E. Short-Term Validity of the Goods Warrants.
Since the goods financed by meana of goods warrants are as a rule only moderately durable, it must somehow be prevented that perhaps years after an order has been executed, sornebody presents a goods warrant and claima delivery of the goods ordered. Milhaud has recognised thia danger and demands therefore that the goods warrants ahould be valid for a atated period only. This aspect gave rise to a prolonged discussion. (See Annals, nos. I and 2, 1933.) It was, however, generally agreed that the time restriction of the goods warrants harboured one danger, which, although slight, was greater than zero. It was also pointed out by some that the reatriction might cause inconvenience to those who accept the warrants shortly before they expire. It might have been added that many people, without being money hoarders, are bound to accumulate means of payment for certain dates, e.g., employers and mortgage debtors. By such a time restriction, these might be moved to eschew this paper money in order to be certain to avoid the possibility of missing the due-date. Our remarks in the preceding section have, for instance, hinted that the time validity of the goods warranb might be limited otherwise than by rendering them valueless after a stated time. This, as we have seen, might be accomplished by definitely prescribing the passage from the issuing centre to the worker and thence back to the issuing centre, and this by means of two contracts—
a. Engagement contract, wherein the worker undertakes to accept the goods warrants in lieu of ready moneys.
b. Loan contract, wherein the employer undertake to accept them in his capacity of debtor guaranteeing the passage prescribed. If this were done, the formal limitation of the time validity might be dispensed with.
         This does not imply that in all circumstances the method of a definite time limit, after which the goods warrant becomes valueless, is inferior to the restriction enforced by the contractual method of ordering. Both methods should be tested and from time to time re-tested. In fact, the time limit proposed by 98 Milhaud is considerably longer than would be as a rule the time limit under the "subscription system" Serious inconveniences, therefore, are not to be anticipated in the realisation of Milhaud's proposal. Moreover, Milhaud has noted that the system of goods warrants operates the more smoothly the more the placing of orders appears as an element therein. (Annals, 1933, no. 2, pp. 182, 227.)
         That the fine (to be discussed later) imposed by the bank when a payment is not made in goods warrants but in other monetary tokens, will greatly accelerate the reflux of goods warrants, is evident. Another arrangement will produce a similar effect, namely the possibility of investing the goods warrants and profiting by the interest received. Since Milhaud has himself stressed the difference between saving and hoarding (Annals, 1933, no. 2, p. 180), it is manifest that few would think of hoarding the warrants if they could open a savings bank account with them. The instances when people would hoard them, would not be more frequent than where somebody buys a railway ticket and deliberately, out of stupidity or spite, refrains from using it.
F. An Improvement in the Civil Law as a Result of the Milhaud Proposals and as a First Step towards a Social Reform.
The concept "crisis" is of a highly subjective character. During the years 1927 to 1929, which present themselves to-day in a rosy light, most people were under the impression that there was but a slight diminution of the crisis over that of the immediately preceding years. There were still great numbers of wholly and partially unemployed, many difliculties in discharging liabilities, much spare tonnage, masses of unsaleable goods, and a continuous stream of new proposals for grappling with the depression. It was hoped that 1930 would see the beginning of a real recovery. A proposal, such as Milhaud's, would have therefore been also appropriate in 1927 and would certainly not have been rejected on the ground that all was well economically and that there was nothing amiss as regards monetary matters. If we are right in this respect, it follows that the Milhaud proposals should not be made dependent on, for instance, some official body declaring that we are passing through a crisis or that the crisis is over. Indeed, we may reasonably surmise that if in the "prosperous" years 1927 to 1929, the business world, then already entangled in difficulties,- had been allowed to right itself by applying Milhaud's system, the economic crisis would never have assumed its present magnitude and very likely would never have developed. This suggests that the essence of the Milhaud proposals should be regarded as of permanent application.
      What, then, is their essence? The official compensation office for external trading? The centre issuing purchasing certificates with a view to paying for relief works?
      These proposals are of decided value, but their essence is surely the abrogation of the right of creditors (whether vendors of goods or workers) to demand payment in legal tender. This essence is of a negative nature. That which remains as the sole means for satisfying creditors, namely:
a) direct payment with goods or goods warrants, or
b) balancing on a monetary basis, may be realised in a variety of ways.
      Once it is recognised that the right of creditors to demand gold or legal tender is a main cause of the dcpression and what the abrogation of this right, if only on a voluntary basis and for a limited period, perhaps even not in all domains, would offer Im effective means for combating the depression, the idea suggests itself that the said right of creditors should be altogether abrogated by an amendment of the Civil Law, replacing it by the right of creditors to a mutual credit in a form as favourable ns possible to them, but economically tolerable to the community. This would only involve a logical development of the legislation on time-bargains existing in many countries, pursuant to which such bargains are only protected legally where the debtor is permitted to withdraw from them on the payment of forfeitmoney or a premium. In fact, such forfeit-money sales are frequently not even legally protected or only on codition that they are concluded among members of the stock exchange. That we are here only contemplating a consistent development of the existing legislation concerned with dealings in "futurea", will be manifest from the preceding considerations.
       For countries like England or the United States such an amendment of the Civil Law, depriving forward sales of gold and banknotes of legal protection, would not represent anything novel, for non-cash payments, that is payments by means of a clearing operation, have been common there for many decades, even among the masses. The proposed reform would legalise a custom, that is all.
           A modest beginning might be made with bills and cheques, in that such bonds also might be made subject by the drawer to the general bill or cheque legislation, wherein the text only states that the drawer will accept them in payment in lieu of money, but that the holder is not entitled to have them redeemed in money. It is true that the recent international arrangements on bill and cheque legislation are not favourable to such a solution, but they do not esclude it.
         To submit here detailed legislative proposals on the subject would esceed the scope of this paper. It may be remarked, however, that the legislation suggested takes up the problem 100 where almost two thousand years ago it was left by Marcus Aurelius, one of the greatest statesmen of all times and climes«. Marcus Aurelius first introduced the clearing principle in Civil Law (Heilfron, Römische Rechtsgeachichte (History of Roman Law), p. 521). Before his day, only a guite exceptional and limited uae had been made of this principle. It is highly significant that the next ruler who, after Marcus Aurelius, merited to be called a philosopher, namely Frederic the Great, also recognised the economic importance of the principle. If article 6 of his "Reglement der Königlichen Giro- und Lehn-Bank", of 17 June 1765, had been seriously put into force, which was not the case, the settlement of payment by clearing would have at that early date become almost generally eatablished in Prussia. Furthermore, the « Allgemeines Landrecht ~ (Civil Code), drawD up in Frederick's reign, pays close attention to clearing and devotes to it 77 §§, whereto have to be added 37 §§ concerning the union of the rights of creditor and debtor in one person. (Confusio.) The German Civil Law to-day is satisfied with 10 meagre §§ and the Napoleonic Code, which recent legislation has unfortunately followed, with 13 §§. One of these, § 1290, is so badly drafted that French courts do not apply it. The effect of the Civil Law on conditions of employment has so far been le ft practically unexamined. The only volume that has probably appeared on the subject is Rittershausen's Reform der Mundelsicherheits-Bestimmungen zugleich ein Beitrag zum Erwerblosen-Problem ( Reform of the Provisions concerning Trustee Investments, representing also a Contribution to the Unemployment Problem), Jena, 1929, which contains valuable suggestions.
        That a clearing house curtails the business possibilities of the central banks of issue and even offers the chance of escaping from their tutelage altogether, has naturally been observed by their partizans. Owing to this, e.g., the Russian currency legislation of 1930, made the acceptance of cheques subject to the approval of the Russian Central Bank. In 1933, another country went even further and declared all agreements null and void where a creditor renounces his right to demand payment in ready money of banks and cognate institutions. Such a provision, if creditors as a body were to exercise their full rights there-under, would in a few hours bring stark ruin to the most flourishing national economy.
        To-day the advocates of goods warrants have still to fight for the right to issue them. The coming ages will stand for the opposite view of compelling every economic domain to issue as many of its own goods warrants as are neceasary to prevent a disturbance in the monetary circulation of other economic domains. Indeed, every individual will be bound to dispose 101 of his assets through a clearing bank which issues goods warrants. Others' balances, or means of payment issued by others, woulo thus be permitted to be used if their own balances, or the means of payment issued by the debtor himself, proved inadequate. For Germany, for instance, such a reform would involve tho amendment or abrogation of the following legialative provisions: § 39 of the Banking Act, which was imposed on Germany by the Dawes Plan; § 115 of the Trade Regulations (Gewerbeordnung), whereby workers are entitled to demand payment in ready money; § 32 of the Cooperative Societies' Act; and the Bruening-Dietrich legislation conceming emergency money, with its later supplements.
       In an economy not inconvenienced by a money monopo'y and regulated by a system of production based on orders placed, the demand for labour will always equal the supply, probably also equal the only kind of labour it is capable of furnishing. Such an economy will have no unemployment problem; but, on the contrary, it will be always concemed wsth the problem of how to reduce the incident of labour by means of machinery and by every other kind of s«ial advance.
         The champions of the monopoly of the central banks of issue will one day stand before the bar of world history, as in English history the opponents of William Dockwray, who, in 1680, to the common benefit, introduced the penny post, but who also, arnidst the applaux of the reactionaries, was compelled by the Duke of York, who held the postal monopoly, to renounce his project. England had accordingly to wait another century and a half before this reform was realised. (Macaulay, "State of England in 1685", History, vol. 1.) Or there is the case of tbe opponents of mechanically propelled conveyances a century ago, an age which only knew steam vehicles, but these of a decidedly practical character. By an Act of Parliament, which provided that for the protection of the public a man with a red flag muat wsllc in front of every steam vehicle, social development wac arrested for msny decades.

6. The Realisation of the Fundamental Conceptions underlying the Milhaud Proposals,should States not take the Initiative.

A. Purchasing Certificates on External Trading on a Private Enterprise Basis. Milhaud has shown, the great shrinkage in world trade hd two prineipd causes, of which the second was the immediate consequence of the first102
1) the right of creditors to demand payment in gold;
2) the reatrictive foreign exchange laws, of which perhaps a thousand have been issued during the last three yeara.
The foreign exchange laws have introduced confusion not only in trade but in men's ideas. They had a legitimate purpose, namely to restrict the right of creditors to demand payment in gold. But the method whereby the foreign exchange laws of all countries are seeking to attain this end, will probably create a) similar impression on our descendants as the anti-sorcery le gislation of our ancestors. One basic defect of perhaps all these 'laws is that they fail to distinguish
a) claims arising out of short-term deposits utilised for longterm investments, the deposits thus becoming "frozen"
b) claims which cannot be met because they call for payment in gold and the debtor possesses only goods;
c) claims which cannot be met because they call for payment in notes of a central bank of issue or may be demanded in such notes whilst the central bank of issue will not or cannot place such notes at the debtor's disposal, although he holds goods that are in demand.
With regard to
a), Rittershausen has dealt with it luminously and comprehensively, in his work Neubau des deutschen Kreditsystems (Reform of the German Credit System!, Berlin, 1937), it suffices therefore to refer the reader to this work.
b) is the central theme of Milhaud's plan.
          In some countries, as in Austria, the trouble began with bank depositors giving notice of withdrawal of their short-term deposits. The banks, however, were not in a posihon to pay because they had not invested this money in liquid securities. The explanation tendered was not accepted and many bluntly declared that the gold standard had failed. Since then agreements have been reached with all the creditors so that now the deposits, in proportion as money is received from the bank's debtors, are or can be repaid. The present situation is therefore such that foreign creditors generally could be satisfied with Milhaud purchasing certificates. Three years ago this would not have been the case. At that time, when an extraordinarily large part of their total deposits was claimed at short notice, the banks could not have repaid in gold, banknotes, or purchasing certificates.
      However, not only concerning the bank crisis of 1931 and its consequences, but quite generally at present, there are views in circulation regarding currency and foreign exchange which will probably amaze posterity but which must be allowed for if we desire to induce the world's actual rulers to cooperate in reforming the present system of settling accounts. One of these views is that the export of banknotes may occasion a marked 103 fall in their exchange value abroad, with the result that there would "naturally" be an inflation at home. It was most probably for this reason that Milhaud proposed to cover the purchasing certificatea with banknotes, but did not enter into a discussion as regards whether the banknotes might or might not be as well remitted abroad. Since the banknotes of almoat all countries have become inconvertible to-day and since their value reats only on the possibility of utilizing them internally a banknote taken abroad has exactly the same effect as a purchasing certificate. Some of the results aimed at by Milhaud might be therefore also attained if the deposit of banknotes were freely allowed. Such a proposal, however, would occasion such undesirable mental reactions in Governments, bankers, economic periodicals, and the public generally, that it would be dangerous to press it.
           In this connection it might be useful to inquire how one could proceed if there were no laws regarding foreign exchange, or at least tolerable ones, as, for instance, in China, England, and Peru. These countries, too, have every reason to concert measures for preventing a sudden big demand of gold, to which their reserves might not be equal. The question thus suggested is whether in these instances also Governmental compensation offices and, as Milhaud recommends, the covering of purchasing certificates by banknotes, would be advisable.
            Experience with compensation offices has not been thua far encouraging. Almost everywhere where such offices have been established, they have obstructed rather than facilitated trade and have tended, for one reason or another, to hinder obvioua possibilities of compensation. ney mostly argue: ~~ Compensa tion does not bring foreign exchange ! It also favours imporb, whilst the country's interests demand a diminution in imports and an augmentation of "exports". Thus during recent month~ the obstructing of compensations on the part of the Rumanian Compensation Office has been widely commented on. Moreover, to cite one more example. When a French group proposed to finance in Latvia the project of the Duna power works (which had long been under consideration) and to accept payment in timber, other groups succeeded in preventing this compensation by having recourse to the simple and na;ve argument that their volume of trading would be thereby reduced.
             The objection frequently heard that compensation brings no foreign exchange, merits special attention. It confirms the experience of ages that authorites do not easily alter their views. Hence whilst in almost all countries payments in gold are suspended and gold coins are scarcely obtainable anywhere, and whilst therefore all foreign exchange represents for esternal creditors only purchasing certificates and most foreign exchange 104 is less than that, the attitude of the authorities towards foreign exchange is still the when as in 1913, when they were convertible into gold. The authorities have thus far continued to act on their old views, naturally supported (to tell the truth) by at least nine-tenths of the country' s "practical men". What is to be done?
      All things considered, the most practicable course to follow might be this. (All right, listen up yall, here comes a LET scheme and local currency prophecy:) The traders of the different countries where no, or at least no extravagant, foreign exchange legislation exists, should organize for their own convenience a private clearing centre. So soon as this centre yielded satiafactory results, attention should be drawn to it and the advantages it offers explained. Thus, moved by the pressure of a public opinion enlightened by the logic of experience, the authorities might possibly be induced to revoke the foreign exchange legislation insofar ae it prohibits clearing transactions of the Milhaud type. In the meantime the names and addresses of those suppliers could be noted who are prepared to deliver raw materials against purchasing certificates, i. c., either against governmentally guaranteed purchasing certificates, as proposed by Milhaud, or against such as are guaranteed privately. This list of suppliers would then constitute a perpetual contradiction of the strange idea developed since the War in some countries, that raw materials can only be obtained in return for foreign exchange and that hence it is necessary to export to render importing possible, since only esport creates foreign mesns of payment.
          Private clearing would also eliminate a danger which has been hitherto mostly overlooked. That the claim of creditors to be paid in gold should be replaced by a claim to be paid in goods or services, is beyond doubt for every close thinker who has followed Milhaud's arguments. And similar arguments prove that the right to demand payment in the inconvertible notes of a central bank of issue or in other forms of legal tender should be also limited to a minimum. In fact, it is fairly evident that dependence on the stock of banknotes of a single country involves much greater risk for debtors than the possibility, in an emergency, of utilising stocks of gold abroad even at much sacrifice. It is as if in a restaurant many persons are to eat at a given table. This is possible when each at any moment may trespass with his arm or his plate on his neighbour's domain. But if each is strictly confined to his few square inches of space, (say) by partitions, nobody will be able to move properly, the bringing and removal of dishes will be rendered much more difficult, and tho guests will be greatly incommoded.
        The theory, it is true, widely prevails that the central bank of issue of every country is able to satisfy all "legitimate" monetary requirements. Havenstein, a former President of the  105Reichsbank, based on this theory, which he regarded aa self evident, bis demand before the Bank enquiry Commision of 15 October 1908, that German banknotes should be legal tender. Experience, however, has demonstrated that the theory is mistaken, although naturally the assertion of the central bank of issue of the different countries, to the effect that a demand for .neans of payment not satisfied by them is not a "legitimate" demand, can neither be proved nor disproved by purely logical methods.
         The risk that debtors may be obliged to remit means of payment that are simply non-existent can only be avoided if the contract itself allows them, if necessary, to compensate. But such permission presupposes a corresponding form of bond in external trading. This could be realised in sundry ways. It would be simplest if the bond ceased to read: On such and such a Date I undertake to pay to X.. or to his order, the following amount... and if, instead, it read:
from such and such a date onwards I undertake to accept this bond in payments of such and such an amount due to me, in lieu of ready morey; but I also reserve to myaelf the right to pay the holder, instead, in Iegal tender up to the amount stated.
Or:
On such and such a Date I undertake to pay, at my option, either to X., or to his order such and such an amount or, as an alternative,  undertake to accept this bond in payments due to me at the increased amount of ..., in lieu of ready money. From the date mentioned onwards, every holder of this bond is entitled to learn from me how he may realize the bond against me
            This makes it clear that the problem of satisfying foreign creditors not with gold but with goods is of exactly the same nature a the problem of paying internal debts not with gold but with goods. Hence the measures just proposed rexmble those concerned with finding work for the workless, as in Milhaud's plan.
          The next step to be taken to facilitate for foreign creditors the use of bonds bearing a test such as that suggested above. would be that several traders should combine, each of them accepting the bond of any of the others up to the amount of his own debt. This procedure is also capable of improvement, in that the association of traders might agree to exchange the bond for suitably divided and standardised bonds that are not made out to a given individual, but to the association and its debtors. Such a procedure would closely correspond to that resorted to in the discounting of bills by the old Scotch banks of issue; only that in our case the bank would not bind itself to pay in specie. To-day the procedure of the old Scotch banks is forgotten, but 106 old books expound it and no explanation need therefore be furnished here. (But never fear, Bth would not be Bth if he didn't drive his points home with a winning exampe; here goes:)
           It seems that traders in China, where private banks of issue are still lawful, are beginning to favour such a solution. If this be the case, the next step would be for Chinese merchants to seek to arrange that the inconvertible notes of the private banks of issue should be accepted as foreign exchange in as many countries as possible or to induce the central banks of issue formally to declare that the notes are not foreign eschange but may be quite freely negotiated. This last remark is not, as might be thought, superfluous. According to certain legal provisions existing in some countries means of payment not recognised as foreign exchange, are not, on this ground alone, necessarily al!owed to circulate freely.
           On a superficial view, the solution here propoaed might aeem diametrically opposed to Milhaud's. Milhaud covers his purchasing certificates with banknotes which are deposited at the compensation offices. Here, on the contrary, it is suggested to issue a kind of inconvertible banknotes which are covered or exchangeable at the banks by purchasing certificates made out to the order of a given firm. The difference between the two proposals is, however, relatively unimportant and is concerned with the formally juridical aspect rather than with the concrete side. A more detailed examination, which must be waived here, would prove this, but that everybody can readily undertake for himself.
           We have referred to China. That country is possibly destined to initiate a reorganisation of world trade. Its population equals that of Europe, and its civilisation is not inferior to that of Europe and certainly not to that of America. Difficulties arising from variations in monetary stan.dards, which represent for Europeans and Americans insurmountable mental impediments, do not exist for the Chinese merchant. From earliest youth he is accustomed to think in multiple currencies that constantly vary in their interrelations. (How lifelike; has the weather ever been dependable, predictable and foreseen really?) For centuries copper and silver currencies have peaceably co-existed in China. At the same time the Chinese merchant is quite familiar with the diverse foreign gold and paper currencies. Occasional attempts by Chinese Govemments to interfere in monetary matters, have hitherto been regularly answered by their edicts being ignored and, at the worat, by buying off the "marshall" responsible for the issue of auch an edict. In times of deflation, merchants have recourse to their own notes and goods warrants, and in time~ of inflation they know how to calculate in stable values.
         China's monetary arrangements have repeatedly served as models to-other nations. When in 1770 the clearing bank of 107 Hamburg was reorganised, Sonnin, a master-builder, advised that it would be best to follow the example set by Chinese traders and his advice was adopted. The New York Act of 1829 concerning dhe protection of note owners, was direcdy auggeated by the prevailing practice of the Hong merchants of Canton, as is expressly stated in the reasons adduced for the Act by Governor Van Buren. Chinese traders have thus far successfully prevented the introduction of foreign exchange legislation and the control of external trading. Even lines of thought such as have been first pressed home on Europeans by Milhaud, find themselves realised in China. For instance, thc merchants of Newchwang were shrewd enough so to organise the imports into their city with the aid of their banks that payments were made in goods and not in specie. H. B. Morse, in "The Gilds of China" (1932, pp. 60-61), says on this subject: "One method of regulating the trade of the port in the interest of the gild members is peculiar to Newchwang, and, in describing it. It is neceasary to use the past tense, since the influx of foreign interests and the general introduction of foreign bank-notes since 1900, and more especially since 1905, has worked a great change, and probably relaxed the grasp of the gild on the trade of the port. A merchant selling imports nominally for cash, was, unless he was willing to submit to a discount of from one to five percent, according to the market rate, compelled to accept payment in 'transfer money', i. e., by cheque, giving him a credit at a bank. Specie, too, in the place was attracted to the banks by the offer of a premium ranging from 0,2 to as much as 6 per cent., and could be withdrawn only on quarter day, four times a year; withdrawal was discouraged by crediting the account quarterly with premium, if not withdrawn, at the same rate as if deposited. During the deposit, while the money could not be withdrawn, cheques could be drawn against it for 'transfer' to the account of another, not necessarily at the same bank. Exports, too, could be bought only with 'transfer' money; and all quotations for drafts on other places were in terms of transfer money. Except for copper coinage, there never was money in Newchwang outside the banks, members of the gild: and aliens were driven to take in goods for export the proceeds of sale of their imports, and always through the agency of members of the gild. No one had cash to offer, except at heavy cost, and no one was in a position to act independently, even if the Great Gild had been as weak as it was strong, and if it could be imagined as permitting what, in fact, it never did permit.
           The economic history of Europe offers a pendant to this. Roscher mentions that in the Middle Ages in the north-German town Bardowiek it was decreed that peasants selling provisions 108 in Bardowiek were bound to purchase fish in the town to the amount of their takings. It would be worth the while of historians to unearth further examples of how formerly some communities adopted measures to prevent esternal traders throwing their monetary affairs into confusion.
           The weakness of the Newchwang system was that it forced the same merchants who had sent goods to Newchwang, to purchase goods from Newchwang. Now normally the trade balance of 8 locality is only established in a very circuitous manner, as illustrated by Milhaud in a number of examples. (Adam Smith also touches on this aspect in aeveral passages of his Wealth of Nations, e.g., in the last paragraph of book 4, chapter III.) In the case of Newchwang, it would have been perhaps more natural for English merchants to have shipped thereto iron ware and Americans cotton goods, and for the compensation to have taken place through an importation of goods from Manchuria (of which Newchwang was the port) to Japan and for Japan ro have settled then with England and America.
      But Newchwang represents but one example of the capacity of Chinese merchants to trade even where there ia a shortage of money. A merchant class accustomed to grapple with 50 in any difficulties , appears destined to play a leading part in the coming world economy.
      The almost universally prevailing method to-day of paying for mports in the currency of the importing country and not in that of the esporting country, is by no means traditional. This method was only invented during the post war period. It seems that it did not begin to be general until after 1921, when by an act of 24 December 1920 German firms were prohibited from naking out invoices in marka without the express authorisation of the Reichsbank. Shortly before German exporters hr.d shipped machinery to America, calculated the price in marks, and when after the expiry of the agreed time limit payment as tendered in marks, these just sufficed for buying a few nails. The decree was therefore reasonable and justified. The German example was then imitated by other inflationist countries, and that too was natural. But when the currencies concerned had been re-established, the mode of invoicing should have changed. In 1913, for instance, no Austrian manufacturer exporting to Turkey would have invoiced otherwise than in Austrian crowns. In the pre-war-methods of payment this almost meant the evolution of the bill of exchange, which the Turkish importer accepted, into a purchssing certificate negotiab!e in Austria. The idea that the balance of payment of countries is adjusted by gold shipments is only a fiction to be found in text-books. (Liefmann should be credited with having first directed attention to this. Gold shipments were rare and not extensive in pre-war days and 109 were intended almost exclusively for supplying the gold industries. It is also doubtful whether the statistics of gold shipmenb were accurate. As Locke shrewdly remarks, legal provisions relating to gold exports, to their announcement, etc., are to gold what a hedge is to a cuckoo. The Treaty of Versailles has contributed its full share to disseminate false notions concerning payment in foreign exchange. Article 262 imposet on Germany the obligation, at the option of the creditors, to provide gold dollars, gold francs, gold pounds, or gold lire, payable in the capitals of the currency countries concerned. This Article thus presupposed as self-evident that it only depended on Cermany's good will to provide these means of payment regardless of the volume of its trade with those countries. Relief would obviously have been afforded by admitting means of payment also payable in gold, but valid in Germany, e. g., dollar bills of German firms which undertook to accept them on maturity, precisely as if they had been legal tender; but this relief was never granted, neither was it. however, definitely claimed. The monetary views were equally confused on both sides. One of the most far-reaching effecb of the Milhaud proposals will probably be that thereby the understanding of the real nature of international means of payment has been deepened, so that in future no one will be willing to unclertnke or exact monetary liabilities which can only be met by a happy chance.
B. Work Supply Banks as Private Institutions.
For the exploitation of waterfalls, coal seams, wind-power, and even of the sun s heat and of the tide, banks and other private enterprises exist, but for the utilisation of unused labour power companies have yet to be formed if we leave aside Owen's National Association of the United Trades of Great Britain and Ireland to Employ the Unemployed and to Educate the Children of the Working Classes, established in 1833. (Helene Simon, Robert Owen, p. 229.) This will amaze our descendants probably as much as we marvel at our predecessors who for ages preferred to rub millstones against each other rather than to let this be done by brook or wind. As Milhaud has shown, such companies may be formed in connection with the system of goods warrants and the only question is who will take the initiative, if the State and its central bank of issue should somehow not be available for this purpose. That it is indifferent for the system who issues the warrants, M. Mahaim also clearly recognised. (Annals, 1933, no. 2, p. 214.)
    The retail trades would be the most appropriate. Big stores, such as those of Wertheim, Tietz, Lafayette. Woolworth, etc.,lI .
110  ENDING THE UNEMPLOYMENT AND TRADE CRISIS
could, apart from legal impediments, undoubtedly make the following stipulation to their suppliers: "Payment will be in goods warrants which our cash departments will accept in lieu of ready money".  Even the remuneration of the employees might be in goods warrants. If a store took then the precaution to utilise at once every banknote received for the purchase of freely circulating goods warrants, so that a constant additional demand is created for them, the goods warrants would certainly always stand at par in the locality where they were issued and the store would thus contribute to increasing the stock of circulating means of payment and thereby the number of persons in employment.
        It may be estimated that the general monetary circulation could easily absorb the goods warrants of a store at least to the amount of its weekly turnover, probably considerably beyond. What would be feasible for a big store, would be even more so for an association of small shops, because such an association would offer the public the advantage of spatially well-distributed accepting centres. According to Chatters (Annals, 1933, no. 2, p. 324), such an experiment was actually tried in Evanston, Ill. Particulars on the subject would be most desirable. Goods warrants issued by sales establishments would be no novelty for Germany and Austria. During the inflation period many businesses issued goods warrants having a gold basis, which found ready acceptance.
           In the case both of small shops and of big stores the problem of supervising the issue of goods warrants would naturally arise. Some centre or bank could easily undertake this function, placing its visa on the warrants, and reporting frequently, at least once weekly, on its activities. These visaed warrants would assure the public that they may be readily exchanged for goods in demand or for services, Or. as Rittershausen has well expressed it. that they have an adequate ahop foundation (Ladenfundation). In practice, a simple form of supervision is available, in that the bank might loan the goods warrants to the stores and shops and arrange with them that they should not issue their own warrants i. e., warrants ordered by them from printing offices. The goods warrants cashed by the shops would be daily, or at most weekly, remitted to the bank for cancellation. Fresh goods warrants would be obtainable from the bank daily or weekly. Formally, this manner of control would be equivalent to a credit transaction between the bank and the retail firms and that to the amount involved in the loaned goods warrants. The bank, too, would take proceedings against borrowers who had not retumed the warrants within the period specified. This might be most suitably effected juridically, by suing the borrower for the pay-
-THE PRACTICAL REALISATION OF THE MILHAUD PROPOSALS 111
ment of an amount equal to the illegally retained warranta, but permitting altematively the return of these warrants.
        This juridical form is not so new or peculiar, as might seem at first The old Scotch banks of issue, of which a luminous account will be found in Adam Smith's Wealth of Nations, wero on the whole organised on this principle, only that the envious English legislators compelled the banks to redeem their notes (the goods warrants of past days) at any time in metallic currency. (On this subject, see the aforementioned work by Meulen, which throws a new light on these relationships.) A great many of the experiences then made in Scotland and subsequently in the United States might be taken into account to-day in connection with the issue of goods warrants by banks on behalf of retail firms, although the old Scotch and, later, the American banks of issue counted among their customers not only traders but farmers.
     Retail dealers would also be specially adapted for making a beginning with the issue of goods warrants, because their stocka constitute the real working capital of every country, be it in Asia or in Europe. Each banknote, even if issued by a central bank having a very large gold reserve, would be at once at a discount if the stores and the shops refused to accept them. Indeed, in present circumstances, banknotes really represent warrants on the stocks accumulated in sales establishments. Every system of goods warrants must somehow allow for this, and every centre issuing goods warrants will needs have to come to some agree ment with stores and shops.
     To-day, unfortunately, sales establishments would not count in the matter of large-scale issues of goods warrants, at least not in Europe. The reason lies mainly in the extreme dependence of retail firms on the existing banks and thus indirectly on the central banks of issue which naturally will not allow any issue of goods warrants, if they can help it. There are also psychological impediments which cannot be considered here. The inclusion of the majority of stores and shops in the circulation of goods warrants will only be accomplished by making it clear to them that they have the option either of accepting goods warrants or of losing their customers and that the system of goods warrants would render them independent of the banks. It is to be hoped, however, that some of the retail firms not dependent on banks particularly smaller ones, may act as pioneers in this connection.
    Next to retail firms, thelr suppliers—that is, manufacturers, artisans, and other employers even if they do not work directly for the retail trades—would be specially suited to promote the goods warrants system. Otherwise expressed, an employers' bank would be almost as well adapted for issuing goods warrants (and therefore for acting as a works supply bank) as a bank of retail firma.
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 (Jevons, in chapter XXII. of his Money, speaks of a very interesting proposal on this subject made by James Hertz. Unfortunately, Hertz's "Cheque Bank" indulged in quite other operations than those contemplated by its founder and broke up as a result of a few cheque forgeries.)
    To appreciate the influence of a bank of issue, it has to be remembered that almost all private banks of issue in Germany and in most other European countries, with the exception of Great Britain, were first and foremost employera' banks. The old bank reports make this plain. The experiences of those banks might still serve as guides to-day. But the old private banks of issue, such as those of Scotland, were serioualy impeded in their operations by the legialation of that period, which ia still in force (in Prussia, by the normative provisions of September 1948) demanding that any one presenting a note should at any time be entitled to receive the equivalent in metallic currency, a stipulation the senselessness and danger of which has been exposed by no one more convincingly than by Henry Meulen. In this connection it may be remarked that Adam Smith only insisted on the convertibility of the notes because he regarded it as a substitute for the supervision of banks of issue. To supervise a bank of issue effectively, he considered impossible. In this he went too far. (See the last paragraph of the chapter  "Of Money", in his Wealth of Nations.)
   Unfortunately, the great mass of employers, and more particularly our captains of industry, are no more likely to act as pioneers than the owners of big stores. They, too, are direcdy or indirectly dependent on the central banks and, beyond this, they are hampered by views which their predecessors of a century ago did not hold. This becomes obvious when we remember that the private banks of issue of those days` were established by the employing class.
    However, there might be one way of inducing large concerns to issue goods warrants. In the Annals (1933, no. 2), Prof. Graham has pointed to it and the American unemployed have had it under consideration. The shutdown factories might be leased by the dismissed workers and be run on their account by individuals conversant with the system of goods warrants. The legal form of a cooperative society would be also probably the moat appropriate here. The factories revived in this manner could then even establish their own banks for the issue of goods warrants.
      The social effect of such action would be decidedly far-reaching and would not be limited to finding employment for a certain number of workless. It would be, on the contrary, very important that the wage system, with its hard and fast payment to workers in legal tender and at short intervals should be superseded by an 113 elastic partnership system. Here the experiences of the Italian farm-labourers might be profitably utilised, who, some thirty or forty years ago, leased the large estates from the bankrupt estate owners and thereby immensely improved their position. (Preyer, Die Arbeits- und Pachtgenossenschaften Italiens (The Italian Labour and Lease Cooperatives), Jena, 1913.) It is significant that these cooperators first assigned a political meaning to the word "fascio".
      In addition to acquiring leases, factories might be purchased with goods warranb and this on the instalment system. Monthly instalments over a period of about 15 years might be practicable. (The purchasing price being (say) I million dollars, the monthly interest rate on the remaining debt 1/2%, and the amortization period 15 years, there would have to be monthly paymenb of 8.439 dollars.) The present moment is particularly suepicioua for such purchases, since purchase prices, owing to the depression, are phenomenally low. To judge by a remark made by Schaeffle (Quintessenz del Sozialismus, 22nd edition, p. 18), such proposals had been already put forward some decades ago.
     What sort of an issuing centre would an "Immediate Action Programme" call for ? If we base ourselves on the e~xperience of the American emergency associations of the unemployed as reported in the Annals (1933, no. 2), and also remember that it accords with the ordcrly course of social progress when not those prejudicially affected by a social evil, but quite other persons, ponder over remedies and indicate the road to be taken, we shall necessarily think of issuing centres which are not very unlike those of the American emergency associations.
      In America real estate agents, doctors, upper class women, officials, scholars, and many others, have interested themselves in the unemployed. They themselves were unaffected by the wave of unemployment. It was they who created the associations. And almost everywhere it ia they who do most of the thinking in the emergency associations. They represent the new nobility which has been in process of formation during the last few decades and which has to assert itself against the ruling oligarchies as well as against those whom these rule, against Governments and parties.
     However, to organise the exchange of goods and services among the unemployed in such a manner that one portion of the unemployed works immediately for the other, is most difficult and calls for business talent of a special order. It would be a far and more convenient if the organisers started with themselves and thus amassed relevant experiences. To express this differ, ently, the goods warrants system should be, to begin with, developed among those who are not directly dependent thereon.
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Trivial mistakes, inevitable at the commencement, could easily be rectified by those who are not without economic reserves. On the other hand, where such reserves do not exist, the most trifling error may ruin an undertaking.
      A few house-owners of a block of houses might possibly initiate the movement. They might say: " We have work to give out, repairs and the like. Payment will be made in goods warrants of the association we have formed. We shall accept these warrants for rent payments in lieu of ready money". It is surely probable that some artisans will undertake the work on the stated conditions. Next, we may imagine a doctor in the same block of houses. He places orders to be paid in goods warrants and accepts these warrants in payment for his services. In a fairly large block of houses a doctor is generally kept busy if the inhabitants are able to pay. A solicitor, a bookseller, a provision dealer, follow. The provision dealer may play here a particularly important and profitable part as a "re-insurer". He may say to the landlord, the doctor, and all the others: "I am willing to accept your warrants in lieu of payment in ready money, if you undertake to make correspondingly large purchases at my establishment. If, for example, the  landlord buys off me 50 dollars worth of goods monthly, I will accept warrants for at least that amount, and 80 with all the others".
     When a tenant intends to pay his rent amounting to 10 dollars, he will certainly first go to the provision dealer and ask him: "Have you 10 dollars worth of goods warrants to dispose of ? I am prepared to buy them off you at a discount of say I%." Possibly the dealer will exhibit a notice in his shop: "The goods warrants of the X. association may be obtained here at 99 %." Although the dealer had accepted them in payment at 100 %, he would willingly dispose of them at 99 %. The increased turnover would easily indemnify him for that I %.
     In the above cases, the discount does not arise in the ordinary course of making payments , but only immediately before the reflux. At that point it is innocuous. Indeed, its indirect effect would be to raise the sum of employment in the block. It offers all the advantages of Silvio Gesell's "depreciating money" without carrying with it any of its catastrophic drawbacks. I passed through a Gesellian stage and was delighted by the Bernouilli rhymes among the rich pallet of Gessellian doctrine found in a box donated by the secretary of a, due to die off, dwindling faction.
   At its inception, the association would make some mistakes: but after a few weeks it would function smoothly. As soon as this had happened, it would become known and its goods warrants would not only be accepted in that block, but also in the vicinity, thus enabling the provision dealer not only to negotiate them but to utilise them for making direct payment. The association would correspondingly extend its local range and soon it would start paying the workers in the immediate neigh-,
THE PRACTICAL REALISATION OF THE MILHAUD PROPOSALS 115
bourhood with goods warrants. Modelling themselvea on this association, other associations would be establiahed and the system would thus spread.
    Since by means of the new system landlords, doctors, and others would be ablc to dispose forthwith of a portion of thcir future incomes, they would, in accordance with an uncontested commercial principle, be so placed as if their incomes had slightly grown. Moreover, when the first announcement appeara, inviting applications for jobs to be paid in goods warrants, most probably at first not those would come forward who were well supplied with orders for work and could count on receiving payment in legal tender, but others who had little or no work in hand. An increase in purchasing capacity, on the one hand, would coincide with the employment of fallow-lying labour power on the other. Such would be the initial effect, although, to begin with, actual success would be of far smaller importance than the setting up of an efficient organisation.
    It might be even easier to open an issuing centre in the country than in town. If farmers were placed in a position to expend in the form of goods warrants about half of what they have ready any given day in the way of land produce or services, their purchasing power to-day, when the rural parts are destitute of means of payment, would increase by the full amount of the goods warrants issued. It is true that within a few days the warrants would flow back to them, to be converted into milk, butter, vegetables, and the like; but the real object would have been attained—the farmer would obtain industrial articlea (principakly from producers in the locality) and would pay for them with his own. It is also worth mentioning that the sale of agricultural products thus effected would be quite regular and not disturbed by distant or foreign competition. An interference with these regular sales would be only conceivable where fcreign farmers, before they have disposed of their produce, order the industrial products of the locality where they desire to market. But such endeavours would be frustrated by the prohibitive duties at present imposed by all Governments.
     All countries have experience of credit cooperatives. This legal form would be best suited for the new associations. The goods warrants would be passed on by the cooperative bodies in the form of credits to the landlord, the doctor, the farmer, and others, because this ensures the most effective form of control. Care must, of course, be taken that no one shall issue more goods warrants than he can redeem with his own goods or services. Particulars respecting this will be found in a later portion of this paper.
      The form of a credit cooperative has the decided advantage.......
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