Socialist Ideas of Money and Banking

Socialist Ideas of Money and Banking

While the classical economists were busy bickering over the relative virtues of metal money and specie and ways to control paper money and credit, ideas about money of an altogether dif­ferent nature were being developed by other schools of economic thought. Robert Owen in England, for example, was originat­ing a socialist idea of money. His line of reasoning went some­thing like this: The difficulties of modern economy could be traced to profit. Therefore it was necessary to abolish profit. Owen did not believe, as did his contemporaries, that through compe­tition profit would gradually be eliminated anyway. Some active force must be found to destroy it. Now reasoning in another direc­tion, he concluded that since profit was always expressed in terms of money, that is, the result of buying in the cheapest market and selling in the dearest, if metallic money could be eliminated so would profit. Therefore, he planned to substitute labor notes, ex­pressive of hours of labor, for present money which had value in terms of gold and the amount of it in circulation. In practical terms, if a producer wished to dispose of an article, he received payment in labor notes according to the number of hours of labor spent in production. Ricardo had said that labor was the true source of value. Owen's plan was calculated to make the labor theory of value a reality by making the man-hours of labor the unit of currency rather than so many grains of gold.

Owen was not a person to remain content with the expostula­tion of a theory. He immediately established the National Equi­table Labour Exchange in London to test his idea. Each member cooperating with the Exchange brought his produce to the Ex­change and received labor notes in payment, according to the time spent in production. This member was then privileged to purchase any other produce on sale by giving the required num­ber of labor notes in exchange. In this way, hours of labor were exchanged for hours of labor directly.

The Labour Exchange opened in 1832. Members numbered 840, and the initial success of the Exchange warranted the estab­lishment of several branches. But difficulties were obvious. Mem­bers could not be trusted to state their hours of work correctly. When experts were employed to evaluate articles brought for sale, they did so by setting a money value and dividing it by a standard hourly wage. This, of course, was a complete reversal of Owen's intention. Furthermore, since the notes could be exchanged with non-members, neighboring merchants exchanged the notes for cash, then by buying the best articles at the exchange for the notes, they were able to realize a handsome profit by reselling in the regular commercial markets. In the face of such obstructions the Exchange soon found it impossible to continue operations.

Owen's failure with the Labour Exchange did not prevent later experiments intended to accomplish the same purpose. The Exchange Bank initiated by Proudhon in 1849 was the next at­tempt to adapt socialistic theories to practical reform. His basic assumption was that interest was the cause of economic in­equality and oppression. If one could make capital available to the wage earner at no cost, he would control the means of pro­duction and his produce, getting full value for the labor ex­pended. To accomplish this purpose Proudhon advocated the establishment of an Exchange Bank which would issue paper money backed by the finished but unsold produce of those affiliated with the bank. Notes would be issued as a form of credit, and the notes would be acceptable as a medium of exchange among the members of the bank. Only a slight service charge would be made to cover actual operating expenses of the bank.

Since the notes in circulation would never exceed the demand for commercial credit, and would represent goods already pro­duced, Proudhon could see no difficulty with his scheme. In two respects, however, Proudhon failed to see its consequences. First, the competition of the exchange bank notes with regular currency backed by gold would limit the circulation of the former and make the bank notes exchangeable with the regular currency, only at a heavy premium. Secondly, there would in­evitably be a distinction between the members of the Exchange Bank who paid cash and those who demanded time, thus creat­ing two different prices, since the use of discounting is merely a method of equating the same payments made now and in the future. In modified form, Proudhon's bank actually came into existence as the People's Bank. After three months of operation the bank closed its doors, due not only to the fallacies of its principles but to the fact that Proudhon himself was imprisoned for his literary attacks upon Louis Bonaparte. Although the prac­tical experiment failed, Proudhon's basic ideas for an exchange bank have been incorporated into the modern cooperative and mutual credit societies.

The position of Karl Marx on the subject of money was con­fined mainly to two ideas. The first was the use of money as capital, and the second was the relationship of money to the operation of his labor theory of value and of surplus value. Marx did not go so far as to condemn money as the source of profit as Owen had done; but it is significant that the economy which Marx proposed made no place for the use of money. Goods were distributed according to need, not according to one's ability to pay. Since the state owned and operated all industries, there was no need for credit. In the early days of the U.S.S.R., Lenin at­tempted to operate the state according to the general outlines of the communist state. He soon found, however, that the absence of money was a severe handicap. Consequently, with the introduction of the New Economic Policy, money reappeared, and its use has increased rather than diminished in recent years.

Further attempts to do away with money have not been lack­ing. Solvoy's scheme for a social accounting system was never put into practice. During the world depression of 1929-1939 many communities in America introduced a system of scrip pay­ments to enable unemployed persons to work and secure wages without the use of money. An intensive system of social credit was planned for one of the provinces of Canada during the de­pression. These schemes generally, however, were in the nature of temporary adjustments to an emergency situation rather than plans for alteration of the basic money and credit structure of the nation.