[If you haven’t read Part 1 yet, you can find it here.]
Currency Reform With Hoardable Money
Thus were the conditions when one day the Baratonians were surprised by an appeal addressed to them by Carlos Marquez:
“Citizens, our money has certainly stood the test as medium of exchange. The value of the potatoes has been transferred as crystalized abstract of labor unto the seeds of the Pinus Moneda and adheres to it like the sweat of the gold miners of King Solomon sticks to the gold of Ophir. Thanks to this transferred value of potatoes to the nuts, exchange of products is taking place without friction — even better than with the gold of Solomon. We have never had a collapse, a crisis, or unemployment. Strange to say, no interest (surplus-value) has accrued from private property, and I have not been able to perceive up to now any germination of the idea of surplus-value. But this does not alter the fact that with the present nut money we must do without one of the principle uses of sound money, namely, to act as a value conserver, value maintainer, or store of value. How many losses accrue to our housewives solely by the possession of the storerooms? How much work is caused by their maintenance? Millions of our money are involved here. All these costs could be saved if our money served not only as a medium of exchange but also as a medium of savings — a value preserver, or store of value. The reason why our money is not a medium of savings at the present time is that we exchange the nuts of the Pinus Moneda according to weight, and this weight is constantly decreasing. Now if we were to exchange these nuts according to their volume instead of their weight, the value of our money would remain constant, because, as I have found, the decrease of the weight to the nuts is not transferred to their volume. This volume remains practically unchanged. A measure of nuts remains after ten years still a measure of nuts. Now one pound of fresh nuts of the Pinus Moneda forms exactly one-tenth of a measure. All that is necessary therefore is a law according to which the tenth of a measure takes the place of the pound, and then we shall have what we need — the fixation of value, the value quality linked with the generally recognized advantages of our money. Citizens, come and vote for this currency reform which will save us many millions.”
What Consequences?
In this meeting the teacher, Diego Martinez, stood up and said:
“Dear fellow citizens, I rise to oppose the proposal of Marquez. Our economic system is, as he admits himself, in perfect order. It is therefore not advisable to tamper with it. We do not know what reactions such deep seated changes will have. Money is called nervus rerum [the nerve of things] and for excellent reasons.
True, by adopting the suggestion of Marquez we shall realize his aims, but he did not tell us at what cost and at whose expense we shall enjoy the advantages offered. He said that the housewives will save the expense caused by the storing of provisions, but who shall from now on store these provisions, and who is to carry the expense? This should be investigated and determined. In any case, I draw attention to a discrepancy between the nature of the Marquez money and the nature of the wares for which money has to serve as medium of exchange — a discrepancy from which we would have to expect the most serious consequences in view of the fact that money must be considered as the nervus rerum.
Of what nature these consequences will be I cannot foretell at the moment. Our economic system is running so smoothly that hardly any one of us has found it necessary to investigate the laws of this economic system. If such an investigation had been made, probably the theoretical proof would have been furnished that, as I suspect, the quality of imperishability, which we are anxious to give our money, is fundamentally the cause of interest, from which we have fortunately escaped with our money — a fact which Marquez, as he admits, cannot explain.
Fellow citizens, mistrust the proposed reform. Decline it or demand from Carlos Marquez that he now explain on whom from now on the cost of merchandise storage will fall. Furthermore, he must satisfy us that those interest-free loans will still be possible, to which the prosperous conditions of our economic system must be traced. I confidently deny it because from the very moment that the saver can leave his money in his safe without loss, he will lose the urge to keep money circulating, which made the interest-free loan possible.”
Exuberant Asses Wander on Dangerous Ice
These critical remarks do not seem to have been understood and appreciated by the Baratonians, who, as Martinez already had told them, were ignorant in matters of economics. Maybe the circumstance that Martinez expressed himself so vaguely, or maybe as a result of curiosity, the majority decided to accept the proposal of Marquez.
If an ass has too good a time, he wanders on dangerous ice. And they all had had a good time, but they wanted to have a still better one. Thus a law was made, according to which money was to be estimated by dry measures and not by weight.
Big Oaks from Little Acorns Grow
If anywhere the words “little causes, big effects” is in place, then here. In the chronicle it is recorded:
“Good God! What a terrible disaster we made in our carelessness. No earthquake, no flood, no war, no pestilence could have punished us more severely than that apparently harmless innovation proposed by our theoretician, Carlos Marquez. He disintegrated our social conditions.”
Nothing but ruin remained. The people became demoralized, developed the habit of lying, became impoverished and vicious. Nothing remained from Christianity but the name. Everything happened as Santiago had foretold in an article in the Baratonian Review:
“You will see,” it was said at the end of this article, “what will become of a democracy if the majority, as is the case with us, is guided by false slogans in affairs of State. Democracy can only create a prosperous commonwealth when all the people take the trouble to study thoroughly the affairs of State. And to this obligation, the Baratonians did not want to submit themselves. They preferred the public bar rooms and alcoholic stupor to any thorough analysis of state problems. But let us hope they will learn in time, before it is too late, what it means to make of money a store of value.”
Formerly Selling as Easy as Buying
Now all want to sell; none want to buy. The first day when the Baratonians were blessed with the new kind of money, it happened as though the entire population had gone mad. The very thing happened which one could have inferred immediately from the proposal of Marquez and its argumentation. Animated by the desire to exchange the contents of their store rooms for the new hoardable money, the Baratonians decided to sell their provisions. With this idea in mind, nearly everybody was in a hurry, as they suspected that many, if not all, would have the same great idea and that consequently the supply would be greater than demand. Everyone wanted to be the first on the market.
Thus it happened that on the very day when money was made a store of value, all store rooms in the country were emptied, loaded into vehicles and carried to the markets. Before the cock had finished crowing, the entire population had set into motion. All avenues to the markets were crowded with wagons. Thousands of them, heavily laden, rolled toward the market in a great dust cloud. The market was filled. The streets were crowded far out beyond the gates of the town — wagon behind wagon.
Who should buy these goods? Nobody wants now a perishable store of products — common products of labor, things eaten by moths. All want, without exception, the universal store — cash money — the store of value. The useless fruit of the Pinus Moneda, which nobody hitherto had wanted to save, became the object of all desires. For the sake of these nuts, which in dry measure would no longer depreciate, there was all this crowding. The entire wealth of the people seemed now to be concentrated in these miserable little nuts. What madness.
But on that first day not a sale was made. They all wanted to sell, but none wanted to buy. Like silly geese, the good islanders glanced at each other. All wanted money — the store of value, the seeds of the Pinus Moneda. So finally the good Baratonians reloaded their wagons with their all and drove sadly home.
Produce Less and Destroy to Prosper
The chronicler records that the spectacle was repeated for eight long days before the Baratonians realized that what they wanted was impossible. Therefore there appeared in the Journal of Villa Ponza an article by Carlos Marquez, wherein he exhorted his fellow citizens to be patient. The events had shown that Baratonians suffered a colossal overproduction. Until this superfluity of wares had disappeared, the new monetary store-of-value could not render the services which they expected from it. They must produce less, curtail the working hours, maybe destroy goods. Then equilibrium would soon be established.
A Work Progress Administrator (WPA) Turns Up
About this time a petition from the firm of Barabino and Company was received by the authorities asking for a “Lombard Loan” — an amount equal to the entire bank reserves — i.e. the surplus nuts of the Pinus Moneda. The petition was based on the argument that the commonweal would be helped if now, with the great surplus production which had appeared, active demand could be created. With this money the firm would relieve the market and thus place the citizens in the desired possession of the store of value.
A Warner Reads a Lesson from History
As our Baratonians were naturally kindhearted, nobody suspected any harm behind this proposal. Only Diego Martinez entered a protest. He read to the meeting convened to decide on this from the book of Genesis, chapter 47, where it is said:
“Verse 14: And Joseph gathered up all the money that was found in the land of Egypt and in the land of Canaan for the corn which they bought, and Joseph brought the money into Pharaoh’s house.
Verse 15 : And when the money failed in the land of Egypt and in the land of Canaan, all the Egyptians came unto Joseph and said: ‘Give us bread, for why should we die in thy presence? For the money faileth.’
Verse 16: And Joseph said, ‘Give your cattle, and I will give you for your cattle if money fail.’
Verse 17: And they brought their cattle unto Joseph. And Joseph gave them bread in exchange for horses and for the flocks and for the cattle of the herds and for the asses. And he fed them with bread for all their cattle for that year.
Verse 18: When that year was ended they came unto him the second year and said to him: ‘We will not hide it from my lord. Now that our money is spent my lord hath also our herds of cattle. There is not aught left in the sight of the Lord but our bodies and our lands.’
Verse 19: ‘Wherefore shall we die before thine eyes, both we and our land? Buy us and our land for bread, and we and our land will be servants unto Pharaoh. And give us seed that we may live and not die; that the land be not desolate.”
Verse 20: And Joseph bought all the land of Egypt for Pharaoh, for the Egyptians sold every man his field because the famine prevailed over them. So the land became Pharaoh’s.”
With the word, “He who has ears to hear,” Martinez closed his speech.
But with loud laughter they replied, “What could the old Jews tell us about this purely business matter?”
How a Bear Market is Prepared
Thus the bank reserves were delivered to the firm of Barabino and Company, and immediately the purchase of the provisions of the Baratonians began. However the firm bought only certain products — things that were indispensable. The firm had particularly set its eyes on seeds and on getting, if possible, exclusive control of them. The Baratonians, not suspecting anything, sold whatever they had and were happy, if they succeeded by moderating their demands, to sell the contents of their store rooms for money — the value maintainer, the useless seed of the Pinus Moneda, of which there were entire forests in Madagascar and which had served as food for rats, until they found something better. This occurred in the fall.
An Educational Lecture
The chronicle then describes the excitement of the Baratonians in the following spring when it became know that the entire stock of seeds was in the possession of the firm of Barabino and Company and that prices had been raised arbitrarily to such a point that many could not fully pay for the seeds they bought and had to give promissory notes to Barabino and Company. Instead of the desired store of value, they now had debts and an empty store room.
Santiago Barabino, the head of the firm, made a public lecture on the subject.
Citizen Duties in a Democracy
Wherein he told the Baratonians the full truth about their indolence and intemperance.
“He who does not want to hear will feel it. I shall make you get rid of the Philistine by the help of Beelzebub. When I warned you of Carlos Marquez and his store of value, you laughed at me. Now I am laughing at you,” he said, slapping at his stuffed pockets.
Unexpected Changes: Money Stored Instead of Goods
The chronicler gives a wonderful rendition of all the changes that developed in the trade habits of the people — how everything became infected by the spirit of the store of value error and disintegrated. Cash payment was replaced during the first days by the credit and installment system. The wares, which nobody wanted for storage, were sold in smaller and smaller packages. All lived from hand to mouth, and more and more merchants were needed to accomplish the distribution in small quantities. Store after store lined the streets. Entire streets had to be rebuilt for stores which absorbed as wares what formerly was distributed in the store rooms of the houses of the Baratonians. And with all this came a change in the relationship between buyers and sellers. The buyers had become high-handed towards the sellers. They bragged of the superior qualities of their store of value. They indicated that if the sellers would not behave politely and subserviently they would simply go elsewhere or remain at home and that the sellers would suffer the loss and damage accruing them out of the perishability, cost of maintenance, and the expense of storing the merchandise.
Surplus Value Rooted in Private Property?
One day there appeared in the Villa Ponza Journal the following advertisement:
Barabino and Company, bankers. We beg to call to the attention of the public the fact that we have opened a department for savings and are prepared to accept them on the following conditions: on call with 1% interest, 3 months with 2% interest, 1 year with 3% interest.
This advertisement called forth from Carlos Marquez a triumphant article in the Villa Ponza Journal, in which he said, “At last, the eminent character of private property as a machine bearing surplus value has made its appearance. True, it has taken considerable time for the germs of capitalism to fully develop, but now there will be no further halt. He who wants private property must also reckon with the consequences. Now capitalism will unfold in all its glory. The people now will have to sweat and bleed in order to feed the Molach, Capital. And this will go on until capitalism has developed to its own destruction, just as the germ of fermenting sugar is poisoned by its own toxin. Long live communism. Away with private property.”
In this manner, Carlos Marquez concluded his article. Immediately, Diego Martinez sent a reply, whereby the assertions of Marquez were refuted, and in a simple way. The appearance of interest in Barataria was basically linked with the currency reform. As soon as money is made into a store of value and money as an exchange ware is made “better” than all other wares, it is made use of as a medium of saving. And these media of savings can be lured into circulation only by means of interest. Interest was a necessity which had to come as soon as they started to figure their money in cubic measures instead of by weight.
Rebuttal Hushed Up by the Press
However the Villa Ponza Journal returned the article with the remark that it could not ask its enlightened readers to study such gray theories. Nobody would ever believe that such a tremendous fact as capitalism could be traced to the sale of the seeds of the Pinus Moneda by cubic measure instead of by weight.
Deposit Books Instead of Store Rooms
The firm of Barabino and Company were very successful with their new enterprise. The Baratonians had scarcely had time to look at their value preserving money — their new static money — when, attracted by the offer of interest, they carried their money to the bank. The result was that throughout Barataria the provisions rooms, which were formerly full, were now empty. Instead of storing bacon, flour, sugar, oil, cloth, etc. in considerable quantities, they now held a small, thin passbook with the deposit entry. Goods were now produced in diminished quantity, and those actually produced were congested in the store rooms of the merchant-princes, held at the disposal of those who had money. And the money of Barataria was held in large measure by the banking firm of Barabino and Company. Money accumulated in the bank.
The chronicler expresses his astonishment at the folly of the Baratonians, who seemed to have learned nothing from the seed speculation of the previous year. True, they had now taken care not to deprive themselves of seed, because they naturally feared a repetition of speculative activity, but no one gave advanced thought to harvesting problems and to the immense number of sacks and bags necessary to convey the harvest to suitable shelter. Thus the people were now exploited at harvest time instead of at seed time. Barabino alone had had the forethought to accumulate a sufficiency of sacks and bags. These they now offered to the citizens at fancy prices.
An Old Lesson with a New Theme
And because Mr Barabino wanted to teach his fellow citizens an important lesson, he gave a new public lecture in which he described his speculation in detail and proved to the perplexed Baratonians that his firm had made a million in one transaction. The Baratonians would now have to stand such coups regularly because with the introduction of the monetary store of value, which was nothing but a destroyer of true values, they had everything prepared for the success of such speculations. Now the entire stock of merchandise was always on the market at the disposal of everybody, on chance demand — i.e. also at the disposal of speculators — while the former store rooms in the houses now had only provisions for 24 hours. The monetary value preserver with which they now became acquainted was excellent for the speculator only.
A Lecture with an Unexpected Result
His lecture had an unexpected success. The overcautious ones among the Baratonians, who so far had hesitated to deposit their cash reserves with Barabino and Company, gained confidence and carried their money to the bank. They said to themselves, “If Barabino and Company have made a million of profit in this speculation, then they are safe.” Thus the house of Barabino and Company came to own or control all the money of the country.
A Repentant and his Successor
But Santiago Barabino died before he could convince his Baratonians of the folly of Beelzebub’s currency reform. In his last will he had arranged that the stolen money should be refunded to the cheated people. It was more than three million pounds.
The business was now transferred to the partner, Samson Carasco, who had kept well in mind the policies of Santiago, while not adopting the latter’s pedantic conscientiousness. Carasco decided to strip the fools and to use the press to foment political strife. Also, to use school, church and university to ensure that the fools should remain fools.
Private and National Indebtedness Appear
As Samson Carasco paid interest to the public treasury for the reserves of money which, as we know, were deposited with the firm, the Baratonians agreed to leave him these reserves permanently. And as Samson paid interest to depositors on time savings, all Baratonians learned to deposit without reserve all available money with the bank. Thus the bank of Samson Carasco was absolutely in control of the entire money market. The only competition that still had to be considered came from the yearly harvest of the Pinus Moneda. Thus it was not astonishing that the fortune of Carasco grew gigantically and that soon all the people were indebted to him. They owed him money in the form of bills of exchange, in the form of communal bonds, and in the form of State bonds. All big industrial plants were mortgaged to him.
Not content with this, he also wanted to bring the land into his possession and place the crown on his head. He wanted to surpass Joseph and Pharaoh. To accomplish this, he had to kill his only competitor — the Pinus Moneda, the money tree. The chronicler reports how one day at the time when the money pine was in full bloom fire broke out on a neighboring piece of property, which Carasco had rented previously, and how the wind carried the hot air directly against the tree. Thus no money was to be expected that year from that source. And Samson Carasco could, at his leisure, implement the plans which he had laid out.
Joseph of Egypt had demanded as ransom from the Egyptians delivery of all the land and the enslavement of all the people to Pharaoh. Carasco was satisfied with the land and the kingship. From this time on, the statements of the chronicle are but a single jeremiad.
However instructive it is, I must limit myself to the concluding paragraphs of the chronicle. There it is said, “Newcomers. Today on April 28th of the year of the Lord 1670 there appeared coming from the east some English ships. Tumultuous joy.”
The Missing Length to Cultural Height
May 10th: The Englishmen speak very highly of our economic conditions. It is amazing to learn that everything had developed here in the same way as in England. In social conditions there were no differences perceptible. The disintegration into classes — the proletariat, the landowners, the rentiers and capitalists — was the same. Prostitution and beggars were here as numerous as in London relatively. The political contest turned upon the same issues. Strikes and collisions of the workers with the police were as numerous as over there. But that did not excite comment. Everyone was used to it.
Only one thing they found to blame in our institutions — namely, our money. It was unworthy of a people of so high a culture — to make use of the useless fruit of a common pine as money, of which there were in Madagascar whole forests. The English visitors strongly advised gold. Wonderful were the virtues of a bright and shiny currency. In short, we should as soon as possible send a representative of King Samson to London in order to make a loan which we could place at 5%.
“And that was all the Europeans could advise us in order to get out of our hopeless conditions,” adds the Chronicler. “The English do not notice human misery because they are used to it. But I have passed through all these developments.”
Eureka!
January 31st: This morning Diego Martinez entered my office. With outstretched arms, he came to me. “I have found it,“ he shouted. “I have found it! The secret which Carlos Marquez could not solve. I have solved the problem — why interest could not arise as long as we computed our money by weight. I have solved the problem! I have solved it! And now everything will be all right again. Here in this big manuscript is the result of my work. We must invite the Baratonians to a meeting at once.”
I assured him that I had full confidence in him but that the realization of a currency reform in a class state was no simple matter. The times had passed in which currency reform would be judged from the economic viewpoint. A political question of first order was involved here, and in politics a theory did not amount to much. He would have as bitter foes all those circles which were receiving privileges from the present system — capital and the press which it controls would fight him with all means available. And, what was worse, he had also to reckon with the hostility of Carlos Marquez, to whom the proletariat was blindly devoted.
The one side strove for the consolidation of its present position; the other side — the exploited — for a revolution, for the elimination of private property, from which they asserted interest could not be separated. And, strange enough, although both sides were striving for a contrary goal, they understood each other. The capitalists even supported secretly the propagation of communistic ideas because they believed them to be unrealizable and harmless and because all communistic experiments have ended with the victory of capitalism. Thus the capitalists prevented the proletariat from studying seriously the symptoms of interest and from discovering effective antidotes, with the result that capitalism is self perpetuating.
Brothers in Arms
However Martinez did not feel disturbed. “I am going to do what is my duty to do,“ he said. “I came down from my mountain,” said Martinez, “in order to bring a glad message to you. I have solved the problem of how we can crush this class state which has developed under our very eyes — and how we can overthrow this monster.”
Hissing and tumult at the right; deadly silence in the center; bravo on the left. Sharp ringing of the gavel by the Speaker of the House.
“Mr. Diego Martinez, you are not permitted to make speeches hostile to the State here and to advocate the overthrow of our constitutional privileges.”
Diego Martinez: “I have found the cause of the social disintegration of our people. I know how it came that we now have in our midst interest and rent recipients and proletarians, land owners, and prostitutes. And I also know how we can make a state of culture from this den of thieves.”
Tumult at the right, cries ”Out with him! Out with this anarchist!” Icy silence in the center; frantic applause at the left. Sharp raps of the gavel by the Speaker of the House.
“Mr Martinez, I have to call you to order a second time!”
Diego Martinez continued, “The cause of the social disintegration is interest.”
Lively applause on the left.
“And the cause of interest is to be found in our money system.”
“Oh ho!” Laughter at the left.
“It is because we no longer measure money values by weight but by cubic measure that our people have become a prey of misery. That is why we have enriched Samson Carasco.”
They laughed. Here tumultuous laughter rose from all sides — from the left, from the right, and from the center.
Carlos Marquez shouted, “Did you all hear? It is because we sell the miserable, entirely useless seeds of the money pine by cubic measure instead of by weight that this tremendous ocean of capital goods invested in our towns, factories, mines, etc. must yield interest and cause social disintegration. Did you ever hear the like of it, comrades? Not the quality inherent in private property, of the means of production, not the fact of machine production, is the cause of classes in society and social disintegration, but the circumstance that we have estimated our money by cubic measure instead of by weight.”
General laughter. “This must be of the same tragic importance as though we acquired the habit of counting our money with the left instead of with the right hand.” Laughter at the left, right, and center.
They listened.
Martinez: “My assertion may sound very funny to laymen, just as it would also appear very funny to you if serious men asserted they could lift the earth from its hinges with a pivot and a sufficiently long thread from a cobweb. Is it not also funny that a fly can kill an elephant? Marquez himself once called money the blood of the economic system. Why should it not be possible for this economic system to die from blood poisoning, just as the elephant from the mosquito bite? Marquez knows that the downfall of the Roman empire has been explained by the exhaustion of the Spanish silver mines which supplied the material for the Roman coins. Why does Marquez not laugh at such an assertion? Is there any essential qualitative difference between the silver money and the material of our money? Isn’t silver also one of the most unimportant substances? Wouldn’t one rightfully laugh if it were asserted that the Roman empire collapsed because the Romans could not continue to eat their soup with silver spoons? But silver was the money of the Romans, just as here the seed of the Pinus Moneda represents our money. I claim that the Roman empire did not perish for lack of silver, but for lack of money. The Roman empire perished from an anemic condition, just as Barataria is perishing now — from blood poisoning.”
They Began to Doubt
“With the law that our money should be counted by cubic measure instead of by weight, we have poisoned our money — our economic bloodstream. With the enactment of this law, the medium of exchange was linked with the medium of saving — a misalliance of the worst kind. If we tie a crab to a mouse, they cannot move because the mouse will go forward, the crab backward. And so it is with the coupling of the medium of exchange and medium of saving. They pull in opposite directions. As medium of exchange, money should pass from hand to hand without interruption, but as medium of saving, it must remain stationary. Marquez therefore injected contradiction into the medium of exchange. And to this contradiction we attribute the fact that Barataria — the land of general abundance — has turned into Cararia — the land of dearness, dearth and distress. As soon as money is converted into the general medium of saving, our economic system must develop in the sign of the Cancer — the crab — in which usurers and speculators exploit the general distress. It would be wonderful if one could invent some means by which all wares could be preserved and stored without cost or loss. But with this money preserver, nothing is in fact preserved, nothing conserved. The only thing accomplished is the shifting of the cost of storage of the products from the money owner to the worker. Marquez has confounded private economic profit with national economic advantage. His private economic value preserver is a national economic value destroyer. And how are we paying for this wonderful invention? We are paying for it with interest — with the interest system, capitalism. Because the medium of exchange became a medium of saving, it disappears practically every three weeks into the saving boxes, where it can only be lured by offering a special premium. And what do we call this premium, Carlos Marquez? It is called interest. And this interest has now become the universal demand, generally recognized, which is included in every transaction in industry and trade. Everything must yield interest in order to induce the money savers to use or invest their money. And therefore I say, not private property in the means of production, but our present money mechanism is the cause of surplus value. We owe it to this static money that our workers must hand over the counter to the capitalists the value of our entire country with everything erected on it every twenty years.
They Want to Study
Marquez: “Friends, I must admit that the explanation given by Martinez has made me doubtful, even perplexed. We must study the matter thoroughly. Should it appear that it was a mistake to couple the medium of exchange with the medium of saving, I, who suggested this, will be the first to sever this relation again.”
Martinez: “That was bravely spoken and does honor to you and your comrades.”
Divide and Conquer
Speaker of the House: “Mr. Diego Martinez, I must call you to order a third time and therefore withdraw your right to continue your speech. We are gathered here to discuss currency questions according to the order of the day but not to facilitate actions for unification of the people. As nobody else wants to speak, I herewith declare the debate closed.”
The End
Seems like, Gessel was not just a genius to understand the hidden forces of the economy but also his ability to simplify the explanation of complex phenomena was remarkable.