Spencer Heath Archive

Item 1673

Carbon of a letter from Heath to V. Orval Watts, 11 Altadena Drive, Altadena, California

September 1, 1959

Dear Dr. Watts:

     I have just finished reading and some re-reading of your Chapters I and II on money and banking in the American Colonial period. The historical details you set out are very fascinating and seem to point up two important facts: first, that there did not exist any clear understanding of the nature of credit instruments to facilitate exchanges of properties and services (including the time-limited use of properties) and to serve as media between the two parts — the giving of something and the receiving of something, equal values (equiva­lents) — to mediate between the two parts that are essential to the actual completion of any exchange. The situation was thoroughly confused by the almost universal superstition that the seizure power (sovereignty) could not only act honestly towards its victims but by a still further magic could enforce or at least promote honesty and equity among them. It was further confused by the circumstance that a general exchange system involving an indefinite number of persons and extending through periods of time and multiple transactions was but little developed and, then as now, was far less understood.

     All honest and equitable exchange must be reciprocal, either immediately as often in barter or ultimately in the course of time. He who buys in the course of trade must sell as much as or, by reason of his own services, more than he has bought.

     The system of the market is an open body of traders whose bids and offers, so far as they coincide, result in sales. The bids and offers determine in numerical terms the relative exchangeableness of whatever is being sold. They do this by assigning various numbers to things bought or sold in the same proportions as they are held to be exchangeable, any one for any or all others. When, as in most cases, the second half of the exchange is deferred, it is only necessary that the same numbers govern at the completion as at the inception of the exchange. The thing received at completion is the real or actual value (equi-valent) of that which was given. The token numbers are only memoranda of relative exchangeableness. They serve only to insure that the thing finally received shall be truly equivalent to the thing that was given. The token given by a purchaser who receives out of the market is his warrant that he will later sell back into the market the then equivalent of what he has received. What makes a merchant’s tokens good is his need and desire to sell as much or more than he buys. He becomes the owner, and thus exercises proprietary (contractual) administration over what he buys and sells, and any honest profit he makes when he sells is his earned recompense for administrative services — the measure of his enrichment of the market thereby. If he administers very poorly he will sell less (in value) back into the market than he has taken out, thus impoverishing the market and being penalized accordingly therefor.

     Tokens issued only for purchases and by persons or corporations who are known as being able and eager to sell more than they buy are highly acceptable and sought after by all traders. Any holder of them having received them in trade can purchase with them where he will and they will pass current in trade until they are finally redeemed by purchases at the source of their issue. Meantime all that any holder desired is that the tokens shall be good for the purchase not of any one thing or commodity but of whatever the whole range of the market system affords. The virtue of the tokens lies in their universality. A merchant who gives tokens for his purchases automatically redeems them, soon or late, in whatever he has for sale. Meantime, in the hands of others they will purchase whatever the entire sys­tem of the market affords — unless he is known to have become bankrupt through being unable to sell as much (in value) as he has bought. Such person can no longer trade and having ceased to function as a trader he is no longer a member of the trading community. But the tokens that pass current are almost always those issued by widely known and notoriously solvent persons or corporations. And where very large values are involved or the solvency of a purchaser is not well known insurance of accounts is practicable and usually available. Moreover, where government forbids the circulation from hand to hand of any issues but its always depreciating legal tender it is the custom among merchants for each successive holder of a trader’s token to make himself by endorsement as fully liable to redeem it as was the original issuer.

     Apart from the preceding paragraph, all that has been said above has been with a view to non-interference by any non-trader. Among traders a buyer who is known for his solvency and responsibility takes from the market a quantity of goods and services as measured by the number of tokens he issues from them. He thus adds to his assets as inventory out of which ultimately by resale he redeems his tokens. He thus returns to the market the equivalent of what he received out of the market — plus or minus the value of his good or bad administration of it.. The actualities are (1) whatever he issued the tokens for when he was a buyer and (2) whatever he takes his tokens back for when he sells. The tokens are only the bookkeeping, the interim record whereby the value that one takes out of the market is balanced against his prior contribution to it.

     Those who as traders buy and re-sell have no more concern for the derivation of the value units they employ than are housewives concerned with the origins or specific equivalences of the cup-fulls whereby they pay and re-pay the sugar or butter that they borrow from one another — so the measuring unit be not changed while the borrowing and re-paying is going on. Whether in the market or elsewhere, the only requisite is that the measuring units shall be such as are known and employed by all and not falsified by imposition of any force or fraud.

     The market is the arena or field in which all the action is balanced and reciprocal — all unbalances liquidated. And since the exchanges result increasingly in human satisfactions their volume and variety always tend to increase. The market is completely autonomous, self-adjusting, maintaining its own equilibrium and continuous growth. Only by extraneous pressure or impact can it fail to function and be distorted or disturbed.

     Governments are political, which means coercive. They are not traders. They make covenants — promises not to do harm. Traders make contracts — mutual promises to do mutual good. Covenants, being negative, cannot be performed and are seldom kept. Contracts are positive and almost always are performed. Since governments do not sell goods and services into the market the market does not give them freely any tokens wherewith to withdraw supplies from the market. They must therefore employ either force or fraud. Hence they resort to direct taxation by force and to indirect taxation by variously hidden devices. It is an almost universal device of governments to manufacture their own credits. Instead of making contributions to the market to create credits there, as all traders must, they write their own tickets, which are in effect counterfeit, and, in addition to that caused by direct taxation, the governments thus further deplete, unbalance and pervert. And by way of further refinement the governments establish fictitious bank credits and issue checks against them the same as though they were real deposits of credit tokens derived from making sales.

     Thus governments, through the raw force of direct taxation, the fraud of issuing credit tokens that have not been earned by any sales and the device of drawing against non-existent bank deposits demoralizes and ultimately destroys the entire market system of voluntary exchange. The “money question” therefore must always be with us until government is transformed or evolves into a contributor of public and common goods and services into the general market system and finds abundant revenues rightfully, as all other business does, in the credit tokens that the market voluntarily awards.

     How such transformation of government is now in slow process underground, as it were, and how the motive of profit will enormously accelerate it, once the powers and potentialities of the free market are properly understood — all this is set out explicitly and with some clarity in the central section of my Citadel, Market and Altar to which I hope I may with becoming modesty refer.

     I hope you will find these unrevised pages of mine as interesting and, from another angle, as important as I have found yours which, with my cordial good wishes, I return herewith.

Sincerely,