Organisation of Credit and Circulation and the Solution of the Social Problem
31st March 1848
Translators: Clarence L. Swartz and Jesse Cohn
PROGRAMME
It has been proved that Socialist doctrines are powerless to relieve the People in the present crisis.[1] Utopia needs for its realisation capital accumulated, credit opened, circulation established and a prosperous state. It has need of everything we now lack; and these it is powerless to create.
Organisation of Credit and Circulation and the Solution of the Social Problem
31st March 1848
Translators: Clarence L. Swartz and Jesse Cohn
PROGRAMME
It has been proved that Socialist doctrines are powerless to relieve the People in the present crisis.[1] Utopia needs for its realisation capital accumulated, credit opened, circulation established and a prosperous state. It has need of everything we now lack; and these it is powerless to create.
It has been proved that political economy, both descriptive and routinière, is as impotent as Socialism in the present situation. The school which is based wholly upon the principle of supply and demand would be without means or power on the day when everybody would demand and nobody would want to supply.
It has been proved, finally, that dictatorships, seizure of power, and all revolutionary expedients, are powerless against the universal economic paralysis, as moxa is without action on a corpse.
At present the field is open to other ideas, public opinion calls for them, their sway is assured. I no longer hesitate to propose that which speculative study of social economy shows me is most applicable to the situation in which we find ourselves; it rests with you, citizen reader, to see in my proposition a goal for our future.
Work is at a standstill — it must be resumed. Credit is dead — it must be resuscitated.
Circulation is stopped — it must be re-established. The market is closed — it must be reopened.
Taxes never suffice — they must be abolished. Money hides itself — we must dispense with it.
Or better still, since we should express ourselves in an absolute manner, for what we are going to do today must serve for all time:
Double, triple, augment labour indefinitely, and in consequence the products of labour; Give credit so broad a base that no demand will exhaust it;
Create a market that no amount of production can supply;
Organise a full, regular circulation, which no accident can disturb.
Instead of taxes, always increasing and always insufficient, abolish all taxes; Let all merchandise become current money, and abolish the royalty of gold.
But I must point out in advance some of the prejudices which, as the result of long habit, prevent us, at this time from seeing the true cause of the evil, and from discerning the remedy. To be on the look-out for error is to be half the way along the road which leads to truth.
The first of these prejudices consists in the desire to reform everything in detail, instead of attacking the whole; in taking up difficulties one after another, and resolving them in turn in the way common sense seems to indicate: whereas economic questions, essentially contradictory in themselves and among themselves, must be solved all at once, through some dominant principle which respects all rights, ameliorates all conditions, and conciliates all interests.
Another prejudice is the one which, attributing the cause of poverty to the imperfect organisation of labour, concludes that labour should be regimented; that it is in that part of the social organism — labour — that the remedy should be applied. People will not understand that human labour and individual liberty are synonymous; that, except for fairness in exchange, the liberty of labour must be absolute; that governments exist only to protect free labour, not to regulate and to restrain it. When you speak in this way of organising labour, it is as if you propose to put a strait-jacket on liberty.
A third prejudice, resulting from the preceding one, is that which, suppressing individual initiative, would seek to obtain everything through authority. One can say that this prejudice is the leprosy of the French spirit. We ask the State for everything, we want everything from the State; we understand only one thing, that the State is the master and we are the servants. The analogy to this prejudice, in the field of economics, is that which makes gold the universal motivating force. Gold is for us the principle of production, the sinew of commerce, the substance itself of credit, the king of labour. That is why we all worship gold even as we worship authority.
It is the business of the State, I repeat, only to pronounce on the justice of economic relationships, not to determine the manifestations of liberty. Also in the matter of justice, the state has only the right to enforce the general will. A fourth prejudice, finally, and the most deplorable of all, is that which, under the pretext of harmony and fraternity, tends to destroy in society the divergence of opinion, the opposition of interests, the battle of passions, the antagonism of ideas, the competition of workers. It is nothing less than the motion and life that would be thus cut off from the social body. Therein lies the fatal error of communism.
A great effort of reflection is, however, not necessary to understand that justice, union, accord, harmony, fraternity itself, necessarily presupposes two opposites; and that, unless one falls into the absurd notion of absolute identity, that is to say, absolute nothingness, contradiction is the fundamental law, not only of society, but of the universe.
That is also the first law which I proclaim, in agreement with religion and philosophy: that is Contradiction — the universal Antagonism.
But, just as life implies contradiction, contradiction in its turn calls for justice; which leads to the second law of creation and humanity: the mutual interaction of antagonistic elements, or Reciprocity.
Reciprocity, in creation, is the principle of existence. In the social order, reciprocity is the principle of social reality, the formula of justice. It has for its basis the eternal antagonism of ideas, of opinions, passions, capacities, temperaments, interests. It is the condition of love itself.
Reciprocity can be expressed in the precept: Do unto others as you would have them do unto you: a precept which political economy has translated into this celebrated formula: Products exchange for products.
It is therefore not the organisation of labour which we need at this moment. The organisation of labour is the proper object of individual liberty. He who works hard, gains much. The State has nothing further to say, in this respect, to the workers. What we need, that which I call for in the name of all workers, is reciprocity, equity in exchange, the organisation of credit.
[…]
THE BANK OF EXCHANGE
Public credit organised, labour restored and value decreed, nothing is left but to organise circulation, in the absence of which production is impossible.
This point is the summit of the revolution.
We have driven out the last of our kings, we have cried: Down with monarchy! Long live the Republic! But you can believe me, if the doubt has come to you, there are in France, there are in all Europe only a few lesser princes. Royalty is always in existence. Royalty will subsist as long as we will not have abolished it in its most material and most abstract form — the royalty of gold.
Gold is the talisman which congeals life in society, which binds circulation, kills labour and credit, and makes slavery mutual.
We must destroy the royalty of gold; we must republicanise specie, by making every product of labour ready money.
Let no one be frightened beforehand. I by no means propose to reproduce, under a rejuvenated form, the old ideas of paper money, money of paper, assignats, bank-bills, etc., etc.; for all these palliatives have been known, tried and rejected long ago. These representatives on paper, by which men have believed themselves able to replace the absent god, are, all of them, nothing but a homage paid to metal — an adoration of metal, which has been always present to men’s minds, and which has always been taken by them as the measure or evaluator of products.
[…]
Everybody knows what a bill of exchange is. The creditor requests the debtor to pay to him, or to his order, at such a place, at such a date, such a sum of money.
The promissory note is the bill of exchange inverted; the debtor promises the creditor that he will pay, etc.
“The bill of exchange,” says the statute, “is drawn from one place on another. It is dated. It announces the sum to be paid; the time and place where the payment is to be made; the value to be furnished in specie, in merchandise, in account, or in other form. It is to the order of a third person, or to the order of the drawer himself. If it is by 1st, 2nd, 3d, 4th, etc., it must be so stated.”
The bill of exchange supposes, therefore, exchange, provision and acceptance; that is to say, a value created and delivered by the drawer; the existence, in the hands of the drawee, of the funds destined to acquit the bill, and the promise on the part of the drawee, to acquit it. When the bill of exchange is clothed with all these formalities; when it represents a real service actually rendered, or merchandise delivered; when the drawer and drawee are known and solvent; when, in a word, it is clothed with all the conditions necessary to guarantee the accomplishment of the obligation, the bill of exchange is considered good; it circulates in the mercantile world like bank-paper, like specie. No one objects to receiving it under pretext that a bill of exchange is nothing but a piece of paper. Only — since at the end of its circulation, the bill of exchange, before being destroyed, must be changed for specie — it pays to specie a sort of seigniorial duty, called discount.
That which, in general, renders the bill of exchange insecure is precisely this promise of final conversion into specie; and thus the idea of metal, like a corrupting royalty, infects even the bill of exchange and takes from it its certainty.
Now, the whole problem of the circulation consists in generalising the bill of exchange; that is to say, in making of it an anonymous title, exchangeable forever, and redeemable at sight, but only in merchandise and services.
Or, to speak a language more comprehensible to financial adepts, the problem of the circulation consists in basing bank paper, not upon specie, nor bullion, nor immovable property, which can never produce anything but a miserable oscillation between usury and bankruptcy, between the five-franc piece and the assignat; but by basing it upon products.
I conceive this generalisation of the bill of exchange as follows:
A hundred thousand manufacturers, miners, merchants, commissioners, public carriers, agriculturists, etc., throughout France, unite with each other in obedience to the summons of the government and by simple authentic declaration, inserted in the La Moniteur, bind themselves respectively and reciprocally to adhere to the statutes of the Bank of Exchange; which shall be no other than the Bank of France itself, with its constitution and attributes modified on the following basis:
1st The Bank of France, become the Bank of Exchange, is an institution of public interest. It is placed under the guardianship of the state and is directed by delegates from all the branches of industry.
2nd Every subscriber shall have an account open at the Bank of Exchange for the discount of his business paper; and he shall be served to the same extent as he would have been under the conditions of discount in specie; that is, in the known measure of his faculties, the business he does, the positive guarantees he offers, the real credit he might reasonably have enjoyed under the old system.
3rd The discount of ordinary commercial paper, whether of drafts, orders, bills of exchange, notes on demand, will be made in bills of the Bank of Exchange, of denominations of 25, 50, 100 and 1,000 francs. Specie will be used in making change only.
4th The rate of discount will be fixed at — per cent, commission included, no matter how long the paper has to run. With the Bank of Exchange all business will be finished on the spot.
5th Every subscriber binds himself to receive in all payments, from whomsoever it may be and at par, the paper of the Bank of Exchange.
6th Provisionally and by way of transition, gold and silver coin will be received in exchange for the paper of the bank, and at their nominal value.
Is this a paper currency?
I answer unhesitatingly, No! It is neither paper money, nor money of paper; it is neither government checks, nor even bank-bills; it is not of the nature of anything that has been hitherto invented to make up for the scarcity of specie. It is the bill of exchange generalised.
The essence of the bill of exchange is constituted — first, by its being drawn from one place on another; second, by its representing a real value equal to the sum it expresses; third, by the promise or obligation on the part of the drawee to pay it when it falls due.
In three words, that which constitutes the bill of exchange is exchange, provision, acceptance.
[…]
In the combination I propose, the paper (at once sign of credit and instrument of circulation) grows out of the best business-paper, which itself represents products delivered, and by no means merchandise unsold. This paper, I affirm, can never be refused in payment, since it is subscribed beforehand by the mass of producers.
This paper offers so much the more security and convenience, inasmuch as it may be tried on a small scale, and with as few persons as you see fit, and that without the least violence, without the least peril.
[…]
We have said before that all economic negations overlap one another and generalise themselves, especially in the negation of money considered as an emblem of value and instrument of exchange. There are few economists today who, upon reflection, do not admit the possibility of such a reform; but it is no less true that in the theory of the old political economy — the highly praised English political economy, which they strive to implant among us as they already have implanted constitutional monarchy — the idea of abolishing specie is supremely absurd, as absurd as the thought of abolishing property.
[…]
Products Exchange For Products
Products exchange for products: This aphorism of political economy is no longer contradicted. Socialists and economists are in accord with the fact and the law, it is common ground where theories are reconciled, and opinions unite on the same doctrine.
Exchange is direct or indirect: What must we do to make possible direct exchange, not only among three, four, six, ten or one hundred traders, but among one hundred thousand, between all producers and all consumers; simply this: centralise all the operations of commerce by means of a bank in which all the bills of exchange, drafts and sight-bills representing the bills and the invoices of merchants, will be received. Then generalise or convert these obligations into paper of equivalent value, which, in consequence, will itself be a pledge of the products or real values that these obligations represent.
Bank paper so issued would have all the qualities of first class paper.
It would not be subject to depreciation since it would be delivered only against actual values and acceptable bills of exchange, and would be based, not on manufactured products, but on products sold and delivered, for which payment would be required. There would be no danger of excessive emission, since they would be delivered only against first class commercial paper — that is to say, against promises of certain repayment.
No one would refuse it, since, by the fact of the centralisation of exchanges, all citizens would become members of the bank. The most remarkable fact to be noted in this constitution of the bank is not so much the idea in itself, an idea more simple perhaps than the one which gave birth to money, but the coincidence of the employment of specie with the regime of feudal property and with the monarchical organisation of society.
We have pointed out several times and we cannot repeat it too often: as long as the family had to live, by its own activity and like a little world in itself, on property, property has been the principle and the cornerstone of the social order.
During that period, the infrequency of exchanges, the scarcity of transactions, called exclusively for the employment of specie. The agent of circulation had to carry in itself its guarantee so as to be accepted. That was the age of gold, even as it was the age of royalty.
But when, by the multiplicity of labour, by the division of industries, by the frequency of exchanges, circulation became the principal factor in the economy of nations, individual property became, as we have said, an obstacle to collective life, and the employment of specie became nothing but the sign of privilege and of despotism, the same as the royal prerogative was the sign of corruption and of tyranny.
Therefore, society, in its development, destroys or transforms its former work. It is when we have acquired full knowledge of this law that revolutions can come peacefully.
Royalty, property, specie: this is the monarchical trinity which we have to demolish, the triple negation that sums up for us entirely the revolutionary movement begun in February.
For as we shall prove, all negation — that is to say, all reform in religion, philosophy, rights, literature, art — brings us to the negation of property, and, property abolished, we shall see what we want to put in place of property, in place of authority, in place of God.
All this having been posited, so that what follows will be better understood, we place before our readers the project, as we had planned it, of a Bank of Exchange.
[…]
The object of the Association is:
First, particularly and immediately, by the institution of the Bank of Exchange, to procure for every member of the Association, without the aid of specie, all products, whether commodities, merchandise, services or labour.
Second, ultimately, to reorganise agricultural and industrial labour by changing the condition of the producer.
The association is universal. All citizens, without exception, are invited to join. No funds are required; for membership it will suffice to sign the present by-laws, and to agree to accept, for all payments, the paper of the Bank of Exchange.
The association has no capital. Its existence is perpetual.
The Bank of Exchange is an essentially republican institution; it is a paradigmatic example of government of the People by the People. It is an active protest against any re-establishment of hierarchical and feudal principles: it is the concrete abrogation of all civil and political inequality. The privilege of gold having been abolished, all privileges disappear. Equality in exchange, necessarily resulting from the mutuality of exchange, becomes in its turn the basis of the equality of labour, of real solidarity, of personal responsibility, and of absolute liberty. The Bank of Exchange, finally, is the principle, the means and the measure of wealth, of universal and perpetual peace.
[…]
Through its influence, its knowledge, and its credit, the Bank of Exchange promotes, inspires, encourages, supports, and sponsors all agricultural, manufacturing, commercial and scientific enterprises, etc., that workers’ associations may attempt, when these present sufficient guarantees of competency, morality, and success.
[…]
The Bank of Exchange is an institution of public interest; as such, it is under the State’s supervision but is independent of it.
The State is a member of the same standing as all citizens. It takes no part in the management, and does not interfere directly or indirectly with its administration.
[…]
The administration of the Bank is in the hands of a Board of Directors under the supervision of a Council of Oversight.
[…]
The members of the Board are elected for five years by the General Assembly and are eligible for re-election.
[…]
Any member of the Board of Directors can be suspended from his office by the Council of Oversight and can only be reinstated by a two-third vote of the General Assembly.
The Council of Oversight
The Council of Oversight shall be elected annually by the General Assembly.
It is composed, like the General Assembly itself, of delegates chosen by all branches of production and of the public service. The number of these delegates shall not at any time exceed thirty.
The State shall be represented by the Minister of Justice, who shall be chairman of the Committee by virtue of his office in the Government.
The Council of Oversight shall have the absolute right of control.
[…]
It has the right to convoke the General Assembly in extraordinary session, and to request the resignation of any or all of the members of the Board.
[…]
The General Assembly is composed of the entire membership, who shall have a right to be present and take part.
They may delegate their powers and may be represented by proxy.
When, by the adherence of all producers to the Bank of Exchange, the General Assembly will become equal and identical with the totality of citizens, it will be composed of none but the representatives of production, named by each industry, the number of which shall be in proportion to its importance.
The General Assembly, thus composed, representing the general welfare and no longer the selfish interests, will be the true representative of the people.
[…]
In our preceding articles, we proved that all methods of philosophic — and, we may add, mathematical — investigation proceed necessarily by elimination or negation that such is the revolutionary method by which society progresses, incessantly abolishing its own institutions, and securing the unlimited establishment of liberty.
According to this conception of progress, the ultimate goal of civilisation would be the one in which society exists without government, without police, and without law, the collective activity exercising itself by a kind of immanent reflection; the exploitation of the earth would take place unitedly and in perfect harmony, and the individual, following only his own inclination, would attain the maximum of wealth, of science and of virtue.
[…]
To Labour Is To Produce Something Out Of Nothing
Man, by this proposition, becomes equal to God. Like God, he creates things out of nothing. Thrown naked upon the earth, among briers and thorns, among tigers and serpents, finding hardly enough sustenance for one person on each square league; without tools, without patterns, with out supplies, without previous experience, he has had to clear, lay out, eradicate, cultivate his domain; he has embellished nature itself; he is surrounded by the unknown marvels of the ancient author of things, and has given birth to luxury where nature had given nothing but profusion. At the origin of society, there was only raw material, there was no capital. It is labour that has created capital; it is the worker who is the real capitalist. Because to work means to produce something out of nothing, to consume without producing is not to exploit capital, it is to destroy capital.
Such, then, is the first principle of the new economy, a principle full of hope and of consolation for the worker without capital, but a principle full of terror for the parasite and for the tools of parasitism, who see reduced to naught their celebrated formula: Capital, labour, talent!
Producing something out of nothing is the first term of a marvellous equation, which in these fundamental propositions we shall see unfold and yield, as a result and conclusion — wealth.
To Give Credit Is To Exchange
This axiom is, like the first, the overturning and the overthrowing of all economic and phalansterian[2] ideas.
In the system of interest-bearing property, where capital, by a purely grammatical fiction, passes from the hands of the worker to those of a parasite who is for that reason called a capitalist, credit is unilateral, proceeding from the parasite, who possesses without producing, to the worker, who produces without possessing. Thus established, credit demands a tribute from the debtor, in exchange for the permission — which the parasite grants him — to make use of his own capital.
In the system of the Bank of Exchange, on the contrary, credit is bilateral: it flows from each worker and is directed to all the others in such a manner that, instead of borrowing capital bearing interest, the workers mutually pledge each other their respective products, on the sole condition of equality in exchange.
Thus, in this system of credit, every creditor or mortgagee becomes a debtor in his turn; one thing is exchanged for another. In the other system, which is that of La Démocratie Pacifique,[3] there is only one creditor and one debtor, and something is given in exchange for nothing. The one of the two contracting parties who gives without receiving is the worker, the one who receives without giving is the capitalist. To give and not to receive; to receive, and not to give: what could be more unreasonable or unjust? Yet this takes us back further than the Code; it goes back further than Justinian, Numa, even Moses: it is the old iniquity of Cain, the first proprietor and the first murderer. This is also why La Démocratie Pacifique, which according to Fourier’s precepts, must make reform proceed by a great leap [grand écart], is attached to the capitalist law, to the tradition of Cain. Mutuality of credit, for shame! is egoism. But non-reciprocity of credit, good! — that is fraternity.
To Exchange Is To Capitalise
In the old political economy, this has no meaning. In the mutualist system, nothing is more rational.
In fact, if, as we have just shown, giving credit is the same thing as exchanging; if nothing should be given for nothing; if products can be delivered only for equivalent products, and not for an authorisation to produce: the moment that direct exchange no longer encounters any obstacles, it is evident that the means for each individual worker to obtain wealth is for him to acquire the greatest possible amount of different products, in exchange for his one unvarying product.
The contrary happens when exchanges can be made only by the intervention of money, and subject to the discount profit [bénéfice d’escompte] of the holder of coin, like the profit [bénéfice d’aubaine] accruing to the holder of the tools of production. In this instance, it is clear that exchanges are infrequent and costly, because they are hampered. Conversion of the product is difficult, sales always restricted, demand always timid; capitalisation takes place only in the form of money, consequently instead of having consumption active it has frugality for its only principle, and, like frugality, it is poor and indigent.
Whether one views it from one or the other standpoint, the savings bank is a philanthropic institution, or an economic absurdity.
A Consumer Is A Partner
This axiom is a consequence of the third paragraph — To exchange is to capitalise, as the latter is the consequence of the second, Credit is exchange. In reality, where, by the direct exchange of products, all producers are considered as creditors, the consumer becomes the sleeping partner of those who, not having any products to offer for exchange, ask either for work or for instruments of labour. “What can you offer us?” one says to the idle worker. “Some cloth, shawls, jewellery, etc.,” he answers. “Very well; here are our orders: Take them to the Bank, and, on the guaranty of our signatures, you will get an advance, you will receive the means to work, to live, to cover your credit; in short, that which will enrich you.”
Such is the very nature of credit.
Between the producer and the consumer, the current view places the capitalist; between product and product, it places money; between the worker and the employer, that is to say, between labour and talent, it places capital, property. What a splendid trinity! What a perfect triad! And how much does this synthesis of the three degrees outweigh the dualism of reciprocity!
[…]
The mutualist association is like nature, which is wealthy, beautiful, and luxuriant because she draws her wealth and her beauty from the creative force that is within her; in a word, because she produces everything from nothing. Nature in producing does not profit thereby.
At whose expense, upon what, would nature make a profit? On itself? To profit, for nature, would thus be synonymous with resting, ceasing to produce; profit would be the same thing as impoverishment.
Likewise, in the association, profit is synonymous with poverty, since to profit can signify nothing for her, but to take from herself, as in trade profit is synonymous with taking from others. Profit is therefore here synonymous with theft, and what is true of society is true of the individual, who is always less wealthy and less happy in proportion to the poverty of his fellows.
Thus, production without capital, exchange without profit — these are the two terms between which social economy oscillates, the result of which is WEALTH.
The two negations balance each other. The first shows the debit of the worker, the second his credit.
This is the principle of mutualist accounting.
How does the Bank of Exchange begin its bookkeeping? It is not with an account of capital, since it has no capital; nor with an account of stock, since it possesses nothing as yet, not even bills; nor with cash, since it has nothing in its till; nor with general merchandise, or profits and loss, since it has produced nothing, and before any operations it cannot lose or gain.
The Bank opens accounts by the process of drafts and remittances; that is to say, as soon as it begins to function, as soon as it operates, as soon as it has availed itself through the universal partnership of the special work done by circulation, receiving from some and supplying to others, the Bank retains from each transaction the price of its service, its own wage, capital and profit, three terms from now on synonymous. The greater number of transactions it performs, the greater number of emoluments it realises, or, in other words, profits; and since working much is synonymous with working as cheaply as possible, the greater the reduction the Bank of Exchange makes in its discount, the more other associations, who in their own lines follow the same movement of reduction, will thrive…
Thus, by the sole fact of the inauguration of the mutualist principle and the abolition of specie, the relations of labour and capital are inverted; the principles of commerce are overthrown; the forms of society, both civil and commercial, are reversed; the rights and the duties of the members are changed, property revolutionised, accounting reformed; equity, hitherto hobbled, is reconstituted on a stable basis.
[…]
The Bank of Exchange loans on mortgages, WITHOUT INTEREST, accepting repayments in annual instalments. This signifies that through the Bank of Exchange the whole of the producers voluntarily loan to the farmer, on a mortgage of his property, the amount he needs for supplies and help and other purposes in carrying on his affairs.
In exchange for this credit, the borrower each year repays the Bank — which means all the producer-lenders — the instalment promised, so that the repayment to the creditor is as real as the credit. No longer will there be any parasitic middleman, usurping, like the State, the rights of the worker, and absorbing, like the capitalist, a part of his product.
The State, as well as specie, being excluded from this regime, credit reduces itself to a simple exchange in which one of the parties delivers his product at one time, the other remits his in various instalments, all without interest, without any other costs than those of accounting.
In this system, let the operations multiply themselves as much as they will, for, far from showing an increase of charges for the producer, like those which take place in the mortgage bank, this acceleration of business will be a sign of an increase of wealth, since credit is here nothing but exchange and since products call for products.
[…]
End Notes
[1] The crisis was that of March 1848 which enabled Proudhon to epitomise the Social Problem and point the way out in the exact terms of the moment. (Translator
[2] Referring to the utopian scheme of Charles Fourier, who proposed the “phalanstery” as an ideal living arrangement (Editor)
[3] La Démocratie Pacifique was a Fourierist journal founded by Victor Considérant, Proudhon frequently excoriates Fourierist notions of “fraternity” as naïve and incipiently authoritarian. (Editor)