The consequences of a reform of this kind cannot be easily enumerated. Not only would capital be freely placed at the disposal of everyone, but every class distinction would disappear[671] as soon as the worker ceased selling his products at cost price[672] and government itself would become useless. The aim of all government is to check the oppression of the weak by the strong.[673] But the moment fair exchange becomes possible, free contract is sufficient to secure this; there is no longer anyone who is oppressed. All are equally favoured, for the cause of contention has been removed. “Once capital and labour are identified, society will subsist of its own accord, and there will no longer be any need for government.” Government has “its origin and its whole being immersed in the economic system.” Proudhon’s system means anarchy—the absence of government.[674]
Such is Proudhon’s plan, and such its consequences. To understand its full significance we must inquire whether (1) the substitution of exchange notes for bank-notes payable at sight is practicable, and, (2) supposing it to be practicable, if it is likely to have the effects anticipated by its author.
Proudhon states that his system merely involves the universal adoption of exchange notes.[675] The Exchange Bank would merely append the manager’s signature against the particular commodity discounted. But the issue of bank-notes at the present time involves nothing more than this. Instead of the bill of exchange which it now buys, and which enjoys only a limited circulation because the signatories have only a very limited credit, it is proposed that the Bank of France should substitute a note bearing its own signature, which is universally known and testifies to an illimitable amount of credit. In what respects, then, does Proudhon’s circulating medium differ from a bank-note? It differs simply in the fact that the signature of the Bank of France involves a promise of reimbursement in metallic money, a commodity universally accepted and demanded, while Proudhon’s Exchange Bank enters into no such definite agreement, but merely undertakes to accept it in lieu of payment.
Theoretically, perhaps, the difference may appear insignificant, since the signatures are the only guarantee of the solvency of the notes of the Bank of France and the Exchange Bank alike. But in practice it is enormous. The certainty that the note can be exchanged for money gives it a wide currency and makes it acceptable to many people who rely implicitly upon their confidence in the bank. They need give no thought to the question of its solvency. A mere circulating medium, on the other hand, in addition to transferring a claim to certain goods belonging to clients of the bank, involves a certain amount of confidence in the solvency of those clients—a confidence not always easily justified. A note of this kind will only circulate among the bank’s clientèle. It will never reach the general public as the bank-note actually does. The clients themselves will keep their engagements just so long as the bank continues to discount goods that have actually been delivered and never refuses payment when it falls due. Failing this, the exchange notes, instead of regularly returning to the bank, will remain in circulation. A slight crisis or a little tension, and many of the clients will become insolvent. The total nominal value of the exchange notes will quickly surpass the actual value of the goods which they represent. There will be a rapid depreciation, and clients even will refuse to take them.
It is just possible to conceive of the circulation of such exchange notes, but the area of circulation will be a very limited one, and it will be utterly impossible if all the clients are not perfectly solvent.
Let us, however, suppose that the practical difficulties have been overcome, and that the exchange notes are already in circulation. Interest will not disappear even then, and herein lies the essential weakness of the system.
Why does the Bank of France charge a discount? Is it, as Proudhon suggests, because it supplies cash in return for a bill of exchange, so that “the seigneurial right of discount”[676] would disappear with the adoption of a non-metallic currency? The bank charges discount simply because it gives a certain quantity of merchandise immediately exchangeable in return for a bill of exchange falling due some months hence. It gives a tangible commodity in exchange for a promise—a present good for a future. What the bank takes is the difference between the present value of the bill of exchange and its value when it falls due. It is not the mere whim of the banker or the employment of a particular kind of money that gives rise to discount. It belongs to the very nature of things. Proudhon notwithstanding, a sale for cash and a sale with future payment must remain two different operations,[677] at least as long as the actual possession of a good is judged to be more advantageous than its future possession.
This difference, even in the case of the Exchange Bank, would very soon reappear. The exchange notes would represent goods which were to be sold at a certain date. Although the Bank may refuse to discount, this will not lessen the advantage enjoyed by those merchants who are paid in cash. In order to secure this advantage they will enter into agreement with those buyers who pay cash either in the form of goods or of precious metals (which are, after all, commodities), granting a slight rebate on the paper price. There would thus be two sets of prices, the paper prices of goods sold for future payment and the money price of goods sold for cash. The first would be higher than the second, and the difference—refused by the banks—would be pocketed by the sellers. Money interest would then reappear under a new form.
To this Proudhon would reply that the clients of the bank, under the terms of their agreement, are debarred from taking any such premiums. Of course, if they remained faithful to their promises interest or discount would be suppressed; but this would result, not from the organisation of the Exchange Bank, but because of mutual agreement. This would be a purely moral reform requiring no banking contrivance to aid it, but one in which progress must inevitably be very slow.
The Bank of Exchange failing to suppress discount, or to check the right of escheat in general, Proudhon’s other conclusions fall to the ground.