Being one of the pages in 4000 of them comprising
a fiche batch by John Zube he sold me in San Francisco in his hotel room
almost decades ago.... (My attempt to help work on the second batch failed;
see
heavy heaves) pages with correspondence between Beckerath and a number
of people like Rittershausen who is represented in this batch as well.
Go
see what else poetpiet can puzzle you with here
......................................or
here.......................................
or
check the intro to my first batch of guest appearances
which
concerns all sorts of currency issues
Tripod tool Nedstat font>installed end of nov 98 but incorrectly till july 99 This file was created in the fall of 98 poetpiet@hotbot.com ???
116 ENDINC THE UNEMPLOYMENT
AND TRADE CRISIS
The form of a credit cooperative has the decided advantage
that no
working capital needs to be raised before business operations commence.
All other legal forms, and especially those most advantageous in businesa,
postulate, in conformity with the legislation of perhaps all countries,
the existence of working capital (mostly in the form of legal tender) before
an undertaiking is started.
Many objections, however, may be raised against the legal form of. cooperatives,
and it is just those who are farniliar with the cooperative movement, who
will have their doubts. It should be remembered, too, that an espert like
Meulen does not recommend the cooperative fonn for note issuing banks and
stresses the superiority of undertakings managed by single persons, basing
himself on the esperience of the old Scotch banks of issue. Add to which
that in some countries a veritable detestation is felt in wide circles
for any organisation not governed by the leadership principle. Unfortunately,
there exist as yet no leaders in the sphere of banks issuing goods warrants;
these have yet to be trained. This, again, can scarcely be attempted outside
a cooperative where every member risks losing part of his savings when
mistakes are made and therefore closely watches the management and compels
it to report at frequent intervals The discussions that take place on this
account, impress on an ever larger number of cooperators the principle,
and some of them who come to grasp it, may become eventually leaders. A
beginning might be made by the cooperatives issuing a special type of shares
which, in case of losses, are liable before others and bring therefore
greater returns. Subscribers to these shares might also be entitlcd to
closer control of the management. To permit this development, the cooperatives
should not be too large. In the case of the American Building and Loan
Associations (which have 10 million members and should therefore, as a
social force, be judged from a quite different viewpoint than the building
cooperatives of Central Europe), it has been found decidedly practical
to grant credits only to persons who do not reside at more than 25 miles
distance from the cooperative offices. Many Building and Loan Associations
limit the distance to 10 miles, to their manifest advantage. Only where
such a restriction is in force can the management really know its clients.
This principle suggests that the issue of warrants should not be entrusted
to a huge centre, but that, on the contrary, hundreds or even thousands
of issuing centres should exist. Clearing centres, resembling a Central
Cooperative Finance Department, would, however, be required, and, in the
end, a great Clearing Centre, which, however, would in no way be concerned
with issuing goods warrants.
This development would be analogous to that of the old American and Scotch
banks of issue. According to Carey117
(Principles of Political Economy),
there «isted in 1852 in Rhode lsland one bank of issue for every
2.000 inhabitants and, in 1850, in Pennsylvania, one for every 40.000.
Carey estimates the population of all the New England States at that time
at 3,2 million and the number of banks of issue in those States at 491.
This means one bank of issue for roughly every 6.500 inhabitants. Adam
Smith reports similar conditions in Scotland. In 1845 Scotland still possessed
19 banks of issue for 2,7 million inhabitants, or, roughly, one bank of
issue for every 140.000 inhabitants. Such a ratio might also be practicable
for Central Europe. The largest Scotch bank of issue in 1845 (the year
when English legislation placed further restrictions on the Scottish banks)
was the British Linen Company, which was entitled to issue up to £438.024
in notes. (Kerr, History of banking in
Scotland.) If such a bank, operating in
Scotland, the classical centre once of private paper money and after an
experience of many decades, had in circulation less than t;his modest sum,
thiB suggesb that for the time being and perhaps for many years to come
the contemplated institutions should not go farther and that in case of
an increase in turnover, there should preferably be an increase in the
number of banks issuing goods warrants.
A recent development in monetary theory, wherewith even so renowned a scholar
as Irving Fisher sympathises, demands that the money circulating should
steadily depreciate in order not to allow its circulating speed to fall
below the necessary minimum. In German speaking countries, this development
is known as the "Schwundgeld-Theorie" (theory
of depreciating money) and
is associated with the name of Silvio Gesell. (Chatters,
in Annals, 1933, no. 2, such money "stamped scrip". Apparently
the same idea made its way in America independent of Gesell.)
Gesell proposed a weekly depreciation of 0,1%. But the paper money issued
by the old Scotch banks circulated at least 100 times as rapidly as would
depreciating money. Why? Because whilst the Scotch paper money had a strong
reflux, depreciating money has almost none. With the old Prussian private
banks of issue, a note completed within less than three weeks its circuit
from the bank to the public and back to the bank.The Scotch banks of issue,
and even more so the old German private banks of issue, provided for the
reflux of their notes by only granting such persons advances in notes who
had already sold certain goods but had to wait for payment to be made.
The notes passed rapidly from the vendor of the goods to the purchaser,
the latter paid for the goods with the notes; and the vendor then returned
the notes to the bank. To-day it might suffice that the reflux ahould be
guaranteed by orders placed, instead of by deliveries already made. This,
however, does not
118 END,INC THE
UNEMPLOYMENT AND TRADE CRISIS
preclude the goods
warrants bank from engaging in all ~he operations formerly cuatomary for
private banks of issue. (For Europe, the suppression
of these banks was a misfortune, only comparable with one of the plagues
in the Middle Ages.)
C.
Technical Details concerning the Issue of Goods Warrants by Work Supply
Banks.
For such a bank
the legal form of a credit cooperative would possess some advantages. First,
model rulea for auch bodies exist probably in all countries. These model
rules could be easily adapted. The cooperative would have further to formulate
provisions for the loan of goods warrants as well as settle the conditions
governing long-term credits and find the capital required for the latter.
In addition, service regulations and forms would have to be drafted which
allowed for the fact that these cooperative credits are granted in goods
warrants and not in ready money. That, of course, cannot be attempted in
this paper.
Here we shall only
furnish
a) a series of provisions not found in present-day model rules;
b) a series of principles and business provisions governing the loans
made in goods warrants;
c) the same for long-term credits.The inclusion of long-term credits
within the scope of the banks will be discussed in a separate section.
From a strictly juridical viewpoint the principles and the provisions should
have been separated. However, in view of the novelty of the subject, it
may be permitted to present the legal basis in a form resembling the legislation
of a century and a half back, where both the motivation and the executive
provisions were placed in the text of the law. Why we speak here, not of
interest but of usufruct charges, will be explained in another section.
Priciples and Bussiness Provisions regarding Loan Transactions of a Work Supply Bank in respect of Short-Term Credits.
I. Means of Payment.
a) In connection with loans,The Work Supply Bank shall only engage
in loan transactions involving the loaning of its own goods warrants
b) In connection with repayments.
If
the borrower, instead of returning goods warrants, remits other means of
payment, the Bank shall be entitled to demand the same premium which it
levies when in opening an account not goods warrants are paid in but other
means of payment, viz., at least 2% of the amount not paid in goods warrants
THE PRACTICAL REALISATION
OF THE MILHAUD PROPOSALS 119.
II. Legal Form
The legal form for
loaning goods warrants shall be t~he cash loan. At the samc time that he
borrows the goods warrants, the borrower shall take over, besides the shares
he holds as a member, others, and at least such a number that the total
amount of the additional shares shall equal the total amount of the loaned
goods warrants. All goods warrants that the borrower pays to the Bank and
which are in excess of the amount due for usufruct charges, should be countcd
as discharging his obligation to pay for his shares. The Bank shall always
take into consideration the value of the goods warrants paid to it as well
as whether they are at a discount in the market. When a share is fully
paid up it shall be considered balanced against the remaining debt.
III. Guarantees
for the Work Supply Bank in Loan Transactions.
The following shall
be the Bank's guarantees:
a) Pledged shares. (See 11.)
b) Sureties. It must be reasonably shown that the goodswarrants of the
Bank could be realised as well against the baileesas against the borrower.
c) The pledging of the borrower's stocks of goods ready forsale.
d) Other usual banking and unencumbered guarantees.
e) Bills, first and foremost the borrower's bills on customers. When the
amount of the customers' bills pledged by the borrower is smaller than
the borrower's debt, the borrower shall tender promissory notes of his
own for the difference. Such notes shall be inadmissible as guarantees
so long as the type of busines carried on by the borrower suggests that
he is in possession of customers' bills. Claims on the borrower's customers
that are not covered by bills, may be accepted as security by the Bank
if, additionally, other adequate securities are deposited.
f) Loans shall not be granted to persons or firms whose business or residence
is more than 25 kilometers distant from the Bank's premises.
g) During the Bank's first financia.l year the loans to singlépersons
or single firms may not exceed 5%, and in the succeed-ing years 3%, of
the total loans granted or definitely expected to be granted, at the time.
h) For payments due to him, every borrower shall be obliged to accept instead
of money the goods warrants of the Bank at their face value, and this at
Ieast up to the amount of the remaining debt. As far as practicable, he
shall place the same obligation on his debtors. This obligation shall hold
also when the payment of the remaining debt may be discharged in several
120 ENDINC THE UNEMPLOYMENT
AND TRADE CRISIS
instalments. If
a borrower, in accepbng goods warranta in payment, values these as less
than other means of payment of the same nominal amount, or if in accepbing
such payments he does not grant the same advantageous terms aa with other
means of payment, he shall be liable to a fine for breach of contract.
The fine shall amount to a quarter of the remaining debt at the time the
fine was incurred, at least to 50 marks. The Bank shall also reserve to
itself the right of claiming an indemnity.
i) The Bank shall not pay to any borrower goods warrants amounting to more
than 10.000 marke. When several loens are granted, the total debt contracted
by a single peraon or a single firm may not exceed the said sum.
k) The loaning of goods warrants shall be aubject to tl.e borrower proving
that he has placed orders among the customers of the Bank at least to the
extent of the loan applied for the dates fixed for the delivery of goods
or services shall not be longer than those corresponding to the repayment
datea of the sums borrowed. After due consideration, the Bank may agree
that the orders shall not be placed with the Bank's customers, teut with
the debtors of those customers, or with the debtors of those debtors. In
each separate case the Bank shall so determine the special loan conditions
that most probably the loaned goods warrants shall facilitate the fulfilment
of the obligations of one of the Bank's obligors, thus augmenting the security
of the Bank. Employers shall only be entitlcd to pay the wages of their
employces with those goods warrants if they cen prove that the employees
have undertaken to buy from the Bank's customers. nis shall be ascertained
by an examination of delivery books or in some other satisfactory way.
IV. Usufruct Charges
for Loaned Goods Warrants.
The borrower shall
pay a usufruct fee for the goods warrants loaned by trim. For
the sake of simplicity
the fee shall be calculated in fractions of the initial amount—that is,
regardless of the progressive reduction in the debt. In settlement, the
instalments on the shares shall yield such interest as the Bank shall determine
from time to time. The payment of thc usufruct charges shall be in weekly
instalments, provided that no other arrangement shall have been made. The
usufruct charges shall include:—
a) a contribution to the costs of adminisrtation:
b) a contribution to the reserve fund serving to cover lowes;
c) a contribubon esclusively intended to induce the debtor to pay off his
debt as rapidly as possible, the contribution to be greater than the minimum
instalments fixed in the loan provisions. This contribution shall also
be credited to the borrower's shares.
THE PRACTICAL REALISATION
OF THE MILHAUD PROPOSALS 121
If the borrower
should fall in arrears with his contractual payments to the Bank, he shall
pay in addition to the usufruct charges, interest on arrears in accordance
with the conditions made known by the Bank
from time to time.
Should the contributions
provided for under a) end b) be insufficient, the Bank shall have recourse
to apecid assessments. These are to be apportioned at the time of their
being used in the ratio of the remaining debt of each borrower. The Bank
shall determine the particulars from time to time.
V. Return of the
Loaned Goods Warrants and Sundries.
a) The borrower
shall return the loaned goods warrants in weekly instalments. It is not
necessary that the numbers and the parcelling of the loaned end of the
returned goods warrants should agree. Thc Bank shall not pass into circulation
the goods warrants cashed in the course of the day, unless it be a question
of a simple exchange or surrender at its counters. On the contrary, the
Bank shall, at the latest, cancel the goods warrants cashed in the course
of a day on the day following end shall show this in its returns. When
the Bank receives legal tender, it shall utilise it preferentially for
withdrawing its own goods warrants from circulation. On
this matter also, the Bank shall report regularly.
b) The number of the repayment instalments shall in general not exceed
13, so as to ensure that after the lapae of three months the loaned goods
warrants shall have been rcturned. The Bank may fix the instalment rate
in such a manncr that fcr amortisation end usufruct payments altogether
combined identical amounts shall be payable week by week.
c) More favourable return conditions, more particularly return periode
exceeding three months, the Bank may only grant when and in sofar as its
available assets shall permit. In no case may the time limit for a loan
granted by the Bank execed the length of notices governing the calling
in of the Bank's outstanding assets.
d) The borrower shall be entitled, without previoua noticc, to return more
goods warrants than he had undertaken to return in conformity with the
loan contract or the businesa provisions. The borrower may also return
simultaneoudy the whole of thc goods warranta covering the amount of his
remaining debt.
e) Should the borrower not fulfil the obligations incumbent on him, the
Bank may, without giving notice, demand the rctum of all outstanding goods
warrants.
f) Until the borrower has returned all the goods warrants he has loaned
he ahall only transact buainess with any other bank with the express consent
of the Work Supply Bank. Such busi-
122 ENDING THE UNEMPLOYMENT
AND TRADE CRISIS
ness shall comprise
all credit or account current transactions with a banker, a financial enterprise,
or a loan agent.
g) The particulars of the business transactions between the Bank end the
borrower shall not be deemed business secreta.
h) By accepting the goods warrants, the borrower agrees that any eventual
modifications of the general business provisions or of the rules shall
be also binding on him end this retrospectively, including modifications
entailing more onerous terms for trim.
i) When a member shall have formally proposed to borrow goods warrants
but has not, within a week after submitting the proposal, offered guarantees
satisfactory to the Bank, his proposal shall be deemed as not submitted.
k) The Bank may stipulate that all transactions with it shall be conducted
on set forms.
l) Expenses incurred throukh examining the garantees offer. ed by the borrower,
as welf as through inquiries, objections, etc., on the part of the borrower,
may be debited to him by the Bank which, at its discretion, may demand
of him an advance on account of costs. Correspondence not accompanied by
the business fee fixed from time to time, or at least by return postage,
need not be answered by the Bank.
m) The Bank may stipulate that the borrower shall take out the insurance
for his person end his property required for protecting the Bank against
loss. Te Bank shall also be entitled to take out itself such insurances
end to claim the associated costs from the borrower.
n) The Bank shall be entitled to demand of the borrower proof that he promptly
pays his taxes.
o) The domicile of the Work Supply Bank shall be its place of jurisdiction.
Rules.
Inasmuch as in all
countries the cooperative federations have elaborated model rules for credit
cooperatives, which are as a whole appropriate for our purposes, we shall
only indicate the few modifications required in the customary rules. For
Germany, the rul es reprint ed annually in the Deutscher Bankbeamten Kalender
(German Bank Officials' Calendar) are quite serviceable end the subjoined
provisions relate to these rules.
§ 1.
The cooperative
shall be called: Work Supply Bank at...
§ 2.
1. The working capital of the Work Supply Bank shall consist of the assets
of the cooperative. This shall be formed of payments for shares, transfers
to the Bank assets, end reserve funds. Payments shall be made by surrendering
the goods warrants of, 123 the
Bank. Alternatively, when other means of payment are used for paying in,
a premium in favour of the Bank shall be paid, as stipulated.
2. The Bank shall be entitled to issue goods warrants, bearing the following
text—
This goods warrant
entitles the
holder to present it in payment for (at face value) to all
the customers
of the Bank in lieu of money. On inquiry at the counters
of the Bank,
the holder will be informed of the curtomers bound to accept
the goods warrants.
Those concerned
are also referred to the notices posted up in saleasestablishments regarding
the acceptance of goods warrants.
No. of the goods
warrant and series:..............
Date of issue:.................
Signature:..........
The goods warrants,
like money, shall be issued in certain denominations. The Bank shall make
known from time to time the denominations end text of the goods warrants,
more particularly after modifications have been made.
§ 47.
The settling of
accounts with retired members shall be on the basis of the annual financial
statement. A member's balance shall be paid out or cleared to those who
have retired or to their heirs, subject to the Bank's liquid assets end
financial position. The retired member shall be bound to accept the Bank's
goods warrants in keu of ready money. If the total assets do not suffice
for meeting the Bank's liabilities, the retired member must, subject to
the decision of the Governing Board, either pay his share of the deficiency
to the Bank or wait for the payment o the sum owing to him. The particulars,
especially as regards the rotation in waiting, the Governing Board shall
decide in each case at their discretion. Payments to a member of less than
50 marks a month may in any case be made, regardless of the general stipulations.
§ 50.
Each member's share
shall be 150 marke. Instalments towards this of at least I mark a month
shall be permissible. The entrance fee shall be 3 marke. All payments shall
be made in goods warrants issued by the Bank. Should other forms of money
be paid in, a premium, fixed by the Governing Board, shall be payable.
§ 58.
Subject to the Bank's
business provisions, members end nonmembers may have accounts at the Bank.
In accord with its
business provisions, the Bank shall grant its members amortisation loens
by placing at their disposal goods warrants. 124
The Bank shall be, moreover,
entitled to transact every type of banking business conducive to providing
work for its members.
§ 60.
No loan may be granted to
members of the Supervisory Board, of the Coverning Board, or to employees
of the Bank, not in cash, nor in goods warrants, nor in goods, nor in any
other form.
§ 63.
No. 4. In addition to the
customary profit end losa account, a set statement of the total turnover
of the Bank shall be issued, even if the turnover had led neither to a
profit nor to a loss. (Remark: This type of
statement which is not usual in Continental Europe, is regularly issued
as an appendix by English end American cooperative building societies end
affords a greatly superior survey of the management of the undertaking.
For instance, an exchange of one security for another without altering
the assets, does not carry us beyond the customary profit end loss account,
teut that is otherwise with the statements headed "The money we received"
and "The money we spent" of the American Building end Loan Associations
end the English Building Societies, whose arrangements are in every way
exemplary.)
§ 76.
Modifications of the rules
end provisions may be decided on with retrospective effect.
Principles and Provisions Governing the Obtaining of Long-Term Credits through the Work Supply Bank.
1. Nature of the Long-Term
Credits granted by the Work Supply Bank.
Pursuant to these provisions
a credit shall be deemed longterm where the borrower is not bound to recognise
against himself at all times, at least up to the amount of his remaining
debt, the Bank's goods warrants. On the contrary, in respect of longterm
credits, the borrower shall be only bound to accept the goods warrants
for (at least) the amount of the next instalment cue, inclusive of amortisation
end usufruct charges.
Inasmuch, however, as the
Bank holds out to every holder of goods warrants the prospect that in exchange
for these warrants he may obtain from the Bank's customers goods or services
as if paid for in cash, it follows that in the case of the grant of a longterm
credit. another person must undertake, at the request of any holder, to
exchange the Banks goods warrants for goods or services.
The Bank shall only, end
to such esteet, grant long-term credits, as persons other than the credit
grantee shall declare themselves prepared to stand aecurity for him with
their goods
THE PRACTICAL REALISATION
OF THE MILHAUD PROPOSALS 125
and services and as, besides,
these goods end service a are in daily demand. Nor may there esist an obatacle
to the ready disposal of the goods warrants—e,g., the bosinesa premiaea
of the persons concerned shall not be aituated at such a diatance as to
impede the ready disposal of the gooda warranta.
II. Capital Required for
Long-Term Credit.
A. The Work Supply Bank is not concerned with acquiring legal tender through
deposita in order to lend it to borrowera. It should con fine itself ,
on the whole , to cooperating in the diaposal of goods end aervices which
are to be utilised for long-term credits. Individuals who shall place at
the disposal of the Bank goods end services which would enable the Bank
to grant long-term credits to others, shall be in the legal position of
depositora or bond-holders conformably to these principles end provisions.
B. Those willing to place goods or servicea at the disposal of the Bank
with a view to enabling the Bank to grant long-term credits, shall comply
with the subjoined provisions:—
1. The individuals concerned, hereinafter called the owners, undertake
to count against themselves in keu of cash a certain minimum number of
the Bank's goods warrants. The owners, following the Bank's instructions,
must devaluate the goods warrants accepted end surrender them daily to
the Bank. The Bank shall credit the owners with the goods warrants surrendered.
Such goods warrants, if not devaluated by their owners, shall be devaluated
by the Bank.
2. In order to offer the holders of the goods warrants full assurance that
they may dispose of them to the owners at nny time as if they represented
cash, the owners must give the same undertaking as if they owed the Bank
the a~nount they intended to guarantee. The Bank shall demand from the
owners the surrender of goods warrants to the amount guaranteed by the
owners within a specified time or in fixed instalments, if the owners cannot
show cause why a longer delay should be granted them for surrender without
prejudicially affecting the legitimate interests of the holders of the
goods warrants.
3. If an owner shall only declare himself ready as against the Bank or
other persons to accept the Bank's goods warrants in keu of cash, teut
shall undertake no other obligations, he shall not acquire thereby a credit
at the Bank or any other right against it. Nor may the Bank, on the basis
of such declarationa, agree to loan goods warrants to other persona. On
the other hand, the opening of a credit at the Bank to persons who surrender
to the Bank its goods warrants up to the amount of the face value of such
goods warrants, shall be even admissible when the presentor does not place
at the disposal of the Bank 126 any
goods or services end makes no declaration concerning the acceptance of
goods warrants in payments made to trim. On the strength of the balance
in question, the Bank may grant long-term loens.
III. Administration of
Balances at the Work Supply Bank.
In return for the balances
created at the Bank by means of. the surrendered goods warrants, the Bank
shall provide pass books or Bank bonds. In this connection, the special
provisions made known from time to time by the Bank shall apply. The balances
shall beer interest, teut the Bank shall not undertake to fix in advance
any interest rate.
Pass books end Bank bonds
shall be transferable without the consent of the Bank. But the Bank shall
be entitled, although not bound, to demand proof of the rights of the presentor
to such books end bonds.
IV. Notice of Withdrawal
of Balances at the Work Supply Bank.
A) The payment of called-in amounts may, at the discretion of the Bank,
be either in goods warrants, or in ordinary means of payment received by
the Bank.
B) The Bank shall be entitled at any time, even without the consent of
the balance holder or bond-holder, to repay balances, either in goods warrants
or in ordinary means of payment received by the Bank, when, end to the
extent that, the Bank receives payments from its debtors for which it cen
find no other investment. The Bank shall determine the balances by drawings
or otherwise, ensuring a uniform end fair treatment of the balanceholders
end of the bond-holders, even if only one interested party makes such a
demand.
C) No balance-holder or bond-holder shall be entitled to demand repayment
at a given date. Nor may the Bank, in disregard of these provisions, undertake
to repay a balance at a given date or within a specified period.
D) If the amount of the balances withdrawn by their holders exceed the
Bank's liquid assets, the Bank shall announce special provisions concerning
repayment: either by arranging the repayments in the order the notices
were received or by deciding on pro rata payments on all balances called
in. In any event, the Bank shall fix on a smaller amount, an amount which
it cen pay each month to any withdrawing member, apart from the order of
the notices of withdrawal, e. g., 50 marks.
E) So long as a balance-holder or bond-holder shall not have received the
amount he has called in, allowing for the period during which it cannot
be called in, the Bank shall not be entitled to grant fresh long-term loens,
except when, simultaneously, new
THE PRACTICAL REALISATION
OF THE MILHAUD PROPOSALS 127
goods end services shall
have been placed at the Bank's disposal for a long-term period.
F) In no case may the Bank pay recalled balances in goods warrants if the
immediate exchange of these goods warranta for goods or services within
the Bank's group of customers is not assured.
G) For the rest, the arrangements concerning the calling in of balances
shall be subject to announcements made by the 13ank from time to time.
If not otherwise stated, each balance end Bank bond shall be deemed as
not recallable for at least sis months
V. Repayment of Long-Term
Credits.
A) The arrangements made for the repayment of short-term credits shall
apply to long-term credits, at least insofar as they have not been modified
by these provisions or through the loan contract.
B) Only amortization credits shall be granted.
C) The payment of the several amortisation instalments may be made by the
surrender of pass books, writing off of pass books, or surrender of Bank
bonds. Should the Bank 80 decide, any advance repayment of long-term credits
must be made in this mannen The Bank is authorised to refuse other modes
of advance repayments.
D. Financing
by means of Goods Warrants Manufacturing Operations occupying a Considerable
Time.
The problem of finding work
for the unemployed encounter. almost always serious obstsales, to remove
which sundry pro" posals have been put forward from time to time. One effect
of re-employing the workless is to increase output. Now the chief cause
of unemployment resides precisely in the excessivc number of articles produced.
There appears hence the danger that the remedy may actually aggravate the
evil, What, then, is to be done?
One way out would be for the unemployed only to undertake work for one
another. In fact, many of the American
Emergency Associations have hit on this device. (Annale, 1933, no. 2.)
Some economists have also favoured this method. May be that the Industrial
Homes of the Salvation Army, which have now flourished for decades end
are based on this principle (and have been also remarkably successful),
have suggested it to Americans. Nor are English workers unacquainted with
this principle. (S. end B. Webb, History
of Trade Unionism, p. 353 of the German edition.)
To prevent the products of the Emergency Associations overloading the market,
many Americans have held that these
129 ENDINC THE UNEMPLOYMENT
AND TRADE CRISIS
Associations should form
as far as possible a self-contained market. To ensure such a market, it
has been proposed to set up as the measure of value for the Associations,
not gold, teut the hours worked. In similar circumstances, Robert Owen
already made an analogous proposal However, the Associations might retain
gold as the standerd of value within their domein, if they adopted the
principlea underlying Milhaud's plan. This is of decided importance, since
the true ideal is not that the Associations should become self-contained,
teut the exact contrary. Indeed, even its partizans regard autarchy as
a necesaary evil. As the reports in the A nnals show, the attempted exclusion
from the labour market of the workers ernployed by these Associations end
of their products from the world market, has met with great end apparently
insurmountable obstacles. This is natural. A re-employed unemployed is
no longer an unemployed end differs in no respect from a worker who has
never been out of work. To beat these two categories of workers differently
is only feasible for a week or two.
There is a more excellent way, namely to offer the goods rendered unmarketable
by the trede depression in the form of a long-term credit, i.e., to offer
a credit covering at least a few weeks or even a few years. The unemployed
might then be also occupied with producing articles whose manufacture absorbs
some time or payment for which cannot bc expected immcdiately, as is widely
the case with house building and agricultural improvements end very frequently
with the manufacture of ponderous machinery. Should it prove practicable
to utilise the at present unmarketable goods for financing such objects,
many
of the workless could be employed in their production without disturbing
the general capital market, affecting normal thrift, or placing a burden
on tax-payers. In this mode of financing, Milhaud's goods warrants would
prove useful, as will be shown in the sequel. These warrants would be of
no service if their purchasing power were restricted to the goods manufactured
by the workless in long-term production or confined to payments for the
use of those goods.
The above proposal to finance by means of the goods warrants system the
production of such goods as, in present-day terminology, are styled "capital
goods", should not be confused with the frequent demand that all unemploynlent
schemes should be concerned with bringing once more, end at any cost, into
full - operation the capital goods industries, most particularly the building
industry. The purport of this demand is that these industries, especialb
the building industry, should use up the stocks that are now encumbering
the market: the surplus provisions end coal, implements, timber, end various
other raw materials. That, it is held, would render it possible to begin
producing fresh stocks.
Those who press this demand, end they are to be found in all partjes, are
so firmly convinced that they are right that they believe they cen assume
the responsibility for every mode of financing. Thus, a few weeks prior
to the German Revolution of January 1933, the two Socialist parties called
for an extension of building activity (house end road construction), until
this industry had absorbed the last unemployed man. The required funds
were to be raised, inter alia, by a compulsory loan. The Communists,
indeed, favoured the proposal frequently mooted of late years, to finance
the building schemes simply by assignats, their cover to be—the house constructed!
The proposal here put forward is of a quite different nature. The goods
warrants issued are not to be covered by the freshly produced capital goods.
On the contrary, the cover should be re presented by the imm edi ately
re alisab le stocks of tho s e willing to provide long-terrn credib by
placing their stocks at others' disposal. To the extent that these stocks
have been consumed— the provisions eaten, the timber incorporated in buildings,
end the coal burnt—the goods warrants which mediated the transfer of the
stocks should be withdrawn from circulation end cancelled. This is also
involved in the Milhaud proposals. Milhaud has thus avoided the Scylla
of swelling the monetary circulation with actually uncovered warrants as
well as the Charybdis of confining the operations to classes of work for
which short-term credit suffices. If we are clear in our minds that the
ultimate purpose of most "durable" goods is to setisfy daily requirements
or even to serve recreational nceds, we shall not doubt that a large scale
demand for new "durable goods", e.g., houses, strips, big machines,
theatres and the like, can only arise when the dwellings at present unlet
are occupied, the laid-up strips are ploughing the seas, and the stocks
of machinery have been disposed of. But this only becomes possible when
the consumable goods industries are once more working to capacity. It is
true that even now the demand for new, "durable" goods is above zero, although
the available, teut unsold, stocks greatly encumber the markets. The demand
is, indeed, large enough to make it worthwhile to cater for it. This means
here: to apply from the beginning the goods warrants system to long-term
credits also. That there is a demand for such credits is a priori manifest.
Nevertheless, we ought to wait for an effective demand and not, like so
many modern reformers, audaciously infer a priori where the long-term credits
will be in request. We are yet far removed from really knowing our economy.
For the purpose of elucidating the difference between short
130 ENDINC THE UNEMPLOYMENT
AND TRADE CRISIS
term end long-term credits
in goods warrans, we shall furnish two illustrations.
During the present depression,
a well-off town would like to build a road which is badly needed, but for
which there ia no money available. Suppose its construction would cost
I million gold francs. Suppose, too, that in the town are to be found tradera,
farmers, and artizans who, because of the depression, are unable to sell
roughly, I million worth of goods, or only at a loss, and would be therefore
content to sell their goods on a long-term credit basis. In return, they
ask for a reasonable safe price end interest. Suppose, lastly, that the
stocks consist of just such articles as the navvies require during the
period of construction, e. g., foodstuffs, clothes, domestic articles,
end the like. In that case the procedure might be as follows.
The town raises a loan of I million francs, in (say) 100 fee. allotments,
repayable perhaps in 48 quartely instalments at a quarterly interest rate
of 1,5 % on the remaining debt at any given time. Amortisation tables will
show that the town would have to find every quarter 29.375 francs for interest
end redemption. The workmen end the suppliers are to be paid in goods warrants
issued by the municipality.
Thereupon the farmers, traders, and artizans declare that in payment for
supplies they will accept the goods warrants in keu of cash. And, on its
part, the municipality declares that the subscriptions to the loan may
be made with its goods warrants in lieu of ready money. Work is to begin
when the entire loan issue has been subscribed.
The simple declaration of the farmers, traders, end artizana that they
are prepared to accept the goods warrants, should not of itself satisfy
the municipality. Why not? Because the acceptance of the warrants in local
shops end by the local farmers does not in end of itself ensure a reflux
of the warrants. When the stocks of the value of I million francs have
been delivered end the goods warrants are still circulating, depreciation
becomes inevitable since after the safe of the stocks nobody will accept
the warrants at their face value. Of course, there might be the possibility
of paying with them the local tases; teut if the town is so small that
it cannot repay the I million out of its current revenue, it will not levy
sufficient through taxation to afford every hol der of goods warrants an
opportunity to pay them in at once for taxes due or to find some one forthwith
who has to pay taxes end would relieve him of the goods warrants. Only
one possibility is hence left, namely that every one who has accepted goods
warrants should at once surrender them to the municipality end should receive
a loan allotment for every 100 fcs. so surrendered. On its part, the municipalib
would cancellate the 131 goods
warrants surrendered. Thus at any given time no more goods warrants would
be in circulation than would be covered by goods end services.
An observation may be in place here. Many supporters of the gold standard
still entertain the antiquated notion that in order to secure a proper
basis for banknotes or paper money generally, there should be the possibility
of converting them into gold. However, gold may be replaced without any
disadvantage by shop security ("Ladenfundation", as Rittershausen calls
it) and a reflux. Indeed, Dr. R. Just already demonstrated in 1921 in his
"Die Inflation" (Inflation), that the "classical" form of gold cover is
by no means certain not to produce inflationary effects which cannot occur
when there is a correctly computed reflux.
Let us assume that, according to the calculations of the civil engineers,
the construction of the road will occupy 5 months end that the monthly
expenditure thereon is estimated at 200.000 francs. Then the obligations
of the subscribers to the loan must be such that the municipality may count
on a monthly reflus of 200.000 franca in goods warrants. Warrants in excess
of 200.000 francs the municipality may not issue monthly, and the reflus
must be assured under all circumstances. The subscribers to the loan must
therefore undertake to remit legal tender within the prescribed period
if they are unsuccessful in securing goods warrants by the safe of their
goods end services. That would enable the municipality to buy up the unreturned
goods warrants with ready money. This, of course. would involve a certain
risk for the subscribers; but this risk may be reduced by anterior arrangements
with the navvies and the suppliers. The municipality might further reduce
this risk by permitting subscribers, on payment of smart-money, to withdraw
their subscriptions. The fine might be of the magnitude of the premiums
customary in stock exchange transactions and be fixed at perhaps 5 % of
the part of the amount not paid up. The municipality should not experience
any difficulty in finding "substitutes". Alternatively, permission to withdraw
might be made dependent on the municipality finding a substitute.
In addition to those who bind themselves to accept the gooda warranb end
to subscribe to the loan, other persons will almost certainly exist in
the locality who will voluntarily accept the goods warranb end voluntarily
subscribe to the loan. That would naturally facilitate the financing of
the road scheme.
In Germany the financing of road construction by means of municipal gooda
warranb was frequently discussed before the Revolution and here and there
attempted. The mistake, however, was made not to ensure an adequate reflus,
it being 132 considered
that the possibility of paying local taxes partly in goods warrants would
suffice as a guarantee. The inevitable result promptly followed. The shopkeepers
who accepted the goods warrants from the navvies could not dispose of them.
The annual reflux provided for was, say, onefifteenth only of the constructional
costs. Such a reflux might suffice to keep at per a loan bearing a low
rate of interest, but not non-interest yielding goods warrants.
Our second illustration supposes that the traders, farmers, end artizans
of 3 locality place their stocks at the disposal of a small factory on
long-term conditions end in this connection desire to make use of as an
intermediary a Work Supply Bank organised broadly on Milhaud~s principles.
To comprehend this illustration properly, we must assume that a tradesman
is prepared to advance his stock end, provisionally, not through the Bank.
Suppose that in a town a big store is in a precarious situation end holds
considerable stocks of unsaleable goods. The following proposal is then
submitted to the store by a master cabines maker: "I intend building
in this town a small furniture factory end require for this purpose 100.000
dollars. Factory premises have to be built machinery—which 1l cen obtain
on credit— has to be instailed, etc. If, therefore, you would grant sne
credit to the extent of 100.000 dollars worth of your goods warrants, both
you end I would profit by this transaction. With the warrants I shall pay
the bricklayers and fitters, as welf as my own workmen for the first few
weeks". This may not be very convenient for the parties concerned.
A but since they have been without work, they will prefer full wages in
goods warrants than a miserable unemployment allowance in ready money .
Many of my suppliers are also willing to accept your goods warrants, since
they prefer to sell their wares for such warrants than to keep their wares.
By the grant of this credit in goods warrants, you have the possibility
of selling 100.000 dollars worth of your goods which might otherwise deteriorate
or have to be veld at a loss. The credit could be granted for 6 years,
for which I would pay only 0,5 % interest monthly during the first year,
teut from the second year onwards a supplementary sum, so that at the end
of the six years' period I should have repaid the whole of the credit granted.
According to arnortisation tables, this would involve an aggregate monthly
payment of 1.933,28 dollars. The 100.000 dollars' credit granted me 1 shall
call on in instalments of (say) 10.000 dollars a week. I must naturally
have a guarantee that the store will not discriminate against individuals
paying with goods warrants: also a guarantee that the store will cancellate
without delay the goods warrants returned to it so as to prevent as far
as possible their depreciating. 133 Penalties
for infringement must be fixed in case you do not fulfil, or fulfil only
in part, your obligations.
"We might also mutually help each other in raising the monthly instalment
of 1.933,28 dollars. I should post up a notice in my offices to the effect
that I am prepared to accept in payment every month your goods warrants
to the value of at least 1.933,28 dollars in keu of cash. This would naturally
increase, on the one hand, your possibility of making payments in goods
warrants—that is, with your own goods—end, on the other, my chances of
finding purchasers for rny furniture would be improved thereby".
Such transactions, where stores finance long-term investments with their
otherwise unsaleable stocks, are practicable under the goods warrants system.
They should be attempted wherever, owing to stagnation in trede, long-term
credit is rare end dear. It would have to be presupposed, however, that
a big store is faced by a comparatively modestly situated debtor. In such
an instance the aid of a bank might be dispensed with. Matters are different
when a "big" debtor requires credit and there are only "small" dealers,
artizans, and farmers ready to furnish it. Here the "small" ones should
combine. That would be best achieved in the form of a bank with rules end
business provisions such as were outlined in the last section. To ensure
that the credit can be really paid, the several bussinessmen would have
to undertake the same obligations towards the bank, as the store had towards
the fumiture manufacturen The business provisions goveming long-term credits,
which were sketched in the preceding section, do justice to precisely this
aspect.
We must underline here an important point in those provisione. When a trader
desires to mobilise his store by means of a long temm credit granted by
him end seeks the aid of a bank in this connection, it is not enough for
him to inform the bank that he is prepared to accept the goods warrants
in keu of cash. On this one condition only, the bank cannot grant long-term
loens. It cannot do this because there would be no reflus of goods warrants,
whilst such reflus iq indispensable for maintaining their value at par.
If, for esample, in the case of the fumiture manufacturer, the bank advanced
him 100.00,0 dollars and'he, or his workmen, purchased therewith 100.000
dollars worth of goods at the store, the direct cover for the goods warrants,
seeing that the goods have been veld, would no longer exist. Hence the
store, to prevent their depreciation, must surrender the goods warrants
to the bank with a view to their being cancellated. If this is not done
end if the store utilises the warrants it accepted for making payments
on its own behalf,-e.g., for replenishing ib stocks, it transfers thereby
to the acceptor of the warrants a claim against the fumiture manufacturen
The latter, however, 134 is
only bound to a limited degree to accept the goods warrants. This becomes
manifest if misgivings about the bank should arise and all the warrant
holders should therefore wish to exchange them rapidly for goods, only
to find that goods cen be obtllined solely from those bound in the matter,
which, in our illustration, would be the furniture dealer. This is not
a remote contingency and is the more likely to occur the fewer the precautions
the bank has taken against it. The precaution suggested here is the compulsory
and prompt reflux of the warrants to the bank, or, expressed differently,
the store's undertaking to surrender the accepted warrants to the bank.
Hence the bank must insist that the store which, by placing its goods at
the banks disposal, has, as it were, subscribed to a loan raised by the
bank, should fulfil all the obligations of a subscriber to a loan, the
most important of which is the tendering of his subscription within a stated
period. Should the store not surrender any goods warrants within the time
specified, the bank must insist that the store shall pay the bank in cash,
wherewith the bank can then buy up a corresponding number of goods warrants.
Should the store desire to avoid this risk, it must in advance conclude
a contract with the fumiture manufacturer regarding the purchase of its
goods.
In practice the procedure will be less cumbersome than appears from a theoretical
exposition of the system; but even if the formalities associated with the
application of the system should be deemed considerable, it ought to be
remembered that they are trivial compared to the burdens irnposed on everybody
by the present depression. If trade recovery without sacrifices is feasible,
it cannot, as intimated above, be secured without some additional trouble
end effort in business dealings.
It may happen that owners of goods difficult to market and not satisfying
daily requirements are also desirous of placing their goods at the disposal
of the bank, with a view to the bank granting long-term credits, say, to
jewellers, toy merchants, end others. But this would entail too great a
risk for the bank. However, the owners of such goods may easily overcome
the difficulty by agreeing to accept in keu of cash the bank bonds mentioned
in the business provisions of the last section. According to the bank provisions
here put forward, the owner of a bank bond may readily exchange it for
goods warrants, mostly perhaps within a few days.
The difference between the short-term end the long-terrn credits of a work
supply bank is, as the preceding explanations have slhown. a profound one.
Indeed, the differentiation between these two types of credit represents
the fundamental theme of a science of banking. "The art of the banker consists
in this: to be able to distinguish between a bill and a mortgage" 135
said by a banker welf known in Berlin banking circle, who could actually
tell whether a bill presented to him for discounting would in time be "frozen",
i.e., be transformed into a mortgage, or not. The manager of a work supply
bank operating the goods warrants system, must also be master of this art
end should not be deterred from acquiring it by the decided abstractness
of its foundations.
7. Other Aspects.
A. Payment of Rent with
Goods Warrants.
The reports in the Annals
(1933, no. 2) suggest that the Emergency Associations of the American unemployed
always experienced serious difficulties in paying rent by barser methode
or by means of goods warrants. This is intelligible. A large
proportion of the rente
paid have to be passed on by thc landlords to the mortgagees. In America
these mortgagees are generally insurance companies, Building and Loan Associations,
or mortgage debenture associations. Now, an insurance company, for instance,
cannot accept goods warrants unless its employees or its insured agree
to accept them. Propaganda would have therefore also to extend to this
class of creditor. Such propaganda would be by no means futile, for in
large tracts of America the debtors of the insurance companies have officially
declared a "payment strike". Hence the inaured are risking to lose entirely
a large part of what they paid in. Should they, however, be prepared to
accept insured amounts in goods warrants, they may avoid losses. That which
is true for the insured, also holds of the owners of the bonds of mortgage
societies. It would be probably easiest to win over the Building and Loan
Associations. In America these associations are as a rule small cooperatives
confined to a given locality whose members are largely without work to-day.
Here might be the point of departure; but the unemployed should not make
the altogether hopeless attempt to finance by means of goods warrants the
building of houses in the trope of later paying their rents in goods warrants.
(Annals, 1933, no. 2, p. 321.)
The mortgage banks might aid in popularising the idea by agreeing to accept
interest payments in interest coupons. Every mortgage bond of over 100
dollars has actually attached to it a few interest coupons, say of 3 dollars
each, which are every half-year exchanged for each at the counters of the
mortgage bank. If, then, the interest coupons as such were paid in at the
bank in lieu of cash, the bank need not later exchange these coupons for
cash. The bank would even gain thereby, for normally it must obtain its
money from a credit bank and pay interest itaelf when the payment falls
due. For the owner of a 136
mortgage bond, on the other hand, it might be highly advantageous to be
able to utilise his interest coupons even prior to maturity in lieu of
cash, especially for the payment of rent. As for the landlord, it is quite
indifferent to him whether he is paid in interest coupons or in legal tender,
if only the mortgage bank agreea to accept his interest coupons. According
to the Civil Law of several countries, the mortgage banks must consent
to a settlement such as is here proposed. But the respective legal proviaions
are little known; as indeed modern jurisprudence wholly neglects this type
of settlement.
B. Payment of Dividends
with Goods Warrants.
The surpluses of joint stock
companies nowadays accumulate at the banks in thc course of their financial
year. After the General Meeting has, later, passed a motion regarding dividenda,
the shareholders come to be entitled to exchange at the bank their dividend
warrants for legal tender. This in the aggregate involves large amounts.
The German joint stock companies, tor instance, paid in dividends during
1927 — a good year, certainly—about 800 million marke end a year later
as much as 1.250 million marks. (Statistisches JahrBuch fur das Deutsche
Reich, 50th year of issue, p. 367.') The banks, of course, grant short-term
loens out of the surplus accumulated during the year. When the time for
paying the dividends arrives, the respective credits are called in. The
latter is no trivial matter. Thus the commercial press has pointed out
that the liquifying of the dividends of a reading joint stock company affects
prejudicially the national economy end that in fixing it. dividend rate,
the company should have regard to the difficulty of providing the dividends
in liquid form. In such circumstances the goods warrants system would tering
great relief. Not only would, in all probability, its realisation considerably
increase the stability of the money market, teut it would enable many companies
to declare higher dividends in goods warrants than they coud pay in legal
tender.
The text of a dividend goods warrant might read:—
During the period from..........to........the...........works
will accept this warrant in lieu of legal tender for the amount of ..........
when payments are due to be made to the said works. After the last date
mentioned, the dividend warrant can only be used for establishing a credit
at the works. The provisions relating to calling in this credit end to
interest payments will be fised by the Board of Directors and announced
from time to time, in accordance with the financial position of the works.
Suppose a motor car factory has on its hands a large park of unsold cars.
The factory is perhapa not in a position to pay a cash dividend, just because
it has so many unsold cars. The 137 company
could, however, readily pay a 5 % dividend in goods warrants. That is,
it would pay its dividends in the form of cars.
If several joint stock companies combined and declared it they severally
agreed to accept one another's dindend goods warrants, these warrants would
be negotiated with the less discount the greater the number of the companies
concerned. One could also imagine that a bank might specialise in purchasing
dividend goods warranb end selling them to the customere of the factories
concerned. This would probably prove a paying proposition,
Here, as in most other sections of this paper, legal obstaclea to the application
of the goods warrants system in various domains, have been left unconsidered.
The economic aspect alone has been our concern,
C. General Objections
on the part of "Practical Men".
Milhaud prefers to leave
the daborahon of the technical details of his system to businessmen end,
in the last resort, to the authorities. This is one of the few points on
which I beg to differ from trim. Never, since in the Middle Ages the gilds
took over the governance of cibies (which led to appalling social, technical,
end economie retrogression, as Roscher has shown), haa the world been ruled
more decidedly by "practical men" than during these last few years. And
in all countries to-day the influence of the authorities is such that,
e. g., the American Senator Glass feit constrained to say of his country
that he was not surprised that the United States recognised Russia, but
wondered that the Russian Government recognised the United States, seeing
that his country was far more advanced in Bolshevism than Russia.
A practical method of finding work, based on scientificalb tested esperience,
has so far not emerged anywhere, which the opponents of the « theoretician
,' Milhaud should duly take into account. What the Governments in virtually
all countries today consider as finding work, is rothing else than driving
bekers, tailors, end carpenters into unemployment through tasing their
customers, in order to provide work for bricklayers, joiners, and navvies.
Governments deprive one class of citizens of their purchasing power end
confer it on another class. Persons who know no other way out end even
approve of this senseless system, should not be styled "practica! men"
(although they have been engaged in this foolish pursuit for years), but,
on the contrary, men unequal to the task before them.
The Annals (1933, no. 2) report that in America over a million unemployed
have resorted to bartering goods end services end have thus created work
for themselves. They were not led by those who claimed to be "practical"
but by men end
138 ENDING THE UNEMPLOYMENT
AND TRADE CRISIS
women of all sections of
society who approached the problem with an undoubtedly scientific open
mind. Workingmen collaborated, end so did farmers, businessmen and officiale,
artists and doctors. An enlightened attorney general refrained from enforcing
the laws of Colorado regarding emergency money. (Annala, 1933, no. 2, p.
290.) A municipality provided offices end did not protest against `' the
intrusion of busybodies into relief works, as would probably have been
the case in old Europe. A religious community contributed its protracted
experiences with goods warrants (p. 258), which were then intelligently
applied. Others, after a few weeks' experience with primitve barter, concluded
that some goods warrants system is indispensable (p. 256). Here we see
at work "practical men", in the legitimate sense of the term, end it testifies
to the acientific spirit of the American economists that they requested
their Government to institute a careful inquiry into the practice of the
diverse barser communities (p. 263) end did not pretend that they knew
all about it beforehand. The inquiry would serve a real purpose, for as
regards what is truly of importance in the American barser movement, namely
its juridical position, we know almoat rothing, and this is to be deplored.