Mutual Credit

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Mutual Credit




Bibliographic Citation

Jean Jacques, “What is Mutual Credit,” The Alarm 1 no. 30 (October 6, 1888): 1; 1 no. 31 (October 13, 1888): 1; 1 no. 32 (October 20, 1888): 1, 3.

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From The Alarm



In this number begins a series of articles upon the organization of credit. I know some of my readers will dissent from the conclusions drawn, but in making criticism upon them they must first examine whether the author violates the fundamental principle of anarchy—liberty.

Freedom given, the question that exchange need not be voluntarily organized is not one of principle, but of faith. Despite censorial assertion to the contrary there is another “school” which may as justly claim to be anarchist as any devotee of Proudhon. These believe that liberty given, the unjust exactions of unfair competition under legalized privilege once abrogated, there would arise a different system of mutual credit, or rather confidence. That human nature is essentially good and only restrictions force human beings into cut-throat competition and selfishness. Freedom given, where each could have the full reward of his or her labor the dictum that money, as a medium of exchange, must still be a factor of societary life is also but an article of faith. Anarchy, being liberty, the absence of governmental authority by man over man, particular methods, or “systems,” must be left as secondary matters and be determined by “the survival of the fittest.” To be still clearer, if possible, for either side to say that their view of future credit or confidence must be so and so, is to become doctrinaire and authoritatively announce in what direction voluntary association must proceed.

The system outlined on the first page does not in any respect violate the fundamental principle of voluntary association. I regard it as purely anarchistic, yet have grave doubts as to its ultimate triumph. It strikes me as faulty as a prophecy in that it distrusts the more generous qualities of human nature. In short, it is a concession, or a compromise offered to the bourgeoisie in the hope of effecting a peaceable revolution; a compromise rejected and scorned and which will not avail—perhaps the more the pity—to avert the storm cloud now so densely rising over the social firmament. While The Alarm believes that the social revolution will be violent; it has never said that violence is desirable. In fact, I would regret it were regrets, or “better methods,” of aught avail. The question of “mutual credit” the basis of what is mistakenly called individualism is squarely presented and these columns are open to intelligent criticism of the positions taken. And I welcome the question, for I view the financial question as of far wider importance than the land question. With freedom to land and freedom to exchange, government falls and the ultimate thule of anarchy will be within reach.














We all accept the definition of capital as being past labor. But it becomes necessary to more clearly define the so-called “relations between capital and labor” under the absence of privilege. It needs here no argument to show that all differences in their relations have arisen from unjust prerogatives assumed or usurped by capital over labor and that with the removal of these restrictions upon labor, in other words the denial of prerogatives to capital, capital and labor would cease to be antagonistic forces in production. That, in fact, capital being past labor, under freedom, is but the tool, or instrument of present labor, in which its real productiveness consists in the creation of wealth instead of private plunder. Therefore, in true economics capital becomes the handmaid of labor, follows and seeks after it, and exists only as employed by labor for further production. While the expression of the relation between capitol and labor may be retained as a metaphor, the natural laws governing production and distribution under freedom are classified as labor economics.

That our present financial legislation is marked by inequality, that by our laws the right to issue free money, “emit bills of credit,” is unconstitutional, that the organization of personal credit by associative action to perform administrative functions is prevented by the artificial system now enjoying protection, to use a Gallicism, goes without saying. The fact is beyond dispute; the reasons given for its maintenance are to facilitate exchange and to provide for security, and that it is better than former methods which it has supplanted. Following the application of our crucial test, we are debarred from appealing to authority to institute some other enforced system, unless liberty proves deceptive and unavailing. Consequently we cannot accept any of the various phases of greenbackism, which not only denies the natural right of man to the use of his own wealth for currency, but also rests upon the assumption that public welfare is best subserved by arbitrary restrictions of individual liberty and that financial wisdom is only attained by a poll of general ignorance. Society, like children at a table, must have their supply regulated by paternalism, but lacking guidance we select other children to play pater familias! The money lender stands intrenched behind the banking privilege and sells to necessity the use of credit founded upon debt! The remedy here, as in that other monopoly, human slavery, does not lie in attempting legislative injection of morality into an immoral system, but in the death of the moribund system itself; for under the power of increase given to money monopoly, the borrower is ever dependent upon and under subjection to the lender. The privilege accorded on the one side necessarily carries with it a corresponding restriction on the other to avail oneself of natural resources. The case is not one where a great benefit is conferred that could not be otherwise obtained, but one where a particular method is suggested by selfishness and enforced by denying scope to any other. By granting liberty our much vaunted system would die from inanition.

Nor can it longer be objected that the growing interrelations of social needs have led to a specie basis currency to facilitate exchange and thus escape the fatal limitations of direct barter, for the use of coin is barter; it is the interchange of one commodity for another. True, it is an improvement, but by conferring upon gold and silver a legal value it has virtually enhanced their value as a medium of exchange. And as its legal tender quality makes it alone available in the payment of debt, or by its assumed representative, the dealer in this absolute necessity for the purposes of exchange is enabled to impose a tax upon credit, Further, the monopoly of money confers upon those who are its privileged custodians the power to use debt as an instrument of credit to facilitate exchange, and through and by this monopoly empowered to prevent exchanges until their exactions are first met. That is, for the boon of using their evidences of debt as a medium of exchange instead of my own credit based on both personal character and acquired wealth, I must pay them a bonus for the alleged accommodation they graciously confer! Making it through force of social privilege a marketable commodity before it can serve me. It therefore follows that its market rate will depend upon its quantity, and here the interest of monopoly exacts that it shall be limited to the lowest possible point consistent with the enormous superstructure of speculative credit raised upon it, that capital may turn over with greater rapidity and increase the gain desired from its use; and this anomalous state of affairs is justified under pretext of sustaining “the standard of value,” which we have seen to be purely speculative, in no wise determined either by the utility or the cost of the product thus valued.

A foot or a yard is a determinate measure of length, but gold and silver are not, for being commodities themselves they vary in intrinsic value; but when gold does appreciate in value, as has often been the case, being the standard, the degree of appreciation is marked in the quantity of articles it measures. Hence, values must be uncertain and fluctuating. In all ages, “the precious metals” have been in great demand for purposes of ornamentation and luxury, and a large per cent. of our coinage goes directly from the mint to the crucible, though still theoretically in circulation; and it is this demand that is now continually converting coin into plate, jewelry, etc., that increases its value. This speculative value is determined not only by this demand, but by the monopoly of the remaining percentage as the basis for public credit. Coin is wealth itself, it has a natural value as a product of labor; currency based upon it depends upon the degree of confidence in its redeemability. But its chief characteristic is that it represents wealth, can be converted into equivalent wealth. But in making it, and its representatives, the sole legal tender in exchange, it crowds out all other wealth which might as well facilitate exchange with equal security. Consequently, the necessity for sustaining the standard of value is not only equivalent to a necessity for sustaining the monopoly of credit, but also prevents the real value of a product from being determined by the cost of labor expended on it.

A solvent, whether issued by a banker, or a farmer, or a mechanic, under freedom to the exchange of credit needs no guarantee, for protection to all is equivalent to protection to none. It would receive credit for the wealth pledged behind it for its redemption, and the same scrutiny would be used then, as now, in determining its solvency. We only look for redemption when distrust arises, so redemption would only be sought when the product pledged was of greater benefit than its credit representative. Such a note would have as much credit in any free community as one now issued from a bank. Further, such a use of credit could not lead to a panic, for it would not be in inverse proportion to its security, not create a speculative demand to possess the wealth pledged for the purpose of hoarding; in the present case the basis is both fluctuating and inadequate, in the other stable and unaffected by fears.

A specie basis, besides arousing doubts as to the solvency of its representative, by the necessity of meeting the demands of interest and the desire for profits, creates a speculative credit in which the basis pledged bears but an infinitesimal proportion to the exchanges effected, and carrying with it as a fatal consequence the fact that any degree of prosperity invariably incites to larger operations, based upon this swollen credit, until the limit is passed and caution again lead to doubt and doubt to panics. The stability of the basis bears no relation to the enormous superstructure credit has sought, to raise upon it, and thousands fall yearly in the struggle.

Jean Jacques




After this review of the inequalities and striking injustice of the money monopoly, we will proceed to inquiring what manner the organization of individual credit, would serve a social function under liberty. For only as liberty fails to meet the requirements of progress will this or that authoritative regulation of credit and exchange receive justification. Can free competition be introduced in the domestic exchanges? In other words, can money be republicanized without injury to any, or destroying all relations of value?

In individual credit as described, the objection will arise that it would be limited in effect from the very nature of the notes to local needs, or would be more worthless at a distance from the old state banknotes. But any argument on the social relations carries with it the recognition of associative enterprise. What men have done notwithstanding trammels they will be nonetheless able to perform in the absence of interference. When the interests of all are led to cooperate, not made to combine, with those of each, demand will seek supply as a result of free relations. We have evidence of this on every hand in vast national associations, uniting on the voluntary principal, to carry out or to achieve some common purpose. Various trade unions, Knights of Labor, state and national professional associations, grangers, mutual insurance orders, etc., are evidence of the growing tendency toward independent cooperative action. Insurance not being a governmental function, association naturally arises for that purpose, and as the tax is direct and voluntary and free competition tends to the limit of cost the end is reached easier and cheaper than giving it into the hands of the state where these limitations on expense would be destroyed. They may afford both indemnity and security for life, for wealth earned, for various enterprises involving risk, but a common medium of exchange among their members is tabooed.

But liberty, the equality of opportunities that succeeds emancipation, would not be dependent upon the action of such bodies to work out a natural and effective method. Existing social mechanisms need not fall altogether simply because deprived of certain privileges now conferred. The first question that would arise in the mind of bankers on finding the money monopoly removed would naturally be: how can I best adapt myself to the change to conditions? However onerous may be the burden entailed by the banking system, still it is indisputable that the banker does exercise a social function. The necessity of the bank and that of its privileges are widely distinct propositions. Nor would it be to the interest of society, upon the removal of the privileges he had heretofore enjoyed, that his ability to still discharge indispensable social functions should be ignored. Nor would this follow. Liberty does not imply restriction nor selection, but self-election by ability to perform.

There would be as urgent need for method under liberty as there is now under authority, and the same test, fitness, would determine a man’s success more readily than now. Administration is never invented de novo and the methods now in vogue, minus the power now given by monopoly, would necessarily adapt themselves to the new social environment.

Economic readers will remember where Amasa Walker describes the method by which foreign exchanges are effected without the disbursement of money, saved to pay balances; and that this naturally resulted from the absence of authoritative interference would naturally result; the supply would follow demand. Extension of products ever tends, as commerce becomes more developed, to simplification of methods, as far as interference of law will permit.

Col. William B. Greene, in his little work on “Mutual Banking,” has given such a method, based upon proved owns more elaborate work on the “Organization of Credit” in explanation of the “People’s Bank of Exchange.” To Proudhon must be given the merit of first generalizing the bill of exchange to relieve exchange from the monopoly legislation has fastened upon it. In the kernel greens sketch we have the following plan for a mutual bank:


1. Any person by pledging actual property to the bank, may become a member of the mutual banking company.

2. Any member may borrow the paper money of the bank, on his own note running to maturity (without endorsement), to an amount not to exceed one half of the value of the property by himself pledged.

3. Each member binds himself, on admission, to receive in all payments, from whom ever it may be, and at par, the paper of the mutual bank.

4. The rate of interest at which said money shall be loaned shall be determined by, and shall, if possible, just meet and cover the bare expenses of the institution. As for interest in the common acceptation of the word, its rate shall be, at the mutual bank precisely 0.

5. No money shall be loaned to any persons who are not members of the company; that is, no money shall be loaned, except on the pledge of actual property.

6. Any member, by paying his debts to the bank, may have his property released from all obligations to the bank, or to the holders of the banks money, as such.

7. As for the bank, it shall never redeem any of its notes in specie; nor shall it ever receive the specie in payments, or the bills of specie paying Banks, except at a discount of one half of one percent.

Ships and houses that are insured, machinery, in short, anything that may be sold under the hammer, maybe made the basis for the issue of mutual money. Beautiful banking opens the way to know monopoly; for it simply elevates every species of property to the rank which has hitherto been exclusively occupied by gold and silver.


Here is a voluntary association of individuals in the community, who, by a pledge of wealth, or past labor, receive there for bills, in the form of the visible receipts, which among all members serve as a medium of exchange, and by the continuance of the clearinghouse, by social needs become a functional necessity, Visa bills of exchange would be interchanged and redeemable only in merchandise or services. Currency, or domestic bills of exchange in being redeemable in the product of labor would establish labor as the standard and measure of value, and as redemption would be cancellation of the desire would not give rise to a panic.

Let us listen to the master. Proudhon says:


“Is this a paper currency?

I answer, unhesitatingly, No: it is neither paper-money, nor money of paper; it is neither government-checks, nor even bank-bills; it is not of the nature of any thing that has been hitherto invented to make up for the scarcity of specie. It is the bill of exchange generalized.

The essence of the bill of exchange is constituted, 1st, By its being drawn from one place on another; 2d, By its representing a real value equal to the sum it expresses; 3d, By the promise or obligation on the part of the drawee to pay it when it falls due.

In three words, that which constitutes the bill of exchange is exchange, provision, acceptance.

As to the date of issue, or of falling due; as to the designation of the places, persons, object,--these are particular circumstances which do not relate to the essence of the title, but which serve merely to give it a determinate, personal, and local actuality.

Now, what is the bank-paper I propose to create?

It is the bill of exchange stripped of the circumstantial qualities of date, place, person, object, term of maturity, and reduced to its essential qualities,—exchange, acceptance, provision.

It is, to explain myself still more clearly, the bill of exchange, payable at sight and for ever, drawn from every place in France upon every other place in France, made by 100,000 drawers, guaranteed by 100,000 indorsers, accepted by the 100,000 subscribers drawn upon; having provision made for its payment in the 100,000 workshops, manufactories, stores, &c., of the same 100,000 subscribers.

I say, therefore, that such a title unites every condition of solidity and security, and that it is susceptible of no depreciation.

It is eminently solid; since, on one side, it represents the ordinary, local, personal, actual paper of exchange, determined in its object, and representing a real value, a service rendered, merchandise delivered or whose delivery is guaranteed and certain; while, on the other side, it is guaranteed by the contract, in solido, of 100,000 exchangers, who, by their mass, their independence, and at the same time by the unity and connection of their operations, offer millions of millions of probability of payment against one of non-payment. Gold is a thousand times less sure.

In fact, if, in the ordinary conditions of commerce, we may say that a bill of exchange made by a known merchant offers two chances of payment against one of non-payment, the same bill of exchange if it is indorsed by another known merchant, will offer four chances of payment against one. If it is indorsed by three, four, or a greater number of merchants equally well known there will be eight, sixteen, thirty-two, &c., to wager against one that three, four, five, &c., known merchants will not fail at the same time, since the favorable chances increase in geometrical proportion with the number of indorsers. What, then, ought to be the certainty of a bill of exchange made by 100,000 well known subscribers, who are all of them interested to promote its circulation?

I add that this title is susceptible of no depreciation. The reason for than is found, first, in the perfect solidity of a mass of 100,000 signers. But there exists another reason, more direct, and, if possible, more reassuring: it is that the issues of the new paper can never be exaggerated like those of ordinary bank-bills, treasury-notes, paper-money, assignats, &c.; for the issues take place against good commercial paper only, and in the regular, necessarily limited, measured, and proportionate process of discounting.

In the combination I propose, the paper (at once sign of credit and instrument of circulation) grows out of the best business-paper, which itself represents products delivered, and by no means merchandise unsold. ‘This paper, I affirm, can never be refused in payment, since it is subscribed beforehand by the mass of producers.

This paper offers so much the more security and convenience, inasmuch as it may be tried on a small scale, and with as few persons as you see fit, and that without the least violence, without the least peril.

Suppose the Bank of Exchange to start at first on a basis of 1,000 subscribers instead of 100,000: the amount of paper it would issue would be in proportion to the business of these 1,000 subscribers, and negotiable only among themselves. Afterwards, according as other persons should adhere to the bank, the proportion of bills would be as 5,000, 10,000, 50,000, &c.; and their circulation would grow with the number of subscribers, as a money peculiar to them. Then, when the whole of France should have adhered to the statutes of the new bank, the issue of paper would be equal, at every instant, to the totality of circulating values.

I do not conceive it necessary to insist longer. Men acquainted with banking will understand me without difficulty, and will supply from their own minds the details of execution.”


We may then confidently claim that the voluntary organization of mutual credit to secure free capital is fully practicable. The various banks thus organized, by a system of mutual clearance would extend credit and all the difficulties now so easy to conjecture be solved as they were respectively recognized. It would accomplish the following beneficent results:

1. In demonetizing gold and silver, thus depriving them of the royalty they now exercise among commodities, it would destroy their uses standards of value and leave labor, the cost of production, the regulator of value. Value being the proportional relation between products, this relation would no longer be determined by a fluctuating standard, but measured by the extent and degree of labor employed and thus establish equity in exchange. Nor need there be a conventional standard agreed upon, for freedom would itself lead to such by and through equal opportunities and experience, establishing a just rate measured by the intensity and skill of the exertion and the degree of repugnance overcome. The agreement being voluntary, every banking company would find their own interests enhanced through competition, in finding and acting upon this natural value. Prices, like everything else, following the line of least resistance, would naturally flow, in the absence of artificial conduits, into just relations and labor receive its full reward. “Inflation” of credit could not be greater than the increase of wealth and no increase of circulating medium could affect prices disastrously or otherwise below the standard of labor value, for it would measure it as the thermometer does heat. Nor could contraction raise prices, foreign currency as in everything else under freedom supply would follow demand.

2. It would remove the curse of usury without destroying the incentive to production. In taking from capital its ill-gotten usufruct of labor the impetus to the production of wealth, in which all classes would be equally benefited and no artificial limit to its scope and development, would remain because individuality would have greater freedom, and not narcotized by making labor unnecessary and finding it wants met by paternal care. And this without calling in authority to accomplish what power, from its very essence, has always been averse to secure—liberty. The necessity for exertion remaining, and opportunity open for its full reward with the perfect development of the individual aptitudes is sufficient ground for the firm conviction that man would not deteriorate into barbarism, as our economists so sadly fear.

All wealth would in a just sense to be available as capital, or the material of labor, and credit be within the reach its smallest possessor; and this wealth when thus converted by credits to reproductive purpose would be employed without exploiting those who give to wealth it’s real value, for capital and labor would be united, the reverse sides of the same exertion.

3. Industrial emancipation would become a fact; the producer would no longer be repressed by the fluctuating demand of the speculative market, but be benefited by every new appliance that tended to reduce the exhaustiveness of toil. The demand for labor would increase as its wealth producing qualities became more equitably shared, and ability to increase it would receive no damper from fear that the fruits of exertion would be swallowed up by some device of privilege. In the incentive given to production emulation would be incited, ambition aroused, higher desires created and every element of individuality called into helpful exercise rather than repressed. Economics would no longer assert with Roscher that


“The condition of workmen can be continued good or materially improved only on the condition that their number increase less rapidly than the capital destined for its wages.”


Now follow it with the remark:


“Much especially depends upon their foresight and self-control as regards bringing children into the world. Without this latter virtue even the favorable circumstances would soon be trifled away!”


On the contrary, the toiler, instead of remaining a hireling in the army of industry, would not only have every manly faculty aroused, but every opportunity given through increased demand and fuller reward to rise to independence.

4. Social wealth and prosperity would then be attained, and by the only way it ever can be, by the wealth and prosperity of the individuals who together constitute society. The “Dismal Science” would no longer compute averages to show that in the “prosperity” of some, an average well-being results, but in the incentive given to exertion and an ever widening circle of wants that freedom can alone call forth, betake itself to computations on the possibilities of a civilization founded on “the greatest good to all,” instead of being the philosophy of speculation upon human misfortune and misery.

Finally, in the words of Col. Greene,


“The existing bank reproduces the aristocratic organizations; it has its Spartan element of privileged stockholders, its Laconian element of obsequious speculators, and, on the outside, a multitude of Helots who are excluded from its advantages. Answer us, reader: If we are able, at this time, to bring forward the existing banking system as a new thing. and should recommend its adoption, would you not laugh in our face, and characterize our proposition as ridiculous? Yet the existing system has an actual and practical being, in spite of all its imperfections: nay, more, it is the ruling element of the present civilization of the Christian world; it has substituted itself, or is now substituting itself, in the place of monarchies and nobilities. Who is the noble of the present day, if not the man who lends money at interest? Who is the emperor, if not Pereire or Baron Rothschild? Now, if the present system of banking is capable of actual existence, how much more capable of actual existence is the system of mutual banking! Mutual banking combines all the good elements of the method now in operation, and is capable of securing a thousand benefits which the present method cannot compass, and is moreover free from all its disadvantages!”

Jean Jacques.


Jean Jacques, “What is Mutual Credit,” The Alarm 1 no. 30 (October 6, 1888): 1; 1 no. 31 (October 13, 1888): 1; 1 no. 32 (October 20, 1888): 1, 3.



Jean Jacques, “Mutual Credit,” The Libertarian Labyrinth, accessed September 17, 2019,