![himself.[624] But why attack property, then? Property is attacked
because it gives to the proprietor a right to an income for which he
has not worked. It is not property as such, but the right of escheat,
that forms the butt of Proudhon’s attack; and following the lead of
Owen and other English socialists, as well as the Saint-Simonians, he
directs his charges against that right of escheat which, according to
circumstances and the character of the revenue, is variously known
as rent, discount, money interest, agricultural privilege, sinecure,
etc.[625]
Like every socialist, Proudhon considered that labour alone was
productive.[626] Land and capital without labour were useless. Hence
the demand of the proprietor for a share of the produce as a return
for the service which his capital has yielded is radically false. It is
based upon the supposition that capital by itself is productive,
whereas the capitalist in taking payment for it literally receives
something for nothing.[627]
All this is simply theft. His own definition of property is, “The right
to enjoy the fruits of industry, or of the labour of others, or to
dispose of those fruits to others by will.”[628]
The theme is not new, and the line of thought will be resumed—
by Rodbertus among others. The originality of the work consists not
so much in the idea as in the brilliance of the exposition, the
vehemence of the style, and the verve of the polemics hurled
against the old arguments which based property upon labour, upon
natural right, or upon occupation. A German writer[629] has said
that, published in Germany or in England, the book would have
passed unnoticed, because in both those countries the defence of
property had been much more scientific than in France.[630]
The whole force of the work lies, not in itself, but in the weakness
of the opposing arguments, and this fact is quite sufficient to give it
a certain permanent value. The treatise sent an echo through the
whole world, and its author may be said to have done for French](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-21-320.jpg)
![socialism what Lassalle did for German. The ideas set forth are not
new, but they are expressed in phrases of wonderful penetration.
There is also a wealth of ingenious remarks, which, if not,
perhaps, true, deserve retention because of their originality. How
such spoliation on the part of capitalists and proprietors can
continue without a revolt of the working men is a question which has
been asked by every writer on theoretical socialism, without its full
import ever being realised. Is there not something very improbable
in this? The problem is a curious one, indeed, and requires much
ingenuity for its solution. Marx disposed of it by his theory of surplus
value. Rodbertus in a simpler fashion showed the opposition
between economic distribution as realised in exchange and the social
distribution which lurks behind it. Proudhon has his own solution.
There is, says he, between master and men continual miscalculation.
[631] The master pays each workman in proportion to the value of
his own individual labour, but reserves for himself the product which
results from the collective force of all—a product which is altogether
superior to that yielded by the sum of their individual efforts. This
excessive product represents profits. “It is said that the capitalist
pays his workmen by the day. But to be more exact we ought to say
that he pays a per diem wage multiplied by the number of workmen
employed each day—which is not the same thing. For that immense
force which results from union and from the harmonious
combination of simultaneous efforts he has paid nothing. Two
hundred grenadiers can deck the base of the Louqsor statue in a few
hours, a task which would be quite impossible for one man though
he worked two hundred days. According to the capitalist reckoning
the wages paid in both cases would be the same.”[632] “And so the
worker is led to believe that he is paid for his work, whereas in
reality he is only partly paid for it. Even after receiving his wage he
still retains a right of property in the things which he has
produced.”[633] His explanation, though very subtle, is none the less
erroneous.](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-22-320.jpg)
![The appearance of the pamphlet made Proudhon famous, not
merely in the eyes of the public, who knew little of him beyond his
famous formula, but also in the opinion of the economists. Blanqui
and Garnier, among others, interested themselves in his work. “It is
impossible to have a higher opinion of anyone than I have of you,”
writes the former.[634] Blanqui by his favourable report to the
Academy of Moral Sciences was instrumental in thwarting the legal
proceedings which the Minister of the Interior was anxious to take
against Proudhon. And it was upon Garnier’s advice that the
publisher Guillaumin, although a strong adherent of orthodox
economics, consented to issue a new work by Proudhon in 1846.
The book was entitled Les Contradictions Ă©conomiques, and
Guillaumin was not a little startled by it.[635]
The sympathy of the economists is easily explained. They realised
from the first that Proudhon was a vigorous opponent of their views,
but it was not long before they discovered that he was an equally
resolute critic of socialism. Let us briefly examine his attitude with
regard to the latter.
No one has ever referred to socialists in harsher terms. “The Saint-
Simonians have vanished like a masquerade.”[636] “Fourier’s system
is the greatest mystification of our time.”[637] To the communists he
writes as follows: “Hence, communists! Your presence is a stench in
my nostrils and the sight of you disgusts me.” Elsewhere he says:
“Socialism is a mere nothing. It never has been and never will be
anything.”[638] The violence of his attitude towards his predecessors
springs from a fear of being confused with them. The procedure is
intended to put the reader on his guard against all equivocation, and
to afford him valuable preparation for appreciating Proudhon’s
solutions by showing how utterly impossible the other solutions are.
His attack upon the socialists roughly amounts to a charge of
failure to realise that the destruction of the present régime would
involve taking a course in the opposite direction. The difficult
problem which he set out to solve was not merely the suppression of](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-23-320.jpg)
![existing economic forces, but also their equilibration.[639] He never
contemplated “the extinction of such economic forces as division of
labour, collective effort, competition, credit, property, or even
economic liberty.”[640] His chief concern was to preserve them, but
at the same time to suppress the conflict that exists between them.
The socialists aim merely at destruction. For competition they would
substitute an associative organisation of labour; instead of private
property they would set up community of goods[641] or collectivism;
instead of the free play of personal interest they would, according to
Fourier, substitute love, or love and devotion, as the Saint-Simonians
put it, or the fraternity of Cabet. But none of these satisfies
Proudhon.
He dismisses association and organisation as being detrimental to
the liberty of the worker.[642] Labour’s power is just the result of
“collective force and division of labour.” Liberty is the economic force
par excellence. “Economic perfection lies in the absolute
independence of the workers, just as political perfection consists in
the absolute independence of the citizens.”[643] “Liberty,” he remarks
in an address delivered to the electors of the department of the
Seine in 1848, “is the sum total of my system—liberty of conscience,
freedom of the press, freedom of labour, of commerce, and of
teaching, the free disposal of the products of labour and industry—
liberty, infinite, absolute, everywhere and for ever.” He adds that his
is “the system of ’89,” and that he is preaching the doctrines of
Quesnay, of Turgot, and of Say. Indeed, it would not be difficult to
imagine ourselves reading the Classical rhapsodies concerning the
advantages of Free Trade over again.[644]
Communism as a juridical system is rejected no less energetically.
There is no suggestion of suppressing private property, which is the
necessary stimulant of labour, the basis of family life, and
indispensable to all true progress. His chief concern is to make it
harmless and to place it at the disposal of everyone.[645]
“Communism is merely an inverted form of private property.](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-24-320.jpg)
![Communism gives rise to inequalities, but of a different character
from those of property. Property is the exploitation of the weak by
the strong, communism of the strong by the weak.”[646] It is still
robbery. “Communism,” he exclaims, “is the religion of misery.”[647]
“Between the institution of private property and communism there is
a world of difference.”[648]
Racial devotion or fraternity as possible motives for action are not
recognised. They imply the sacrifice and the subordination of one
man to another. All men have equal rights, and the freer exercise of
those rights is a matter of justice, not of fraternity. Proudhon thinks
the axiom so very evident that he takes no trouble to explain it, but
merely gives us a definition of justice. In his first MĂ©moire it is
defined as “a kind of respect spontaneously felt and reciprocally
guaranteed to human dignity in any person and under all
circumstances, even though the discharge of that feeling exposes us
to some risk.”[649]
His justice is tantamount to equality. If we apply the definition to
the economic links which bind men together, we find that the
principle of mutual respect is transformed into the principle of
reciprocal service.[650] Men must be made to realise this need for
reciprocal service. It is the only way in which equality can be
respected. “Do unto others as you would that others do unto you”—
this principle of justice is the ethical counterpart of the economic
precept of mutual service.[651] Reciprocal service must be the new
principle which must guide us in rearranging the economic links of
society.
And so a criticism of socialism helps Proudhon to define the
positive basis of his own system. The terms of the social problem as
it presents itself to him can now be clearly followed. On the one
hand there is the suppression of the unearned income derived from
property—a revenue which is in direct opposition to the principle of
reciprocal service. On the other hand, property itself must be
preserved, liberty of work and right of exchange must be secured. In](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-25-320.jpg)
![other words, the fundamental attribute of property must be removed
without damaging the institution of property itself or endangering
the principle of liberty.[652]
It is the old problem of how to square the circle. The extinction of
unearned incomes must involve the communal ownership of the
instruments of production, although Proudhon did not seem to think
so. Hitherto the reform of property had been attempted by attacking
the production and distribution of wealth. No attention was ever paid
to exchange. But Proudhon thought that in the act of exchange
inequality creeps in and a new method of exchange is needed.
Towards the end of the Contradictions Ă©conomiques he gives us an
obscure hint of the kind of reform to be aimed at. After declaring
that nothing now remains to be done except “to sum up all
contradictions in one general equation,” he proceeds to ask what
particular form that equation is to take. We have already, he
remarks, been permitted a glimpse of it. “It must be a law of
exchange based upon a theory of mutual help. This theory of
mutualism—that is, of natural exchange—is from the collective point
of view a synthesis of two ideas—that of property and that of
communism.”[653] No further definition is attempted. In a letter
written after the publication of the Contradictions he still refers to
himself as a simple seeker, and states that he has a new book in
preparation, in which these propositions are to be further developed.
About the same time he had laid out his plans for active
propaganda in the press. But the Revolution of 1848 threw him into
the mêlée of party politics and hastened the publication of his
theories.
In order to give a better idea of the place occupied by Proudhon’s
ideas, and to show how they were connected with the socialist
experiments of the time, we must say a few words about the
Revolution itself.
II: THE REVOLUTION OF 1848 AND THE DISCREDIT OF
SOCIALISM](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-26-320.jpg)
![how this was brought about, and rapidly review the more important
experiments that were made.
First of all there is “the right to work.” Fourier’s formula, which
was developed by Considérant and adopted by Louis Blanc and other
democrats, became extremely popular during the reign of Louis
Phillipe. Proudhon speaks of it as the only true formula of the
February Revolution. “Give me the right to work,” he declares, “and I
will give you the right of property.”[654]
Workmen thought that the first duty of the Provisional
Government was to give effect to this formula. On February 25 a
small group of Parisian workmen came to the HĂ´tel de Ville to urge
their claims, and the Government hastened to recognise them. The
decree drawn up by Louis Blanc was as follows: “The Provisional
Government of the French Republic undertakes to guarantee the
existence of every worker by means of his labour. It further
undertakes to give work to all its citizens.” The following day another
decree announced the immediate establishment of national
workshops with a view to putting the new principle into practice. All
that was necessary to gain admission was to have one’s name
inscribed in one of the Parisian municipal offices.
Louis Blanc in his book of 1841 had demanded the establishment
of “social” workshops. Public opinion, misled by the similarity of
names, and encouraged to persist in its error by the enemies of
socialism, thought that the national workshops were the creation of
Louis Blanc. Nothing could be more incorrect. The “social”
workshops, as we know, were to engage in co-operative production,
whereas the national workshops were to provide employment for
idlers. Similar institutions had been established during every crisis
between 1790 and 1830, generally under the name of “charity
works.” Moreover, it was Marie, the Minister of Public Works, and not
Louis Blanc, who organised them. Far from providing work as the
socialists had hoped, the Government soon realised that the
workshops afforded an admirable opportunity for binding the
workmen together into brigades which might act as a check upon](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-28-320.jpg)
![the socialistic tendencies of the Luxembourg Commission, then
presided over by Louis Blanc. The workshops were placed under the
management of Émile Thomas, the engineer, who was an avowed
opponent of the scheme. In his Histoire des Ateliers nationaux,
written in 1849, he tells us how they were controlled by him in
accordance with the wishes of the anti-socialist majority of the
Provisional Government.[655]
But they were mistaken in their calculations. Those who thought
that the national workshops could be used for their own political
ends were soon undeceived. The Revolution greatly increased the
number of idlers, already fairly considerable as the result of the
economic crisis of 1847. Moreover, the opening of the workshops
brought the workmen from the provinces into Paris. Instead of the
estimated 10,000, 21,000 had been enrolled by the end of March,
and by the end of April there were 99,400. They were paid two
francs a day while at work, and a franc when there was no work for
them. In a very short time it became impossible to find employment
for so many. The majority of them, whatever their trade, were
employed upon useless earthworks, and even these soon proved
inadequate. Discontent soon became rife among this army of
unfortunate workers, humiliated by the nature of the ridiculous
labour upon which they were employed, and scarcely satisfied with
the moderate salary which they received. The wages paid, however,
were more than enough for the kind of work that was being done.
The workshops became centres of political agitation, and the
Government, thoroughly alarmed, and acting under pressure from
the National Assembly, was constrained to abandon them.
Suddenly, on June 21, a summons was executed upon all men
between seventeen and twenty-five enrolled in the shops, ordering
them to join the army or to leave for the country, where more
digging awaited them. The exasperated workmen rose in revolt.
Rioting broke out on June 23, but it was crushed in three days.
Hundreds of the workers died in the struggle, and the country was
terrorised into reaction.](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-29-320.jpg)
![That simple logic which is always so characteristic of political
parties held the principle of “the right to work” responsible for this
disastrous experience, and it was definitely condemned. This is quite
clear from the constitutional debates in the National Assembly. The
constitutional plan laid down by Armand Marrast on June 19, a few
days before the riots, recognised “the right to work.” “The
Constitution,” says Article 2, “guarantees to every citizen liberty,
equality, security, instruction, work, property, and public assistance.”
But in the new plan of August 29—after the experience of June—the
article disappeared. The right to relief only was recognised. In the
discussion on the article an amendment re-establishing “the right to
work” was proposed by Mathieu de la Drôme. A memorable debate
followed, in which Thiers, Lamartine, and Tocqueville opposed the
amendment, while the Radical Republicans Ledru-Rollin, Crémieux,
and Mathieu de la DrĂ´me defended it.[656] The socialists had
become extinct. Louis Blanc was in exile, Considérant ill, while
Proudhon was afraid of startling his opponents and of compromising
his friends. Besides, the Assembly had already made up its mind.
The amendment was defeated, and Article 8 of the preamble to the
Constitution of 1848 runs as follows: “The Republic by means of
friendly assistance should provide for its necessitous citizens, either
by giving them work as far as it can, or by directly assisting those
who are unable to work and have no one to help them.”
During the reign of the July Monarchy “the organisation of labour”
was another phrase which divided the honours with “the right to
work.” With the spread of the Revolution came a similar menacing
demand for its realisation. By a strange coincidence the author of
this formula was also a member of the Provisional Government. And
so when on February 28, three days after the recognition of “the
right to work,” the workers came in a body and claimed the creation
of a Minister of Progress, the organisation of labour, and the
abolition of all exploitation, Louis Blanc immediately seized the
opportunity to urge his unwilling colleagues to accede to their
demands. He himself had pressed the Government to take the
initiative in social reform, and now that the Revolution had made](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-30-320.jpg)
![him a member of the Government how could he escape his
responsibility? After some difficulty his colleagues succeeded in
persuading him to accept the alternative of a Government
commission on labour, of which he was to be president. The
commission was entrusted with the task of drawing up the proposed
reforms, which were afterwards to be submitted to the National
Assembly. To mark the contrast between the old and the new régime
the commission carried on its deliberations in the Palais du
Luxembourg, where the Chambre des Paris formerly sat.
The Luxembourg commission was composed of representatives
elected by workmen and masters, three for each industry. The
representatives met in a general assembly to discuss the reports
prepared by a permanent committee of ten workers and an equal
number of masters, to which Louis Blanc had added a few Liberal
economists and socialists, such as Le Play, Dupont-White, Wolowski,
Considérant, Pecqueur, and Vidal. Proudhon was also invited, but
refused to join. As a matter of fact, only the workers took part in the
sittings.
The commission, although it possessed no executive power, might
have been of some service. But Louis Blanc, as he himself
confessed, regarded it as “a golden opportunity where socialism had
at its disposal a tribunal from which it could address the whole of
Europe.”[657] He still kept up his rôle of orator and writer, and
devoted most of the sittings to an eloquent appeal for the theories
already outlined in his Organisation of Labour.[658] Vidal and
Pecqueur undertook the task of elaborating the more definite
proposals. In a lengthy report which appeared in the Moniteur[659]
they outlined a plan of State Socialism, with workshops and
agricultural colonies, with State depots and bazaars as places of
sale. Money in the form of warrants was to be borrowed on the
security of goods, and a State system of insurance—excepting life
policies—was to be established. Finally, the Bank of France was to be
transformed into a State bank. This was to extend the operation of
credit, and to reduce the rate of discount simply to insurance against](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-31-320.jpg)
![risk. Vidal and not Pecqueur is obviously the author of the report, for
it contains some of the projects that had already appeared in his
book De la RĂ©partition des Richesses.
None of the projects was even discussed by the National
Assembly. The only positive piece of work accomplished by Louis
Blanc’s commission was done under pressure from the workmen.
This was the famous decree of March 2, abolishing piece-work and
reducing the working day to ten hours in Paris and eleven hours in
the provinces. This decree, though it was never put into operation,
marks the first rudiments of French labour legislation. Louis Blanc
was forced to grant it because the working-class element on the
commission refused to take part in its proceedings until they were
satisfied on this point. The commission must also be credited with
several successful attempts at conciliation.
Not only did the commission fail to do anything permanent, but its
degeneracy into a mere political club thoroughly alarmed the public.
It became involved in elections, and even intervened in street riots.
It finally took a part in the demonstration of May 15, which, under
pretext of demanding intervention in favour of Poland, resulted in an
invasion of the National Assembly by the mob. Louis Blanc had
already retired. Since the reunion of the National Assembly the
Government had been replaced by an executive commission, and
Blanc, no longer a supporter of the Government, sent in his
resignation on May 13. After that the commission was at an end,
and, like the national workshops, it all resulted in nothing save a
general discredit of socialist opinion.
There still remained the “working men’s associations.” Every
socialist writer of the early nineteenth century was agreed on this
principle of association. Every reformer, with the exception of
Proudhon,[660] who always pursued a path of his own, regarded it as
the one method of emancipation. It was quite natural that it should
be put to the test.
In its declaration of February 26 the Provisional Government
stated that besides securing the right to work, the workers must](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-32-320.jpg)
![combine together before they could secure the full benefit of their
labour. The moment Louis Blanc attained to power he sought to
guide the energies of the commission in this direction. The
“Association” was to be of the nature of a co-operative productive
society, supported by the State. Under the influence of Buchez, an
old Saint-Simonian, a Republican Catholic and the founder of the
newspaper called L’Atelier, there had been formed in 1834 an
association of jewellers and goldsmiths.[661] But it was a solitary
exception.
Louis Blanc was more fortunate. He successively founded
associations of tailors, of saddlers, of spinners and lace-makers, and
he secured Government orders for tunics, saddles, and epaulettes
for them. Other associations followed, and by July 5 the National
Assembly was sufficiently interested in these experiments to vote the
sum of three millions to their credit. A good portion of this sum
passed into the hands of mixed associations of masters and men
formed with the sole purpose of benefiting by the Government’s
liberality. The workmen’s associations pure and simple, however,
received more than a million, and there was not a sou of it left by
1849.
The first co-operative movement inspired by the ideas of Louis
Blanc was of short duration. The National Assembly took good care
to place the new societies under Ministerial control by appointing a
Conseil d’Encouragement, nominated by the Ministry to fix the
conditions under which loans should be granted. The Conseil
hastened to publish model regulations which left the associations
little scope for internal organisation. So stringent were the rules that
several of them were immediately jeopardised, and every society
which failed to conform to one of the three models outlined in Article
19 of the Commercial Code was obliged to dissolve. This meant
every society which was not nominally a collective society, a joint
stock or a limited liability company. By 1855, according to the
testimony of Reybaud, there remained only nine out of those
subsidised in 1848. Consumers’ co-operative societies, that is, the](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-33-320.jpg)
![societies which aimed at securing cheap commodities, established at
Paris, Lille, Nantes, and Grenoble, were also dissolved.
And so all these experiments—the only ones that had not already
brought reformers into discredit—were destined to fail in their turn.
Their extinction was partly due to political causes, partly to their
founders, who had not yet been trained in the difficult task of
building up such associations.
The social experiments of 1848 one after another foundered,
bringing a distrust of theories in their train. There still remained one
other experiment connected with Proudhon’s name—that of free
credit. But it also was destined to fail like the rest.
III: THE EXCHANGE BANK THEORY
The Revolution of 1848 did not take Proudhon quite unawares,
although he considered the outbreak was rather sudden. He was
soon convinced that the real problem to be determined was
economic rather than political, but he also realised that the
education of the masses was too backward to permit of a peaceful
solution. Proudhon, in this matter at one with his French confrères,
had hoped for such a solution.[662] He thought the February
Revolution was a child prematurely born.[663] In a striking article in
the columns of Le Peuple he gave wistful expression to his fears as
he foresaw the Revolution impending. Its solution had been
delivered to none and its interpretation baffled the ingenuity of all.
“I have wept over the poor workman, whose daily bread is already
sufficiently uncertain and who has now suffered misery for many
years. I have undertaken his defence, but I find that I am powerless
to succour him. I have mourned over the bourgeois, whose ruin I
have witnessed and who has been driven to bankruptcy and goaded
to opposition of the proletariat. My personal inclination is to
sympathise with the bourgeois, but a natural antagonism to his ideas
and the play of circumstance have made me his opponent. I have
gone in mourning and paid penance for the spirit of the old Republic](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-34-320.jpg)
![long before there were any signs of its offspring. This Revolution
which was to restore the public order merely marks the beginning of
a new departure in social revolution which no one understands.”[664]
But the Revolution having once begun, Proudhon did not feel
himself justified in being behindhand. He had been a most severe
critic of the existing régime, and he felt that he was bound to
attempt a solution of the practical problems which suddenly came to
the front. He became a journalist and threw himself whole-heartedly
into the struggle. Hitherto he had been content with vague
suggestions as to where the evil lay. But now he was anxious to
make reform practicable and to fill in the details of the scheme; and
so he invented the Exchange Bank.
Proudhon’s exposition of the scheme is contained in a number of
pamphlets, in newspapers, and in his books.[665] The explanations
do not always tally, and he is not always happy in stating exactly
what he thinks. This explains why he has been so often
misunderstood. We shall try to give a résumé of his ideas before
proceeding to criticise them and to compare them with analogous
projects formulated both before and after his time. This will help us
to understand where the originality of the scheme lay.
The fundamental principle on which the whole scheme rests is
somewhat as follows: Of all the forms of capital which allow of a
right of escheat to the product of the worker, whether in the form of
rent, of interest, or of discount, the most important is money, for it is
only in the form of money that these dues are actually paid.[666] If
we could suppress the right of escheat in the case of this universal
form of capital—in other words, if interest were abolished—the right
of escheat in every other case would soon disappear.
Let us suppose that by means of some organisation or other
money required for the purchase of land, machinery, and buildings
for industrial purposes could be procured without interest. Were this
the case the required capital would then be obtained in that way
instead of by payment of interest or rent as is the case to-day. The](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-35-320.jpg)
![suppression of money interest would enable the worker to borrow
capital gratuitously, and would give him immediate control over all
useful capital instead of renting it. All attempts to hold up capital for
the sake of receiving interest without labour would thus be
frustrated. The right of property would be reduced to mere
possession. Exchange would be reciprocal, and the worker would
secure all the produce of his labour without having to share it with
others. In short, economic justice would be secured.
This is all very well, but how can the necessary money be
obtained without paying interest? Everything depends upon that.
Proudhon invites us to consider what money really is. It is a mere
medium of exchange which is designed to facilitate the circulation of
goods. Proudhon, who had hitherto regarded money as capital par
excellence, now treats it as a mere instrument of exchange. “Money
by itself is of no use to me. I merely take it in order to part with it. I
can neither consume it nor cultivate it.”[667] It is a mere medium of
exchange, and the interest paid merely covers this cost of
circulation.[668] But paper money will fulfil this function quite as well
and much more cheaply. Banks advance money in exchange for
commodities or supply bills which are immediately transferable into
cash. In exchange for this service the banker receives a discount
which goes to remunerate the shareholders who have supplied the
capital. Why not establish a bank without any capital which, like the
Bank of France, will discount goods with bills—either circulation or
exchange notes? The bills would be inconvertible, and consequently
would cost scarcely anything, and there would be no capital to
remunerate.
The service given would be equal to that given by the banks, but
would cost a great deal less. All that would be required to ensure the
circulation of the bills would be an understanding on the part of the
clientèle of the new bank that they would accept them as payment
for goods. The bearer would thus be certain that they were always
immediately exchangeable, just as if they were cash. The clients
would lose nothing by accepting them, for the statutes would decree](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-36-320.jpg)
![that the bank should never trade in anything except goods actually
delivered or under promise of delivery. The notes in circulation would
never exceed the demands of commerce. They would always
represent goods already produced and actually sold, but not yet paid
for.[669] Following the example of other banks, the bank would
advance to the seller of the goods a sum of money which it would
subsequently recover from the buyer. The merchants and
manufacturers would obtain not only their circulating capital without
payment of interest, but also the fixed capital necessary for the
founding of new industries. These advances obtained without
interest would enable them to buy and not merely to rent the
instruments of production which they needed.[670]
The consequences of a reform of this kind cannot be easily
enumerated. Not only would capital be freely placed at the disposal
of everyone, but every class distinction would disappear[671] as soon
as the worker ceased selling his products at cost price[672] and
government itself would become useless. The aim of all government
is to check the oppression of the weak by the strong.[673] But the
moment fair exchange becomes possible, free contract is sufficient
to secure this; there is no longer anyone who is oppressed. All are
equally favoured, for the cause of contention has been removed.
“Once capital and labour are identified, society will subsist of its own
accord, and there will no longer be any need for government.”
Government has “its origin and its whole being immersed in the
economic system.” Proudhon’s system means anarchy—the absence
of government.[674]
Such is Proudhon’s plan, and such its consequences. To
understand its full significance we must inquire whether (1) the
substitution of exchange notes for bank-notes payable at sight is
practicable, and, (2) supposing it to be practicable, if it is likely to
have the effects anticipated by its author.
Proudhon states that his system merely involves the universal
adoption of exchange notes.[675] The Exchange Bank would merely](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-37-320.jpg)
![It is just possible to conceive of the circulation of such exchange
notes, but the area of circulation will be a very limited one, and it
will be utterly impossible if all the clients are not perfectly solvent.
Let us, however, suppose that the practical difficulties have been
overcome, and that the exchange notes are already in circulation.
Interest will not disappear even then, and herein lies the essential
weakness of the system.
Why does the Bank of France charge a discount? Is it, as
Proudhon suggests, because it supplies cash in return for a bill of
exchange, so that “the seigneurial right of discount”[676] would
disappear with the adoption of a non-metallic currency? The bank
charges discount simply because it gives a certain quantity of
merchandise immediately exchangeable in return for a bill of
exchange falling due some months hence. It gives a tangible
commodity in exchange for a promise—a present good for a future.
What the bank takes is the difference between the present value of
the bill of exchange and its value when it falls due. It is not the mere
whim of the banker or the employment of a particular kind of money
that gives rise to discount. It belongs to the very nature of things.
Proudhon notwithstanding, a sale for cash and a sale with future
payment must remain two different operations,[677] at least as long
as the actual possession of a good is judged to be more
advantageous than its future possession.
This difference, even in the case of the Exchange Bank, would
very soon reappear. The exchange notes would represent goods
which were to be sold at a certain date. Although the Bank may
refuse to discount, this will not lessen the advantage enjoyed by
those merchants who are paid in cash. In order to secure this
advantage they will enter into agreement with those buyers who pay
cash either in the form of goods or of precious metals (which are,
after all, commodities), granting a slight rebate on the paper price.
There would thus be two sets of prices, the paper prices of goods
sold for future payment and the money price of goods sold for cash.
The first would be higher than the second, and the difference—](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-39-320.jpg)
![exchange for goods,” and it is interesting to note that the Exchange
Bank is the logical, though somewhat paradoxical, outcome of the
reaction against the Mercantilist ideas concerning money which can
be traced to Adam Smith and the Physiocrats.
This does not imply that Proudhon’s idea is devoid of truth. The
false ideal of free credit contains the germ of a true ideal, namely,
mutual credit. The Bank of France is a society of capitalists whose
credit is established by the public who accept their notes. They really
deal in public credit. Proudhon saw clearly enough that their notes
are ultimately guaranteed by the public. The public are the true
signatories of these commercial goods. Were the public insolvent the
bank would never recover its advances, which really constitute the
security for the bills. The shareholders’ capital is only a
supplementary guarantee. The Comte Mollien, the Financial Minister
of Napoleon I, declared that in theory a bank of issue should be able
to operate without any capital. The public lends money to itself
through the intermediary, the bank. Why not operate without the
intermediary? Why not eliminate the entrepreneur of credit just as
the industrial or commercial entrepreneur is eliminated in the case of
the co-operative society? Discount would not disappear altogether,
perhaps, but the rate of discount for borrowers would be diminished
in proportion to the extent to which they stood to gain as lenders.
This is the principle of the mutual credit society, where the initial
capital is almost entirely superseded, its place being taken by the
joint liability of the co-operators. Proudhon’s initial conception seems
to be reducible to this very simple idea.[678]
It seems that Proudhon was merely following the idea of a co-
operative credit bank, just as in other parts of the work he copies
other forms of co-operation without ever showing much sympathy
for the principle itself.[679]
In addition to a correct conception of the value of mutual credit,
there runs throughout his whole system a more fundamental idea
which helps to distinguish it from other forms of official socialism
which arose either before or after his time. This is his profound](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-41-320.jpg)
![belief in individual liberty as the indispensable motive of economic
activity in industrial societies. He realised better than any of his
predecessors that economic liberty is a definite acquisition of
modern societies, and that every true reform must be based on
liberty. He has estimated the strength of spontaneous economic
forces more clearly than anyone else. He has demonstrated their
pernicious effects, but at the same time he has recognised, as Adam
Smith had done, that this was the most powerful lever of progress.
His passionate love of justice explains his hatred of private property,
and his jealous belief in liberty aroused his hostility to socialism.
Despite his famous formula, Destruam et ædificabo, he destroyed
more than he built. His liberalism rested on his profound hold of
economic realities, and the social problem of to-day, as Proudhon
clearly saw, is how to combine justice with liberty.
Proudhon’s project for an Exchange Bank must not be confused
with analogous schemes that have appeared either before or after
his day. All these schemes have a common basis in a reform of
exchange as a remedy for social inequalities. Apart from this one
idea the resemblance is frequently superficial, and the economic
bases differ considerably.
(1) Proudhon’s idea has often been contrasted with Robert Owen’s
labour notes, and with the scheme prepared by Mr. Bray in 1839, in
a work entitled Labour’s Wrongs and Labour’s Remedy,[680] as well
as with the later system outlined by Rodbertus. Proudhon’s
circulating notes have nothing in common with the labour notes
described by these writers. The circulating notes represent
commercial goods produced for the purpose of private exchange.
Prices are freely fixed by buyer and seller, and they bear no relation
to the labour time, as is the case with the labour notes. The final
result, doubtless, was expected to be the same. Proudhon hoped
that in this way the price of goods, now that it was no longer
burdened with interest on capital, would equal cost of production.
This result was to be obtained indirectly. The economic errors in the
two cases are also different. Proudhon’s error lay in his failure to](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-42-320.jpg)
![realise that metallic money is a merchandise as well as an
instrument of circulation. The error of Owen, of Bray, and of
Rodbertus consisted of a failure to see that the price of goods
includes something more than the mere amount of labour which
they have cost to produce—an error which Proudhon at any rate did
not commit.
(2) Proudhon’s bank has also been confused with other banks of
exchange which are really quite different. The ideas underlying such
schemes had become prominent before Proudhon’s days, and
numerous practical experiments had been attempted along the lines
indicated. These banks aimed, not at the suppression of interest, but
at a gradual rapprochement between producer and consumer, the
goods offered for sale being bought by the bank, and paid for in
exchange notes upon an agreed basis of calculation. Buyers in their
turn would come to the bank to obtain the necessaries of life, paying
for them in exchange notes. An experiment of this kind was made by
a certain Fulcrand Mazel in 1829.[681] In this case the bank was
merely an entrepĂ´t which facilitated the marketing of the goods
produced. Such a system is open to the objection that the value of
the notes issued in payment for goods would necessarily vary with
the fluctuations in the value of these goods during the interval which
would elapse between the time they are taken in by the bank and
their eventual purchase by consumers. Proudhon’s plan was to
discount the goods already bought or actually delivered. The bank
would only advance what was actually promised, but would make no
charge for accommodation. Depreciation could only arise if the buyer
were insolvent. It could never result from a fall in price as a result of
a diminished demand for the product. Proudhon renounced all
dealings with solidarity when he dismissed Mazel’s project.[682]
(3) M. Solvay, a Belgian entrepreneur, has recently elaborated a
scheme of “social accounting.” He also proposes the suppression of
metallic money and the introduction of a perfect system of payment.
Here, however, the analogy ends.](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-43-320.jpg)
![What Solvay proposed was the replacement of metallic money, not
by bank-notes, but by a system of cheques and clearing-houses. His
plan owes its inspiration to the modern development of the clearing-
house system. Solvay thought that the system might be so extended
as to make the employment of money entirely unnecessary. To every
such clearing-house the State would hand over a cheque-book,
covering a sum varying with the amount of real or personal property
which the house possessed. This cheque-book was to have two
columns, one for receipts, the other for expenditure. Whenever any
commodity was sold, the liquidation of debt would be effected by
the buyer’s stamping the book on the receipt side and the seller’s
stamping it on the expenditure side. As soon as the total value of
these transactions equalled the initial sum which the cheque-book
was supposed to represent the book would be returned to the State
bureau, where each individual account would be made up. “In this
way everybody’s receipts and expenditure will always be known with
absolute clearness.”[683]
The advantage of such a system would in the first place consist in
the economy of metallic money. In the second place it would furnish
the State with information as to the extent of everybody’s fortune.
The State would then be in possession of the information necessary
for setting up an equable scheme of succession duties which would
gradually suppress the hereditary transmission of acquired fortune.
Such gradual suppression would result in the total extinction of the
fundamental injustice of modern society, namely, the inequality of
opportunity.[684] It would also help the application of that other
principle of distributive justice, namely, “to each according as he
produces.” The idea is Saint-Simon’s rather than Proudhon’s.
The scope of the proposed reform is quite clear. Social accounting,
according to Solvay, is a mere element in a more general conception,
that of “productivism,” which in various ways is to result in
increasing productivity to its maximum.[685]
In all this it is impossible to see anything of Proudhon’s ideas.
With the exception of the suggestion of suppressing metallic money](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-44-320.jpg)
![the fundamental conceptions are utterly different. M. Solvay makes
no pretence to ability to suppress interest, and he never imagines
that money is the cause of interest. The cheque and clearing system
is a mere device for facilitating cash payment. It has nothing in
common with the Proudhonian system, whereby circulating notes
are supposed to place credit sales and cash payments on an equal
footing.[686]
The most serious objection to Solvay’s system lies in the fact that
the suppression of money as a circulating medium must also involve
its suppression as a measure of value. It seems difficult to imagine
that the universal cheque bank with no monetary support would not
result in a rapid inflation of prices because of the superabundance of
paper. But although the particular process advocated by Solvay is
open to criticism there can be no objection to his desire to diminish
the quantity of metallic money or to further the ideal of equal
opportunity for all.
The project was never successfully put into practice. Like the
cognate ideas of “the right to work,” “the organisation of labour,” and
“working men’s associations,” the idea of “free credit” has left behind
it a mere memory of a sudden check.
On January 31, 1849, Proudhon, in the presence of a notary, set
up a society known as the People’s Bank, with a view to showing the
practicability of free credit. The actual organisation differs
considerably from the theoretical outline of the Exchange Bank. The
Exchange Bank was to have no capital: the People’s Bank had a
capital of 5,000,000 francs, divided into shares of the value of 5
francs each. The Exchange Bank was to suppress metallic money:
the People’s Bank had to be content with issuing notes against
certain kinds of commercial goods only. The Exchange Bank was to
suppress interest: the People’s Bank fixed it at 2 per cent., expecting
that it could be reduced to a minimum of ÂĽ per cent.
Despite these important changes the bank would not work. At the
end of three months the subscribed capital was only 18,000 francs,
although the number of subscribers was almost 12,000. Just at that](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-45-320.jpg)
![moment—March 25, 1849—Proudhon was brought before the Seine
Assize Court to answer for two articles published on January 16 and
27, 1849, containing an attack on Louis Bonaparte. He was
sentenced to three years’ imprisonment and fined 3000 francs. On
April 11 he announced that the experiment would be discontinued,
and that “events had already proved too strong for it,” which seemed
to suggest that he had lost faith in the scheme.
From that moment free credit falls into the background, and
political and social considerations obtain first place in his later works.
IV: PROUDHON’S INFLUENCE AFTER 1848
It is extremely difficult to follow the influence of Proudhon’s
thought after 1848.
Karl Marx, who was almost unknown in 1848, became by the
publication of his Kapital in 1867 practically the sole representative
of theoretical socialism. Marx’s Misère de la Philosophie,[687]
published in 1847, is a bitter criticism of the Contradictions
Ă©conomiques, and shows how violently he was opposed to
Proudhon’s ideas. To the champion of collectivism the advocate of
peasant proprietorship is scarcely comprehensible; the theorist of
class war can hardly be expected to sympathise with the advocate of
class fusion, the revolutionary with the pacificist.[688] The success of
Marx’s ideas after 1867 cast all previous social systems into the
shade. Proudhon, he thought, was a mere petit bourgeois. When the
celebrated International Working Men’s Association was being
founded in London in 1864 the Parisian workmen who took part in it
seemed to be entirely under the influence of Proudhon. At the first
International Congress, held at Geneva in 1866, a memorial was
presented which bore clear indications of Proudhon’s influence, and
its recommendations were adopted. At the following Congress, in
1867, Proudhon’s ideas met with a more determined resistance, and
by the time of the Congress of Brussels (1868), and that of Basle
(1869), Marx’s influence had become predominant.](https://image.slidesharecdn.com/12637-250518003814-14a1bd83/85/Contemporary-Business-16th-Edition-Boone-Solutions-Manual-46-320.jpg)
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- 5. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-1 CHAPTER 8 HUMAN RESOURCE MANAGEMENT: FROM RECRUITMENT TO LABOR RELATIONS Chapter Overview The importance of employees to the success of any organization is the very basis of management. In this chapter, we explore the issues of human resource management and motivation. We begin with a discussion of the ways organizations attract, develop, and retain employees. Then, we describe the concepts behind motivation and the way human resource managers apply them to increase employee satisfaction and organizational effectiveness. We also discuss the reasons why labor unions exist and focus on legislation that affects labor–management relations. The process of collective bargaining then is discussed, along with tools used by unions and management in seeking their objectives. Glossary of Key Terms Collective bargaining: process of negotiation between management and union representatives Compensation: amount employees are paid in money and benefits Downsizing: process of reducing the number of employees within a firm by eliminating jobs Employee benefits: additional compensation such as vacation, retirement plans, profit-sharing, health insurance, gym memberships, child and elder care, and tuition reimbursement, paid entirely or in part by the company Employee separation: broad term covering the loss of an employee for any reason, voluntary or involuntary Equity theory: an individual’s perception of fair and equitable treatment Expectancy theory: the process people use to evaluate the likelihood that their efforts will yield the results they want, along with the degree to which they want those results Goal-setting theory: says that people will be motivated to the extent to which they accept specific, challenging goals and receive feedback that indicates their progress toward goal achievement Human resource management: function of attracting, developing, and retaining employees who can perform the activities necessary to accomplish organizational objectives Labor union: group of workers who have banded together to achieve common goals in the areas of wages, hours, and working conditions Management by objectives: systematic approach that allows managers to focus on attainable goals and to achieve the best results based on the organization’s resources Maslow’s hierarchy of needs: theory of motivation proposed by Abraham Maslow. According
- 6. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-2 to the theory, people have five levels of needs that they seek to satisfy: physiological, safety, social, esteem, and self-actualization. Outsourcing: transferring jobs from inside a firm to outside the firm Performance appraisal: evaluation of and feedback on an employee’s job performance Salary: pay calculated on a periodic basis, such as weekly or monthly Wage: pay based on an hourly rate or the amount of work accomplished Annotated Lecture Outline Learning Objective 1: Explain the role of human resources: the people behind the people. Human resource managers are responsible for attracting, developing, and retaining the employees who can perform the activities necessary to accomplish organizational objectives. They plan for staffing needs, recruit and hire workers, provide for training, evaluate performance, determine compensation and benefits, and oversee employee separation. Opening Vignette: Glassdoor Helps Job Seekers and Employers Technology and the use of online data have helped change the job search for the better, and Glassdoor is leading the way. Glassdoor is an online job site that assists people seeking work to find the right fit with the right employer. The company provides employer information, compensation data, and reviews by current employees – specifics that come in handy when applicants are looking for potential employers. Less than a decade old, Glassdoor has more than 5 million reviews, salary reports, and interview reviews for 300,000 companies – all used by job seekers as part of their search. Glassdoor’s community includes 23 million members across 190 countries. Companies large and small use the site to support recruiting and branding efforts. HUMAN RESOURCES: THE PEOPLE BEHIND THE PEOPLE PowerPoint Slide 3 a. Human resource management is the function of attracting, developing, and retaining employees who can perform the activities necessary to accomplish Lecture Enhancer: What is the definition of job satisfaction? Lecture Enhancer: A few of
- 7. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-3 organizational objectives. the factors driving employee loss include: changing labor markets, wage inflation due to competition for specific skills, lack of employee engagement, and retirement. b. Five core responsibilities of human resource managers: PowerPoint Slide 4 Figure 8.1 Human Resource Management Responsibilities i. plan for staffing needs Lecture Enhancer: The role of human resource manager has become increasingly important in today’s environment. ii. recruit and hire workers iii. provide training and evaluate employee performance Class Activity: The industry website for human resource professionals, www.shrm.org, has many resources for today’s HR professionals. iv. determine compensation and benefits v. oversee employee separation. c. Three main objectives of human resource managers: PowerPoint Slide 5 i. providing qualified, well-trained employees for the organization Lecture Enhancer: Discuss the challenge of finding qualified employees and keeping them satisfied. ii. maximizing employee effectiveness in the organization Class Activity: Provide examples of what “maximizing employee effectiveness in the organization” means. iii. satisfying individual employee needs through monetary compensation, benefits, opportunities to advance, and job satisfaction. d. Human resource plans must be based on an
- 8. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-4 organization’s overall competitive strategies. Assessment Check Answers 1.1 What are the five main tasks of a human resource manager? The five main tasks are planning for staffing needs, recruiting and hiring workers, providing for training and performance evaluation, determining compensation and benefits, and overseeing employee separation. 1.2 What are the three overall objectives of a human resource manager? They are providing qualified, well-trained employees for the organization, maximizing employee effectiveness, and satisfying individual employee needs through monetary compensation, benefits, opportunities to advance, and job satisfaction. Learning Objective 2: Describe recruitment and selection. Human resource managers use internal and external methods to recruit qualified employees. They may use college job fairs, personal referrals, want ads, and other resources. Internet recruiting is now the fastest, most efficient, and inexpensive way to reach a large pool of job seekers. Firms must abide by employment laws during selection in order to avoid lawsuits. Before hiring candidates, human resource managers may require employment tests that evaluate certain skills or aptitudes. When all of this is complete, there is a better chance that the right person will be hired for the job. RECRUITMENT AND SELECTION Steps in the Recruitment and Selection Process: PowerPoint Slide 6 PowerPoint Slide 7 Figure 8.2 Steps in the Recruitment and Selection Process Lecture Enhancer: Which steps seem most important in this process? 1. Finding Qualified Candidates a. Companies often have trouble finding the right person for each position. Class Activity: Ask students how they found the last job they had.
- 9. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-5 b. In addition to traditional methods of recruiting, most companies now rely on their Web sites. Hit and Miss Accenture’s Mobile Recruitment Strategy c. The vast majority of companies currently use the Internet to fill job openings. Lecture Enhancer: Recruiters are increasingly relying on social media, and even Twitter, to find qualified employees. d. Recruiting techniques continue to evolve as technology advances. 2. Selecting and Hiring Employees PowerPoint Slide 8 a. The human resource manager selects and hires employees, often in conjunction with department managers or supervisors. Lecture Enhancer: What are the consequences of hiring when it is done in a rushed or panic mode? b. Every firm must follow state and federal employment laws. i. Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against applicants based on their race, religion, color, sex, or national origin. Class Activity: Discuss recent public employer lawsuits resulting from the violation of the laws listed. ii. The Americans with Disabilities Act of 1990 prohibits employers from discriminating against disabled applicants. iii. The Civil Rights Act created the Equal Employment Opportunity Commission (EEOC) to investigate discrimination complaints, ensure that employees will be hired and managed without discrimination, and to help set up affirmative action programs to increase job opportunities for protected groups. iv. The Civil Rights Act of 1991 allows for a jury trial, punitive damages, and damages for emotional distress in cases of employment discrimination. v. Opponents to such laws have launched
- 10. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-6 initiatives to restrict affirmative action standards and protect employers against unnecessary litigation. vi. Failure to comply with legislation can result in legal fees, fines, bad publicity, and poor employee morale. vii. Human resource managers must understand the laws in order to prevent unintended violations. c. Recruitment and selection are expensive. i. One formula estimates that the total cost of mis-hiring top-level managers amounts to 24 times the candidate’s annual pay. Lecture Enhancer: What are some specific examples of these costs? ii. To avoid these mistakes, many employers require applicants to complete employment tests. Hit & Miss: Accenture’s Mobile Recruitment Strategy How would you like to use a mobile app to shop for a new career in much the same way that you shop online for shoes? With more job seekers using mobile devices to search for positions, Chicago-based Accenture, a global management consulting firm, uses mobile career pages and social platforms to compete for workforce talent. Accenture’s career app allows mobile users to receive notifications, read job descriptions, ask questions, sign up for alerts, and search for jobs by location. The app provides public podcasts, insights, and company information for job seekers. Accenture’s mobile-friendly approach is a good branding strategy, and it increases the chance that candidates will engage with the company directly. Candidates can even record answers to written interview questions from their mobile devices, which allows Accenture recruiters to watch the videos anytime and anywhere. Questions for Critical Thinking 1. In the competitive world of recruitment, what are the benefits to Accenture to using a mobile approach? Close to 20 percent of job candidates are using mobile devices to search for jobs, so it is Accenture’s best interest to have a mobile-optimized website. A mobile approach allows candidates to search for and apply for jobs while traveling, commuting, on the go, or away from a traditional desktop computer. While many companies already use social media to interact, attract, and recruit candidates from their target audiences, Accenture’s mobile recruitment strategy allows
- 11. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-7 reaching an even greater number of qualified candidates. 2. Do you believe that mobile recruiting increases hiring success rates and choosing the right candidate for the job? Discuss its pros and cons. This answer will vary. Pros: Growing use of mobile devices for job search, a good branding strategy, better engagement (public podcasts, insights, company information), increased targeting by location, faster and more intuitive personalized messaging. Cons: When applicants are allowed to sign up for job vacancy text alerts, this may create a crowded applicant pool, including many unqualified, the “maximum” candidate experience cannot be replaced with a mobile recruitment app, to be effective, a company must have a mobile recruitment strategy in place. Assessment Check Answers 2.1 Describe several recruiting techniques used by human resource managers. Techniques include college job fairs, personal referrals, want ads, company Web sites, online job sites, and social networking sites. 2.2 What is the function of the Equal Employment Opportunity Commission (EEOC)? The EEOC investigates discrimination complaints and helps employers set up affirmative action programs. Learning Objective 3: Discuss orientation, training, and evaluation. New employees often participate in an orientation where they learn about company policies and practices. Training programs provide opportunities for employees to build their skills and knowledge and prepare them for new job opportunities within the company. They also give employers a better chance of retaining employees. Performance appraisals give employees feedback about their strengths and weaknesses and how they can improve. ORIENTATION, TRAINING, AND EVALUATION PowerPoint Slide 9 a. Employees need to know what is expected of them and how well they are performing. b. During orientation, employees learn about company policies regarding their rights and benefits. 1. Training Programs a. Training is a good investment for both employees
- 12. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-8 and employers. b. Training provides employers with a better chance at retaining long-term, loyal, high-performing workers. c. On-the-Job Training i. On-the-job training prepares employees for job duties by allowing them to perform tasks under the guidance of experienced employees. ii. A variation of on-the-job training is apprenticeship training, in which an employee learns a job by serving for a time as an assistant to a trained worker. Lecture Enhancer: Discuss the pros and cons of implementing apprenticeship training within a professional business environment. iii. In Europe, many new entrants to white- collar professions complete apprenticeships. d. Classroom and Computer-Based Training i. Many firms offer some form of classroom instruction, such as lectures, conferences, and workshops or seminars. ii. Many are replacing classroom training with computer-based training programs. iii. Computer-based training is cheaper and offers consistent presentations along with videos that can simulate the work environment. Lecture Enhancer: Discuss the pros and cons of computer-based training versus classroom training. e. Management Development i. A management development program provides training to improve the skills and broaden the knowledge of current or future managers and executives. ii. Many companies are searching for new hires to fill gaps in their executive ranks because they failed to develop future managers. Lecture Enhancer: Procter & Gamble managers are considered the Navy SEALS of management – due mainly to the company’s top management training program.
- 13. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-9 iii. Firms must identify individuals with the desire to advance and develop their skills to keep them. 2. Performance Appraisals PowerPoint Slide 10 a. Feedback about performance is the best way for a company and its employees to improve. Lecture Enhancer: The purpose of a performance review is to shed light on what an employee should be doing better, or how they can improve. Is this always the outcome? b. A performance appraisal is the evaluation of and feedback on an employee’s job performance. CareerKickstart: How to Prepare for a Performance Review c. A performance appraisal can include everything from attendance to goals met. d. Some experts argue that a performance review is skewed in favor of a single manager’s subjective opinion. e. If a performance review is to be at all effective, it should meet the following criteria: Class Activity: Do performance appraisals accomplish that for which they were designed -- coaching, feedback, setting pay, determining promotions, and documentation? i. takes place several times a year ii. is linked to organizational goals iii. is based on objective criteria iv. takes place in the form of a two-way conversation. f. The 360-degree performance review is a process that gathers feedback from a review panel of 8 to 12 people, including coworkers, supervisors, team members, subordinates, and sometimes even customers. i. A 360-degree performance review tries to get feedback from as many perspectives as possible.
- 14. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-10 ii. This process requires a lot of work, but employees benefit from it to a greater degree. iii. Managers benefit because they get feedback from all parts of the organization. CareerKickstart: How to Prepare for a Performance Review Performance reviews can bring about feelings of anxiety and uncertainty for both employees and supervisors. Tips to prepare for a performance review include: knowing yourself and evaluating your performance, thinking about your future, provide details and evidence of how you met or exceeded performance goals, and stay professional when receiving constructive criticism. Assessment Check Answers 3.1 What are the benefits of computer-based training? Computer-based training offers consistent presentations, interactive learning, and employees can learn at their own pace. It also is less expensive than other types of training. 3.2 What is a management development program? A management development program provides training designed to improve the skills and broaden the knowledge of current or future managers and executives. 3.3 What are the three criteria of an effective performance appraisal? A performance appraisal should take place several times a year, be linked to organizational goals, be based on objective criteria, and be a two-way conversation. Learning Objective 4: Describe compensation. Firms compensate employees with wages, salaries, incentive pay systems, and benefits. Benefit programs vary among firms, but most companies offer healthcare programs, insurance, retirement plans, paid time off, and sick leave. A growing number of companies are offering flexible benefit plans and flexible work plans, such as flextime, compressed workweeks, job sharing, and home-based work. COMPENSATION PowerPoint Slide 11
- 15. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-11 a. Compensation is the amount employees are paid in money and benefits. b. Balancing compensation for employees at all job levels can be a challenge for human resource managers. Class Activity: Lead a discussion on whether students think there should be a limit or ceiling on compensation for executives, and the pros and cons of such a limit. c. The compensation of top executives has become a major issue among employees and shareholders. Hit & Miss: Boost Employees’ Morale – and They’ll be Motivated d. A wage is pay based on an hourly rate or the amount of work accomplished. e. A salary is pay calculated on a periodic basis, such as weekly or monthly. f. An effective compensation system should attract well-qualified workers, keep them satisfied in their jobs, and inspire them to succeed. g. Certain laws, including minimum wage, must be taken into account. h. Most firms base their compensation policies on the following factors: Lecture Enhancer: What other factors should be considered when making compensation decisions? i. what competing companies are paying ii. government regulation iii. the cost of living iv. company profits v. the employee’s productivity. i. Firms may offer some type of incentive compensation in addition to salaries or wages: PowerPoint Slide 12 Lecture Enhancer: What are the pros and cons of each type of incentive compensation? i. profit sharing bonuses based on company profits Figure 8.3 Four Forms of Incentive Compensation ii. gain sharing by distributing the financial Lecture Enhancer:
- 16. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-12 value of productivity gains, cost savings, or quality improvements with workers Research conducted in laboratories suggest that incentives can limit performance, particularly in situations requiring creativity and innovation. Do you agree? iii. lump-sum bonuses and stock options—one- time cash payments or the right to buy stock—based on performance iv. pay for knowledge, with wage or salary increases as employees learn new job tasks. 1. Employee Benefits PowerPoint Slide 13 a. Employee benefits are additional compensation such as vacation, retirement plans, profit-sharing, health insurance, gym memberships, child and elder care, and tuition reimbursement, paid entirely or in part by the company. Lecture Enhancer: What are the pros and cons of each type of compensation? b. Benefits account for approximately 30 percent of total employee compensation. PowerPoint Slide 14 Table 8.1 Average Costs for Employee Compensation c. Some benefits are required by law: i. Social Security, Medicare, unemployment insurance, and worker’s compensation contributions Lecture Enhancer: In a recent year, it is projected that companies will pay close to $13,000 per employee, on average, to provide health care benefits. Does this seem high, low or about average? ii. The Family and Medical Leave Act of 1993 requires covered employers to offer up to 12 weeks of unpaid, job-protected leave to eligible employees. iii. Some advocates are pressing lawmakers to require businesses to provide paid sick leave.
- 17. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-13 d. With costs soaring nearly 15 percent each year, employers are passing along healthcare costs to employees. e. Pensions and retirement plans also are benefits. Class Activity: Discuss the benefits of a 401k plan and why it makes sense for employees to maximize their contributions. 2. Flexible Benefits PowerPoint Slide 15 a. In response to increasing diversity in the workplace, firms are developing creative ways to tailor their benefit plans to the needs of employees. Class Activity: With a multi-generational workforce, flexible benefits have become increasingly popular. b. Flexible benefit plans, also called cafeteria plans, offer employees a choice of benefits, including different types of medical insurance, dental and vision plans, and life and disability insurance. i. This flexibility allows one working spouse to choose medical coverage for the entire family, while the other spouse chooses other types of coverage. ii. Cafeteria plans also offer tax benefits to both employees and employers. c. Instead of set numbers of holidays, vacation days, and sick days, some employers offer paid time off (PTO). Lecture Enhancer: Discuss the pros and cons of an unlimited vacation policy. i. Employees use days from their PTO accounts without having to explain why they need the time. ii. The greatest disadvantage is that it is an expensive benefit for employers. 3. Flexible Work PowerPoint Slide 16 a. Flexible work plans allow employees to adjust their working hours or places of work according to their needs. i. Flexible work plan options include flextime, compressed workweeks, job sharing, and
- 18. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-14 home-based work (telecommuting). ii. These benefit programs have reduced employee turnover and absenteeism, and boosted productivity and job satisfaction. iii. Flexible work has become critical in attracting and keeping talented human resources. Lecture Enhancer: With dual-income households, a multi-generational workforce, diverse family structures, and increased time and job pressures, employers who do not provide flexibility to their employees may not remain competitive. b. Flextime allows employees to set their own work hours within certain constraints rather than scheduling everyone to work between 8:00 a.m. and 5:00 p.m. i. Companies set core hours when all employees are expected to be present. ii. Employees then can choose whether to work early or late outside the core hours. iii. Flextime works well with jobs that are independent but not so well when teams or direct customer service are involved. Class Activity: Some companies have shifted their policies -- previously remote workers are now required to spend their days in the office. Discuss the pros and cons of such a policy shift. iv. Specialized software helps employers manage flextime scheduling. c. A compressed workweek allows employees to work longer hours on fewer days. Lecture Enhancer: Discuss the impact of flexible work on communication and collaboration within the workplace. i. can reduce the number of hours employees spend commuting each week ii. can expand the company’s overall workday,
- 19. Boone & Kurtz / Contemporary Business, 16th edition Instructor’s Guide Copyright ©2015 John Wiley & Sons, Inc. 8-15 providing more availability to customers in other time zones. d. A job-sharing program allows two or more employees to divide the tasks of one job. i. This plan appeals to older workers, students, working parents, and people of all ages who want to devote time to personal interests. ii. Requires a lot of cooperation and communication between the partners. iii. Some economists believe that a federal job- sharing program would help prevent layoffs during times when unemployment is high. e. Home-based work programs allow employees, or telecommuters, to perform their jobs from home instead of at the workplace. Lecture Enhancer: What are some specific drawbacks to telecommuting? i. Telecommuters are connected to their employers via the Internet, cell phone, and the like. ii. Working from home generally appeals to employees with disabilities, older workers, and parents. iii. Companies benefit because they can expand their pool of talent and increase productivity without increasing costs. iv. Telecommuters need to be self-disciplined and reliable employees. v. Managers need to be comfortable with setting goals and managing from afar. Hit & Miss: Boost Employees’ Morale —And They’ll Be Motivated According to experts, the secret to nurturing high performing employees lies not in motivating, but in stopping their demotivation. After six months, there is a decline in the motivation of most new employees. Managers need to figure out what reduces employees’ morale and motivation and then work on eliminating those factors. One of the best places to start in this effort is for managers to really listen to employees. The next step is to involve employees in decisions that directly affect them, and provide reinforcement and recognition for top performance. Questions for Critical Thinking
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- 21. himself.[624] But why attack property, then? Property is attacked because it gives to the proprietor a right to an income for which he has not worked. It is not property as such, but the right of escheat, that forms the butt of Proudhon’s attack; and following the lead of Owen and other English socialists, as well as the Saint-Simonians, he directs his charges against that right of escheat which, according to circumstances and the character of the revenue, is variously known as rent, discount, money interest, agricultural privilege, sinecure, etc.[625] Like every socialist, Proudhon considered that labour alone was productive.[626] Land and capital without labour were useless. Hence the demand of the proprietor for a share of the produce as a return for the service which his capital has yielded is radically false. It is based upon the supposition that capital by itself is productive, whereas the capitalist in taking payment for it literally receives something for nothing.[627] All this is simply theft. His own definition of property is, “The right to enjoy the fruits of industry, or of the labour of others, or to dispose of those fruits to others by will.”[628] The theme is not new, and the line of thought will be resumed— by Rodbertus among others. The originality of the work consists not so much in the idea as in the brilliance of the exposition, the vehemence of the style, and the verve of the polemics hurled against the old arguments which based property upon labour, upon natural right, or upon occupation. A German writer[629] has said that, published in Germany or in England, the book would have passed unnoticed, because in both those countries the defence of property had been much more scientific than in France.[630] The whole force of the work lies, not in itself, but in the weakness of the opposing arguments, and this fact is quite sufficient to give it a certain permanent value. The treatise sent an echo through the whole world, and its author may be said to have done for French
- 22. socialism what Lassalle did for German. The ideas set forth are not new, but they are expressed in phrases of wonderful penetration. There is also a wealth of ingenious remarks, which, if not, perhaps, true, deserve retention because of their originality. How such spoliation on the part of capitalists and proprietors can continue without a revolt of the working men is a question which has been asked by every writer on theoretical socialism, without its full import ever being realised. Is there not something very improbable in this? The problem is a curious one, indeed, and requires much ingenuity for its solution. Marx disposed of it by his theory of surplus value. Rodbertus in a simpler fashion showed the opposition between economic distribution as realised in exchange and the social distribution which lurks behind it. Proudhon has his own solution. There is, says he, between master and men continual miscalculation. [631] The master pays each workman in proportion to the value of his own individual labour, but reserves for himself the product which results from the collective force of all—a product which is altogether superior to that yielded by the sum of their individual efforts. This excessive product represents profits. “It is said that the capitalist pays his workmen by the day. But to be more exact we ought to say that he pays a per diem wage multiplied by the number of workmen employed each day—which is not the same thing. For that immense force which results from union and from the harmonious combination of simultaneous efforts he has paid nothing. Two hundred grenadiers can deck the base of the Louqsor statue in a few hours, a task which would be quite impossible for one man though he worked two hundred days. According to the capitalist reckoning the wages paid in both cases would be the same.”[632] “And so the worker is led to believe that he is paid for his work, whereas in reality he is only partly paid for it. Even after receiving his wage he still retains a right of property in the things which he has produced.”[633] His explanation, though very subtle, is none the less erroneous.
- 23. The appearance of the pamphlet made Proudhon famous, not merely in the eyes of the public, who knew little of him beyond his famous formula, but also in the opinion of the economists. Blanqui and Garnier, among others, interested themselves in his work. “It is impossible to have a higher opinion of anyone than I have of you,” writes the former.[634] Blanqui by his favourable report to the Academy of Moral Sciences was instrumental in thwarting the legal proceedings which the Minister of the Interior was anxious to take against Proudhon. And it was upon Garnier’s advice that the publisher Guillaumin, although a strong adherent of orthodox economics, consented to issue a new work by Proudhon in 1846. The book was entitled Les Contradictions économiques, and Guillaumin was not a little startled by it.[635] The sympathy of the economists is easily explained. They realised from the first that Proudhon was a vigorous opponent of their views, but it was not long before they discovered that he was an equally resolute critic of socialism. Let us briefly examine his attitude with regard to the latter. No one has ever referred to socialists in harsher terms. “The Saint- Simonians have vanished like a masquerade.”[636] “Fourier’s system is the greatest mystification of our time.”[637] To the communists he writes as follows: “Hence, communists! Your presence is a stench in my nostrils and the sight of you disgusts me.” Elsewhere he says: “Socialism is a mere nothing. It never has been and never will be anything.”[638] The violence of his attitude towards his predecessors springs from a fear of being confused with them. The procedure is intended to put the reader on his guard against all equivocation, and to afford him valuable preparation for appreciating Proudhon’s solutions by showing how utterly impossible the other solutions are. His attack upon the socialists roughly amounts to a charge of failure to realise that the destruction of the present régime would involve taking a course in the opposite direction. The difficult problem which he set out to solve was not merely the suppression of
- 24. existing economic forces, but also their equilibration.[639] He never contemplated “the extinction of such economic forces as division of labour, collective effort, competition, credit, property, or even economic liberty.”[640] His chief concern was to preserve them, but at the same time to suppress the conflict that exists between them. The socialists aim merely at destruction. For competition they would substitute an associative organisation of labour; instead of private property they would set up community of goods[641] or collectivism; instead of the free play of personal interest they would, according to Fourier, substitute love, or love and devotion, as the Saint-Simonians put it, or the fraternity of Cabet. But none of these satisfies Proudhon. He dismisses association and organisation as being detrimental to the liberty of the worker.[642] Labour’s power is just the result of “collective force and division of labour.” Liberty is the economic force par excellence. “Economic perfection lies in the absolute independence of the workers, just as political perfection consists in the absolute independence of the citizens.”[643] “Liberty,” he remarks in an address delivered to the electors of the department of the Seine in 1848, “is the sum total of my system—liberty of conscience, freedom of the press, freedom of labour, of commerce, and of teaching, the free disposal of the products of labour and industry— liberty, infinite, absolute, everywhere and for ever.” He adds that his is “the system of ’89,” and that he is preaching the doctrines of Quesnay, of Turgot, and of Say. Indeed, it would not be difficult to imagine ourselves reading the Classical rhapsodies concerning the advantages of Free Trade over again.[644] Communism as a juridical system is rejected no less energetically. There is no suggestion of suppressing private property, which is the necessary stimulant of labour, the basis of family life, and indispensable to all true progress. His chief concern is to make it harmless and to place it at the disposal of everyone.[645] “Communism is merely an inverted form of private property.
- 25. Communism gives rise to inequalities, but of a different character from those of property. Property is the exploitation of the weak by the strong, communism of the strong by the weak.”[646] It is still robbery. “Communism,” he exclaims, “is the religion of misery.”[647] “Between the institution of private property and communism there is a world of difference.”[648] Racial devotion or fraternity as possible motives for action are not recognised. They imply the sacrifice and the subordination of one man to another. All men have equal rights, and the freer exercise of those rights is a matter of justice, not of fraternity. Proudhon thinks the axiom so very evident that he takes no trouble to explain it, but merely gives us a definition of justice. In his first Mémoire it is defined as “a kind of respect spontaneously felt and reciprocally guaranteed to human dignity in any person and under all circumstances, even though the discharge of that feeling exposes us to some risk.”[649] His justice is tantamount to equality. If we apply the definition to the economic links which bind men together, we find that the principle of mutual respect is transformed into the principle of reciprocal service.[650] Men must be made to realise this need for reciprocal service. It is the only way in which equality can be respected. “Do unto others as you would that others do unto you”— this principle of justice is the ethical counterpart of the economic precept of mutual service.[651] Reciprocal service must be the new principle which must guide us in rearranging the economic links of society. And so a criticism of socialism helps Proudhon to define the positive basis of his own system. The terms of the social problem as it presents itself to him can now be clearly followed. On the one hand there is the suppression of the unearned income derived from property—a revenue which is in direct opposition to the principle of reciprocal service. On the other hand, property itself must be preserved, liberty of work and right of exchange must be secured. In
- 26. other words, the fundamental attribute of property must be removed without damaging the institution of property itself or endangering the principle of liberty.[652] It is the old problem of how to square the circle. The extinction of unearned incomes must involve the communal ownership of the instruments of production, although Proudhon did not seem to think so. Hitherto the reform of property had been attempted by attacking the production and distribution of wealth. No attention was ever paid to exchange. But Proudhon thought that in the act of exchange inequality creeps in and a new method of exchange is needed. Towards the end of the Contradictions économiques he gives us an obscure hint of the kind of reform to be aimed at. After declaring that nothing now remains to be done except “to sum up all contradictions in one general equation,” he proceeds to ask what particular form that equation is to take. We have already, he remarks, been permitted a glimpse of it. “It must be a law of exchange based upon a theory of mutual help. This theory of mutualism—that is, of natural exchange—is from the collective point of view a synthesis of two ideas—that of property and that of communism.”[653] No further definition is attempted. In a letter written after the publication of the Contradictions he still refers to himself as a simple seeker, and states that he has a new book in preparation, in which these propositions are to be further developed. About the same time he had laid out his plans for active propaganda in the press. But the Revolution of 1848 threw him into the mêlée of party politics and hastened the publication of his theories. In order to give a better idea of the place occupied by Proudhon’s ideas, and to show how they were connected with the socialist experiments of the time, we must say a few words about the Revolution itself. II: THE REVOLUTION OF 1848 AND THE DISCREDIT OF SOCIALISM
- 27. Socialists of all shades of opinion, who from 1830 to 1840 had been advocating radical reforms, were given a unique opportunity of putting their theories to the test during the Revolution of 1848. During the four months (February to June) which preceded the terrible ruin of the socialist Republic by the bourgeoisie projects of all kinds which for many years had been discussed in books and newspapers appeared to be on the point of bearing fruit. For a number of weeks nothing seemed impossible. “The right to work,” “organisation of labour,” and “association,” instead of being so many formulas, were by a mere stroke of the magic wand to be translated into realities. Enthusiasts were not wanting to attempt this task of transformation, but, alas! only to find every scheme tumble into ruins. Every formula, when put to the test, was found to be void. The malevolence of some people, the impatience of others, the awkwardness and haste of the promoters even, made the experiments odious and ridiculous. Public opinion was at last thoroughly wearied and all the reformers were indiscriminately condemned. The year 1848 is accordingly a memorable one in the history of social ideas. The idealistic socialism of Louis Blanc, of Fourier, and of Saint-Simon was definitely discredited. Bourgeois writers thought that it was utterly destroyed. Reybaud, who contributed the article on Socialism to the Dictionnaire d’Économie politique (edited by Coquelin and Guillaumin) in 1852, writes as follows: “To speak of socialism nowadays is to deliver a funeral oration. It has exhausted itself. The vein is worked out. Should the human mind in its vertigo ever take it up again it will be in a different form and under the influence of other illusions.” It fared scarcely better at the hands of subsequent socialists. Marx referred to all his predecessors under the rather misleading title of Utopians, and against their fantastic dreams he set up the “scientific socialism” of Das Kapital. Between the two epochs lies a distinct cleavage, marked by the Revolution of 1848. We must briefly see
- 28. how this was brought about, and rapidly review the more important experiments that were made. First of all there is “the right to work.” Fourier’s formula, which was developed by Considérant and adopted by Louis Blanc and other democrats, became extremely popular during the reign of Louis Phillipe. Proudhon speaks of it as the only true formula of the February Revolution. “Give me the right to work,” he declares, “and I will give you the right of property.”[654] Workmen thought that the first duty of the Provisional Government was to give effect to this formula. On February 25 a small group of Parisian workmen came to the Hôtel de Ville to urge their claims, and the Government hastened to recognise them. The decree drawn up by Louis Blanc was as follows: “The Provisional Government of the French Republic undertakes to guarantee the existence of every worker by means of his labour. It further undertakes to give work to all its citizens.” The following day another decree announced the immediate establishment of national workshops with a view to putting the new principle into practice. All that was necessary to gain admission was to have one’s name inscribed in one of the Parisian municipal offices. Louis Blanc in his book of 1841 had demanded the establishment of “social” workshops. Public opinion, misled by the similarity of names, and encouraged to persist in its error by the enemies of socialism, thought that the national workshops were the creation of Louis Blanc. Nothing could be more incorrect. The “social” workshops, as we know, were to engage in co-operative production, whereas the national workshops were to provide employment for idlers. Similar institutions had been established during every crisis between 1790 and 1830, generally under the name of “charity works.” Moreover, it was Marie, the Minister of Public Works, and not Louis Blanc, who organised them. Far from providing work as the socialists had hoped, the Government soon realised that the workshops afforded an admirable opportunity for binding the workmen together into brigades which might act as a check upon
- 29. the socialistic tendencies of the Luxembourg Commission, then presided over by Louis Blanc. The workshops were placed under the management of Émile Thomas, the engineer, who was an avowed opponent of the scheme. In his Histoire des Ateliers nationaux, written in 1849, he tells us how they were controlled by him in accordance with the wishes of the anti-socialist majority of the Provisional Government.[655] But they were mistaken in their calculations. Those who thought that the national workshops could be used for their own political ends were soon undeceived. The Revolution greatly increased the number of idlers, already fairly considerable as the result of the economic crisis of 1847. Moreover, the opening of the workshops brought the workmen from the provinces into Paris. Instead of the estimated 10,000, 21,000 had been enrolled by the end of March, and by the end of April there were 99,400. They were paid two francs a day while at work, and a franc when there was no work for them. In a very short time it became impossible to find employment for so many. The majority of them, whatever their trade, were employed upon useless earthworks, and even these soon proved inadequate. Discontent soon became rife among this army of unfortunate workers, humiliated by the nature of the ridiculous labour upon which they were employed, and scarcely satisfied with the moderate salary which they received. The wages paid, however, were more than enough for the kind of work that was being done. The workshops became centres of political agitation, and the Government, thoroughly alarmed, and acting under pressure from the National Assembly, was constrained to abandon them. Suddenly, on June 21, a summons was executed upon all men between seventeen and twenty-five enrolled in the shops, ordering them to join the army or to leave for the country, where more digging awaited them. The exasperated workmen rose in revolt. Rioting broke out on June 23, but it was crushed in three days. Hundreds of the workers died in the struggle, and the country was terrorised into reaction.
- 30. That simple logic which is always so characteristic of political parties held the principle of “the right to work” responsible for this disastrous experience, and it was definitely condemned. This is quite clear from the constitutional debates in the National Assembly. The constitutional plan laid down by Armand Marrast on June 19, a few days before the riots, recognised “the right to work.” “The Constitution,” says Article 2, “guarantees to every citizen liberty, equality, security, instruction, work, property, and public assistance.” But in the new plan of August 29—after the experience of June—the article disappeared. The right to relief only was recognised. In the discussion on the article an amendment re-establishing “the right to work” was proposed by Mathieu de la Drôme. A memorable debate followed, in which Thiers, Lamartine, and Tocqueville opposed the amendment, while the Radical Republicans Ledru-Rollin, Crémieux, and Mathieu de la Drôme defended it.[656] The socialists had become extinct. Louis Blanc was in exile, Considérant ill, while Proudhon was afraid of startling his opponents and of compromising his friends. Besides, the Assembly had already made up its mind. The amendment was defeated, and Article 8 of the preamble to the Constitution of 1848 runs as follows: “The Republic by means of friendly assistance should provide for its necessitous citizens, either by giving them work as far as it can, or by directly assisting those who are unable to work and have no one to help them.” During the reign of the July Monarchy “the organisation of labour” was another phrase which divided the honours with “the right to work.” With the spread of the Revolution came a similar menacing demand for its realisation. By a strange coincidence the author of this formula was also a member of the Provisional Government. And so when on February 28, three days after the recognition of “the right to work,” the workers came in a body and claimed the creation of a Minister of Progress, the organisation of labour, and the abolition of all exploitation, Louis Blanc immediately seized the opportunity to urge his unwilling colleagues to accede to their demands. He himself had pressed the Government to take the initiative in social reform, and now that the Revolution had made
- 31. him a member of the Government how could he escape his responsibility? After some difficulty his colleagues succeeded in persuading him to accept the alternative of a Government commission on labour, of which he was to be president. The commission was entrusted with the task of drawing up the proposed reforms, which were afterwards to be submitted to the National Assembly. To mark the contrast between the old and the new régime the commission carried on its deliberations in the Palais du Luxembourg, where the Chambre des Paris formerly sat. The Luxembourg commission was composed of representatives elected by workmen and masters, three for each industry. The representatives met in a general assembly to discuss the reports prepared by a permanent committee of ten workers and an equal number of masters, to which Louis Blanc had added a few Liberal economists and socialists, such as Le Play, Dupont-White, Wolowski, Considérant, Pecqueur, and Vidal. Proudhon was also invited, but refused to join. As a matter of fact, only the workers took part in the sittings. The commission, although it possessed no executive power, might have been of some service. But Louis Blanc, as he himself confessed, regarded it as “a golden opportunity where socialism had at its disposal a tribunal from which it could address the whole of Europe.”[657] He still kept up his rôle of orator and writer, and devoted most of the sittings to an eloquent appeal for the theories already outlined in his Organisation of Labour.[658] Vidal and Pecqueur undertook the task of elaborating the more definite proposals. In a lengthy report which appeared in the Moniteur[659] they outlined a plan of State Socialism, with workshops and agricultural colonies, with State depots and bazaars as places of sale. Money in the form of warrants was to be borrowed on the security of goods, and a State system of insurance—excepting life policies—was to be established. Finally, the Bank of France was to be transformed into a State bank. This was to extend the operation of credit, and to reduce the rate of discount simply to insurance against
- 32. risk. Vidal and not Pecqueur is obviously the author of the report, for it contains some of the projects that had already appeared in his book De la Répartition des Richesses. None of the projects was even discussed by the National Assembly. The only positive piece of work accomplished by Louis Blanc’s commission was done under pressure from the workmen. This was the famous decree of March 2, abolishing piece-work and reducing the working day to ten hours in Paris and eleven hours in the provinces. This decree, though it was never put into operation, marks the first rudiments of French labour legislation. Louis Blanc was forced to grant it because the working-class element on the commission refused to take part in its proceedings until they were satisfied on this point. The commission must also be credited with several successful attempts at conciliation. Not only did the commission fail to do anything permanent, but its degeneracy into a mere political club thoroughly alarmed the public. It became involved in elections, and even intervened in street riots. It finally took a part in the demonstration of May 15, which, under pretext of demanding intervention in favour of Poland, resulted in an invasion of the National Assembly by the mob. Louis Blanc had already retired. Since the reunion of the National Assembly the Government had been replaced by an executive commission, and Blanc, no longer a supporter of the Government, sent in his resignation on May 13. After that the commission was at an end, and, like the national workshops, it all resulted in nothing save a general discredit of socialist opinion. There still remained the “working men’s associations.” Every socialist writer of the early nineteenth century was agreed on this principle of association. Every reformer, with the exception of Proudhon,[660] who always pursued a path of his own, regarded it as the one method of emancipation. It was quite natural that it should be put to the test. In its declaration of February 26 the Provisional Government stated that besides securing the right to work, the workers must
- 33. combine together before they could secure the full benefit of their labour. The moment Louis Blanc attained to power he sought to guide the energies of the commission in this direction. The “Association” was to be of the nature of a co-operative productive society, supported by the State. Under the influence of Buchez, an old Saint-Simonian, a Republican Catholic and the founder of the newspaper called L’Atelier, there had been formed in 1834 an association of jewellers and goldsmiths.[661] But it was a solitary exception. Louis Blanc was more fortunate. He successively founded associations of tailors, of saddlers, of spinners and lace-makers, and he secured Government orders for tunics, saddles, and epaulettes for them. Other associations followed, and by July 5 the National Assembly was sufficiently interested in these experiments to vote the sum of three millions to their credit. A good portion of this sum passed into the hands of mixed associations of masters and men formed with the sole purpose of benefiting by the Government’s liberality. The workmen’s associations pure and simple, however, received more than a million, and there was not a sou of it left by 1849. The first co-operative movement inspired by the ideas of Louis Blanc was of short duration. The National Assembly took good care to place the new societies under Ministerial control by appointing a Conseil d’Encouragement, nominated by the Ministry to fix the conditions under which loans should be granted. The Conseil hastened to publish model regulations which left the associations little scope for internal organisation. So stringent were the rules that several of them were immediately jeopardised, and every society which failed to conform to one of the three models outlined in Article 19 of the Commercial Code was obliged to dissolve. This meant every society which was not nominally a collective society, a joint stock or a limited liability company. By 1855, according to the testimony of Reybaud, there remained only nine out of those subsidised in 1848. Consumers’ co-operative societies, that is, the
- 34. societies which aimed at securing cheap commodities, established at Paris, Lille, Nantes, and Grenoble, were also dissolved. And so all these experiments—the only ones that had not already brought reformers into discredit—were destined to fail in their turn. Their extinction was partly due to political causes, partly to their founders, who had not yet been trained in the difficult task of building up such associations. The social experiments of 1848 one after another foundered, bringing a distrust of theories in their train. There still remained one other experiment connected with Proudhon’s name—that of free credit. But it also was destined to fail like the rest. III: THE EXCHANGE BANK THEORY The Revolution of 1848 did not take Proudhon quite unawares, although he considered the outbreak was rather sudden. He was soon convinced that the real problem to be determined was economic rather than political, but he also realised that the education of the masses was too backward to permit of a peaceful solution. Proudhon, in this matter at one with his French confrères, had hoped for such a solution.[662] He thought the February Revolution was a child prematurely born.[663] In a striking article in the columns of Le Peuple he gave wistful expression to his fears as he foresaw the Revolution impending. Its solution had been delivered to none and its interpretation baffled the ingenuity of all. “I have wept over the poor workman, whose daily bread is already sufficiently uncertain and who has now suffered misery for many years. I have undertaken his defence, but I find that I am powerless to succour him. I have mourned over the bourgeois, whose ruin I have witnessed and who has been driven to bankruptcy and goaded to opposition of the proletariat. My personal inclination is to sympathise with the bourgeois, but a natural antagonism to his ideas and the play of circumstance have made me his opponent. I have gone in mourning and paid penance for the spirit of the old Republic
- 35. long before there were any signs of its offspring. This Revolution which was to restore the public order merely marks the beginning of a new departure in social revolution which no one understands.”[664] But the Revolution having once begun, Proudhon did not feel himself justified in being behindhand. He had been a most severe critic of the existing régime, and he felt that he was bound to attempt a solution of the practical problems which suddenly came to the front. He became a journalist and threw himself whole-heartedly into the struggle. Hitherto he had been content with vague suggestions as to where the evil lay. But now he was anxious to make reform practicable and to fill in the details of the scheme; and so he invented the Exchange Bank. Proudhon’s exposition of the scheme is contained in a number of pamphlets, in newspapers, and in his books.[665] The explanations do not always tally, and he is not always happy in stating exactly what he thinks. This explains why he has been so often misunderstood. We shall try to give a résumé of his ideas before proceeding to criticise them and to compare them with analogous projects formulated both before and after his time. This will help us to understand where the originality of the scheme lay. The fundamental principle on which the whole scheme rests is somewhat as follows: Of all the forms of capital which allow of a right of escheat to the product of the worker, whether in the form of rent, of interest, or of discount, the most important is money, for it is only in the form of money that these dues are actually paid.[666] If we could suppress the right of escheat in the case of this universal form of capital—in other words, if interest were abolished—the right of escheat in every other case would soon disappear. Let us suppose that by means of some organisation or other money required for the purchase of land, machinery, and buildings for industrial purposes could be procured without interest. Were this the case the required capital would then be obtained in that way instead of by payment of interest or rent as is the case to-day. The
- 36. suppression of money interest would enable the worker to borrow capital gratuitously, and would give him immediate control over all useful capital instead of renting it. All attempts to hold up capital for the sake of receiving interest without labour would thus be frustrated. The right of property would be reduced to mere possession. Exchange would be reciprocal, and the worker would secure all the produce of his labour without having to share it with others. In short, economic justice would be secured. This is all very well, but how can the necessary money be obtained without paying interest? Everything depends upon that. Proudhon invites us to consider what money really is. It is a mere medium of exchange which is designed to facilitate the circulation of goods. Proudhon, who had hitherto regarded money as capital par excellence, now treats it as a mere instrument of exchange. “Money by itself is of no use to me. I merely take it in order to part with it. I can neither consume it nor cultivate it.”[667] It is a mere medium of exchange, and the interest paid merely covers this cost of circulation.[668] But paper money will fulfil this function quite as well and much more cheaply. Banks advance money in exchange for commodities or supply bills which are immediately transferable into cash. In exchange for this service the banker receives a discount which goes to remunerate the shareholders who have supplied the capital. Why not establish a bank without any capital which, like the Bank of France, will discount goods with bills—either circulation or exchange notes? The bills would be inconvertible, and consequently would cost scarcely anything, and there would be no capital to remunerate. The service given would be equal to that given by the banks, but would cost a great deal less. All that would be required to ensure the circulation of the bills would be an understanding on the part of the clientèle of the new bank that they would accept them as payment for goods. The bearer would thus be certain that they were always immediately exchangeable, just as if they were cash. The clients would lose nothing by accepting them, for the statutes would decree
- 37. that the bank should never trade in anything except goods actually delivered or under promise of delivery. The notes in circulation would never exceed the demands of commerce. They would always represent goods already produced and actually sold, but not yet paid for.[669] Following the example of other banks, the bank would advance to the seller of the goods a sum of money which it would subsequently recover from the buyer. The merchants and manufacturers would obtain not only their circulating capital without payment of interest, but also the fixed capital necessary for the founding of new industries. These advances obtained without interest would enable them to buy and not merely to rent the instruments of production which they needed.[670] The consequences of a reform of this kind cannot be easily enumerated. Not only would capital be freely placed at the disposal of everyone, but every class distinction would disappear[671] as soon as the worker ceased selling his products at cost price[672] and government itself would become useless. The aim of all government is to check the oppression of the weak by the strong.[673] But the moment fair exchange becomes possible, free contract is sufficient to secure this; there is no longer anyone who is oppressed. All are equally favoured, for the cause of contention has been removed. “Once capital and labour are identified, society will subsist of its own accord, and there will no longer be any need for government.” Government has “its origin and its whole being immersed in the economic system.” Proudhon’s system means anarchy—the absence of government.[674] Such is Proudhon’s plan, and such its consequences. To understand its full significance we must inquire whether (1) the substitution of exchange notes for bank-notes payable at sight is practicable, and, (2) supposing it to be practicable, if it is likely to have the effects anticipated by its author. Proudhon states that his system merely involves the universal adoption of exchange notes.[675] The Exchange Bank would merely
- 38. append the manager’s signature against the particular commodity discounted. But the issue of bank-notes at the present time involves nothing more than this. Instead of the bill of exchange which it now buys, and which enjoys only a limited circulation because the signatories have only a very limited credit, it is proposed that the Bank of France should substitute a note bearing its own signature, which is universally known and testifies to an illimitable amount of credit. In what respects, then, does Proudhon’s circulating medium differ from a bank-note? It differs simply in the fact that the signature of the Bank of France involves a promise of reimbursement in metallic money, a commodity universally accepted and demanded, while Proudhon’s Exchange Bank enters into no such definite agreement, but merely undertakes to accept it in lieu of payment. Theoretically, perhaps, the difference may appear insignificant, since the signatures are the only guarantee of the solvency of the notes of the Bank of France and the Exchange Bank alike. But in practice it is enormous. The certainty that the note can be exchanged for money gives it a wide currency and makes it acceptable to many people who rely implicitly upon their confidence in the bank. They need give no thought to the question of its solvency. A mere circulating medium, on the other hand, in addition to transferring a claim to certain goods belonging to clients of the bank, involves a certain amount of confidence in the solvency of those clients—a confidence not always easily justified. A note of this kind will only circulate among the bank’s clientèle. It will never reach the general public as the bank-note actually does. The clients themselves will keep their engagements just so long as the bank continues to discount goods that have actually been delivered and never refuses payment when it falls due. Failing this, the exchange notes, instead of regularly returning to the bank, will remain in circulation. A slight crisis or a little tension, and many of the clients will become insolvent. The total nominal value of the exchange notes will quickly surpass the actual value of the goods which they represent. There will be a rapid depreciation, and clients even will refuse to take them.
- 39. It is just possible to conceive of the circulation of such exchange notes, but the area of circulation will be a very limited one, and it will be utterly impossible if all the clients are not perfectly solvent. Let us, however, suppose that the practical difficulties have been overcome, and that the exchange notes are already in circulation. Interest will not disappear even then, and herein lies the essential weakness of the system. Why does the Bank of France charge a discount? Is it, as Proudhon suggests, because it supplies cash in return for a bill of exchange, so that “the seigneurial right of discount”[676] would disappear with the adoption of a non-metallic currency? The bank charges discount simply because it gives a certain quantity of merchandise immediately exchangeable in return for a bill of exchange falling due some months hence. It gives a tangible commodity in exchange for a promise—a present good for a future. What the bank takes is the difference between the present value of the bill of exchange and its value when it falls due. It is not the mere whim of the banker or the employment of a particular kind of money that gives rise to discount. It belongs to the very nature of things. Proudhon notwithstanding, a sale for cash and a sale with future payment must remain two different operations,[677] at least as long as the actual possession of a good is judged to be more advantageous than its future possession. This difference, even in the case of the Exchange Bank, would very soon reappear. The exchange notes would represent goods which were to be sold at a certain date. Although the Bank may refuse to discount, this will not lessen the advantage enjoyed by those merchants who are paid in cash. In order to secure this advantage they will enter into agreement with those buyers who pay cash either in the form of goods or of precious metals (which are, after all, commodities), granting a slight rebate on the paper price. There would thus be two sets of prices, the paper prices of goods sold for future payment and the money price of goods sold for cash. The first would be higher than the second, and the difference—
- 40. refused by the banks—would be pocketed by the sellers. Money interest would then reappear under a new form. To this Proudhon would reply that the clients of the bank, under the terms of their agreement, are debarred from taking any such premiums. Of course, if they remained faithful to their promises interest or discount would be suppressed; but this would result, not from the organisation of the Exchange Bank, but because of mutual agreement. This would be a purely moral reform requiring no banking contrivance to aid it, but one in which progress must inevitably be very slow. The Bank of Exchange failing to suppress discount, or to check the right of escheat in general, Proudhon’s other conclusions fall to the ground. His theoretical error consists in his treating money at one moment as capital par excellence, at another as a mere medium of exchange having no value. He forgets that money is desired not merely for purposes of exchange, but also as a store of value, as the proper instrument for hoarding and saving; and although the exchange notes may replace it in one respect, they fail in another. We may increase the circulating media at pleasure, but we cannot multiply our capital. Money may be replaced by goods, but this will not add a single franc to the capital which already exists in society, of which money itself is a part. Nor will it lessen the superior value of present as compared with future goods—a superiority which gives rise to the phenomenon of interest. The only result of multiplying the exchange notes without increasing the amount of social capital would be to raise prices as a whole, the price of land, houses, and machinery as well as the price of consumption goods. Capital would be lent as before, and being less plentiful the high rate of interest or rent would tend to maintain the high level of prices, and these would in turn be still further increased—a strange outcome of a reform intended to lower them! Proudhon, having exaggerated the evil effects of gold, now accepts Say’s formula too literally. J. B. Say allowed himself to be led into error by his own formula that “Goods
- 41. exchange for goods,” and it is interesting to note that the Exchange Bank is the logical, though somewhat paradoxical, outcome of the reaction against the Mercantilist ideas concerning money which can be traced to Adam Smith and the Physiocrats. This does not imply that Proudhon’s idea is devoid of truth. The false ideal of free credit contains the germ of a true ideal, namely, mutual credit. The Bank of France is a society of capitalists whose credit is established by the public who accept their notes. They really deal in public credit. Proudhon saw clearly enough that their notes are ultimately guaranteed by the public. The public are the true signatories of these commercial goods. Were the public insolvent the bank would never recover its advances, which really constitute the security for the bills. The shareholders’ capital is only a supplementary guarantee. The Comte Mollien, the Financial Minister of Napoleon I, declared that in theory a bank of issue should be able to operate without any capital. The public lends money to itself through the intermediary, the bank. Why not operate without the intermediary? Why not eliminate the entrepreneur of credit just as the industrial or commercial entrepreneur is eliminated in the case of the co-operative society? Discount would not disappear altogether, perhaps, but the rate of discount for borrowers would be diminished in proportion to the extent to which they stood to gain as lenders. This is the principle of the mutual credit society, where the initial capital is almost entirely superseded, its place being taken by the joint liability of the co-operators. Proudhon’s initial conception seems to be reducible to this very simple idea.[678] It seems that Proudhon was merely following the idea of a co- operative credit bank, just as in other parts of the work he copies other forms of co-operation without ever showing much sympathy for the principle itself.[679] In addition to a correct conception of the value of mutual credit, there runs throughout his whole system a more fundamental idea which helps to distinguish it from other forms of official socialism which arose either before or after his time. This is his profound
- 42. belief in individual liberty as the indispensable motive of economic activity in industrial societies. He realised better than any of his predecessors that economic liberty is a definite acquisition of modern societies, and that every true reform must be based on liberty. He has estimated the strength of spontaneous economic forces more clearly than anyone else. He has demonstrated their pernicious effects, but at the same time he has recognised, as Adam Smith had done, that this was the most powerful lever of progress. His passionate love of justice explains his hatred of private property, and his jealous belief in liberty aroused his hostility to socialism. Despite his famous formula, Destruam et ædificabo, he destroyed more than he built. His liberalism rested on his profound hold of economic realities, and the social problem of to-day, as Proudhon clearly saw, is how to combine justice with liberty. Proudhon’s project for an Exchange Bank must not be confused with analogous schemes that have appeared either before or after his day. All these schemes have a common basis in a reform of exchange as a remedy for social inequalities. Apart from this one idea the resemblance is frequently superficial, and the economic bases differ considerably. (1) Proudhon’s idea has often been contrasted with Robert Owen’s labour notes, and with the scheme prepared by Mr. Bray in 1839, in a work entitled Labour’s Wrongs and Labour’s Remedy,[680] as well as with the later system outlined by Rodbertus. Proudhon’s circulating notes have nothing in common with the labour notes described by these writers. The circulating notes represent commercial goods produced for the purpose of private exchange. Prices are freely fixed by buyer and seller, and they bear no relation to the labour time, as is the case with the labour notes. The final result, doubtless, was expected to be the same. Proudhon hoped that in this way the price of goods, now that it was no longer burdened with interest on capital, would equal cost of production. This result was to be obtained indirectly. The economic errors in the two cases are also different. Proudhon’s error lay in his failure to
- 43. realise that metallic money is a merchandise as well as an instrument of circulation. The error of Owen, of Bray, and of Rodbertus consisted of a failure to see that the price of goods includes something more than the mere amount of labour which they have cost to produce—an error which Proudhon at any rate did not commit. (2) Proudhon’s bank has also been confused with other banks of exchange which are really quite different. The ideas underlying such schemes had become prominent before Proudhon’s days, and numerous practical experiments had been attempted along the lines indicated. These banks aimed, not at the suppression of interest, but at a gradual rapprochement between producer and consumer, the goods offered for sale being bought by the bank, and paid for in exchange notes upon an agreed basis of calculation. Buyers in their turn would come to the bank to obtain the necessaries of life, paying for them in exchange notes. An experiment of this kind was made by a certain Fulcrand Mazel in 1829.[681] In this case the bank was merely an entrepôt which facilitated the marketing of the goods produced. Such a system is open to the objection that the value of the notes issued in payment for goods would necessarily vary with the fluctuations in the value of these goods during the interval which would elapse between the time they are taken in by the bank and their eventual purchase by consumers. Proudhon’s plan was to discount the goods already bought or actually delivered. The bank would only advance what was actually promised, but would make no charge for accommodation. Depreciation could only arise if the buyer were insolvent. It could never result from a fall in price as a result of a diminished demand for the product. Proudhon renounced all dealings with solidarity when he dismissed Mazel’s project.[682] (3) M. Solvay, a Belgian entrepreneur, has recently elaborated a scheme of “social accounting.” He also proposes the suppression of metallic money and the introduction of a perfect system of payment. Here, however, the analogy ends.
- 44. What Solvay proposed was the replacement of metallic money, not by bank-notes, but by a system of cheques and clearing-houses. His plan owes its inspiration to the modern development of the clearing- house system. Solvay thought that the system might be so extended as to make the employment of money entirely unnecessary. To every such clearing-house the State would hand over a cheque-book, covering a sum varying with the amount of real or personal property which the house possessed. This cheque-book was to have two columns, one for receipts, the other for expenditure. Whenever any commodity was sold, the liquidation of debt would be effected by the buyer’s stamping the book on the receipt side and the seller’s stamping it on the expenditure side. As soon as the total value of these transactions equalled the initial sum which the cheque-book was supposed to represent the book would be returned to the State bureau, where each individual account would be made up. “In this way everybody’s receipts and expenditure will always be known with absolute clearness.”[683] The advantage of such a system would in the first place consist in the economy of metallic money. In the second place it would furnish the State with information as to the extent of everybody’s fortune. The State would then be in possession of the information necessary for setting up an equable scheme of succession duties which would gradually suppress the hereditary transmission of acquired fortune. Such gradual suppression would result in the total extinction of the fundamental injustice of modern society, namely, the inequality of opportunity.[684] It would also help the application of that other principle of distributive justice, namely, “to each according as he produces.” The idea is Saint-Simon’s rather than Proudhon’s. The scope of the proposed reform is quite clear. Social accounting, according to Solvay, is a mere element in a more general conception, that of “productivism,” which in various ways is to result in increasing productivity to its maximum.[685] In all this it is impossible to see anything of Proudhon’s ideas. With the exception of the suggestion of suppressing metallic money
- 45. the fundamental conceptions are utterly different. M. Solvay makes no pretence to ability to suppress interest, and he never imagines that money is the cause of interest. The cheque and clearing system is a mere device for facilitating cash payment. It has nothing in common with the Proudhonian system, whereby circulating notes are supposed to place credit sales and cash payments on an equal footing.[686] The most serious objection to Solvay’s system lies in the fact that the suppression of money as a circulating medium must also involve its suppression as a measure of value. It seems difficult to imagine that the universal cheque bank with no monetary support would not result in a rapid inflation of prices because of the superabundance of paper. But although the particular process advocated by Solvay is open to criticism there can be no objection to his desire to diminish the quantity of metallic money or to further the ideal of equal opportunity for all. The project was never successfully put into practice. Like the cognate ideas of “the right to work,” “the organisation of labour,” and “working men’s associations,” the idea of “free credit” has left behind it a mere memory of a sudden check. On January 31, 1849, Proudhon, in the presence of a notary, set up a society known as the People’s Bank, with a view to showing the practicability of free credit. The actual organisation differs considerably from the theoretical outline of the Exchange Bank. The Exchange Bank was to have no capital: the People’s Bank had a capital of 5,000,000 francs, divided into shares of the value of 5 francs each. The Exchange Bank was to suppress metallic money: the People’s Bank had to be content with issuing notes against certain kinds of commercial goods only. The Exchange Bank was to suppress interest: the People’s Bank fixed it at 2 per cent., expecting that it could be reduced to a minimum of ¼ per cent. Despite these important changes the bank would not work. At the end of three months the subscribed capital was only 18,000 francs, although the number of subscribers was almost 12,000. Just at that
- 46. moment—March 25, 1849—Proudhon was brought before the Seine Assize Court to answer for two articles published on January 16 and 27, 1849, containing an attack on Louis Bonaparte. He was sentenced to three years’ imprisonment and fined 3000 francs. On April 11 he announced that the experiment would be discontinued, and that “events had already proved too strong for it,” which seemed to suggest that he had lost faith in the scheme. From that moment free credit falls into the background, and political and social considerations obtain first place in his later works. IV: PROUDHON’S INFLUENCE AFTER 1848 It is extremely difficult to follow the influence of Proudhon’s thought after 1848. Karl Marx, who was almost unknown in 1848, became by the publication of his Kapital in 1867 practically the sole representative of theoretical socialism. Marx’s Misère de la Philosophie,[687] published in 1847, is a bitter criticism of the Contradictions économiques, and shows how violently he was opposed to Proudhon’s ideas. To the champion of collectivism the advocate of peasant proprietorship is scarcely comprehensible; the theorist of class war can hardly be expected to sympathise with the advocate of class fusion, the revolutionary with the pacificist.[688] The success of Marx’s ideas after 1867 cast all previous social systems into the shade. Proudhon, he thought, was a mere petit bourgeois. When the celebrated International Working Men’s Association was being founded in London in 1864 the Parisian workmen who took part in it seemed to be entirely under the influence of Proudhon. At the first International Congress, held at Geneva in 1866, a memorial was presented which bore clear indications of Proudhon’s influence, and its recommendations were adopted. At the following Congress, in 1867, Proudhon’s ideas met with a more determined resistance, and by the time of the Congress of Brussels (1868), and that of Basle (1869), Marx’s influence had become predominant.
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