ABSTRACT
Economists have often been reproached for using their imagination to create useless systems which were not supported by the undisputable evidence of facts. It would perhaps be more truthful to say that on the contrary these authors frequently built their systems on a framework of facts, but incorrectly observed facts. Speaking about the theory of farm rents and the interest on capital, we said that almost all the writers on these subjects failed to verify if the phenomena presented by the relations of the idle owner with the producer, with differing degrees of civilisation, could be considered as belonging to a series dependent on a general rule; if the historical study of these phenomena had shown such a rule, the road to follow today would be clearly marked out and we would not be so frequently open in finance and in politics to undergoing disastrous experiences and to fighting against resistance which would no longer exist, as their powerlessness would be fully predictable. We have tried to demonstrate that the philosophical study of human society clearly shows a constant law of improvement in men’s means of action over nature: if you share this opinion with us, it is easy to understand the simple, beautiful theory of credit. Credit or confidence is obviously a cause of increase in the means of action of man over nature when this confidence exists in those who possess in favour of those who act, for society can be divided into two distinct parts, the one which possesses and rests, and the one which works and produces; and if it is useless, even harmful concerning production for the second class to have the confidence of the first, we can see the advantage that the whole of society can obtain from the credit the idle grant the producers. Seen in this way, gold and silver are a mode of transition to go from the state of mistrust and misery of people who understand only the exchange from hand to hand to that of working, rich and trusting nations in which the man who wants to rest considers the promise of work to be done as the equivalent of work done when the promise is made to him by an intelligent worker. When Ricardo said that money would be in its most perfect shape if it were paper, he was stating a great truth, since money replaces an act of credit which would take place without its help if trust existed among workers. Trust is a necessary means of union and consequently an alliance of efforts towards
a common goal; mankind must repose on trust, establish it on sound foundations, generalise it if possible and have all the advantages attached to it. By presenting Ricardo’s opinion in this way, we thought it would not be opposed by recourse to theory, but would be called an illusion. Trust among men is an excellent thing, people will say, but it will never exist, it would be perfection and we will never be perfect; some would even say that we are constantly moving further away from perfection. How can trust thus be generalised? How can we use this means of union, so necessary to increase the power of man over the objects which surround him? By reasoning in this way, we would be making an error which is frequent in the study of moral and political science where one is easily lead to conclude from the particular to the general and vice versa. When we say we must generalise trust, we do not mean trying to establish it between one individual and another, so that each man trusting individually in all the men with whom he has contact can act as though trusting generally in society; we accept that it is impossible to solve such a problem, but this is not our aim, and we shall later come back to this idea which needs some preparatory explanation. A man of genius said that in order to explain the system of the world we needed to create an imaginary world similar to the real world; we will use this method to expound the theory of banks. In any gathering of workers in which individual capacities for production were different, the inhabitants dissimilar and the tendencies harmful to production present in different forms, each worker would be more or less a guarantee of the good use of the materials which he would shape for the use of society. If inside this society there existed a class of individuals who after having acquired by their work the right to dispose of the products they had made, had the possibility of living without further work thanks to the abundance of these products, the relationship which would be established between this idle class and the workers could be of different sorts. Suppose, for example, that the idle, who have no immediate need to consume the products they possess, decide to entrust them to the workers, on the condition that the latter undertake to return them according to needs, that is to say to pay back the value in a form suitable for the idle; it is obvious that such an agreement would have on the one hand an advantage for the workers who would increase their power by the force of the machines which would be given over to them and, on the other hand, the idle would prefer to be relieved of the care of keeping the products of their past work, provided that they were certain that these products would immediately be given back to them on request. If we consider the relations between the masses in this way, nothing can be easier to understand than the idea of lending and borrowing, of renting out and farm rents; we have supposed that the momentary relinquishment by the capitalist or owner would be free, although agreements of this kind are at present costly for both lender and borrower, but the conditions of interest or rent being variable, we preferred to separate this from the question we are examining. We said that by agreements made with the idle, producers would obtain the inactive materials in their possession, but the distribution of these materials
between all the producers poses a problem. The agreement we are discussing would in our supposition be a contract between the producers’ heads, that is to say the most industrious, and the heads of the idle, that is to say the wealthiest. This contract would be a guarantee given by the former to the latter, or in other words, a promise to reimburse the borrowed materials. But if the producers’ heads undertook such a commitment, in order to be sure of fulfilling it, when distributing these products among the industrialists, they would need to determine themselves the solvency premium that each producer would have to pay in order to dispose freely of a share of these products during a certain time period. Distribution thus entails calculating the insurance. The solvency premium paid yearly by each producer according to his credit into a common fund guarantees the performance of the contract signed by the industrialists’ heads; and the individual commitments signed by the producers, for the share allocated to them in the distribution, with the stamp of the insurance company, are given to the lenders as security and complete certainty of their solvency. It would be an insurance company which, in return for a premium perfectly proportional to the true capital of the producers, would guarantee the payment of the individual loans taken out by them and give the original lenders, the idle, sufficient certainty of reimbursement. The mere wording of this proposal suggests how it should be modified in order to be applied to a numerous society in which it would be impossible for one insurance company to know the degree of credit each industrialist deserves; however, there is no point in imagining the need for an establishment with such a scope. The existence in society of a class of individuals specialised in knowing specific credit is enough: the members of the class we call bankers would give their guarantee, each for a certain number of industrialist clients, and by assuming their customers’ commitments in return for a premium or commission proportional to their confidence in the capacities and honesty of these customers, they would carry out a separate transaction similar to that of an insurance company and their customers would only have to deal with the banks. Let us look at this affair in detail. The idle hand over their capital to the industrialists’ heads who join forces in a company under the name of General borrowing and lending bank, and in exchange they receive bearer notes which enable them to dispose of the value of this capital at will. In turn, the general bank distributes this capital to the leading credit in society, men whose behaviour offers the moral certainty that in their hands these funds will not only be kept, but increased. Finally, these men will undertake individually to distribute this capital to the branches of industry which have the greatest need, receiving payment of an insurance premium as guarantee of the borrower’s solvency from the industrialists asking for capital, and in exchange they will give their own commitments to the bank. After this triple operation, in which the general bank is an intermediary between the bankers and the idle capitalists and the bankers are intermediaries
between the general bank and the producers, the idle possess notes of the bank, the industrialists have capital and in its portfolio the bank has the commitments of the bankers who guarantee the good management of the industrialists’ affairs. Such is the real mechanism of banks: all the notes they issue, as long as these notes are in circulation, represent the same value of real capital, which transits from the hands of the idle to those of workers. The theoretical explanation we have given is independent of the original condition which incites the idle to entrust their capital to the workers. In the contract which we imagined between these two classes of society, according to the importance of one of these classes compared to the other, some advantages for the idle or for the industrialists may be stipulated; but our reasoning will not be altered by these constantly varying agreements. Thus either the idle can keep for themselves not only the free disposal of their capital at the time that they need it, but also a part of the products created by the industrialists by employing them; or on the contrary, in the social interest, the producers can determine the conditions which those among them who wish to rest would be obliged to fulfil in order to live in idleness; but in either case the notes of the bank would represent for their bearers the capital given up by the idle to industry. The foundation of discount banks was not the consequence of reasoning such as we have developed: like all human creations, we may say it was instinctive; this is proved by the different ways in which the question has been addressed by all the men involved in finance and the fruitless attempts and the deplorable findings of surveys of these credit establishments. Since law, whose system was spoilt by the Regency, up to the present-day banks which are governed under the influence of a host of prejudices, experience has studied the facts and formed a theory which will serve to improve them; but we can say, without fear of being challenged by any of the men who have reflected on the question, that the banks are still operating according to routine, routine which progresses by trial and error because it refuses to lean on a strict scrutiny of the principles which alone can lead with certainty to improvements. This is how the banks called discount banks were imagined: Capitalists met together; they set up company funds so as to give guarantee for transactions for which they would be obliged to ask for public trust; they issued bearer notes, redeemable on sight, for an amount which was in a certain proportion with the company funds; finally, they used these notes to discount the signatures of industrialists whom they trusted and who undertook to pay back, by a stipulated date, the capital which they needed at this time. The bank did not really provide them with the materials they needed for their work, but gave them a voucher with which they bought these materials from the man who had them and who agreed to hand them over, becoming in his turn a creditor of the bank. This transaction is thus really the same as one made directly between the man who has the capital and the man who needs it, if the former agrees to accept the time commitment offered by the borrower; but the intermediary of the bank, giving the lender a better guarantee than an individual commitment, facilitates this transaction which without the intermediary would perhaps not take place.
