The Unconscious Evolution of Mutual Banking

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The Unconscious Evolution of Mutual Banking.

Gertrude B. Kelly

"The most arrant denier," says George Eliot, "must admit that a man often furthers larger ends than he is conscious of, and that, while he is transacting his own affairs with the narrow pertinacity of a respectable ant, he subserves an economy larger than any purpose of his own. Society is happily not dependent for the growth of fellowship on the small minority already endowed with comprehensive sympathy." In those moments of despair which come to almost every one engaged in a serious movement, of our objects ever really being accomplished, when those on whose "conscious sympathy" ,we had calculated prove incapable or dishonest, when the Seymours lapse into Communism, the Walkers and Lloyds into each individual's saving himself, the Beckmeyers into politics, the Tak Kaks into the denial of all truth and justice, it is that one turns with most relief to the fact that the great march of human progress has been in the main unconscious; that it has been hindered or promoted to a very slight degree only by the conscious action of individuals; that as has been the past, so will very probably be the future course; that great economic causes are producing changes in the conditions of society which are neither seen nor recognized by those whose power is being undermined nor by the people whose ultimate emancipation they assure. As Buckle has pointed out, when free trade became a necessity to the English people, it was accepted readily, although those most interested in the acceptance had little or no knowledge of its principles. In the same way is it today; the necessities of trade are destroying the royalty of gold, and the death-knell of gold's power is being sounded, not by the workingmen, not by any of the so-called reform parties, but by the business men, the bankers, the stock-brokers, the much-reviled and much-contemned bourgeoisie. Jay Gould and his associates, in the mere pursuit of their self-interests, are doing more to break up the vicious system which they represent than Henry George, the whole army of the Knights of Labor, the Communistic Anarchists, the "scientific Socialists," and all the venders of patent pills of brotherly love, organization, etc., warranted to cure all the evils with which humanity is afflicted.

When I say that Jay Gould and his associates are doing more to promote the social revolution than all the so-called reformers in the world, I do not wish to convoy the idea ordinarily conveyed by this statement, — that their practices are so corrupt as to invite resistance, — but that they have laid the foundation and are perfecting that system of exchange without the intervention of metallic money whose final development will serve more than any other single measure to secure freedom and equality, after which reformers of all shades have for ages striven in vain. From the reformers as a whole I think we have little to expect, as their ignorance of what constitutes a just society is only equalled by their ignorance of what are the causes of the evils with which the society of today is afflicted. We hear of all sorts of schemes for the organization of labor, for cooperation for productive purposes; we hear of cooperative farms and cooperative factories and cooperative homes, as if cooperation in production had not existed since the very beginning of civilization, since the division of labor first arose; what we are now in need of is not cooperation in production,— for that we have already, and could not dispense with if we would, — but equity in distribution, and this can only be secured by the destruction of the monopoly which gold now enjoys, or rather apparently enjoys, for its royalty is being every day more and more undermined by the defenders of gold themselves.

That gold should have played the part it did in primitive societies, where all possession was fraught with risk, where the exchanges effected were "few and far between," is not at all strange, as it was then the only commodity whose value was generally recognized; but in these days of rapid and universal exchange, when the ratio of products is so easy to determine, that it should be considered by any sane being as necessary to the mechanism of exchange is only to be explained by the force of habit, by the tendency manifested by ideas, as by organs, to outlast their period of usefulness. That the inequality in exchange lies at the root of all social distress, that by it alone is explained the commercial crises, the marching of "progress and poverty" side by side, a short examination will, I think, enable us to see. As Proudhon long ago showed, the laborer, not receiving the equivalent of his product in wages, is unable to buy back his own product in the market; he, however, goes on producing, the products accumulate, as all the other laborers are in the same condition as he, the market becomes glutted, the demand for labor less, part of the laborers are thrown out of employment, part have their wages reduced, and consequently all are less able than before to purchase, the glut becomes greater and greater, the misery more and more profound, failure of smaller capitalists takes place, the prices of all commodities fall, the commodities get slowly consumed, and the great wheel of production again starts, only to end in a longer or shorter time, as before, in crushing out the lives of those who tend it. It may be contended that this theory of the cause of commercial crises is at fault, because, in a state of slavery, the slaves did not receive the full product of their labor, and yet no cry of overproduction ever arose. This objection will be found to have no real weight when we come to consider

the difference between capitalistic and servile production. In slavery times, when each group, consisting of the owner and his slaves, produced nearly all the luxuries and necessaries consumed by itself, the exchange between different groups was comparatively very slight. If the slaves were defrauded of a certain part of the fruits of their labor, the masters expected to make no further profit than that derived in this manner, and consequently the slaves were employed at producing only a sufficient amount of the necessaries to provide for the sustenance of the group, the rest of their time being devoted to the production of luxuries to be consumed by the master, and hence work was always steady; and, though periods of famine might arise, there were none of those periods of depression with which we are now so familiar. Under the capitalistic system things arc entirely different; the capitalist is not content to live in comparative luxury on the fruits of his workmen's labor, but always aims to still further increase his profit by selling these products at a premium; hence a great part of the time of the laborers is not devoted as it was in slavery times to the production of luxuries to be consumed only by the masters, and the products intended for the laborers' consumption cannot be consumed by them, as they have been defrauded of the means of purchasing them. This system of robbery defeats itself. All the opinions of the " scientific socialists" to the contrary, the rich man who consumes in luxury the fruits of his robbery is, under present conditions, a greater benefactor of the working classes than he who invests his capital in the production of the necessaries of life, as he turns away part of the labor which would otherwise be employed in the production of useful articles to the production of luxuries, and thereby lessens the liability to a glut in the market, the consequent lessened demand for labor, and hard times. As Spencer says, there is always a germ of j truth in any widely accepted belief, and the populace have not been deceived in their idea that spendthrifts are "good for trade." The people perish for lack of the necessaries of life by the very excess of those necessaries which they produce.

Where, as has been shown, the fault is so evidently in exchange, it is but waste of time to attempt to remedy anything else than exchange, and thus wasting their time is the great bulk of those who are endeavoring to reconstruct society without knowing where the evils of the present construction lie. The real reconstruction of the system of exchange, and consequently the real reconstruction of society, is being made by the capitalists themselves, all unconsciously however, as a study of "Money and the Mechanism of Exchange," by Stanley Jevons, will enable us to see. In the first place he shows us that the supply of gold is totally inadequate to carry on the exchanges in the English market alone, and that various devices are made to represent that which does not exist:

Mr. K. H. Palgrave, in his important "Notes on Banking," published both in the "Statistical Journal" for March, 187-5, and as a separate book, has given the results of an inquiry into this subject, and states the amount of coin and Bank of England notes held by the bankers of the United Kingdom as not exceeding four or five per cent, of the liabilities, or from one twenty-fifth to one twentieth part. Mr. T. B. Moxon of Stockport and Manchester has subsequently made an elaborate inquiry into the same point, and finds that the cash reserve docs not exceed about seven per cent, of the deposits and notes payable on demand. 11c remarks that even of this reserve a large proportion is absolutely indispensable for the daily transactions of the bankers' business, and could not be parted with. Thus the whole fabric of our vast commerce is I found to depend upon the improbability that the merchants and other customers of the bank will ever want simultaneously and suddenly so much as one-twentieth part of the gold money which they have a right to receive on demand at any moment during banking hours.

I quote thus largely from the authorities merely to show what a secure basis for the currency the gold basis is, — that its security lies mainly in the minds of the people.

The study of the methods by which this small supply of gold which is supposed to enter into all exchanges is eked out to cover them is exceedingly interesting. With the vast system of exchange, developed especially in London and New York, known as the Check and Clearing System, through which, by means of checks representing products sold, transactions (amounting daily to the value of millions of pounds) between merchant and merchant, between bank and bank, between country and country, are carried on without the intervention of a cent of metallic money, most of the readers of Liberty are probably already familiar.

Almost all large exchanges are now effected by a complicated and perfected system of barter. In the London Clearing House transactions to the amount of at least six billion pounds in the year are thus effected, without the use of any cash at all, and, as I have before explained, this amount gives no adequate idea of the exchanges arranged by checks, because so many transactions are really cleared in provincial banks, between branches, agents, and correspondents of the same bank, or between banks having the same London agent.

In addition to the Check and Clearing System, which in itself needs but slight modifications to become the mutual bank, as it already secures the exchange of products against products, there has arisen in England another institution, known as the Check Bank, by means of which possessors of small sums may, by depositing these with a bank, be provided with a check-book which can only be made out to the value of the sum deposited. These checks have been found to be very convenient in the payment of small bills, and in all those transactions which are too small to enter into the Check and Clearing system. Many of them circulate for over a year before being presented for payment. Nobody declines to accept, as they are secured by all the banks of the kingdom.

A peculiar feature of the Check Bank is that it entirely refrains from using or even holding the money deposited. All money received for check-books is left in the hands of the bankers through whom they are issued, or transferred to other bankers as may be needed for meeting the checks presented. The interest paid by these bankers will be the source of profit, and, as the money thus lies in the care of the mast wealthy and reputable firms in the kingdom, it could not be lost in any appreciable quantity except by the break-down of the whole banking system of the country. It would hardly be true to say that these checks correspond to notes issued on deposit of government funds, because each bank can use at its own discretion the portion of the funds of the Check Bank in its possession. Nevertheless, the portion in the hands of any one bank will usually be a very small fraction of the whole, and there is, moreover, a guarantee of consols in the background. The system of issue is more closely analogous to that of a documentary reserve than any other.

This Check Bank is at fault in that it takes as security as yet only metallic money or Bank of England notes, and we have already seen what a small proportion of these exists as security in the vaults of the banks. From the taking of gold, which does not exist, as security, to the taking of other property, which does exist, as security, is but a step; from the taking of government bonds to the taking of reliable bills of exchange, as security, is also but a step; and that both, in the necessities of trade, will be taken in the not very distant future, I think there is but little room to doubt.

The free monetary system, with its destruction of interest and profit, looms up before us! The exchange of product against product is inaugurated! The social revolution accomplishes itself!

Let not any one so misunderstand me as to think that I underestimate the value of conscious evolution. The more who see clearly the way in which things ought to go, the more quickly will the change be effected, and the more thorough will it be when effected. I cannot do better than end as I began, with George Eliot:

Shall we say, "Let the ages try the spirits, and see what they are worth"? Why, we are the beginning of the ages, which can only be just by virtue of just judgments in separate human breasts,—separate, yet combined. Even steam-engines could not have got made without that condition, but must have stayed in the mind of James Watt.

Gertrude B. Kelly.


  • Gertrude B. Kelly, “The Unconscious Evolution of Mutual Banking,” Liberty 4, no. 15 (February 12, 1887): 7.