. We had to be satisfied if only part payment was accepted in our paper; the balance, often as much as was required to pay cost, being required in cash. Still, some progress was made; and since the seat of the company has been moved to Auckland, another managing director taking my place, it is to be hoped that more headway will be made. Especially one feature is very promising: the Exchange and Mart system, of which the following article from the Pioneer gives the full details.

“Exchange and Mart
A New Departure

“By those who know of the wonderful success that has been achieved by the London paper, Exchange and Mart, our heading will be at once understood. To others, some little explanation may be needful. A man wishing to exchange, say, a piano for a buggy, inserts a line to that effect, and in a populous city like London can easily meet a man who has a buggy and wants a piano. Thus, though the system in vogue there is exceedingly clumsy, thousands of such exchanges are made. In New Zealand the same thing has been tried, but always with ill success, and no wonder. In a limited population it is most difficult to ‘pair’ in this way. A dozen men may wish to exchange a buggy for something, yet not one may want a piano, and vice versa. By our method that difficulty is entirely avoided. The man who wants a buggy for Exchange notes has a choice limited only by the number of buggies for sale in our Exchange and Mart, because the successful vendor may, with Exchange notes, purchase certainly whatever else may be advertised, and probably will find something he may need.

“But some will ask: ‘What advantage does this system possess over that of offering goods for ordinary money?’ Only this: That through the acknowledged scarcity of ordinary money the choice is more limited than by the clumsy system in vogue in London, hence the popularity of that system; whereas with Exchange money the choice is greatly extended.

“In this innovation we think we are satisfying a long-fel want. Few are those who have not something which has outlasted its usefulness to them, which may yet be the very thing that others need; and fewer still are those whose wants will not increase with this improved facility of satisfying their needs by parting with articles no longer of use to them.

“We commend our ‘new departure’ to all, believing that no equal facilities for exchange have ever yet been provided. We shall have a beginning of these advertisements in our next issue.”

“There is hardly anybody in the country who has not got something he would like to part with, and something else he would like to obtain in return. Here is one who has some books he has read long ago, and does not care to read again, but would gladly exchange against some works he has not read yet. Another man wants a carpet, but has no ready money, whereas he is in possession of a baby carriage for which he has no more use. And so a list might.be accumulated comprising a large number of the necessaries and luxuries of life. As a rule, each of the parties keeps the, to him, useless article, and goes without the one he would like to get for it, because few like to take the trouble of going to auction-rooms to sell and buy there. A thing sold at public auction or found in a secondhand shop finds little favour in the eyes of most people. We do not know its history; we do not know who has used it, whether its owner may not have died of some infectious disease or, perhaps, was a disgusting personage. In short, there is an unpleasant air of suspicion about the thing. Nor is the price so tempting, as a rule, after the profit of the middleman has been added; and last, but not least, cash has to be paid, and cash is so hard to get. If we can obtain it, we drive hard bargains, and cut prices as low as is feasible.

“The things we like to get rid of would bring in some of this cash, but maybe so little after the middleman is paid that it seems hardly worth while to send it for public sale, to which many have an objection, anyhow. It is so like profaning our home when we expose to the public gaze things which have formed part of the home. The case is entirely different when we can sell in private, and when the thing we buy comes from a known source. But the difficulty is to find somebody who needs just what we want to dispose of, and who has just what we would like to get in return. This is possible only in monster cities like London, where millions want to dispose of certain commodities, and where the same millions want to obtain other things in return. It is only there where the two parties, who have just what they mutually want, can be found, and it is in such cities only where we find the Exchange and Mart business prosper. Everywhere else the exchange can only be effected through the intervention of money, and money is so scarce.

“It is true that only one-half of the people desirous of exchanging with each other must find the money, for the other half then can take this money to buy what the others have to sell, who thus get it back again; but not only have we the initial difficulty of finding this money for the first half, but also the well-known fact that after the sellers have obtained this money they will mostly use it for more pressing needs, or will save it, leaving the possessors of the objects for sale with the things on their own hands as before. These men have bought what they wanted, but they find just the same difficulty of selling what they want to dispose of.

“Now, here our Exchange money comes in to solve the difficulty. All who want to dispose of chattels for other chattels have only to state in our Exchange and Mart column what things they want to sell for other goods offered in the column and we shall soon obtain an extensive list of such goods. Their choice will be sufficiently wide to render it possible that almost everybody can be suited. All to be done now is to lend our paper in the usual way to those who want to make a beginning with buying, so as to enable those to whom they pay over the paper to buy in their turn, until, in the course of time, they can sell their own superfluous chattels, and thus obtain back our paper, which they repay to us.

“It is to be hoped that through pushing this branch, the only thing needed to make our work a success—a larger membership—will be obtained. We shall open the Exchange and Mart column as soon as a comprehensive list has been compiled from our members’ statement of their mutual wants. All members who want to help the work are requested to send in a list of things they want to sell, with full description and prices. Their names will not be published, and will only be given to those who make application to the office. All who join will help the movement; they will do better still if they also bring in others as members of our Company, or as subscribers to the Exchange and Mart columns. It is their active help we now desire in a further extension of our work.”

Since the Pioneer published the above articles a store has been rented where members can bring the goods they want to sell and exchange.

Notes or Cheques

I advised my successor to stop for a time the issue of exchange notes to bearer, which had circulated in five different kinds: sixpence, one shilling, half-a-crown, ten shillings, and one pound. The main part of the text reads: “The holder of this note is entitled on or within a reasonable time after presentation to goods or services to the value of … from those members of the New Zealand Commercial Exchange Company, Ltd., who are liable to supply goods or services.” If new issues should ever be made, the words “or within a reasonable time ” will probably be left out, as it is a matter of course also in the case of ordinary money that goods cannot always be at once forthcoming when the money is tendered. If we order a suit of a cloth which has first to come from a distance, all the treasures in the world could not produce it at once. I had put in the provision in order to guard against any confusion with the terms valid for our ordinary banknotes and cheques. The goods promised in these—gold coins—have to be handed over the counter at once, though it is just as impossible to carry this, out, if demanded by all creditors, as it is for the tailor to supply at once a suit ordered to measure.

I have two reasons for my advice to stop the issue of the notes, and to confine ourselves to the cheque to order, as recommended, by John Armsden in Value.

  1. The company ought not to rely on the interest demanded from debtors as a revenue to pay current expenses. Our fight must be against interest, and we ought to prove from the beginning that a credit given for exchange paper can be supplied interest free. The revenue necessary to pay expenses, ought to be derived from a commission on the turnover, as in Owen’s labour exchanges, though a much lower percentage than his—8 1/3%, a penny for each shilling—could be demanded. Now, it is impossible to control the turnover of members where the goods are not sold in the store of the company, but in the member’s place of business, if the payment is made by means of our notes to bearer. Only when the payment is made with cheques, not transferable, which the member who receives them has to bank, can we control the turnover. Of course, the bank must insist on having the name to whose order the cheque is made out filled in in the same handwriting as the rest of the cheque, to avoid the leaving open of such name, so as to change it into a paper on bearer for the purpose of saving commissions.
  2. In the commencement of a new scheme like this confidence is all, and cheques are more likely to inspire it, being drawn by somebody usually known to the receiver, though the guarantee they give is not greater than that given by the notes to bearer.. Neither of the two forms of exchange paper does anything else than certify on the part of the company that bearer is entitled to receive goods or services from those members liable to supply these goods or services. The understanding is that the owner of the paper has supplied such goods or services to others, or isat any time ready to do so. The company has no capital beyond its reserve fund to make good any failure of members to come up to their engagements, and it is the members’ business to make such rules and to take such precautions in their general meetings, principally by electing a good board of directors, so as to avoid any loss. In case of losses exceeding the income from commissions and the reserve fund, higher commissions would have to be charged to make good the loss. However, it is supposed that—as has proved the case in practical work, even with the discouraging circumstances under which this work was done—though outsiders may force the member into liquidation for cash debts, the Exchange Company itself never will have to resort to such extremities. For every hundred men who have to suspend payment because a certain yellow metal is not obtainable, not one will refuse to supply goods or services to the value of his debt. The very fact that there is not enough demand for these goods and services is responsible for the activity of our bankruptcy court.

The main condition of success is a general participation of producers of all kinds, and it was principally because New Zealand can produce every necessary of life required that I had chosen this country. Where food and raw materials must come from other countries, or where the landlord’s rent payable in cash absorbs a considerable part of the produce, as in England, exchange banks have to meet great difficulties until the international exchange is established on this basis. In New Zealand, though the interest payable to the mortgagee is a great drawback, there are still enough farmers ready and able to accept exchange paper for their produce. They purchase those goods and services obtainable for it, settling other debts by cash sales. There never has been any difficulty in obtaining traders as members where we could provide them producers in their line who accepted the paper from them. The manufacturers will come in if they can get their raw materials, and if their workers accept the notes.

I extract from the catechism I wrote under the title, “Business -without Gold; how to do it,” what I said in regard to the wage workers who want to join.

“Wage Workers and the Exchange

“Question. Your Exchange may, perhaps, increase the income of the employers, but how can it benefit the wage worker? I can understand why he favours the American Labour Exchange, an institution in which, if he finds no employment, he can directly sell something he produces, and make himself paid by the produce of other workers; but in which way is your system to help him?

“Answer. Certainly the American plan is more transparent to the worker, though I cannot understand how it can benefit the great mass of the workers, who do not see their way to producing on their own account any goods for sale, but have nothing else before them than to work on wages for an employer if they find one. You certainly must see that De Bernardi’s combination of storekeeping with exchange banking has fastened a heavy clog on the system which makes it almost unfit for a wider application. Ours is free from this incubus, and by interfering as little as possible with the existing business systems, by adapting itself to the present machinery, it has the path to an easy and speedy victory open before it. What should a New Zealand wage worker bring into the Labour Exchange if we adopted the American system? A few shoemakers might bring shoes, but even they would not find any leather in the shop, because tanning needs too much capital to be undertaken by workers who have nothing but their hands. We are past the primitive methods of production, with free access to land, in which such a system might have directly benefited any worker. To do any real good we must adapt ourselves to the complicated systems of the nineteenth century, or we are doomed to failure, as the American Labour Exchanges finally will be if they do not evolve to our system

“Under existing circumstances, I can very well understand many things I do not approve of. I can quite see why union men try to limit the number of apprentices, why they hate improvements in machinery, why they preach the ‘Ca’-canny’ principle— the policy of doing as little work as possible—but I cannot approve of such things, because they are merely the actions of a man who tries to save himself by striding over the shoulders of other victims. The fight against machines and the ‘Ca’-Canny’ principle is victimising the employer; that against apprentices hurts the growing generation. Why not leave aside these useless skirmishes? Why not fight together the battle against the common enemy? There can be no doubt that the first stroke in that battle must be the overthrow of our antiquated currency system. If the workers help by joining our Exchange Bank, victory will be much quicker attained.

“Q. But how can they help? Our Truck Laws do not allow payments in anything but legal tender money, and it seems to me the wage workers cannot join the movement before the legal tender stage is attained for the new currency, an attainment which their votes might hasten. I think this is the only way in which they can further the movement. How can they join it while gold is the only legal tender?

“A. Nothing in the law prohibits their purchasing from their employers exchange paper after they have received their wage in legal tender. The employers can well afford to make it worth their while by giving them a bonus in such a case.

“Q. I think it would not be difficult to get round the present law in this way, but getting round any law is rather distasteful to me.

“A. So it is to me, but do not forget that the Truck Acts were made for an entirely different purpose. Their object was to prevent employers from forcing their working-men to buy at certain places, mostly in shops kept by the employer, who thus made an illicit profit, who reduced with one hand the wages he had just paid with another.

“Q. Well, are you not doing the same thing? You acknowledge that the employer obtains an additional turnover through the new money, on which he makes his profit; and. if part of this paper can only be accepted in case he can pass it on to his wage workers, he has made an extra profit out of them, as in the other case.

“A. Yes; and unless he lets them have their share of this extra profit, he would hardly act fairly; but on looking more closely, you will find the employer can make a stronger case than you think. He can honestly tell his workers that his acceptance of this money procures him the power of giving them a regular paying employment, which, under the present system, becomes more and more problematical; he can tell them that if he keeps apart from the Exchange circle, and even if he does not accept its money to the fullest extent of his ability, business will gradually leave him altogether. He can show them how this new money forces customers to buy local produce who otherwise would buy imported goods. Under such conditions, I would not blame employers who gradually pay off those employees who do not call for a certain proportion of Exchange money, as only through their accepting this money the business can find employment for them. The time will soon come when the wage workers will be the best propagandists of the new movement. When one of them, who is a member of our Society, looks for a new place, he will be preferred to any other applicant; will find employment where others will be turned away, even if the employer never heard of our institution.

“Q. How do you make that out?

“A. Let me suppose you to be a shoe manufacturer, totally unacquainted with our institution, and me a wage worker out of place, but a member. I come to you and want work, and the following conversation ensues:—You: ‘ Have no work; sent off already several applicants to-day.’ I: ‘ Yes, . because they wanted money from you; I do not’ ‘ No money! You do not mean to say you work for nothing? ‘ ‘ Certainly not, but I take shoes in payment.’ ‘ What can you do with them? You cannot open a shoe shop, and besides, the Truck Law does not allow me to pay you anything else but money.’ ‘ I know. I mean that I at once repay you your money, and get an acknowledgment from you that you will furnish your goods at regular prices for the amount I paid you to anybody who comes with my authorisation.’ ‘I would be perfectly willing to do that, and to give you permanent employment on such terms, even if you want to keep some of the money, because the only reason I could not employ you before was that I had no money, but plenty of boots and shoes. Yet I cannot see how you can manage to sell your order for boots and shoes.’

“And now I explain to you the organisation of our Exchange, which enables me to pay for all I want with such an order; this order you give me in the form of notes or cheques of the Exchange, of which you become a member, accepting a credit on the force of your stock and the new goods produced by my work.

“But all this is not the only advantage given by the Exchange to the workers if they come in in sufficient numbers. The reserve fund, which will grow from year to year, could supply them with the capital they may need to set up as independent producers. Their co-operative organisations may supply the necessary security, and the progress brought about by the Exchange system would put out of their way the most serious obstacle to their success, the difficulty of disposing of their produce. In a market in which only the skilful and experienced business men succeed in making headway in the battle for the scanty gold stock, the co-operating workers have a poor chance. Their commercial management is rarely as efficient as that of the private capitalist. After the new currency has rendered it easy for any producer to sell his goods, co-operative production will thrive.”

Storekeeping added

The distinction I have made between De Bernardi’s system and ours has ceased to exist. I understand the De Bernardi labour cheques are also circulating among members, as a means of exchange between themselves, while in New Zealand it is intended to add storekeeping to the present system. Mr. J. Bruce Wallace’s Brotherhood Movement has likewise adopted both systems. That Owen also combined the two methods has already been shown (p. 407).

Proudhon, the French Pioneer of Exchange Banks,

likewise united the two systems. This is best evidenced in the Memorial which he addressed in the year 1855 to the Prince Napoleon in regard to the use to be made of the Palais d’Industrie. He wanted to establish there a permanent exhibition of all producers of the country where orders could be accepted (and, I suppose, for certain not very voluminous goods, as far as stock went, also executed on the spot), the payment to be made in Exchange paper issued by the organisation[1]. It is a great pity that this Sociéte de I’Eposition Perpétuelle, his best work, is so little known. Nothing else the great genius has produced shows him so little of a dreamer and so much of a practical man of business. In a masterly way he sketches the immense influence which such an institution would have on production and circulation, on interest and rent, on the waste caused by superfluous middlemen, and on the general distribution of wealth. Nothing is impracticable in the grand project, not even the enthusiasm of the author, who never for one moment flattered himself with the vain hope that the dreamer on France’s throne would really accept his proposal. If the moment when the founder of the Buonaparte dynasty dismissed Fulton with a jest, addressed to his surroundings as to the impracticable project-maker, decided his fate by depriving him of the only chance he had of conquering England, we may say that the neglect of Proudhon’s grand idea deprived the second Emperor for ever of the power to make France the first commercial nation in the world, and to establish her national wealth on a solid basis.

Proudhon’s agitation had at least one practical result: the establishment of

Bonnard’s Exchange Bank

at Marseilles in 1849 (Proudhon had published his Banque d’Echange in 1848). In 1853, the business moved over to Paris, where, according to Professor Karl Knies, in Credit, the turnover from 1854-55 amounted to 45 million francs. It still exists under the name of “Comptoir Central de Credit,” J. Naud & Co. (Naud was Bonnard’s son-in-law). It not only exists, but prospers. Its yearly publications show a very large list of firms who accept the bank’s exchange paper. This consists of engagements signed by the members who accepted a credit from the bank to supply a certain amount of their goods or services. The credit is, of course, only given in the shape of a loan to the members consisting in the engagement of some other member whose goods or services the borrower needs. A commission from 3% to 5% is taken by the company, which is not co-operative, but a limited company merely working for dividends; but thus proving to co-operators how important is the mine of wealth they have left untouched hitherto.

The Guernsey Market Hall and Similar Experiments

As I am giving here some historical antecedents of exchange banking, I do not wish to leave unmentioned the well-known experiment made by Governor Brock of Guernsey, who, instead of borrowing money to build a market hall, built it by issuing a kind of exchange notes, scrips which were to be taken in payment for stall rents. These scrips passed as money in the island until they were redeemed in the way mentioned. This method of creating public works has been repeatedly copied; for instance, in the socialist settlement of Topolobampo, Sinaloa, Mexico, where an irrigation ditch about seven miles long, and worth $100,000),was mostly constructed in this way by the issue of irrigation scrip redeemable by water rights accorded to scrip holders. Another social settlement, Fairhope, in Alabama, built a wharf on this system, issuing scrip accepted for wharfage. It has been repeatedly proposed to build New Zealand public works on the same plan; but I know of no example where it has been carried out, unless it be a concert hall built at Nelson in a similar way. However, my informant, Mr. William Rout of Cambridge, N.Z., has not told me whether the scrip passed as currency, as it did in the other cases.

Co-operation and Exchange Banking:

When I reflected just now on the strange fact that up to this day co-operation has left untouched the important accession of strength which it might receive from the adoption of exchange banking, I must not forget to mention that I agitated for over a year among the co-operative societies of Great Britain, after a similar attempt made in Switzerland for the introduction of the system. My first pamphlet, written for Switzerland in 1895, was followed by The Real History of Money Island, written in the same year, and published in 1896.

The following letter, addressed from New Zealand to the chairmen of the British Co-operative Wholesales, saves me the trouble to say more on the subject.

“Open Letter to the Chairmen of the Cooperative Wholesale Societies of England and Scotland

“Gentlemen,—Excuse me if I write you a public letter through my Pioneer of Social Reform and the Co-operative News, but I know you are the presidents of two economic republics, and can do nothing without the consent of the members. The letter, therefore, is as much addressed to these members as to you. Every single one of them ought to feel it his duty to take, with you, the initiative in the work I ask you to do—a work which, if accomplished, would do more for co-operation and its extension than anything done since the days of Rochdale.

“One part of the plan is not new to you. My book, ‘The Real History of Money Island,’ my articles in the Co-operative News and the Annual of the Wholesale Societies of 1898, as well as my addresses delivered to many of the co-operative societies during 1896 and ’97, have made you sufficiently familiar with my cooperative currency scheme to relieve me from the necessity of giving here more than a mere outline before I proceed farther, and develop my new proposal.

“The first step I proposed was the issue of a co-operative currency through the Wholesale Societies, differing from the ordinary currency in not consisting of a special commodity: gold; or in not being, like the banknote or cheque, an engagement to deliver this gold on demand, but an engagement to directly supply the things for the obtaining of which the present currency, after all, is finally used. Or, let us rather say, ought to be used, because exactly the fact that in many cases it is not so used, but is employed as an instrument for the exaction of usury, is responsible for most of the evils we are suffering from.

“The notes issued by the Exchange Bank department of the Wholesales would not promise to deliver gold to bearer—in which case you would transgress the law against the issue of banknotes—but to supply goods to bearer at cash prices. Such notes can be issued up to forty shillings without paying stamp duty[2]. If you follow my example here, you would issue them to the amount of one pound, ten shillings, half a crown, one shilling, and sixpence. I send you one of my shilling and one of my sixpence notes. The text is the same for all, only the amounts and the colours of the paper differ, so as to easily distinguish them from each other. These notes would be made redeemable in any one of the different co-operative stores of the kingdom. The stores would accept them readily, as they could pay for their purchases from the Wholesales with them. Those stores which are not yet members of the Wholesales would here find a strong inducement to come in, because the acceptance of the notes would mean additional business brought to their doors.

“To a population of seven million, the members of the co-operative societies and their families, this currency, to a certain extent, would be as good as the present money, and they would be ready to accept as much of it in payment as they could pass on. They would consequently be ready to buy these notes from their employers for the cash received for wages, the only way in which, for the time being, the Truck Acts, made for an entirely different purpose, permit the transaction. The employers being able to pass on the paper to their employees, and also to buy with it from the stores any goods they require for their own use, would gladly accept the paper from the Wholesales for at least part of the goods supplied to these. Manufacturers do anything in their power to obtain custom, and the Wholesales are large buyers and good payers, to whom everybody tries to sell.

“It will be readily seen how an entirely new class of members, or anyhow customers, would thus be recruited for the co-operative societies. Not only the manufacturers and farmers who accepted the notes for their goods would come in, but also those of their employees who are not already members. And not only these, but also many of the purveyors of these manufacturers, farmers, and employees, who are just as anxious to obtain orders, etc. All these would buy their supplies in the co-operative stores, if obtainable, and the stores would gradually extend their lines until anything could be obtained from them at regular prices. All in the circle could even afford to pay a little more for the goods they buy with the new currency, because every such purchase means a corresponding sale of their own wares. What store would not rather pay 5 per cent more for a merchandise if the purveyor agrees to take in payment goods on which 15 per cent profit is made? In the same way, all who sell to the Wholesales for Exchange notes could afford to give better terms to those who accept the paper from them, to their own purveyors and wage workers. The latter would obtain the additional advantage of a greater security of their positions. Their acceptance of the notes would ensure to the employer a corresponding custom and consequently enable him to keep them in preference when other employees are dismissed because cash business is slack.

“In this way, the co-operative circle would rapidly increase until it would gradually monopolise the greater part of the home trade, until most producers and most consumers of the kingdom would form part of it. The amounts of the new currency thus kept floating would then exceed that of all the present banks of the country.

“The interest saved by the co-operative societies through the use of their own money and the profits made through the additional sales brought about by the new currency need not be paid out in dividends. The new members thus brought in do not come to get dividends, but because their acceptance of the paper procures them employment or custom. The extra profits thus made could be used for the development of cooperation, for its redemption from dividend grabbing and the final establishment of a Co-operative Commonwealth, in which anybody willing to work would find paying employment of the sort best adapted to his capacities.

“Then co-operation would be looked at in a different light by the present private trader, who now must be its enemy as long as it only deprives him of a living, without, at the same time, offering him the chance of a better one, which the new system would do.

“This was the plan advocated by me during the years 1896 and 1897. I then suspended my work in England, and went to the colonies to meet the only sound argument of my antagonists. England gets most of its raw materials and food-stuffs from abroad, and it was objected that unless the Wholesales could buy this produce with the new co-operative money its circulation would meet great difficulties. Though I felt certain that in case of need enough produce could be raised at home for the paper to ensure its success, yet I fully realised the validity of the objection, and I opened my propaganda in a country able to supply at once most of the produce which England needs; where at the same time a genial climate and an open-minded people are met with: New Zealand, the pearl of the Pacific.

“The result of these two years’ work as the organiser and president of a Pioneer Company for the new currency reform, the New Zealand Commercial Exchange Company, Ltd., has procured me the absolute certainty that our farmers are ripe for co-operation with you on the basis of the reform here proposed. The new paper issued by you would soon be accepted by New Zealand farmers for their produce, provided you open a branch where all kinds of English manufactures could be obtained; and as you could buy at home with your Exchange notes as many of these manufactures as you want the moment you can supply raw materials and food-stuffs for the notes, the final success of the reform would thus be ensured.

“Our farmers are not like their Dutch and Danish colleagues; they demand no cash from you for their butter, to spend in German manufactures. They are ready to take English products in payment. Their acceptance of the new co-operative currency would ensure this, and as you would not cut down prices when the profit made on the exported goods allows you to be liberal, you could gradually obtain most of our produce. It would cost you very little to send here a delegate to verify my statements, to whom I should give all assistance I can.

“I hope you are better prepared now to listen to my proposals than you were three years ago. The moment could not be more propitious, for the cable flashes us news of rates of discount almost unknown to the present generation, and of a possibly impending financial crisis. A financial crisis in the richest country of the world! Does England possess less wealth than she did a little while ago? Is there less cotton, less wool, less wheat, coal, iron, etc., in stock? Have the 2,500 million pounds of debts due to England by the whole world been wiped off suddenly? No; nothing has changed but the available stock of one of the most useless commodities in the world, that of a yellow metal which we have made our fetish; though even the work we have made it do for thousands of years has become obsolete since 99 per cent, of the world’s business is not done by the means of gold, but by that of paper promises to pay gold. Only one step remains to be taken: that of making the paper promises call directly for the things which, after all, we want to get for the gold.

“You, the great co-operative army, have the power to do the work, to do it effectively, and to do it at once. Will my call still remain unheeded? Will Lincoln, led by Mr. M’Innis, once most interested in my work, remain passive? Will the Cooperative Union’s active secretary, Mr. J. G. Gray; Mr. Vivian, the organiser of labour co-partnerships; my old friends, Jacob G. Holyoake, the veteran of co-operation, and Alfred Hood, its valiant pen; Mr. Bamford, its active editor; Messrs. E. O. Greening, J. Bruce Wallace, William Campbell, Richard Binns, and so many others whom I met while I fought my battles for the great reform, will they take up the banner and help you, the two chiefs of the practical work, to carry through the work? Will you who received me so kindly at the time take it up now? Hoping to hear from you soon, I remain, yours truly,

“Michael Flurscheim.

“Wellington, N.Z., January, 1900.”

The Future of Co-operation

In The Real History of Money Island I have tried to draw a picture of the great future which co-operation would reserve for itself in following some such plan, in rising from a mere dividend grabbing concern, hard at work in reducing the cost of its members’ purchases, and entirely neglecting the fight against employment-destroying and wage-reducing tendencies, mostly due to our land and currency systems. The new money might give them the power to fight our legal tender money and its terrible, death-dealing effects, while the profits thus made could help in the battle against landlordism. The workers might gradually acquire enough land for their own use and for the supply of their food and raw materals, either in England or in the colonies, and thus reduce the price of the remaining land still in the hands of the landlords. Mr. E. Howard’s proposals—of which I shall presently say a few words—might supply further help in this direction.

The trades union would soon find that labour co-partnerships, with the wholesales as distributive centres, would, through the use of the new money, reach such an extension that the workers no longer need to direct their efforts and means against the employers in wasteful strikes, but would more profitably use them in creating a co-operative commonwealth of producers consuming their own goods. Yearly congresses could easily adjust prices and any points of difference, the congress of the trades unions representing the producers, the congress of the co-operative stores the consumers. Their agreement would not be doubtful, because the same parties are represented in both meetings. As producers all desire to obtain higher prices, as consumers all wish to buy as cheap as possible, and this two-sided interest of each must prompt him to exercise fairness in both capacities. After taking over one department of public work after another, they could finally act as the parliament of the nation; the Co-operative Commonwealth and the political State at last becoming one. Thus perhaps will be realised John Stuart Mill’s prophecy, made in 1865, in his Political Economy:

“Eventually, and perhaps in a less remote future than may be supposed, we may, through the co-operative principle, see our way to a change in society, which would combine the freedom and independence of the individual with the moral, intellectual, and economical advantages of aggregate production; and which, without violence or spoliation, or even any sudden disturbance of existing habits and expectations, would realise, at least in the industrial department, the best aspirations of the democratic spirit by putting an end to the division of society into the industrious and the idle, and effacing all social distinctions but those fairly earned by personal services and exertions.”

Co-operation has a great future in New Zealand, and the following article from the Pioneer of Social Reform gives a further illustration of the help it might derive from Exchange banking. I make a few corrections in the text, as I am doing in other quotations from my own writings.

“A Co-operative Bacon Factory on Exchange Bank Principles

“More subscriptions are just now demanded for the Cooperative Bacon Factory at Woodville, more capital being required to purchase the full amount of hogs which the institution can cure. Naturally, it pays better to keep the establishment going at full speed, and so it seems a matter of course that more money is needed for the purpose. At first sight, every business man must approve of the proceedings; and yet, when we investigate them carefully, we shall see how unnatural the whole thing really is, and how little the shareholders of this Co-operative Society are possessed of the co-operative spirit, the spirit of mutuality. If they really appealed to this spirit they would find at once how unnecessary it is for them to coUrt new subscriptions for the purpose. Would there be any idea of raising more money if the farmers who supply the pigs required the bacon for their own use? Certainly not. In this case, the farmers would take the bacon in payment for their pigs, and the whole transaction would be reduced to a simple booking operation. There would be universal laughter if the Bacon Factory tried to raise cash to pay the farmers for the pigs, and then demanded the farmer’s money for the bacon.

“Does the case change when one more member is added to the circle, when the storekeeper takes the bacon from the farmer or from the factory, and the farmer takes his groceries from the store? It would be just as ridiculous for any of the parties to borrow money for the transaction, for there might simply be two separate barters, the one between the farmer and the factory of pig for bacon, and the other between the farmer and the store of bacon for groceries. Or if the process is simplified by the storekeeper’s taking the bacon direct from the factory, the farmer might pay for his groceries by means of an order on the factory for the amount due to him for the pigs, and the storekeeper pays his bill at the factory with the farmer’s order. This way of doing business, however, becomes a little less easy when another member is added to the circle. Let us suppose, for instance, that a wholesale grocer X, at Wellington, is the buyer of the bacon. In this case, X might give to the factory an order on the storekeeper Y, who buys his groceries from X. Y pays the order by one on the farmer, his customer, and the factory passes on the order to the farmer to pay for his pigs. Still no money is needed, but already certain difficulties might occur. Principally, there may come in more links in the chain of trade between the parties; so that finally the buying by orders of this kind becomes absolutely impracticable. It is for this purpose that the Co-operative Society called the New Zealand Commercial Exchange Co., Ltd., has been founded. It is nothing but a clearing-house between its members, under their supervision, exercised by a board of their own selection—a selection made on the most democratic system: the Hare proportional vote. Let us see now how the parties would deal with each other under this system. To begin with, the factory would become a member of our company, and would make use of our Exchange notes to buy pigs with. It would find no difficulty in placing the notes among the farmers for pigs, provided it can satisfy the farmers that the country stores will accept the paper. This is easily accomplished if one single store is won over; for, in that case, the others are bound to follow suit if they do not wish to lose the custom of the farmers. The stores only want the certainty that they can pass on the paper in their turn, and this certainty will be given them by the wholesale grocer who is ready to accept the paper for groceries; because he purchases the bacon from the factory, and can pay it with the paper, which the bacon factory can either pay back to us, or, by passing it on again to the farmers for pigs, begin the same circle over again.

“Every one of the four parties here concerned has benefitted by the operation. The factory has obtained cheap money, and a customer who will do all in his power to sell the co-operative bacon, because the more he sells the more groceries can he sell to the country stores, who otherwise might give their custom to others. The storekeepers likewise are sure of obtaining a custom which, in many cases, would have gone elsewhere. The farmers do well, because they have a certain sale for their pigs at remunerative prices, for there will be no cutting in the circle as in cash business. The reason for this is a very simple one. Cash can only be obtained in the world’s market, and this market suffers from an excess of supply over demand with cutting of prices as a natural result. This disproportion between supply and demand arises from the fact that there are more sellers of goods than buyers provided with our existing money, consisting of a scarce commodity. This changes entirely when this money is eliminated, and when goods are bought with goods, as in our Exchange circle.

“There can be no over-production where sales are mere exchanges, where the influence exercised by the scarcity of the money material is eliminated. Every purchaser with our paper necessarily obtains a customer paying with the paper. He is certain of making a profit on a sale, and therefore can afford to pay well for what he buys. There is no need of cutting in such a case; ‘Live and let live ‘ is the motto of all members of the circle.

“Thus our Exchange circle presents quite a different spectacle from that offered now in the ordinary market where gold forms the means of payment. The gold stock of the world is very limited, amounting in its totality to only 800 million pounds sterling, of which New Zealand has a rather disproportionately large share of 3 million pounds, or 4 pounds a head, while the average for the 400 million people in the world who use gold money is only 2 pounds. For all that, we know very well that our 3 millions would be woefully insufficient if the creditors took it into their mind to demand the gold due to them, as they sometimes do in times of financial difficulties. In such a case, perhaps, one-third of the 90 million public and private debts of the country, or ten times as much gold as we possess, would have to be paid at once, or within a very short period. As financial panics generally spread over the whole world, other countries would not be better off, and thus there would be no chance either of obtaining the gold from abroad. Under such conditions, the best security obtained by the creditor has often proved inadequate; and it is no wonder that money banks not only are very particular about their securities, but also charge a very high rate of interest. Part of this interest they have to pay themselves to obtain the gold from others, and a part has to supply the risk premium, which must be very high under such conditions; only a fraction represents profit.

“Is it a wonder that in face of such a growing difficulty of obtaining money—growing because compound interest all the time increases the excess of gold debts over gold stock—prices are forced down and sales become more difficult? Cheap money is the only remedy, and our present money must become dearer all the time. Organisations on the basis of the New Zealand Commercial Exchange Co., Ltd., can always supply cheap money, because they are absolutely independent of the gold market. All marketable commodities, without any exception, not merely one only, are their money.

“In the case here described, bacon is practically money, and bacon is the thing demanded by the Exchange Bank for the repayment of its loan. Bacon can be produced in any quantity. If the world’s debts were payable in bacon they would soon be paid off. Pig-raising and bacon manufacture would increase more than a thousand-fold. This production is practically unlimited; that of gold is very limited. For this reason, we do not run the risk incurred by money banks who give credits in gold money. We know that the bacon factory can repay its debts in bacon within a reasonable time, and its assets thus form an absolute guarantee. They would not if gold were borrowed, because the best assets cannot ensure an impossibility, the payment of a non-existing thing. Thus we can afford to charge only a nominal rate for our loan; i per cent, would amply pay risks and expenses.

“Before we conclude, we wish to meet one objection generally made. ‘It is evident,’ people say, ‘that the farmers can use the new money to pay for their groceries and other goods supplied by the stores. We are even willing to concede that they can buy with it any other goods they require from the storekeepers, as long as these can obtain groceries for the paper. Nor will there be any difficulty of paying other purveyors in this way—smith, barber, cart-builder, harnessmaker, etc.—because these in their turn could pay with it their own debts at the stores. But what is the farmer to do who owes an overdraft to one of the banks, or who wants to pay rent or taxes?

“Our simple reply is that we do not pretend to at once supply a cure for all the follies of the past. All we can do for the present is to supply a cheap money for the purposes here indicated, which money is needed anyhow, and if we do not supply it, will have to be borrowed, thus further swelling the present debts. In any case, the indebted farmers need groceries, clothing, fencing-wire, etc., and they have to pay for them.

“We supply them this part of their needs, and thus set free a corresponding amount of cash money otherwise required for the purpose. They will have to find the money for the banks, landlords, or mortgagees as they are doing now, i.e., by selling produce for cash. All we ask of them, and in their own interest, is to accept Exchange money for their pigs, or anyhow, for as many of them as are required for the supply of necessaries of life now bought with cash money.

“The great advantage they reap in this way, independent of obtaining a cheap credit and better prices, will be the gradual extension of a system which, once generally accepted, will, by importing fresh blood into the social body, gradually bring about a hitherto unknown prosperity all round, and thus will be also the means of freeing them from those liabilities which at present the new currency cannot reach.

“The advantage reaped by the new bacon factory from the help obtained through our system would infuse new life-blood into our Company, which is in full working order, and only needs the people’s help to become an immense success all round. Co-operators, help yourself, and God will help you! Do not complain of the scarcity of money when you can create your own co-operative money! Don’t go round soliciting cash subscriptions when the money you need is ready to your hands!”

Relation between Exchange and State Currency

Exchange currency and a State currency which expands with production, “monetises labour,” to use De Bernardi’s expression. How nearly both are related is explained in the following correspondence from the Pioneer of Social Reform (February, 1900):

“Editor of Pioneer of Social Reform.

“Sir,— I cannot understand how you can expect the same effect from State-issued paper as from your Exchange notes. The one is issued, as you suggest, for public works, or to banks or other borrowers supplying best security; whereas the other is lent to any honest producer or dealer who can give sufficient security that he will supply goods and services for the paper to anyone presenting it. I can very well see how your Exchange bank can render the man of the people independent of the money-lender, but I cannot see how the issue of State notes could effect the same purpose. Will you explain? C. R.

“[Answer.—Your question shows that you do not grasp the fact that Exchange notes and inconvertible paper money are lent on exactly the same principles. In both cases the borrower has to supply security that he will repay the loan. In both cases this security consists in something which the lender can make use of to pay himself. In both cases the money which has been borrowed has to be repaid. In both cases this money is accepted by the borrower for the goods and services he has to sell, and the value of the money depends on the fact that these goods and services are forthcoming on the presentation of the paper. In both cases the expectation that the standard of value of the money will not change, or, in other words, that the prices demanded for the goods and services will not vary, rests on the assumption that not more paper money is issued than there are goods and services held ready for it, and this is effected in both cases by obtaining sufficient security from the borrower of the paper that these goods and services, or, anyhow, something which will procure them at once, are ready at any time.

“Your question, implies doubt whether the issue of State notes for public works is fulfilling these conditions. In investigating the point, we shall find that it is immaterial for which purpose the notes were issued, provided the quantity in circulation does not exceed the demands of the market, which means that there are not more notes in circulation than there are goods and services held ready for them. The test for this is the price of these commodities and services. As long as this price does not rise beyond a certain point, it is shown that the healthy demand for money has not been overstepped. In another article of this number we show how it is possible at any time to ascertain the correct relation between the quantity of goods and of money, and to keep this relation steady.

“This relation may be kept up even where the money is issued to pay for unproductive expenses such as armaments and wars, but in such cases the element of distrust reduces the quantity of money which can be kept in circulation through the eagerness of money-holders to pass off what they do not require in the immediate future. They will pay out or invest their money as fast as it comes in. On the other hand, the very investment of the money for productive purposes—such as railways, for instance—increases the productive power of the people, and thus the quantity of money required, as well as the free deposits, the capital at the free service of the people^ Goods become sufficient security for money loans where they are readily saleable at paying prices.

“Neither State nor Exchange banks redeem their notes, These are merely orders to the members of the community in the one, the society in the other case, to deliver goods or services to bearer for the account of the issuing party, with the privilege of using the orders in the same manner. In both cases the debts of members are practically payable in all kinds of goods and services, and no more in only one special scarce commodity of which not enough exists to pay more than a minute fraction of the debts.”

Another article I wrote in the same periodical still better illustrates the intimate connection between the two currencies:

‘^The Great Calamity on Robinson’s island

“Things were getting rather turbulent on Robinson’s Island. It was not for the first time. There had been a revolution before when the people would no longer put up with Robinson’s land monopoly. He had owned the whole island, and only those who obtained land from his lordship could live on the island, and could only live on what Robinson was gracious enough to leave them of the fruits of their labour, which was not much. But some foreign agitators had managed to get a foothold in the island, and their teachings opened the people’s eyes. They began to see that they had as much right to the land as Robinson; and that Robinson was only one weak man, whereas they, the islanders, numbered thousands of strong men; that they only had to will, and Robinson must obey. So they willed common land ownership, and the land was owned in common. It was taken without compensation, but the people were generous enough to pay Robinson for improvements, although they themselves had made the improvements. They consented to give him bonds to the full amount of these improvements, on which they agreed to pay a moderate interest up to the time when they could redeem them. This would not have taken very long, because the inventive spirit of the islanders had immensely multiplied their productive power, and they were enabled to put aside in a few years wealth enough to pay the whole of their debt to Robinson, capital as well as interest

“Sly old Robinson foresaw that this state of affairs would not at all suit him. It would have thrown upon his hands immense stores of commodities which he did not need, and which he could not dispose of unless he took in exchange other commodities equally useless to him. He could only eat five meals a-day; any victuals in excess would soon have been spoiled. He could not wear more than one suit of clothes or one pair of boots at a time, and if his stock of clothing was too large, the moths would eat it. He might have left the commodities in possession of his debtors until he needed them, some time during the balance of his life or the life of his children; but he wanted interest, and the people were not fools enough to pay it, having no need of the goods. For they had free access to the land, and so their labour easily created all the other means of production necessary to supply plenty of everything.

“But Robinson was a sly old humbug who knew a thing or two; and so, long before the revolution which he foresaw, he had made a law that debts could not be paid in any product of labour, but only in one scarce product, a yellow pebble, called gold. While he owned the island he had made the people bring to him all such pebbles found by them, and at the time of the revolution he possessed almost all the yellow pebbles on the island. When improvement bonds were issued, capital and interest were made payable in gold. To obtain gold, people had to sell the products of labour. Robinson was the only gold owner, and he was, besides, over-supplied with goods of all kinds. This resulted in a mad competition for Robinson’s gold, through which prices and wages went down most fearfully. The more these went down, the more goods and labour days were needed to pay Robinson’s dues; and as Robinson’s wants were limited, the excess of supply over demand increased all the time. I do not mean real demand, for the people had an unsatisfied though ineffective demand for all these overproduced goods; but they had no gold with which to pay for them. Most of the gold they did receive had to be paid again to Robinson, who spent less and less of it. The surplus he lent to those islanders who could give him the best security. The interest on these new debts again went to swell Robinson’s income, and consequently the unconsumed part of it. This meant that an increasing gold debt had to be paid by the people, who, in order to obtain the gold, tried to sell their products in a market in which the great gold monopolist spent a continually diminishing fraction of his gold income, and in which the people were less and less able to make up for the deficit by their own purchases, because more and more of the gold they obtained for their sales to Robinson had to be paid back to him, and so could not be spent on purchases. A terrible struggle ensued. The people did their best to save gold by improving their tools and processes of production, but every such improvement only made matters worse. As it cheapened prices and increased the savings of Robinson, it narrowed the market and rendered the chances of employment more precarious.

“There, briefly, we have the cause of the turbulence on Robinson’s Island. Socialistic and anarchistic doctrines were preached everywhere. A solution which did not overthrow the whole system of ownership, production, and distribution seemed out of the question. The truth came to nobody that the whole mischief was due to the folly of making all debts payable in one scarce product, a product which one man could monopolise, instead of in all products which no individual could corner, because the whole people could coin such money by their own labour. Technical progress, instead of narrowing the market (because the production of the one scarce money commodity kept more and more behind the production of all other commodities) would in this case have increased the coinage of the people’s money. But how could the islanders have managed to escape the inconveniences of primitive barter? How could they have made use of the immense advantages connected with the use of money?

“The best way to answer these questions is to tell you what really happened. A stranger landed one day, who had heard a good deal about the great fertility of this island and its wonderful climate, and he had decided to spend there the balance of his life if things looked really as well as he had been told. You may imagine his astonishment when he found out the actual state of affairs. At first he was afraid he had got into a lunatic asylum, but gradually he saw what was the matter. He called a public meeting, and gave the following address:

” Friends, I had heard of your wonderful island, and I came to it thinking that I might be able to conclude my days among a happy and contented people, for this alone can make existence really enjoyable. I had fled from countries where most of the men were under arms part of their lives watching for the moment when they could fall upon their fellow-men and kill them, and where wealth is so unequally distributed that social revolution is rife. Dim reports had reached me, not only about your wonderful climate, but also about the victory of democracy which had gained the land for the people, besides obtaining equal rights for all men and women. You may imagine how astonished I was when I came here and found things just as bad as—in some respects, even worse than—I had left them in the Old Country. Under such conditions, I had better leave again by the first boat; but before I do so, I would like to find out the cause of your misery, and discuss with you the possible way out of it. Will anyone give me his views about the sad circumstances I find you in? ‘

“An old man got up, and in mournful tones replied: ‘The case is very simple, stranger; we suffer from an awful over-production.’

” ‘Over-production?’ the stranger asked, half doubting if he had heard aright. ‘Over-production? Why, man alive, I never observed worse destitution in my life than some cases I have seen here, and hardly ever such a deficiency in many things which make life worth living, such as many luxuries, especially objects of art. There is not a single man here, except old Robinson, who does not lack many products of all kinds, and you talk to me of over-production!’

” ‘Well, you just go and start any business, and then try to get rid of your goods! ‘ the old man testily answered. ” ‘Indeed; what trade are you in yourself, my man? ‘ ‘

” ‘I am a shoemaker.’

” ‘And you complain of over-production? Why, I have met hundreds to-day who have no shoes, or torn ones; why do you not supply them?’

” ‘We have got fools enough of our own,’ grumbled the old man. ‘Why don’t the foreign fools stay where they are, instead of coming here to waste our time with their empty talk.’ And he got up to go.

” ‘Won’t you reply to my question before you leave? ‘ asked the stranger politely.

“The old man turned towards him with an angry growl: ‘I am a poor devil, and cannot afford practising charity. I have to earn my bread by my work. Besides, I am an honest man, and cannot steal my leather. If giving away my boots and shoes is all you have to advise me, I think I was a greater fool to come and listen to you than you are yourself.’

” ‘I did not say that you were to give your goods away, and I see no need for it. Some of the shoeless men I met to-day are willing to work for the tanner, in return for the boots you could furnish them with, so that the tanner could supply you with leather in payment for their work; and other men, in exchange for shoes, would willingly help the farmer to produce wheat and cattle to provide you and the tanner with food, and the tanner with hides. Why do you all sit idle and complain of over-production? That is what I cannot understand.’

“The old man did not deign to reply, but, with a look of withering scorn, he left the hall. The speaker appealed to the public, asking them to explain to him by what blunder he had roused the anger and contempt of their fellow-citizen who had just left.

“A young man, with pleasing features, got up, and in a kind tone answered: ‘Our friend has become embittered by his troubles. He seems to be under the impression that you were making fun of him when you spoke of his obtaining food and leather through the employment of shoeless people by the tanners and farmers, as if these men could employ workers without money, or as if our friend, the shoemaker, could buy food and leather without first earning money for the purpose.’

” ‘Oh, that is it; money! ‘thoughtfully answered the stranger.  ‘Money! I see now. Still, I cannot understand what should prevent a farmer, for instance, from coming to our friend and bringing him a sack of potatoes for a pair of shoes, and why our friend could not get leather for part of these potatoes or for shoes, from the tanner, who could use the shoes and potatoes, or might pay back some of the latter to the farmer for hides. The potatoes would be money in this case, would they not?’

” ‘Certainly,’ the young man replied, ‘but this would be a very clumsy way of doing business when we find even gold too cumbersome in most cases, and when we usually let Robinson keep it in his vault, and take paper from him with which we transact our affairs.’

” ‘Why not issue the paper for the potatoes, the leather, the hides, the shoes?’ suggested the stranger. And then he went on developing a plan by which the islanders could issue such paper on their joint responsibility, which they would lend to each citizen according to the quantity of goods or services which he could be relied upon to supply for the paper. ‘Would not this paper be as good as the paper of Robinson? Would it not be even better, because I have heard that Robinson issues a good deal more paper than the gold in his vaults amounts to, whereas the new notes would only be issued where absolute certainty could be obtained that goods or services were ready for the exchange?’

” ‘That would be all right,’ replied a ponderous man with a pair of spectacles, who was a councillor, ‘but do you not know that we owe an immense debt to Robinson, which is payable in gold only, in more gold than we ever could obtain; and in this way our debt gets larger from year to year, and Robinson holds his claims—which we cannot settle— over us, so that nobody is sure from one day to the next of not being sold out by the sheriff, thus to be deprived of all means of subsistence, of all his tools of production with which he earns his living? ‘

” ‘To be sure,’ said the stranger; ‘but why not force Robinson to accept the new paper based on your products and services? Your productive power is so great that you could supply enough of this money in one year to pay off your whole debt to him; but he would not even want it paid back, for he would not know what to do with your products and services all at once. He could not use them in a lifetime, and his children’s children would yet have to help in getting all these things off your hands. Of course, you would not pay any interest for them meanwhile, as you could produce them in any quantity for your own wants. You would probably even demand a premium for storage, though you would not store the things, but would use them until they were demanded, when you would produce new ones.’

“Next day old Robinson heard of the meeting, and he became frightened. He at once saw that the secret of his power had been revealed, and he tried hard to counteract the impression which had been made upon the people. The newspapers in his pay wrote flaming articles against these foreign Anarchist teachings, which undermined all confidence and credit in the country. The idea of floating the country with a worthless paper currency, which soon would inflate prices, which would ruin the widows and orphans who had accumulated a modest competency that would speedily be reduced to a fraction by the depreciation of the new currency! The man who counselled repudiation of honest debts ought to be hanged, because he was little better than a thief. The credit of the country would be destroyed. To this tune it went on, and the politicians—servants of Robinson—took up the strain, and with thundering voices they demanded the expulsion of the scoundrel who had come to undermine good faith and honesty in the island.

“The stranger did not reply to these attacks. He thought that if the seed he had thrown out did not produce any harvest it was worthless, and he had better leave the island for good, to be ruined by usury in the name of honesty and good faith. Fortunately, the islanders were an intelligent and spirited people. Habit had dulled their perceptions in regard to this money problem, because they had been so used to Robinson’s gold currency that the possibility of reform had never once entered their minds; but now they saw a way out of all their troubles, they eagerly seized the new idea. New papers were started, and found eager readers, so that the old ones had to change their tone lest they should lose their last subscriber. The old fogies who preached against inflation soon found their match in energetic young men who knew how to reply to their arguments. ‘Inflation!’ they laughed. ‘Inflation; when it is notorious that the productive power of the country is stifled for want of the medium of exchange! Let us first issue enough of the new money to satisfy the wants of the people, and then we shall see. Let us remove the gag which prevents us from going to work with a will, from supplying each other with all the things we need, and all those appliances and machines through which we could increase ten-fold our productive power, and thus satisfy wants we could not otherwise dream of supplying. We shall then see whether the largely increased turnover thus brought about will not keep afloat more than ten times as much money as we now possess without depreciating its value. Repudiation? Yes, certainly, just as Portia repudiated Shylock’s claim to the pound of flesh of Antonio. Is it any easier to pay immense sums of gold which do not even exist in the whole world— because the gold debts of the people everywhere are more than twenty times as large as the gold stock— than it was for Antonio to pay the pound of flesh? In fact, it is harder, for the flesh finally could have been paid, though the payment would have killed the debtor. The gold we owe cannot be paid, however, even if all the debtors are sacrificed. We do not repudiate honest debts, but dishonest bargains against the law of Nature. In fact, Nature herself repudiates them; not we. We are willing to pay every penny of our debt in the only way in which we can pay it— in the products of our labour; but we cannot pay in something which does not exist, and which, even in so far as it is obtainable, cannot be got from those who own it, because their wants in our products are too limited. Down with the Gold fetish! Let all debts be paid in the new money! Let us make it legal tender for all debts, and prosperity will reign on this island for ever! ‘

“And so it came about. Strange to say, that most terrible prophecy which had been the principal stock-in-trade of Robinson’s servants—the threat that capital was going to leave the island— did not come true. The land did not leave; the houses and factories remained and multiplied. The mines, railways, ports did not emigrate, and stock of all kinds increased largely. The widows and orphans did not suffer, but prospered beyond their most sanguine hopes, because labour of all kinds was in much demand, and was so highly remunerated that anything they could put their hands to paid them ten-fold more than they lost through the cessation of interest on their savings. Only one kind of capital had left—the gold—and that could easily be spared, for the dentists had begun to find out that other fillings of teeth were as good, and gold chains and watch-cases had gone out of fashion since the people had decreed gold to be the badge of servitude which no friend of the people would wear any longer. All other kinds of wealth increased immensely, because the golden fetters which had prevented their production had fallen. No, capital had not left, but some of the capitalists had; first among them old Robinson. There was no need for his leaving, because his accumulations, even though they were converted into the new currency, and though their interest-extorting power had gone for ever, would have kept him and his descendants for generations. He left because he felt that he had lost the esteem of the people, whom he had deluded so long that all his services in the past had been forgotten. He went to live in countries in which his fetish governs yet for a time. Not for long, we think, for the example of our island preaches lessons of such transparency that even the blindest begin to read them, and it will not be long before the true economic gospel is recognised all over the world.”

Even the connection just shown between the two systems is not new, as is proved by the following resolution proposed, more than half a century ago, by James Bronterre O’Brien’s National Reform League, copied from his The Rise, Progress, and Phases of Human Slavery:

“That the National Currency should be based on real, consumable wealth, or on the bonâ fide credit of the State, and not upon the variable and uncertain amount of scarce metals; because a currency depending on such a basis, however suitable in past times, or as a measure of value in present international commerce, has now become, by the increase of population and wealth, wholly inadequate to perform the functions of equitably representing and distributing that wealth, thereby rendering all commodities liable to perpetual fluctuation in price, as those metals happen to be more or less plentiful in any country; increasing to an enormous extent the evils inherent in usury, and in the banking and funding systems (in support of which a legitimate function of the law—the protection of property—is distorted into an instrument for the creation of property to a large amount for the benefit of a small portion of society belonging to what are called vested interests), because, from its liability to become locally or nationally scarce or in excess, that equilibrium which should be maintained between the production and consumption of wealth is destroyed; because, being of intrinsic value in itself, it fosters a vicious trade in money, and ruinous practice of commercial gambling and speculation; and finally, because, under the present system of society, it has become confessedly the ‘ root of all evil,’ and the main support of that unholy worship of Mammon which now so extensively prevails, to the supplanting of all true religion, natural and revealed.

“That in order to facilitate the transfer of property or service, and the mutual interchange of wealth among the people, to equalise the demand and supply of commodities, to encourage consumption as well as production, and to render it as easy to sell as to buy, it is an important duty of the State to institute in every town and city public marts or stores for the reception of all kinds of exchangeable goods, to be valued by disinterested officers appointed for the purpose, either upon a corn or a labour standard; the depositors to receive symbolic notes representing the value of their deposits, such notes to be made legal currency throughout the country, enabling their owners to draw from the public stores to an equivalent amount, thereby gradually displacing the present reckless system of competitive trading and shop-keeping—a system which, however necessary or unavoidable in the past, now produces a monstrous amount of evil, by maintaining a large class living on the profits made by the mere sale of goods, on the demoralising principle of buying cheap and selling dear, totally regardless of the ulterior effects of that policy upon society at large and the true interests of humanity.”

To make the connection better understood let us suppose that the money is issued by a State which has monopolised distribution. Such a State purchases from the producers against Exchange notes or State paper money—whatever we choose to call it—and the producers bring the money back again when they buy the goods as consumers. The floating money will then correspond to the value of the stock of goods in the State’s stores. As the increase or decrease of this stock will correspond to a fall or rise of prices, and as the quantity of money issued grows and falls with the stock of goods, we arrive at the rule proposed for the issue of the paper money of the State bank: increase of issue when prices fall, and restriction when prices rise. Of course, where a scientific currency is introduced, Exchange banks are not needed. Anyhow, even where, as in New Zealand, we have a good prospect of carrying such a reform, Exchange banks, while rendering services in the interval are an excellent means of agitation for the new State currency. Every single Exchange note and cheque is an eloquent preacher against the gold superstition.

Co-operative Settlements

Exchange banking could also help essentially in the establishment of co-operative settlements, whose produce would be supplied to members of the Exchange bank, while the settlements, in return, could purchase from the Exchange bank members many goods produced by them, and not yet obtainable in the settlement. This would help to bring good prices for the settlement’s produce and to a certain extent do away with profits of middlemen. The following article from my Pioneer of Social Reform may give some suggestions in regard to the organisation of such settlements, in New Zealand especially:

“How to Solve the Problem of the Unemployed
Trades Unions please pay Attention!

“How to organise a State Farm,

as they call it in New Zealand, but in reality a co-operative settlement, founded either by the State or on independent lines by the workers.

“First, a few thousand acres of land on lease have to be obtained. Probably the State might be induced to help the enterprise by crediting the rent for the first ten years. The land ought to be easily accessible either by rail or water. One-third of the land ought to be adapted to agriculture, one-third to grazing, and one-third would be bush land. Clay, sand, and lime ought to be accessible. The aim of the settlers, as far as possible, must be the production of every article required for their own use. There we shall at once be met by an objection: Is it not better to confine the settlers to agriculture exclusively, and to buy the products of industry they require with the proceeds of their produce, on the principle that it is best to produce everything where it can be produced under the most favourable conditions, and then exchange in the usual way, through the channels of trade? We reply: Perhaps, if these channels were free and unencumbered; if the expenses of using them were not higher in most cases than the savings in cost of production under the present system. It has been calculated that the addition to first cost price due to manufacturers’ profits, to rents, advertising, traveling, losses through bad debtors and interest, freights, profits, and business expenses of merchants and shopkeepers, inaccessibility of the means of exchange, of money, the premiums demanded by the money-lord, etc., amount to over 100 per cent, on cost prices; which means that when the goods have reached the consumer the price has doubled. A similar sacrifice has to be made by the farmer as a seller of food and raw materials. On the average, if we count the price he obtains for his wheat and the price paid for this wheat by the townsman in the shape of bread, taking full account of the quota paid to the miller and baker for their work, he certainly does not realise one-half of the price finally paid for the wheat by the consumer. The balance goes to pay for transportation, profits and expenses of middlemen, including landlords and money-lenders. We obtain similar results when we compare the prices realised by the farmer for wool, hides, sheep, cattle, and the prices finally paid” by the consumer for these commodities in the shape of woolen clothing, boots, saddlery, and butchers’ meat, after deducting the cost of their transformation into the finished article. It is clear that in this way a very large margin is obtained, which by far exceeds that existing between the cost of producing articles of manufacture on the largest possible scale;, and that of producing them on the small scale accessible to the co-operating workers. Even if we admitted that the difference in the cost of producing a piece of woolen goods at one of our best organised woolen mills, and at the small workshop of the State farm, were as much as 50 per cent, in favour of the mill, there would still be a great saving for the settlers who delivered their wool to their workshop without any outlay for transportation, commissions, and other profits of middlemen, especially interest on money, and obtained for it woolens at cost price without paying freights and all the profits made by shareholders of woolen mills, all the expenses and profits of agents, merchants, drapers and carriers. The reduction of the price thus obtained for woolens produced on the spot would be so great that even if the local workshop only produced one single pattern, the settlers would buy it in preference to the outside product offered in hundreds of styles. But the very fact that the local workshop will not have to go to the expense of working so many different patterns will again reduce the cost, so considerably that the advantages enjoyed by the large mill are diminished correspondingly.

“The plan on which we would like to see such a co-operative settlement established would be, therefore, the gradual organisation of all industries required to supply the settlers on the spot with the necessaries of life, which would not exclude sales outside to procure the few things which have to be bought, such as tea, coffee, spices, fencing-wire, corrugated iron, nails, etc. The settlers will saw their own timber; they will build their own houses and make their own furniture. They will manufacture their clothing, their boots, food; they will make their own blankets, their own tools, etc. Workers engaged in these industries will be able to help the farmers of the colony at harvest time, and their excrements, instead of being a source of inconvenience, as they are in our towns, will benefit the farms. The settlement will be a combination of farm and town, such as Gardner describes in his “To-morrow.” A garden in the middle, surrounded by a circular avenue containing the public buildings; around these a park, surrounded by other circular avenues with the dwelling-houses. The outer circle is formed by the factories, surrounded by the farms, the grazing and bush land. Gradually all kinds of improvements, such as gas, electricity for illumination and power, steam for cooking and heSting, a theatre, a museum, a public library, and a central kitchen relieving the women from household drudgery, might be added. An important feature would be a central store, through which all the business transactions between the settlers, and between them and the outside world, would be transacted.

“This brings us to the plan of the organisation of production and distribution. This organisation ought to combine the best feature of socialism with the best of individualism. Socialism would in the first lines be represented by common land ownership, to which might be added common ownership of the most important means of production. In the second line, distribution would be on socialistic lines. No kind of distributive business would be permitted to individuals on their own account. The leases of land for dwelling-houses and business localities would contain the proviso that the tenant has to vacate in case he carries on any kind of commercial enterprise. All kinds of distributive work has to be done by the central store. There may be different opinions as to the advantages of competition in production, there can be none in regard to the part which competition plays in distribution. Competition in production often results in improvements in the processes of production and in cheapening the product. Competition in distribution sets from ten to twenty to do a work which one could do better, and consequently largely increases the cost. It is calculated that with a centralised and well-organised system of distribution on the most economical lines, distribution could be done at from one-tenth to one-twentieth of the present cost. Wages could be trebled or quadrupled without increasing the retail price of goods. The whole trade of the settlement ought to be done by its commercial department, doing the work in the most economical way and at cost, or with a certain percentage added to pay for public improvements. Most of these would be paid for by the rental income, which would in its turn increase through the improvements. Whereas, for instance, when our Government some day will build a railway from Wellington to Island Bay, the main benefit will accrue to the land-owners along the line, such an improvement in our settlement would increase the rental income from the land, which would soon pay for the cost of the road.

Now as to the organisation of production. Here the part of individualism comes in. Labour would be left entirely free to organise production. It would be left to the workers what contract they wished to make with each separate manager of the factories or farms, or whether they preferred to do without managers. Those who prefer a fixed income might make a contract with an individual who grants them such an income, taking as his own remuneration whatever profit he can make out of the business as an entrepreneur. Those who prefer to take the full risk may engage managers on wages or profit sharing, or both systems may be combined. Provided the workers or employers pay the rent which others are willing to pay for the land or the means of production, they are allowed full liberty. The means of exchange would be established on the lines of the New Zealand Commercial Exchange Company, Ltd., which would be ready even to lend its tokens, provided sufficient security is given against abuse. Also, the trade with the outside world might be made easier through the help of the new currency.

“These are the outlines of a settlement which might contain the nucleus of a social commonwealth. One successful settlement would be the progenitor of hundreds on the same lines; these would finally federate and gradually absorb the State of New Zealand, just as certain as civilised nations conquer those on a lower grade. It would at once solve the problem of the unemployed, because it would get rid of the greatest difficulty in the way of a solution. It would not deprive other workers of bread, as prison labour, for instance, is apt to do; because the settlers would consume as much as they produce. It would sift the good-for-nothings, the tramps who do not want to work, from the willing workers who cannot obtain employment; for the system of production adopted would pay each worker according to the work done. Each group would see to that in the interest of its members. Lazy workers would either get less wages, i.e., a smaller proportion of the total product, or they would be expelled from their group. When no other group receives them they would have to leave the settlement, which has the principle that whoever does not work shall not eat—a principle which does not stand in the way of a provision against old age and disease, through insurance. The vagabonds who are expelled from such settlements might be locked up in reformatories if found begging, but with such organisations in which the willing worker can obtain not only the necessaries of life but gradually all the luxuries (now only accessible to the rich), laziness would gradually become as rare as the cholera.

“The scheme has the advantage that we need not the help of the State to carry it through. If the Trades Unions, instead of collecting a strike fund, would use their means for the organisation of such a settlement, they would find helpers among the wealthier classes, and soon the funds required for the first settlement would be collected. We hold ourselves at the disposal of any Trades Union willing to work on these lines.

The best class of workers ought to organise these settlements not, as often has been the case, those who cannot find paying employment in the competitive world. When employers cannot get the best material, they will take the second-class quality, and will educate them until these workers, too, are ripe for self-organisation.

The means ought to be provided mostly by the settlers themselves. I cannot remember a single enterprise of this sort which succeeded where philanthropists contributed the capital. Ruskin Colony, in the United States, was making excellent headway on the principle that each settler had to contribute $500, and was wrecked only through unfavourable State laws which did not grant a good charter.

The British Labour Co-partnership movement has proved a success only since it has been started by the workers with their own means, though not excluding outside capital.

The objection that such settlements withdraw active reformers from political life, where they might do more good through their propaganda work, is not valid in New Zealand, where this propaganda work would only, be strengthened by the excellent object-lesson which successful social settlements would give; whereas the small size of the country would enable the men to participate in political work at large.

It is absolutely essential that communistic lines be let severely alone. Whatever the future may bring, we are not yet ripe for the principle of ” by each according to his abilities; to each according to his wants.” I do not know of a single communist settlement successfully continuing over ten years, unless founded by religious sects, whose belief and rules supplied sufficient restricting power to human selfishness.

No more land ought to be secured than can be paid for, unless the State grants favourable leases on the principle now proposed in New Zealand for settlers in the back blocks, who are to pay no rent for a number of years until the land has been brought into cultivation, and public roads have given easy access to it. Too much land and its outcome, the mortgage, have killed more such settlements than any other cause.

The reader who wants to become better posted as to the experiments made in this direction can find details in The Communistic Societies of the United States, by Charles Nordhoff, and History of American Socialism, by J. H. Noyes.

I have yet to mention two different kinds of social settlements of a more limited scope. One is described in the following review taken from the Pioneer of Social Reform.

Garden Cities

A Peaceful Path to Real Reform

By E. Howard

(Swan Sonnenschein & Co., 1898)

“On p. 103 the author, referring to ideas coinciding with his own which he was unacquainted with when he wrote his book, remarks how, in the search of truth, men’s minds run in the same channels. The whole book offers a striking proof of this fact to the editor of the Pioneer of Social Reform, for it gives ideas and plans which are almost identical with those he had worked out himself, and partly put before the Topolobampo colony about five years ago. The coincidence extends even to part of the very designs and forms of the proposed garden city.

“As modesty forbids to praise ideas which we ourselves once held forth upon, the editor is hampered in his review and in the hearty praise he would otherwise give unstintedly, and he must, therefore, confine himself to a terse statement of the author’s plans, and a few remarks connected with them. He trusts, however, that he may be permitted to advise his readers to purchase the little book, feeling sure that its consideration will do an immense deal of good in this country, where the execution of the scheme offers even fewer difficulties than the Old World presents. It is quite certain that here a method is indicated which is immediately practicable, and which, though likely to be more easily carried out than the majority of plans of social reform, would have at the, same time far-reaching consequences.

“Two magnets attract the people at present: Town and Country. Each has its advantages and its drawbacks. In the country we have Nature with all its beauties, but lack the social advantages offered by the town; and in the town we have to go without the sweet pleasures found in communion with Nature. Here cheap rents, but lower wages and less variety of work; there high rents in slums, but greater chances of finding congenial employment at paying rates. Statistics prove that the town magnet proves the stronger of the two, for the towns are growing more rapidly than the villages. Nowhere is this shown better than in the United Kingdom, where the big ulcer, called London, draws the life-blood from rural England, and threatens to depopulate the shires. Liverpool, Glasgow, Manchester, Birmingham, Dublin, etc., are the smaller, but also quite respectable, cancers helping in the nefarious work.

“Why not create a new magnet offering the attractive powers of town and country combined? Why not purchase a section of farm-land, lay it out as a township, and from the very beginning keep away the life-destroying bacillus which has been the ruin of our towns: land speculation? The plan is a very simple one. The land is to belong to the municipality, and the ground-rents are to be used for the benefit of the inhabitants—not of the fortunate minority who have been lucky enough to obtain a hold upon the soil of the town. Instead of breeding dukes of Westminster and Bedford, with their untold millions—cultivating them through the produce of the labour and the mere presence of the inhabitants—use the increment resulting from these elements to provide a little paradise such as the world has not hitherto seen. Such, in brief, are the thoughts which Mr. Howard unrolls before us on 167 pages, illustrated by a number of excellent diagrams. It cannot be the purpose of a short review to go into details. Suffice it to say that the form adopted for Garden City is the circular one. A park surrounded by the public buildings forms the centre, around which the town is built in circular avenues, crossed by diagonal roads. The park is surrounded by a glass-covered avenue containing shops, in which the inhabitants can make their purchases. At the same time, this avenue serves as a winter garden; it is called Crystal Palace. Canalisation, lighting, water-power, and communication are provided by the municipality on the most approved plans. The outer circle contains the factories, and beyond these are the allotments for gardening and farming. From any point the centre can easily and quickly be reached.

“Without going into Mr. Howard’s elaborate details, a very simple calculation will show at once how easy it is to provide the funds for all this. The yearly ground rental of London is over sixteen million pounds. The city and its suburbs are built on 75,000 acres, which, at the price of farm land, would cost three million pounds. The interest and sinking fund of this amount would be £130,000 yearly, an amount so insignificant that we can leave it out of consideration, for the mere yearly increase of the sixteen million pounds is much greater. Therefore we can safely say that if a new London were built on agricultural land, bought at £40 an acre, in some part of the country, and if it obtained the same number of inhabitants as the present city, sixteen million pounds could be spent yearly on the improvement of the town. But even this enormous figure does not give us a fair idea of the real case, for we must not lose sight of the fact that the greatest part of the expense of present town improvements goes towards buying land—which would be entirely saved in Garden City, where the land belongs to the community. Furthermore, it is evident that it is one thing to improve an existing town, badly built, and without any system, and another to create a new one where every single building finds its place on a plan settled before a spade is put into the land. Think of the difference in cost when subways, canals, streets, etc., are made for each section before the first house is built, or when they have to be cut through valuable property and in the midst of continual traffic! “We hear the objection that London, and most of the other large cities, have been built at certain points, generally at the head of navigation, where the natural advantages for a city were found, and that it would be impossible to find equally advantageous locations elsewhere. Granted; but let us not forget that only a small fraction of the population had settled at those places because of the just mentioned advantages—only those whose business is to distribute bulky goods arriving by water, and those who manufacture them on the spot. By far the greater proportion of the population has been attracted through the presence of the distributors and manufacturers, and the consequences of their presence. These consequences are; (1) Improved means of communication, mostly entirely independent of the location, because railways can be built elsewhere as well; (2) places of instruction and amusement and social intercourse, which could be obtained in any other place where the same number of people settle; (3) means of making a living, which mostly are derived from the aggregation of so many people, and not from the locality. As an example of what could be done, Mr. Howard points out one trade which could be carried on as well outside of London, the clothing trade, on which 150,000 people are depending for their sustenance. We may safely say that of the 6,000,000 people at present living in London, not a quarter of a million would give a preference to just this locality if the other 53/4 millions were not there. The reasons which caused the first settlement would not have any weight with more than one-twentieth of the present inhabitants, but they act like a flock of sheep, which jump at the same place where the leader jumped, even if the obstacle over which he jumped has been taken out of the way. Only a small fraction of the population of a country is needed for shipping and wholesale distribution from the shipping port, even if we add those manufactures which are best carried on at this port. The majority live by agriculture and the different industries or professions, or are employed in that kind of distributive work which can be carried on from any centre of population. Just figure how many people would be really needed at Wellington if it were only for the advantages offered by the port, and how many could just as well live in an inland town well connected by railroads, and surrounded by manufactures of all kinds and by intensive agriculture! There is nothing in the way of carrying out in New Zealand the plans which Mr. Howard has put forth for England. Only, instead of paying £40 an acre, land away from railway communication could be obtained here at £1 an acre. If the people were coming to live in the new town, their mere presence would create such an enormous increment that the railways connecting the town with the trunk line, and those connecting it with the surrounding garden cities, built at certain distances from the Central City on the plan of our author, could finally be paid out of a few years’ rental income.

“All that is needed is to will it, and the thing is done. It could be done here much quicker than in England. The mere readiness of 100,000 people to settle in such a place would produce values on the security of which it would be easy to raise the necessary funds, even without State aid, which, however, would be easily obtained here, whereas such a thing is out of the question in the England of to-day. We invite Mr. Howard to come to New Zealand, and to work out his scheme here. We shall give him our heartiest welcome and co-operation.”

Nothing proves more clearly the absolute want of progressive spirit among British co-operators than the fact that in the four years which have elapsed since the appearance of Mr. Howard’s book practically nothing has been accomplished but the creation of a propaganda society;[3] while, if co-operators had adopted the excellent plan, garden cities would already arise in the neighbourhood of all the large centres. This would help to solve the housing problem for the members—would make them their own landlords. Monopolists would no more squeeze out of them an ever-increasing share of their earnings in the shape of rent. Apathetically they let Mr. Howard struggle along with the noble work he so disinterestedly carries on for them; just as they sat quietly listening to my proposals, without taking the least step to give them a test, only a few turning up at meetings to which I came without any charge to them for time or expenses.

Co-operators as Voters

But Mr. Howard’s plan is not the only means of obtaining land. If the 1,800,000 members used their political power as voters to put an end to landlordism in Great Britain, they would soon cut off the heads of this hydra; but in vain have the most eloquent appeals been made in this direction, especially by my old friend, Alfred Hood; nothing worth mentioning has been done as yet. It is all very well to possess a co-operative capital of 20 millions sterling, to boast of a turnover of over 60 millions, and profits exceeding 7 millions; it is certainly a great accomplishment; but of what use is the best armament if it is allowed to rust in idleness? Merely saving a few pounds on sugar, butter, calico, etc., when earnings may fall more on the other side than can thus be made up, is certainly a poor show for such means of action.

Another kind of social settlements, as urgently needed as garden cities, which the latter, however, could greatly assist, just as they could also form a basis for co-operative production and distribution, are

Co-operative Households and Associated Homes.

When we want to produce cotton goods, the central steam engine has long since taken the place of thousands of wheel turners; but when we wish to produce roast beef, thousands of cooks have still to perform a work which a dozen could do far better under a system of centralisation.

I need not enter into the complaints about servants, the usual topic where two ladies meet; nor is it necessary to say anything about the worry of housekeeping, which so absorbs the average woman that she has little time left to educate her children, and still less to improve her own mind. The estrangement from the husband who looks outside for the intellectual intercourse he cannot find at his own fireside, and the whole tragedy which ensues in “home, sweet home,” has only too often been treated to need discussion here. And yet no reform could be simpler. Even if associated homes should meet too much resistance, a beginning ought to be made with associated cooking, washing, and house-cleaning on the plan lately tried in Manchester.

A band of Manchester ladies have embarked on a novel scheme to solve the vexed servant problem. A limited company, to be known as the Manchester Distributive Kitchens, Limited, has been started, the £3,000 capital being quickly forthcoming. “We intend eventually,” said the honorary secretary, Mrs. R. Brodmeier, in the course of an interview, “to deal with all branches of domestic service, but for the present we shall be content to do what we can to make up the inadequate supply of efficient cooks. A table compiled by the registry department of the Girls’ Friendly Society shows that in 1898 337 cooks were wanted, and only 47 offered. The scarcity of good general and other domestic servants is undoubtedly felt in many British households; but we shall have to proceed step by step in this ambitious scheme, and if we are only successful in meeting the lack of cooks, we venture to think we shall have rendered a public service. We propose to establish in suitable localities distributive kitchens. These departments will furnish the necessary training schools for cooks, under proper supervision, and householders can depend upon obtaining efficiently cooked food of good quality, prepared with cleanliness, and packed by competent hands. Hot deliveries can be effected at a distance of five miles. This arrangement has proved useful and popular on the Continent, because it promotes comfort, economy, and thrift.”

The next step would be to build, say, a thousand houses, without the usual kitchen and its expensive range, without a wash-house and a dining-room; and though building cheaper, give them better bedroom accommodation; whereas one central kitchen, store, laundry, and dining-hall would take the place of the thousand. Those who prefer to dine at their own house could still do so, and steam-heated carts could bring the hot meal to them. A Kindergarten and school, a swimming bath, a gymnasium, social and reading rooms could be erected in a fine park around which the houses were built; but still not more land would be needed than 1,000 houses with their yards and little gardens now require, while the building of simpler houses in such large numbers, the saving of 1,000 ranges and sets of kitchen implements, would certainly reduce cost price, even after paying for the central buildings. Everything would be bought wholesale, and a bakery and butchery could be annexed to the central buildings, or could be built elsewhere. The servants would work on the factory plan, with all the advantages which now attract them to the factory, and without the thousand unpleasantnesses which make domestic service so distasteful to them. No more tyranny of mistresses, no more want of freedom and independence. Eight hours’ work for each shift, under the supervision of experienced matrons; and no further connection with each householder than to do their work by the hour, and to have the householder clip off the working time on a card; while, as a control, the worker clips off the same figure on the householder’s card. Complaints to be addressed to the office.

Instead of a considerable number of small cottages, a few large central buildings on the plan of Fourier’s Phalanstére, exemplified by Godin’s people’s palaces at Guise, France, could also be erected, with central heating and lighting arrangements. Productive work might finally be carried on by the settlement, whose custom would provide a ready outlet for it. A thousand families would, for instance, need enough clothing, boots and shoes, shirts and underwear, socks and stockings, etc., to keep a small factory going; enough food-stuffs to provide employment for a number of farmers and gardeners. All this and much more could be done, and the system would also afford a good deal more enjoyment to the members, at less cost than the wasteful present practice; but it will be the last reform we shall get. We shall perhaps have the socialist commonwealth before we have a general adoption of the Associated Home system; for “Home, sweet home” will be the melody to whose chimes the galley slaves, called housewives—with or without the scourge of underslaves—will continue their wearisome daily drudgery, world without end. Amen.[4]


[1] I had the same plan for New Zealand. Want of support prevented me from erecting the permanent exhibition of our members, but an experiment I made with a commercial traveller for the company showed how much easier it is to obtain orders where no cash and only the engagement to supply goods in payment is demanded.

[2] There is no stamp duty at all on such paper in New Zealand, and decisions of the American Treasury department given to labour exchanges confirm the same fact for the United States.

[3] Garden City Association. Thomas Adams, Secretary; 77 Chancery Lane, London, E.C.

[4] For those who think me too pessimistic I state the simple fact that a letter to the New Zealand Herald, in which I proposed to the people of Auckland co-operation in householding, and which closed with the words: “I am ready to take my share; who else is? “brought me one single application only, and that was from a man who wanted to sell me land. I have found the same apathy on two previous occasions when I made similar proposals in other cities.