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 HERMAN CAHN
 
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 ^THE COLLAPSE OF 
 CAPITALISM 
 
 By 
 
 HERMAN CAHN 
 
 AUTHOR OF "CAPITAL TODAY" 
 
 CHICAGO 
 
 CHARLES H. KERR & COMPANY 
 
 1918 
 
 itii
 
 so ■ 
 
 JOHN F. HI6GIKS, raiNTER AND BINDER 
 878-380 WEST MONROE STREET, CHICAQO 
 
 U1V1\^ERS!TY OF SOUTHERN CALIFORNIA LIBRARY
 
 CONTENTS 
 
 Chapter Page 
 
 Introduction 5 
 
 I. Socialist Difference of 
 
 Opinion 11 
 
 II. Stagnant Economics 17 
 
 III. The Fatal Flaw of Capitalism 33 
 
 IV. Money OF Account 49 
 
 V. The Social Insolvency 66 
 
 VI. The Money Source for the 
 
 War Loans 84 
 
 VII. The War, Birth Deliverer of 
 
 Socialism 101
 
 INTRODUCTION 
 
 SOME of our best informed American 
 socialists evidently think it good pol- 
 icy to contend that the European so- 
 cialists tried to prevent the war, but 
 unfortunately were powerless to do so. 
 No doubt this is mainly intended as an 
 excuse for the German socialists who 
 were considered the advance guard of the 
 International until the outbreak of the 
 war. Those who make this contention, 
 so much at variance with the facts, be- 
 lieve that the socialist movement will go 
 on after the war, much the same as be- 
 fore and for an indefinite time. Their 
 purpose is to re-establish the Interna- 
 tional and in order to put the movement 
 on the old track again, to prepare by 
 bringing about a general reconciliation of 
 the dissenting elements. 
 
 Lassalle has said that "it is futile to try 
 to be cunning in great things," and we 
 may add that this maxim is true no matter 
 how well intentioned the cunning might 
 
 5
 
 O THE COLLAPSE OF CAPITALISM 
 
 be. There is never anything as beneficent 
 on great occasions as the truth. 
 
 At least definitely a year before the 
 outbreak of the war, but more probably 
 for a number of years past, the Interna- 
 tional betrayed a lack of coherence. 
 When that great catastrophe came, it re- 
 vealed, as could plainly be foreseen, any- 
 thing but that unity of action which was 
 logically to be expected of a party priding 
 itself on its ability to judge current 
 events scientifically and to foretell future 
 events by its understanding of present 
 causes. If the science on which the party 
 was based has not demanded important 
 modification, something to which all sci- 
 ences, especially that of economics, are 
 subject ; if a cleavage has not taken place 
 within the working class, dividing it into 
 social groups with antagonistic interests; 
 and if the length of time which may seem 
 necessary for an expected event to mate- 
 rialize does not influence men's present 
 and practical, even if not theoretical, 
 attitude in regard to such an event — then 
 there is no explanation for the divergence 
 of thought among those who style them- 
 selves socialists and for their failure to
 
 INTRODUCTION 7 
 
 act as a unit. At that critical moment 
 united action of the International would 
 not have been pacifistic, but revolution- 
 ary, v^hile at present the demand for 
 "peace by negotiation," or dickering, is 
 purely pacifistic. 
 
 In the United States the socialist move- 
 ment was too weak to be put to the real 
 test of action, instead of mere declara- 
 tions. But even here dififerences of opin- 
 ion arose. This is not to be understood 
 as referring at all to the handful of former 
 party members who joined the jingo mul- 
 titude — fiction writers, rich of imagina- 
 tion, but sorely poor in knowledge ; writ- 
 ers for popular magazines who never 
 were, nor needed to be, particular about 
 their facts; sentimentalists graduated 
 from charitable settlements; professors 
 and other collegians handicapped by their 
 college training, etc., etc. All these ele- 
 ments were liable to flop at any time. No, 
 we refer to differences of opinion between 
 real Marxian socialists. 
 
 The immense majority of these have 
 to the best of their ability opposed our 
 entrance into the war, and since this step 
 was simply irresistible, they have since
 
 8 THE COLLAPSE OF CAPITALISM 
 
 been advocating an early peace. What 
 evidently has determined their attitude is 
 the old socialist ideal of universal peace, 
 an ideal which, however, cannot be real- 
 ized in an antagonistic form of society 
 and of which the realization must be de- 
 ferred until that form of society has 
 ceased to exist. 
 
 There was, on the other hand, a small 
 number of socialists in our midst who, 
 with remarkable intuition, saw in this 
 world war from the very start an act of 
 suicide on the part of capitalism. After 
 the die had been cast it was a mistake, 
 so they felt, to try to prevent capitalism 
 from accomplishing its own destruction. 
 They could not, in conscience and as hu- 
 mane men, help the consummation along, 
 but they could advise keeping our hands 
 off. Had their advice received any atten- 
 tion, many a useless sacrifice to mob law 
 would have been spared. True, these 
 sacrifices are a mere trifle compared to 
 the untold suffering caused by the war. 
 This suffering went to the hearts of the 
 few dissenters no less than it did to the 
 hearts of the pacifists, but the former 
 recognized that it was the inexorable
 
 INTRODUCTION y 
 
 price which humanity had to pay for its 
 final moulting from animaldom. 
 
 The word "intuition" has been used in 
 the preceding paragraph with due delib- 
 eration. Although the provisions of these 
 few fine-sensed socialists are now rapidly 
 coming true in a general way, yet it is a 
 fact that they never stated their reasons 
 clearly or convincingly. Certainly the 
 decisive reason was never mentioned by 
 them. That is a matter of post-Marxian 
 economics which this little book under- 
 takes to submit in brief form. Economic 
 evolution plays, in our time, a more de- 
 cisive part than in the past, and even more 
 decisive than we could have thought pos- 
 sible only a few years ago. The influence 
 of popular intelligence on social revolu- 
 tion is reduced to its lowest expression — 
 Hobson's choice. The people, when the 
 moment shall have come, will do that 
 which they must do, that which they can- 
 not help doing. 
 
 Basing ourselves on the economics of 
 Marx, we shall find by analysis of the 
 most profound change which has sur- 
 vened in the economic world since his 
 time, that a new force has grown up
 
 10 THE COLLAPSE OF CAPITALISM 
 
 which no longer leaves the downfall of 
 capitalism to the vague future, or its 
 earlier ending to the spread of a high 
 degree of intelligence among the real 
 proletariat, but makes the coming of that 
 great event a matter of figures and en- 
 tirely independent of even the collective 
 will of men. The war has enormously 
 hastened the development of this force, 
 and the catastrophe is imminent. 
 
 Therefore, godspeed to the blind tools 
 of history, who are hastening the destruc- 
 tion of the war-breeding class state !
 
 THE COLLAPSE OF 
 CAPITALISM 
 
 CHAPTER I 
 Socialist Differences of Opinion 
 
 HAS it escaped the reader that a com- 
 plete change of mind has taken 
 place among the leaders of American 
 capitalism during the past year? Do you 
 remember how not so long ago we were 
 in high glee over the billions of profit we 
 were gathering in furnishing to war the 
 necessaries of his business? What an im- 
 petuous customer he was, caring only for 
 early delivery, and not for price at all. 
 He did not have to make a living selling 
 the goods at a profit; his business was 
 bankrupt from the start. How our for- 
 eign debt was wiped out either by pur- 
 chase of the securities or by receiving 
 them as collateral for our loans? How 
 our bank reserves were swelled by ship- 
 ments from Europe of gold, enabling the 
 banks to inflate their loan accounts to the 
 tune of seven times as much? We had
 
 12 THE COLLAPSE OF CAPITALISM 
 
 ceased to be a debtor nation and had be- 
 come a creditor nation instead. We were 
 by far the richest country, and Europe's 
 misfortune would surely afford us a still 
 greater lead. Europe's South American 
 investments of $6,000,000,000— ship- 
 wrecked by Europe's inability to further 
 finance the enterprises — would fall into 
 our lap at ten cents on the dollar. We 
 started to invest in China, that country 
 of fabulous possibilities of exploitation. 
 New York was going to be the financial 
 center of the world, instead of London. 
 And we were going to have the necessary 
 number of battleships to protect our em- 
 pire, for "in international finance there 
 are no receiverships, unfortunately," as 
 Mortimer Schiff said, with tears in his 
 eyes, in addressing a bankers' meeting, 
 "we still need battleships." 
 
 Then the change of mind already al- 
 luded to took place. The mood changed. 
 There was a transition from the exultant 
 strains in the major key to discordant 
 tones of alarm. The chorus voicing the 
 hope that American capital was to exploit 
 the world has now become mute. In- 
 stead, posters show us Columbia with a
 
 SOCIALIST DIFFERENCES OF OPINION 13 
 
 frown of anguish, and the epigraph, "You 
 buy a liberty bond lest I perish." And 
 our Secretary of the Treasury, son-in-law 
 of our President, says that, unless we 
 sacrifice money without stint, we stand 
 to lose 125,000 millions of dollars. Why 
 just that sum? Surely, it is not the result 
 of calculation. It so happens that that 
 sum represents half of the lately-men- 
 tioned estimates of our national wealth, 
 and the possibility of the loss of the cap- 
 ital accumulation of a generation should 
 suffice to send cold shivers down the 
 backs of the possessors of our national 
 wealth and to produce the necessary state 
 of mind. 
 
 Of course, he might have given the full 
 and true weight to his warning by saying 
 that we stand to lose every dollar of our 
 wealth. But that would have let the cat 
 out of the bag by inducing the question 
 how that were possible, unless the very 
 existence of capitalism were at stake. It 
 would have led to too much thinking, and 
 you cannot make war that way. 
 
 Evidently the light of a new economics 
 has broken in on the minds of the direct- 
 ing group of the capitalist class. Has,
 
 14 THE COLLAPSE OF CAPITALISM 
 
 perhaps, Mr. Theodore Price, the editor 
 of Commerce and Finance, privately 
 made it clear to them what o'clock it is? 
 
 And so, in order to still prevent, if pos- 
 sible, the completion of capitalism's sui- 
 cide, we had to endeavor to end the war. 
 We forgot our former fear of sudden 
 peace. We began to see the peril of con- 
 tinued war and it was becoming evident 
 that there was no possibility of peace ex- 
 cept through the victory of one side. So 
 we thrust all our war profits into the 
 war's furnace and duplicated the sum at 
 once out of our original capital — ten bil- 
 lion dollars in all. In addition, we pre- 
 pare to take a million men out of 
 productive life. 
 
 Such is the emergency as seen at least 
 by the inner circle of the capitalists who 
 mould "public opinion." In the face of 
 this the socialists hold differing views. 
 I hope that nobody misunderstands me 
 as referring at all to the handful of novel 
 writers, poets and other literati who re- 
 cently said goodby to us. They are long 
 on imagination, but particularly short on 
 knowledge. Judge of their fund of the 
 latter, if perhaps the solidest among them,
 
 SOCIALIST DIFFERENCES OF OPINION 15 
 
 formerly a director of a school of social 
 science, in answering a question of a 
 reader in a recent issue of the Appeal to 
 Reason, says that no doubt there would 
 be money, banks and interest under 
 socialism. 
 
 The International broke down from a 
 lack of unity between the national so- 
 cialist parties in their world outlook. 
 Especially the main contingent, the Ger- 
 mans, separated themselves more and 
 more on the question of war from the 
 British and French, led by Hardie and 
 Jaures. The attitude of the Germans, and 
 their ultimate defection, is not to be ex- 
 plained by national character or national 
 training, but by economic development. 
 But this can more adequately be discussed 
 in the next chapter after having taken a 
 closer look at the present state of eco- 
 nomic thought among the workers. The 
 defection of the Germans, interpreted as 
 baseness and treason by most French and 
 British socialists, so outraged the latter 
 that they became supporters of their gov- 
 ernments for war a outrance. However, 
 there exists now in every country a con- 
 siderable socialist element which holds
 
 16 THE COLLAPSE OF CAPITALISM 
 
 with the American socialist party that the 
 interests of the international proletariat 
 demand immediate peace. International 
 socialist action at the present time in 
 favor of peace cannot be viewed in the 
 same light as similar action might have 
 been before the war. At that time action 
 in favor of peace was revolutionary action 
 against capitalism. Today such action 
 would try to rescue capitalism. 
 
 In the face of one of the most stupen- 
 dous facts of all history the socialists are 
 at sea, left without guidance by the 
 scientific socialism known to them.
 
 CHAPTER II. 
 Stagnant Economics. 
 
 NOBODY can put a higher estimate on 
 Marx's work than the writer of this 
 book. I have said elsewhere that the 
 human race has, perhaps, not produced a 
 man of equal power of analysis and 
 consecutive thinking in the thousands of 
 years since Aristotle. 
 
 A professor of economics at a New 
 England university, writing in the Inter- 
 collegiate Socialist, describes my devo- 
 tion to Marx as "almost touching." It 
 must seem all the more touching since, 
 according to the professor, every word 
 that Marx wrote on economics was false. 
 Being a very ignorant man on the par- 
 ticular subject of economics, he does not 
 realize that he says just that and no less. 
 But it throws a peculiar light on the 
 understanding of Socialism in some quar- 
 ters that neither the editor of the Inter- 
 collegiate Socialist, nor any of its readers, 
 questioned the professorial authority. 
 
 Yet all sciences are subject to change, 
 and none changes as continually and 
 
 17
 
 18 THE COLLAPSE OF CAPITALISM 
 
 rapidly as economics. At one time an 
 accepted definition of mammals became 
 insufficient in consequence of the discov- 
 ery on a new continent of egg-laying 
 mammals. Old geographies describe as 
 seaports cities now miles from the coast. 
 What is permanent in Marx is his intro- 
 duction of the methods of science into 
 economics and his analysis of the eco- 
 nomic phenomena existing in his time. 
 As no error has ever been proven against 
 these analyses, they must form the 
 groundwork for the study of any subse- 
 quently arising economic phenomena. 
 But as far as Marx's forecast of the 
 future, based on the economic conditions 
 in his time, is concerned, it is subject to 
 modification by later economic develop- 
 ments. And, indeed, developments of 
 overshadowing importance have taken 
 place since Marx, which will be briefly 
 outlined in the next chapter. If economic 
 development has made a great stride for- 
 ward and Marxists remain under the 
 impression that nothing essential has 
 changed, then their science becomes de- 
 tached from the living present and in- 
 capable of understanding it. Marxism
 
 STAGNANT ECONOMICS 19 
 
 thus becomes atrophied and reduced to 
 mere scholasticism. 
 
 The final conclusion derived from 
 Marx's analysis of the life processes of 
 capitalist society is that their inner con- 
 tradictions prove this form of society to 
 be only transitional, not a final form. The 
 operation of these processes has the 
 double effect of increasing the difficulties 
 of the present form of society and pre- 
 paring the technical conditions for a 
 higher, a perfectly social form. The se- 
 quence of thoughts may be summarized 
 briefly as follows : 
 
 Free competition, a life principle of 
 capitalism, forces the individual capital- 
 ist concern to strive ever for a lower cost 
 of production. This purpose is attained 
 mainly by improving the means of pro- 
 duction and enlarging them to any scale 
 called for by new scientific discoveries 
 and the development of technique. The 
 mass of products is thus constantly in- 
 creased. But capitalist production is car- 
 ried on primarily for profit. The profit 
 .can only be realized by the sale of the 
 products. But inasmuch as the workers, 
 the great and ever-growing mass of the
 
 20 THE COLLAPSE OF CAPITALISM 
 
 population, receive in the form of wages 
 only part of the product value,* the con- 
 tradiction between the irresistibly grow- 
 ing mass of commodities and the condi- 
 tions for realizing the profit by their sale 
 becomes ever greater. On the one hand, 
 the system tends to frustrate its own pri- 
 mary purpose ; on the other, it inflicts un- 
 employment and privation on the work- 
 ers, who are thus forced to end the 
 system. 
 
 As a prognostication based on the 
 working of the economic factors in Marx's 
 time, the foregoing is as logical today as 
 when it was first given to the world by 
 him. And that it would prove true ulti- 
 mately on its premises alone cannot be 
 questioned, in spite of certain obstacles 
 which have since appeared and which re- 
 late to the important question of time — 
 the time necessary for capitalism to reach 
 its phase of decay and untenability. Time 
 is apt to afifect any problem of human 
 affairs very materially. A later economic 
 phenomenon might arise, and, as I will 
 
 *I have considered It of importance to prove in 
 "Capital Today," from official figures, that this part 
 Is not large, but exceedingly email — no more than 20 
 to 25 per cent.
 
 STAGNANT ECONOMICS 21 
 
 show, actually has arisen, promising the 
 social transformation in a much shorter 
 time and rendering the earlier prognosti- 
 cation obsolete. 
 
 The obstacles above referred to are, or 
 rather were before this revolutionizing 
 war: 
 
 (1) Modern imperialism, signifying the 
 almost unlimited expansion of capitalism. 
 
 (2) As a result of this determining de- 
 velopment, a changed ideology of certain 
 elements among the workers and of the 
 intellectual proletariat. 
 
 Modern imperialism aims at the politi- 
 cal control of all backward countries by 
 the great capitalist governments for the 
 purpose of securing to their respective 
 capitalists the safety of the industrial en- 
 terprises which these may establish in 
 those countries. The control is to insure 
 to the home industries the necessary sup- 
 ply of raw material, a monopolistic mar- 
 ket for the home exploitation of the con- 
 trolled territories. This exportation of 
 surplus capital — not of loan capital, as is 
 often understood, but of industrial capi- 
 tal, principally in the form of commodi- 
 ties — appeared to be capable of almost
 
 22 THE COLLAPSE OF CAPITALISM 
 
 boundless extension, and promised a long 
 lease of life to capitalism. China alone is 
 ready tomorrow to absorb a capitaliza- 
 tion of a hundred billions of dollars. In 
 face of such possibilities Marx's forecast 
 loses much of its force. 
 
 About the time when Marx's "Capital" 
 appeared, the United States, having just 
 overcome the agrarian South, emerged 
 from colonial conditions and started on 
 its wonderful career as an industrial na- 
 tion. Our capitalists have now become 
 the richest in the world, and their annual 
 profit accumulations have attained a vol- 
 ume which makes investment on a profit 
 basis — not on a mere interest basis — dif- 
 ficult at home. The railroad system is 
 completed and is paying for improved 
 equipment, as are the trusts, largely out 
 of profits. More recently the nascent 
 automobile industry called for new capi- 
 tal. Since then there has come no impor- 
 tant call for capital on a profit basis, such 
 as our capitalists have been accustomed 
 to. They must look abroad and have 
 their eyes on Latin America and China. 
 
 The great rise of capital in Germany 
 dates from about the same time and has
 
 STAGNANT ECONOMICS 23 
 
 been equally prodigious. It received its 
 impetus partly from the French war in- 
 demnity, but especially from the protec- 
 tive tariff established in 1878. Being a 
 small country, with few natural resources, 
 Germany has been aiming to control back- 
 ward countries to insure the necessary 
 supply of raw materials for her trusts and 
 monopolistic markets for their products. 
 Everywhere she encountered England, 
 either in prior possession or otherwise in 
 opposition. 
 
 The industrial advance of Germany was 
 accompanied by a marked improvement 
 in the condition of her working class, to 
 some extent fostered from above by "so- 
 cial legislation." Emigration almost 
 ceased and was balanced by immigration 
 of Poles and Italians. The type of the 
 German worker before the great indus- 
 trial rise was a man wearing a blue blouse 
 and a cap, with a clay pipe in his mouth. 
 Ten years ago the writer saw the railway 
 platform of a large city densely crowded 
 with gentlemen wearing natty woolen 
 suits, derby hats, carrying leather hand- 
 bags and smoking cigars. On inquiry he
 
 24 THE COLLAPSE OF CAPITALISM 
 
 learned that they were workingmcn going 
 to their homes in the suburbs. 
 
 The Socialist movement in Germany 
 antedates big capitalism and trade union- 
 ism. The earlier Socialists were enthusi- 
 astic, aggressive and somewhat prone to 
 violence. But their mood changed grad- 
 ually. For years past many voices were 
 heard in their party condemning its in- 
 aggressiveness and growing conserva- 
 tism. In international congresses the 
 Germans were the stumbling block to 
 common action against militarism and 
 war. But the most remarkable historical 
 fact is that a year before the outbreak of 
 the war, almost at the same moment when 
 the French Socialists under Jaures' lead- 
 ership came out of a victorious electoral 
 campaign which resulted in the installa- 
 tion of a new ministry favoring reduction 
 of military service from three to two 
 years, the German party for the first time 
 in its history of over forty years voted 
 the military budget. 
 
 Who can doiibt today, seeing through 
 the present relations between the so- 
 called majority Socialists and the im- 
 perial government, that the former's
 
 STAGNANT ECONOMICS 25 
 
 claim that they were unprepared on that 
 4th of August, taken by surprise by the 
 events, fooled by the government into 
 the belief that the principal fight would 
 be waged against the Czar, are mere shal- 
 low excuses, that they knew a year before 
 what was coming and that then was the 
 time when they had to decide whether 
 they would stand by the international 
 proletariat or by the German capitalists. 
 
 What brought about this gradual men- 
 tal change and finally the deliberate dis- 
 regard of Marx's admonition, "Working- 
 men of all countries, unite," by the former 
 advance guard of the international Social- 
 ist movement is something we very much 
 need to understand. 
 
 The rapid capitalistic expansion had 
 favored the spread of trade unionism and 
 created a large salaried intellectual prole- 
 tariat in the industrial professions. In 
 becoming unionists, the workers did not 
 cease to be Socialists. But the spirit of 
 trade unionism gained the ascendency. 
 Capitalism was soaring. The fulfillment 
 of Marx's prediction of the loss of control 
 of the means of production by the capital- 
 ist class seemed removed into the hazy
 
 26 THE COLLAPSE OF CAPITALISM 
 
 future. It seemed better to give prece- 
 dence to the workers' immediate material 
 interests. Of course, one might continue 
 to vote the Socialist ticket — no harm in 
 that, and it might be useful, as, for in- 
 stance, in protecting the right of organiza- 
 tion. But if it came to deciding a real 
 issue, such as whether a general strike 
 should be resorted to in order to gain the 
 franchise in Prussia, the trade union spirit 
 prevailed over the Socialist spirit. 
 
 What, really, is this trade union spirit? 
 Perhaps illustration may be better than 
 dissertation, especially if taken from well 
 known facts nearer home. 
 
 Before the great Paterson silk strike of 
 1913 the loomfixers, warpers and twisters 
 were organized. Constituting a small 
 group (about five per cent of the total 
 number of silk workers), but able to 
 paralyze the industry, they had managed 
 to raise their wages fifty per cent above 
 those of good weavers, while in Pennsyl- 
 vania, in the absence of organization, the 
 wages were the same, or but little higher, 
 than those of good weavers. When the 
 uprising broke out these privileged work- 
 ers were forced into idleness. Intolerable !
 
 STAGNANT ECONOMICS 27 
 
 The privilege to paralyze the industry 
 was theirs, and now this mass of mudsills 
 were turning the tables on them. If the 
 ninety-five per cent were successful, 
 it meant a new order of things. Where 
 there had been easy acquiescence on 
 the part of the bosses to the demands 
 of the few, there would be strenuous re- 
 sistance hereafter to the demands of all. 
 Raising the price of a particular product, 
 comparatively to that of other products, 
 tends, save under exceptionally favorable 
 conditions, to lessen its consumption, thus 
 sharpening competition and reducing the 
 profit rate. The well-being of the union 
 members is conditioned on the helpless- 
 ness of the masses. If the unions erected 
 no barriers against the unlimited growth 
 of their own membership, or if they strove 
 for the general organization of the whole 
 working class, they would lose their pres- 
 ent privileged position absolutely. And 
 so the American Federation of Labor sent 
 officers of an affiliated textile union to 
 Paterson to break up the strike. 
 
 Lest it might be thought that this case 
 may be exceptional and not characteristic 
 of the general attitude of the unions
 
 28 THE COLLAPSE OF CAPITALISM 
 
 toward the masses, let me recall an inci- 
 dent which lays bare the whole antagon- 
 ism. At the hearing on the New York 
 state health insurance bill, the general 
 organizer of the American Federation of 
 Labor, speaking in opposition to the bill, 
 said: "Trade unions already have suc- 
 cessful insurance systems" and "labor 
 does not want class legislation even for 
 itself." When these men use the word 
 labor, they always do so with a mental 
 reservation. They do not mean the ab- 
 straction which is expressed by this word, 
 but the concrete members of the craft 
 unions. These oppose class legislation 
 for themselves, if it at the same time helps 
 the masses, and the more so if it helps 
 the masses to the disadvantage of the 
 unions. The trade unions are able to help 
 themselves. 
 
 These facts were expressed essentially 
 by a representative of a very large union, 
 comprising, however, all workers em- 
 ployed in the industry. She spoke at the 
 hearing in favor of the bill, "not because 
 it is necessary for organized labor, but 
 because it is imperative for unorganized 
 labor. Where there arc two and a half
 
 STAGNANT ECONOMICS 29 
 
 million organized workers in the United 
 States, there are about thirty million un- 
 organized workers." 
 
 For forty years the Socialists in this 
 country have tried to make propaganda 
 among the unions and avoided everything 
 that might displease them. All in vain. 
 Contrary to the order of events in Ger- 
 many, in America the unions were on the 
 spot before the Socialists. It is the cus- 
 tom of the latter to reproach the unions 
 with being unenlightened and to express 
 the eternal hope that they may recognize 
 the necessity of modernizing their organi- 
 zation. All in vain. They do not want 
 to be converted. You cannot give points 
 to Samuel Gompers on Marxian eco- 
 nomics. He was, in his younger days, a 
 capable student of them, as the writer 
 knows personally, but he decided to use 
 his knowledge in the interest of a 
 relatively small class. 
 
 The foregoing is not meant as a re- 
 crimination against unions or against 
 Gompers. It is all "economic determin- 
 ism." Social revolutions are not brought 
 about by the force of intellect, but by eco- 
 nomic pressure. Marxian economics per-
 
 30 THE COLLAPSE OF CAPITALISM 
 
 mit this pressure to be relegated to an 
 uncertain future. The consequence was 
 the rise of an intermediate class able to 
 save itself from submersion by pressing 
 down on the masses. 
 
 In Germany this new class included an- 
 other important element, namely, that of 
 the mental workers. With its model sys- 
 tem of technical schools that country pro- 
 duced chemists, mechanicians, etc., so to 
 say, by machine, when in other countries 
 they were still being made by hand. Nat- 
 urally their exchange value fell and for 
 many years past we heard much about 
 Germany's intellectual proletariat ; also 
 complaints about their prominence and 
 undue influence in the party. They 
 smarted under the handicaps of a cramped 
 Germany and their ideology became im- 
 perialistic. These able men, instead of 
 earning small salaries at home, saw them- 
 selves earning large salaries as technical 
 directors in German dependencies, if only 
 Germany would possess that "place in the 
 sun" to which her capacity entitled her 
 and which England refused her. 
 
 Their ideology harmonized with that of 
 the trade unionists, who soliloquized in
 
 STAGNANT ECONOMICS 31 
 
 the following strain : "We have done 
 very well since our country has become 
 industrialized. Why should we not fare 
 still better if our country gained a 'place 
 in the sun'? W^e are living now, and So- 
 ciaHsm is still far off. Really the inter- 
 ests of (German) capital and (German) 
 labor are identical. The identity of in- 
 terest of the whole world proletariat is 
 for the present a chimera. We are an all 
 embracing German trade union. Each 
 one of us was a German before he was a 
 Socialist," 
 
 These elements, the trade unions and 
 the salaried intellectuals, as the econom- 
 ically better situated, better educated and 
 more alert, secured control of the party 
 machinery and of its representation in the 
 Reichstag. We know the result. 
 
 What happened on the 4th of August 
 was nothing cowardly or treacherous. It 
 was simply the outcome of economic de- 
 velopment, which does not stand still, 
 even if economic science sometimes does. 
 The admonition, "Workers of all coun- 
 tries, unite," and the axiom, "The eman- 
 cipation of the working class must be ac- 
 complished by the workers themselves,"
 
 32 THE COLLAPSE OF CAPITALISM 
 
 have paled. But our hearts need not 
 grow heavy on that account. In our time 
 — more so than ever before — man is 
 driven by the superior powQ^- of economic 
 law, and old formulae may not hold. For- 
 tunately and wonderfully, capitalism was 
 born with the germ of a mortal disease 
 which has been revealed only in the 
 course of the last fifty years, and the com- 
 ing of its fatal crisis can be almost meas- 
 ured. The progress of the disease has 
 been abnormally furthered by the war. 
 Capitalism is now moribund and its end 
 is due within a very few years.
 
 CHAPTER III. 
 The Fatal Flaw of Capitalism. 
 
 IT CANNOT be stated too often that all 
 analyses of recent economic develop- 
 ment must start with the basis estab- 
 lished by the discoveries of Marx. 
 
 Capitalism is quasi-social. Each unit 
 of society produces things which others 
 want, and itself consumes what the others 
 produce. There exists, however, no regu- 
 lation of production and, while there is a 
 general division of labor, the units act on 
 their own responsibility. 
 
 The division of the products is, conse- 
 quently, only possible by their being uni- 
 versally exchanged for each other on the 
 general basis of value or socially neces- 
 sary labor time. Thus products are not 
 merely useful things, but, owing to their 
 value relation, commodities. To effect 
 these numerous exchanges directly is an 
 absolute impossibility. 
 
 It was necessary for the commodity 
 producing society, of which capitalism is 
 the modern development, to hit on some 
 single commodity for which the demand 
 
 33
 
 34 THE COLLAPSE OF CAPITALISM 
 
 was always at least equal to the supply, 
 and which might thus be acceptable 
 everywhere in exchange for any other 
 product. Many things have served as 
 such widely accepted equivalents, but 
 finally gold proved itself to be naturally 
 the universal equivalent. Social recogni- 
 tion made this particular commodity the 
 world's money, in which all values are 
 expressed and which can buy anything 
 anywhere. Thus there are two categories 
 in the process of the above mentioned 
 process of exchange — the commodity and 
 money. The producer sells for gold and 
 with it buys what he needs. He effects 
 an exchange of two commodities by 
 means of money. 
 
 It is already seen that money (which is 
 now synonymous with gold) has here per- 
 formed two functions : 
 
 First, before the actual exchange it has 
 served as a measure of value or an indi- 
 cation of the price of each commodity ; 
 therefore, indirectly of the relative value 
 of the two commodities or the quantita- 
 tive proportion in which they were ex- 
 changeable. 
 
 Secondly, as the substantial and so-
 
 FATAL FLAW OF CAPITALISM 35 
 
 cially recognized equivalent of each com- 
 modity in the act of sale or purchase. 
 
 Marx notes that gold, in performing 
 these two money functions, appears in 
 two different aspects: 
 
 Only abstract or ideal gold — gold in 
 general — is needed for the money func- 
 tion of measure of value. 
 
 But concrete, particular and definite 
 quantities of gold are needed for the func- 
 tion of means of circulation (including 
 the function of means of deferred pay- 
 ment, or credit). 
 
 Marx, of course, does not say that the 
 distinction between abstract and concrete 
 gold involves any incongruity apt to sub- 
 ject the system to ill efifects and possibly 
 prove fatal to it. Indeed, there can be no 
 contradiction between sense-perceived ob- 
 jects and their generalization or abstrac- 
 tion. When we say "animal" we include 
 in this abstraction a great variety of crea- 
 tures ; but although a whale and an 
 amoeba differ greatly from each other, 
 neither can present a contradiction with 
 the abstraction "animal." 
 
 Nevertheless, since Marx's time eco- 
 nomic evolution has actually produced a
 
 36 THE COLLAPSE OF CAPITALISM 
 
 contradiction between concrete and ab- 
 stract gold, speaking not, of course, of 
 gold as a natural product, but as a social 
 institution, as the money material. But 
 even so, how is this possible? Are not 
 scientific principles universal, applying to 
 the science of economics no less than to 
 the other sciences? 
 
 There are cases in nature where a 
 change of quantity transforms itself into 
 quality. Water, losing a certain quantity 
 of heat, becomes ice. Similarly gold, as 
 the money material, is undergoing a quan- 
 titative change considered in relation to 
 the social need. But gold, as money, per- 
 forms a dual function. When the quanti- 
 tative change in one direction or the other, 
 either by increase or decrease, transforms 
 itself into a qualitative one, then the cor- 
 respondence of the abstract with the con- 
 crete during the former state of balance 
 is disturbed. A flood of gold deprives it 
 of the quality of being a measure of value, 
 while it favors the other function. De- 
 ficiency, on the other hand, deprives gold 
 of the quality of being a means of circula- 
 tion, whilst its function of measure of 
 value remains unaffected. Concrete gold
 
 FATAL FLAW OF CAPITALISM 37 
 
 and abstract gold as the money material, 
 have reached a state of contradiction. 
 
 The mere statement by Marx, sufficient 
 in his time, of the distinctive uses of ab- 
 stract and concrete gold is now seen to 
 contain the germ of a contradiction which 
 can be formulated as follows : 
 
 Abstract gold can fulfill the money 
 function of measure of values so long as 
 the concrete quantities from which the 
 abstraction is derived are insufficient for 
 the social need ; 
 
 Concrete gold can fulfill the money 
 function of means of circulation (includ- 
 ing deferred payments) so long as the 
 quantity is sufficient for the social need. 
 
 What actually has been progressing 
 since Marx with ever-growing momentum 
 is the transformation of gold, as money, 
 into gold, as metal. This carries with it 
 the loss of its quality of means of circula- 
 tion, as water turning to ice loses the 
 quality of drinkableness, and means the 
 rapidly approaching end of the era of 
 money. 
 
 The contradiction between the require- 
 ment of scarcity for one function of
 
 38 THE COLLAPSE OF CAPITALISM 
 
 money and abundance for the others now 
 can be clearly recognized as the most fatal 
 defect of capitalism. 
 
 The war has developed this contradic- 
 tion with abnormal rapidity to a point 
 where it is an immediate menace to that 
 form of society. Its downfall, root and 
 branch, will be positively assured by a 
 continuation of the war for, say, another 
 year. That downfall will then be like an 
 act of nature, and not dependent on the 
 mental and moral preparation of the peo- 
 ples of the world for a new form of society 
 which must, perforce, be completely 
 social. 
 
 On the existence of money depends 
 the existence of capitalism. The condi- 
 tions presented by gold are absolutely 
 vital to its life. One valuable product, 
 representing social labor time, is neces- 
 sary as an equivalent which confirms to 
 the uncontrolled private producers the 
 social validity of their individual labor 
 time. When it becomes impossible any 
 longer to conform to this necessity, then 
 the category of money breaks down and 
 not a vestige of capitalism can survive a 
 day.
 
 FATAL FLAW OF CAPITALISM 39 
 
 Most of US do not see a gold piece or 
 bar from year's end to year's end. We 
 are paid our wages or for goods, in paper 
 money or checks, and the subject of gold 
 seems too remote to hold any possible in- 
 terest for us. Even those of an inquiring 
 mind may be excused if at first sight they 
 approach the subject with a feeling of 
 bored resignation. The general impres- 
 sion is that this subject is of interest only 
 to financiers. And yet there is no sub- 
 ject which touches as closely the eco- 
 nomic future of the reader, of the work- 
 ing class and of the whole human race, as 
 this very subject of gold. 
 
 The yellow metal always has been 
 much coveted. With the increase of trad- 
 ing it was found to be a most available 
 commodity to trade with, as it was always 
 acceptable in exchanges. It came to be 
 preserved for this very purpose, instead 
 of being consumed. As soon as the sup- 
 ply was sufficient gold became the uni- 
 versal equivalent, and with the coining of 
 pieces of arbitrary w^eight and fineness by 
 the state, as a guaranty of their value, it 
 became the socially recognized money. 
 At present the world's stock of gold rep-
 
 40 THE COLLAPSE OF CAPITALISM 
 
 resents nine billions of dollars. This 
 leaves far behind the value of any other 
 single commodity. If any other raw 
 material showed a similar position of sup- 
 ply relative to consumption the bottom 
 would be knocked out of its price. But 
 the mine owners do not have to pay the 
 least attention to the state of consump- 
 tion. Their product is not intended to 
 serve any rational use, although a large 
 part of it does find such use. They can 
 go on serenely producing gold at a profit 
 for a purpose the existence of which can- 
 not be considered as a subject for com- 
 pliments to the present state of human 
 intelligence. We think that without this 
 vast stock of otherwise futile raw material 
 we would be at an utter loss how to dis- 
 tribute our products among ourselves. 
 Indeed, this stock is woefully insufficient 
 to accomplish that function. 
 
 In 1914 official data assigned to gold a 
 narrowness of 4% per cent of the total 
 money system of the United States, the 
 most favored country. In spite of the 
 huge transfers of gold from other coun- 
 tries during the war, this percentage has 
 shrunk still further. Before the war this
 
 FATAL FLAW OF CAPITALISM 41 
 
 narrowness was even more extreme in 
 other countries, especially in England. As 
 gold is the sole value basis of the entire 
 monetary system, bank deposits and notes 
 being in the last analysis redeemable in 
 gold, it is not to be wondered at that for 
 a long time before the war the outflow of 
 even moderate quantities of gold from a 
 country caused anxiety to its financiers. 
 But since the war, owing to the enormous 
 multiplication of substitutes for money 
 (bank notes and bank deposits) in the 
 belligerent countries, the gold situation 
 has reached a most critical stage, and the 
 gold basis has practically been abandoned 
 in all of them. Yet gold is naturally the 
 money commodity — nothing else that ex- 
 ists on this planet, or that ingenuity could 
 contrive, can replace it to advantage. 
 Gold will not even tolerate any other gods 
 beside it. All efforts, for instance, to 
 maintain a definite value relation with it 
 of silver have failed. 
 
 With the increase of production by cap- 
 italism the inadequacy of the gold supply 
 began to make itself felt. Certain experi- 
 ences led to the discovery that tokens of 
 money of less than the indicated value, or
 
 42 THE COLLAPSE OF CAPITALISM 
 
 even of no value, could be used for circu- 
 lation. It is positively not true that 
 Mephistopheles was the inventor of paper 
 money, as Goethe informs us in the sec- 
 ond part of "Faust." Anyhow, the state 
 issues slips of paper on which various de- 
 nominations of value are printed and by 
 its authority declares them legal tenders 
 for all money obligations. Thus they are 
 an addition to the gold. 
 
 How can the state endow worthless 
 slips of paper with the function of 
 money? 
 
 Indeed, the state is powerless to do this. 
 It cannot endow these slips with all the 
 functions of money. In the first place, 
 it lies in the very conception of money, 
 as defined by Marx, that it must be world 
 money. Tokens are only current within 
 the confines of the state. Internationally, 
 only gold is accepted. Furthermore, 
 paper slips, being of no intrinsic value 
 themselves, cannot be the measure of 
 value of other things. They also cannot 
 function as means of deferred payment 
 (credit), because, as such, a money ma- 
 terial subject to the least possible change 
 of value is required. That is the reason
 
 FATAL FLAW OF CAPITALISM 43 
 
 why long-term bonds are made payable 
 in gold, it being permitted to eliminate 
 tokens by private contract. And tokens 
 are subject both to overvaluation and de- 
 preciation. In fact, both have occurred. 
 
 The only function of which tokens are 
 capable is that of means of circulation 
 within the state, and even that only up to 
 a certain limit fixed by economic law, 
 which is mightier than the state. 
 
 Now, the question might be narrowed 
 to this : How can the state endow the 
 paper slips with even that much power? 
 
 The answer is : The essential thing for 
 the alimentation of the social body is the 
 circulation of the privately owned com- 
 modities. In the acts of exchange money 
 takes only a fleeting part. After having 
 mediated here, it moves away to repeat 
 its offices elsewhere. In this ephemeral 
 role gold may be replaced by a symbol. 
 But, while outside of circulation, gold al- 
 ways retains its full value as a commod- 
 ity, its symbols become mere worthless 
 stuff. 
 
 The power of the state to issue papers 
 as symbols of gold is limited by the ex- 
 tent to which gold itself would have to
 
 44 THE COLLAPSE OF CAPITALISM 
 
 circulate. If issued in excess of the eco- 
 nomic law, the tokens depreciate rela- 
 tively to gold. Nationally they become 
 the measure of value, but only in an indi- 
 rect way. First, the total value of the 
 commodities to be circulated within a 
 given time by the tokens determines the 
 value of the total issue of the latter; then 
 the value of the token units is revealed 
 as an aliquot part of their sum. They 
 lose their character of tokens of gold and 
 become tokens of value in general, indefi- 
 nite and varying with the fluctuations of 
 the total value of the commodities. 
 
 There is only one way of positively 
 knowing whether and to what extent 
 tokens have depreciated, namely, by their 
 value-relation to gold. This is usually 
 first revealed by the rates for foreign ex- 
 change. In normal time this item in the 
 newspapers is most uninteresting to the 
 general reader. But we are passing 
 through an abnormal economic period, 
 and there is nothing so significant as the 
 progressive decline of foreign currencies, 
 as quoted in American money, except 
 where prevented by artificial, and doubt- 
 less temporary, means. The latter is now
 
 FATAL FLAW OF CAPITALISM 45 
 
 the case with the pound sterling. This 
 depreciation of foreign exchanges meas- 
 ures, and will continue to measure if the 
 war cannot be ended before long, the dis- 
 tance already traveled, and still to be 
 traveled, to the complete destruction of 
 money, which means the death of capi- 
 talism. 
 
 Thus Russian and Austrian paper 
 money can be seen to have lost 80 per 
 cent ; German and Italian, 50 per cent of 
 its normal value. English and French 
 exchange has been sustained, while that 
 was possible, by giving up to the United 
 States all their available foreign invest- 
 ments and a huge mass of gold. When it 
 became impossible to keep this up any 
 longer, America was confronted with the 
 alternative of allowing the pound sterling, 
 the world's credit denomination, (and 
 with it the franc), to fall suddenly to the 
 level of other European currencies, or of 
 furnishing our goods without pay. 
 
 Our capitalists began to perceive that it 
 had been a. mistake to gloat over the pros- 
 pect of supplanting the impaired pound 
 by the intact value of the dollar as the 
 world's credit denomination. The war
 
 46 THE COLLAPSE OF CAPITALISM 
 
 had carried things too far. On the con- 
 trary, they began to realize the imperative 
 necessity of sustaining the impaired 
 pound. It was a supreme occasion for 
 capitalist solidarity. The effort had to be 
 made, not counting billions, to stand 
 united, and should it not succeed all might 
 as well go down united, as disunited they 
 surely must. Therefore, our government 
 now pays for the goods with money 
 borrowed from our patriotic citizens. 
 
 There have been many instances of 
 great depreciation of paper money and 
 several of the utter extinction of its value. 
 All these instances have been national and 
 occurred prior to the building up of the 
 present much more complicated financial 
 mechanism. For these reasons they re- 
 mained without permanent ill effects. It 
 will be altogether different when the in- 
 herent tendency of the monetary system 
 (which I will take up in due course) leads 
 to inevitable and progressive depreciation 
 simultaneously in all countries. 
 
 This monetary system includes not only 
 the current money of the realm, gold and 
 its symbols, but a kind of bookkeeping 
 money which is transferred from one to
 
 FATAL FLAW OF CAPITALISM 47 
 
 the other by means of written orders, 
 called checks, issued on institutions called 
 banks. These are the social custodians of 
 and bookkeepers for this new kind of 
 money. It is a development of the second 
 half of the last century. In Marx's time 
 it was in considerable use in England 
 among the large capitalists. He espied 
 the dangers of the "clearing" system, saw 
 that it was apt to lead to panics; but it 
 was impossible for him to foresee that 
 bookkeeping money, then in its infancy, 
 was to be the indispensable tool for engi- 
 neering the tremendous rise of capitalism 
 just beginning, and that this infant would 
 grow up to be the monster that must 
 eventually destroy its maker. 
 
 What has so far been said about gold 
 and paper money can only find its real ap- 
 plication when brought into relation with 
 bookkeeping or bank money. Only an un- 
 derstanding of the complete subject en- 
 ables us to realize the present precarious- 
 ness of capitalism and to determine our 
 attitude toward the war. There has taken 
 place since Marx an important economic 
 development which has placed the bank 
 (money) instead of the industrial capital-
 
 48 THE COLLAPSE OF CAPITALISM 
 
 ist (commodity) in the center of the world 
 stage. 
 
 Socialists unaware of this development 
 cannot act with the necessary judgment 
 in the present world crisis.
 
 CHAPTER IV. 
 Money of Account. 
 
 IN THE year 1863, about the time when 
 the first volume of Marx's principal 
 work apeared and long after his "Critique 
 of Political Economy," which treated 
 mainly of the problem of money, the de- 
 posits of all the banks in the United States 
 were $394,000,000. Today there are single 
 banks in New York whose deposits are 
 larger, and the total deposits in the coun- 
 try are fast approaching the thirty thou- 
 sand million mark. 
 
 This is a new kind of money which has 
 added itself, not only in this country, but 
 in all capitalistic countries, to the metallic 
 and token money previously used almost 
 exclusively. Great Britain alone had al- 
 ready developed the new kind of money 
 to a certain extent as already mentioned. 
 Without this additional money, the great 
 industrial advance of the last half cen- 
 tury would have been impossible, as the 
 metallic money, together with the super- 
 imposed tokens, would have been utterly 
 
 49
 
 50 THE COLLAPSE OF CAPITALISM 
 
 insufficient to meet the rapidly increasing 
 requirements of circulation and of de- 
 ferred payment. 
 
 What is the true inwardness of this new 
 money? How did it originate and how 
 does it grow? What are its economic 
 effects? 
 
 It is a trite statement that about the 
 middle of the last century the building 
 of railroads and the launching of many 
 new industries made it necessary to col- 
 lect all the scattered funds which, thus 
 concentrated by the banks, were put at 
 the disposal of the industrial capitalists. 
 But that sum, as we see by the example 
 of the United States, was not very large 
 and has, in fact, been cancelled long ago. 
 
 The real origin of the immense total of 
 the world's bank money, or Money of Ac- 
 count, is twofold, producing two cate- 
 gories of such money. I designate them 
 respectively : 
 
 Money of account originated in profit, 
 and 
 
 Money of account originated in bank 
 credit. 
 
 In practice these two categories of 
 money of account continually flow into
 
 MONEY OF ACCOUNT 51 
 
 each other, become indistinguishable from 
 certain angles and would be inextricably 
 mixed, if it were not theoretically pos- 
 sible to eliminate and cancel the last- 
 named category, leaving only the first 
 named to continue in existence. Such a 
 contingency, however, is entirely out of 
 the question, either now or during what- 
 ever span of life capitalism may still have. 
 
 In the analysis of the whole subject it 
 is, however, necessary to keep each cate- 
 gory of money of account distinctly sepa- 
 rate as far as possible, merely observing 
 finally their manner of intermingling and 
 the ever-recurring cancellation of the 
 bank-created money by the other kind. 
 
 We shall now proceed to discuss the 
 profit-originated money of account, and 
 the reader will remember that in doing so 
 we separate it for the present from the 
 existence of the bank-made kind. 
 
 This money of account, then, consists of 
 various elements of which the ownership 
 is vested in the several kinds of banks and 
 in their depositors. The totality repre- 
 sents loan capital lent or to be lent to 
 others by the banks. These elements are : 
 
 1. The banks' capitalization (which is
 
 52 THE COLLAPSE OF CAPITALISM 
 
 very far from being identical with capital 
 paid in, one bank in New York, for in- 
 stance, having distributed a stock divi- 
 dend of 1900 per cent at one swoop) and 
 their surplus accumulated from profit ; 
 
 2. A certain part of the deposits, less 
 the extent to which they may be covered 
 by cash in the possession of the banks. 
 All of this cash came from the depositors 
 and is subject to their call. 
 
 It is already apparent that the banks are 
 the social monetary agents who are debt- 
 ors and creditors for equal amounts. They 
 are debtors to their stockholders and de- 
 positors, and creditors of the borrowers. 
 But it is their relation to their depositors 
 which, as we shall see, is by far the most 
 important and, indeed, constitutes the 
 most immediate menace to the life of capi- 
 talism. 
 
 How did this relation arise and how is 
 it that it grows in importance all the time, 
 as evidenced by the growing deposits? 
 
 These daily deposits consist now, as 
 they have for a number of years of about 
 94 per cent checks and 6 per cent current 
 money. Elaborate investigation by the 
 government has shown that the daily cash
 
 MONEY OF ACCOUNT 53 
 
 deposits practically represent the circula- 
 tion of the country's payroll, the capital- 
 ists and farmers paying for their personal 
 expenses mainly by checks. In England 
 check payments preponderate to a similar 
 degree and their proportion to cash pay- 
 ments has increased fast in Germany dur- 
 ing the last ten years. 
 
 It is clear that if the daily deposits con- 
 sisted exclusively of checks it would be a 
 case of mere transfers from one deposit 
 account to another of already existing 
 money of account. The sum of the latter 
 could never increase in the least by such 
 mere transfers. It must be, therefore, 
 that the secret of the growth lodges in 
 that 6 per cent of current money. 
 
 This suposition is strengthened by the 
 certainty that at the beginning of modern 
 banking there was nothing but cash — no 
 money of account whatever and yet this 
 latter germinated and grew. And while 
 we are on the track of the problem, an- 
 other fact strikes us: This immense 
 amount of bank money once did not exist 
 and now does as an addition to the cash. 
 
 Clearly it is a gain. But whose gain? 
 The workers own only a small portion
 
 54 THE COLLAPSE OF CAPITALISM 
 
 even of the deposits in the savings banks ; 
 the middle class (mostly farmers) has a 
 larger share in the gain, but the great 
 bulk belongs to the capitalists. That it 
 would be uselessly complicating the sub- 
 ject under discussion to consider the 
 money of account as anything else but 
 profit is shown by the mere fact that the 
 one federal reserve district of New York 
 out of the 12 districts, has one-third of 
 the total resources. And, besides, New 
 York is the seat of the great trust com- 
 panies. 
 
 Now, let us watch the operation of the 
 formative process of the new money. A 
 retailer deposits the cash receipts of the 
 day in his bank. Let us suppose that he 
 at once remits to his wholesale purveyor 
 an order on his bank (check) for precisely 
 the goods sold. The check will leave a 
 balance on his account, representing his 
 profit. The wholesaler, following suit, 
 remits a check to the manufacturer of a 
 lesser amount than that received, as he 
 also retains his share of the profit. The 
 manufacturer in his turn issues his check 
 for the raw material consumed and draws 
 out of the bank the cash for the wages
 
 MONEY OF ACCOUNT 55 
 
 necessary for reproduction, whereupon 
 the wages start their next rotation with 
 the bank again as a point of passage. 
 
 So much of the cash as the manufac- 
 turer draws less than the retailer had de- 
 posited remains for a time, the length of 
 which is capable of statistical demonstra- 
 tion, in possession of the bank, subject to 
 call by any depositor, but in the meantime 
 constituting the bank's "reserve." At the 
 end of its period of quiescence in the bank 
 the balance of the retailer's cash is finally 
 drawn by capitalists, farmers, etc., for 
 personal expenses. 
 
 The daily repetition of this process and 
 the resultant accumulation of the profit 
 sediments have in the course of time made 
 it possible to dispense entirely with 
 money for the settlement of obligations 
 between capitalists which are now efifect- 
 ed exclusively by money of account, 
 through the medium of the check. 
 
 Just what this kind of money is may not 
 yet be quite clear. Suppose, therefore, 
 that you deposit a hundred dollars cash 
 in a bank today. Tomorrow this cash is 
 paid out again by the bank to any apply- 
 ing depositor and continues its existence
 
 56 THE COLLAPSE OF CAPITALISM 
 
 in the freedom of circulation. At the 
 same time this cash has left behind its 
 shadow on your deposit account. You 
 also are still the owner of a hundred dol- 
 lars (in the form of a bank deposit). Ap- 
 parently the amount of existing money 
 has doubled. The same identical hundred 
 dollars may thus give rise to innumerable 
 shadows on the bank's books. This won- 
 derful exhibition of the independence of 
 shadows from substance is made possible 
 only by the social faith that all these 
 shadows can be resubstantiated. 
 
 There are, of course, taking place con- 
 stant reductions of the size of the shad- 
 ows ; otherwise the growth of the money 
 of account would proceed at a furious 
 rate. These counteracting factors are per- 
 fectly capable of analysis, but this would 
 require more space than these chapters 
 permit. Here, therefore, we must content 
 ourselves with the foregoing suggestion 
 of the positive side of the process of 
 growth. 
 
 Notwithstanding the counteracting fac- 
 tors and the relatively small part which 
 cash plays in the daily deposits, the vol- 
 ume of money of account is increasing
 
 MONEY OF ACCOUNT 57 
 
 20 times as fast as the volume of the basic 
 gold, a most momentous fact. 
 
 It seems hardly necessary to state now 
 explicitly that the accumulation of shad- 
 ows which we know under the name of 
 bank deposits are really not money at all, 
 but only titles to money which the banks, 
 as social monetary agents, have under- 
 taken to redeem. They are the banks* 
 debt, popularly known as deposits and 
 transferred from one to the other as 
 money. These titles, once created, are 
 indestructible, except by the theoretically 
 normal, but practically impossible, pro- 
 cess of their redemption in money, or by 
 the theoretically abnormal, but only pos- 
 sible, process of the failure of the banks. 
 Therefore, the volume of the titles ever 
 increases until the system breaks down 
 under the weight of its own absurdity. 
 The root of it lies in one of those contra- 
 dictions of which capitalism is so full. 
 The banks are not paid, as their historical 
 predecessors were, for the service of han- 
 dling and safekeeping their clients' 
 money. Their income is derived from in- 
 terest on their clients' money which the 
 banks lend out for their own account,
 
 58 THE COLLAPSE OF CAPITALISM 
 
 without cancellation of the title to the 
 money by the depositors and without 
 their legal consent. The banks are sup- 
 posed to lend out the money, and at the 
 same time not to lend it out, but have it 
 always at the call of the depositors. 
 
 And, now, how good are these titles to 
 money? The disparity in the rate of in- 
 crease between the titles to money and 
 the actual money (gold and tokens) has 
 already been pointed out above. As to 
 the final outcome the reader cannot be in 
 any doubt. But the purpose of this little 
 book is to show how far the destructive 
 process has already gone in the normal 
 way in the United States and how far it 
 has been advanced abnormally in Europe 
 at the present stage of the war. 
 
 As I show in my book, "Capital To- 
 day," the banks of the United States held 
 in 1913 about 9 cents for every dollar they 
 owed their depositors. Since then condi- 
 tions have not improved, in spite of the 
 gold imports which have piled up in this 
 country three-eighths of the world's gold. 
 This "reserve" is unequally distributed, 
 running from fairly high reserves carried 
 for the central reserve cities down to i^
 
 MONEY OP ACCOUNT 59 
 
 per cent in the case of mutual savings 
 banks. A widespread demand for money, 
 especially if it exceeded the aforemen- 
 tioned 9 per cent of the deposits, would 
 be impossible to satisfy, except with 
 paper money, which would progressively 
 depreciate so long as its quantity 
 increased. 
 
 It is unnecessary to recall here that the 
 creation of tokens is limited by the sorely 
 deficient supply of gold. But how has 
 society been able to get along with such 
 a slow increase in the volume of current 
 money in the face of the enormous up- 
 building of money of account? True, the 
 getting along was not always smooth. 
 Rumblings foreboding the greater storm 
 a-coming have occurred, as for instance, 
 the panic of 1907, when checks went to 
 a discount of 5 per cent against paper 
 money and remained at a discount for a 
 month. Normally, however, currency is 
 needed only for the country's pay roll, 
 as already stated, and the growth of the 
 pay roll is out of all proportion to the 
 profit accumulation in money form, al- 
 though this has served over and over
 
 60 THE COLLAPSE OF CAPITALISM 
 
 throughout the years for the personal 
 support of the capitalists. 
 
 Now, this accumulation of profits in 
 money form comes into conflict with the 
 system of wages for which a relatively 
 small fund only is required. On the day 
 when the capitalists shall desperately seek 
 to realize their profits in actual money, 
 instead of titles to money which is only 
 a nominal realization, then the contra- 
 dictions of capitalism must end in a social 
 catastrophe. The Marxian conclusion 
 regarding the final outcome of these con- 
 tradictions, already summarized in the 
 second chapter, namely, the incompati- 
 bility of the growing means of production 
 as an engine for profit, with the payment 
 of mere wages to the workers, finds a new 
 and directly dangerous version in the 
 incompatibility of the growing volume of 
 titles to money with the necessary ex- 
 istence of only enough actual money for 
 the payment and circulation of mere 
 wages. 
 
 We now come to the second category 
 of money of account, that created by the 
 banks. 
 
 Every loan taken up by a depositor
 
 MONEY OF ACCOUNT 61 
 
 immediately becomes a deposit by being 
 credited to his account. The bank, how- 
 ever, must have a "reserve" against such 
 deposits, the proportion being fixed by 
 law in the United States, but in England 
 left to the discretion of the deposit banks. 
 Now, when an intending borrower applies 
 for a loan, must the official see whether 
 he has any unemployed deposits on hand? 
 By no means. All he needs to know is 
 whether he has cash on hand in excess 
 of the reserves required on his existing 
 deposits. Thus, if he finds that he has 
 an excess of, say, $10,000, he may lend 
 $100,000. The lending of "money" which 
 is so utterly a fiction of the mind is made 
 possible by the system of "clearing" 
 which was already distrusted by Marx, 
 The bank official knows that all other 
 banks are doing the same thing; that all 
 checks drawn against such loans are 
 likely to balance approximately at the 
 clearing house without strain on any one 
 bank. Thus bank A makes a loan to Y, 
 bank B to Z, each of $100,000. Y's check 
 finds deposit in B, Z's for the identical 
 amount in A. At the clearing house the 
 checks held by A and B against each
 
 62 THE COLLAPSE OF CAPITALISM 
 
 Other are "swapped." The two banks 
 have lent out a total of $200,000 without 
 having paid a cent. That banks ordinarily 
 cannot fail to be tempted to earn interest 
 on money so purely imaginary is self- 
 evident. 
 
 The payees of the two checks do not 
 know, and need not care, whether the 
 remitter borrowed the money or owned 
 it. For them they represent simply the 
 money form of the value of commodities 
 they sold. When they deposit the checks 
 the amount becomes an addition to the 
 profit-originated money of account, not 
 because the value of the commodities was 
 all profit, but because the value consists 
 partly of new profit and partly of old 
 profit become capital. Profit-originated 
 money of account is the money form of 
 part of the accumulation of old profits to 
 which new profits in money form are 
 constantly being added. 
 
 As a matter of fact, however, the checks 
 given by the borrowers represent no 
 value, no previously performed labor. 
 The money is purely fictitious, created by 
 the banks out of nothing. As it has 
 nevertheless become profit-originated
 
 MONEY OF ACCOUNT 63 
 
 money of account when it came into pos- 
 session of the sellers of the commodities, 
 having been metamorphosed into such 
 by transfer from the bank-made credit 
 money, there exists now evidently an 
 inflation of the profit-originated category 
 which cannot be otherwise than tem- 
 porary and must needs be removed. The 
 deflation is effected at maturity of the 
 loans by their amounts being charged to 
 the deposit accounts of the borrowers. 
 The inflation of profit-originated money 
 of account on one set of deposit accounts, 
 that of the sellers, is made up by can- 
 celling accumulated profits on another 
 set of deposit accounts, that of the bor- 
 rowers. The mortgage on future profits 
 is satisfied, and the bank-made credit 
 money ceases to exist. But other such 
 fictitious deposits take the place of the 
 liquidated ones in ever-increasing volume. 
 It is the expectation of the capitalist 
 class and its retainers, the university po- 
 litical economists of our time, that the 
 borrowings of fictitious money, which we 
 call bank-made credit money, will be re- 
 deemed forever by actual future profits 
 in the form of profit-originated money of
 
 64 THE COLLAPSE OF CAPITALISM 
 
 account, and they are under a vague im- 
 pression that there is no natural limit of 
 the figures which the latter may reach. 
 This expectation is quite nebulous and far 
 from assuming the definite terms in which 
 we describe the process. They do not 
 understand their own system, and they 
 have an instinctive aversion to a scientific 
 analysis of it. Philosophic economics is 
 good enough for them. 
 
 Developing capitalism needs ever more 
 money and cannot do without the bank- 
 made kind. Billions of it have been cre- 
 ated here lately on the basis of the influx 
 of gold and the legal reduction of the 
 reserve requirements. The European war 
 has been financed mainly with just this 
 fictitious money. The dangers lurking 
 behind the money of account, especially 
 and immediately of the bank-made kind, 
 for the world's banks, therefore for the 
 world's money which they represent, 
 therefore for capitalism itself, are realized 
 by the best experts in the service of the 
 haute finance, although given cautious 
 expression publicly, and by the big cap- 
 italists themselves, judging by their ac- 
 tions. Pay day must come, and with it
 
 MONEY OF ACCOUNT 65 
 
 the revelation of the social insolvency 
 which will form the subject of my next 
 chapter.
 
 CHAPTER V. 
 The Social Insolvency. 
 
 LET us recall these salient facts : That 
 mere titles to money have come to 
 take the place of actual money among the 
 capitalists ; that the money left by the 
 people at the disposal of the banks is now 
 quite inconsiderable, compared with the 
 volume of the titles ; and that, neverthe- 
 less, the volume of the titles is growing 
 (at least in the United States) twenty 
 times as fast as the basic gold. 
 
 Where this absurdity must lead to can 
 be no secret to the financial leaders. They 
 admit that no financial legislation can 
 make the system intrinsically sound. So 
 they use their technical knowledge to 
 devise contrivances calculated to keep the 
 machine going for some years longer, 
 hoping that, meantime, something may 
 turn up to save the situation once more. 
 That is all there is behind the federal 
 reserve act and the amendments recently 
 added to it. Previous to these enactments 
 the safety of the banks had been sought 
 
 66
 
 THE SOCIAL INSOLVENCY 67 
 
 in large reserves. Under the old law New 
 York, Chicago and St. Louis national 
 banks, for instance, had to carry 25 per 
 cent cash against their demand deposits. 
 The new reserve system makes it legally 
 possible to reduce this reserve to less than 
 three and a half per cent, as shown by 
 Theo. H. Price in "Outlook," 1917, p. 477. 
 
 It should be understood that banks 
 have no power to increase or decrease by 
 a dollar the amount of money in their 
 vaults. This power rests only with the 
 depositors to whom the money belongs in 
 reality, though not nominally. They can 
 deposit or draw as much or as little as 
 they please. All the banks can do is to 
 limit the sum of their loans which, as we 
 have seen, immediately become deposits, 
 so as to accord with the cash in their 
 possession. 
 
 The Federal Reserve legislation recog- 
 nizes the fact that money of account 
 cannot rely for safety on large reserves. 
 New York banks have been forced to sus- 
 pend in spite of their 25 per cent reserve. 
 The hope for safety for a while longer lies 
 rather in the localization of "runs" and 
 the prevention of the spread of the alarm.
 
 68 THE COLLAPSE OF CAPITALISM 
 
 The financial leaders know that the whole 
 financial mechanism rests on nothing but 
 faith. They do not say: "Come, convince 
 yourselves of the reasonableness of our 
 system ; use your intellect !" Instead, 
 they merely say: "Have faith!" Other 
 gentlemen before them have appealed to 
 faith until the accumulation of evidence 
 against it resulted in its sudden over- 
 throw. Faith was dissolved into nothing- 
 ness. 
 
 There never has been a solvent bank. 
 It is the normal condition of banks to be 
 insolvent. 
 
 The insolvency of the banks involves 
 the social insolvency. The latter refers 
 not merely to the public debts, now so 
 great, nor even merely to the entire class 
 of negotiable titles to revenue, such as 
 bonds and stocks, nor even all money 
 obligations — it includes the impossibility 
 of paying for raw materials or wages. 
 The gradual undermining and sudden 
 collapse of the whole world's banks de- 
 stroys the great bulk of the money so in- 
 dispensable under capitalism. Only the 
 bulk? Is it thinkable for a moment that 
 when production is paralyzed, and before
 
 THE SOCIAL INSOLVENCY 69 
 
 it can be resumed on a completely social 
 basis — the only basis then possible — that 
 the necessaries of life will be at the ex- 
 clusive disposal of those who happen to 
 be so fortunate as to have some pocket 
 money? Of course not. Gold and tokens 
 will be outlawed instantly. The hour of 
 money has struck. 
 
 All this must be clear to anybody who 
 gives the subject any serious attention. 
 That any self-contradictory system must 
 come to grief some time is obvious 
 enough. But the great rabble among the 
 capitalists think the game can go on "for- 
 ever," so far as the present generation is 
 concerned. All that is necessary is "con- 
 fidence" — such a trifling and cheap thing. 
 It is the task of Socialist economics (and 
 since Marx that is strictly equivalent to 
 scientific economics) to discover the proc- 
 esses which must bring the durability of 
 the contradictory monetary mechanism 
 within certain conceivable limits of time 
 in spite of faith or "confidence." There 
 must be processes which mechanically 
 destroy this faith and vindicate the 
 materialistic conception of history. 
 
 We know that the primary trouble
 
 70 THE COLLAPSE OF CAPITALISM 
 
 arises from the scarcity of gold, which 
 has become insufficient in our time to 
 perform its function of means of circula- 
 tion and necessitated the use of imaginary 
 money. Here we touch the original and 
 mortal contradiction inherent in money, 
 which has disclosed itself since Marx. 
 
 Suppose that some day a new source 
 of supply of gold were discovered, making 
 it possible to redeem all the world's 
 tokens and bank deposits. This is by no 
 means an impossible supposition, espe- 
 cially in view of the long lease of life 
 vouchsafed to capitalism by the econom- 
 ics of half a century ago. Today the 
 happening of such an event would be the 
 death stroke of capitalism. Gold would 
 then be capable of fulfilling its function 
 of means of circulation, but unable to 
 function as measure of value, which func- 
 tion abhors abundance. Such a flood of 
 gold could only be the result of an enor- 
 mously cheapened cost of production, and 
 the effect of the low value of gold upon 
 capitalism would be exactly the same as 
 that brought about by the collapse of the 
 banks. Money would be destroyed in 
 either case.
 
 THE SOCIAL INSOLVENCY 71 
 
 But the present dilemma is not the 
 overabundance, but the scarcity of gold 
 and the necessity of making up the defi- 
 ciency with symbols of and titles to gold. 
 
 These contrivances do not have the 
 efifect of lowering the value of gold, as its 
 overabundance would. On the other 
 hand, the substitutes for gold are subject 
 to depreciation, as we have seen in a pre- 
 vious chapter. This refers directly only 
 to paper money. But, inasmuch as de- 
 posits, which legally are debts like any 
 others, may be paid with legal tender 
 tokens, any depreciation of these afifects 
 the value of the deposits to exactly the 
 same degree. Therefore, the depreciation 
 of European currencies referred to previ- 
 ously includes at the same time a corre- 
 sponding diminution of the value of the 
 bank deposits. 
 
 The problem of the breakdown of 
 money of account within a conceivable 
 time thus reduces itself to a search for 
 factors tending to bring about the pro- 
 gressive depreciation of paper money in 
 the countries with a developed banking 
 system. Meanwhile we leave the depos- 
 itors in the undisturbed possession of
 
 72 THE COLLAPSE OF CAPITALISM 
 
 their faith, although it would not be sur- 
 prising if this were rudely shaken at any 
 moment. 
 
 It is plain from the start that the prin- 
 cipal cause which brought about the 
 introduction of paper money, namely, the 
 inadequacy of the gold supply for han- 
 dling the increasing value of the stock of 
 commodities, must also continue to bring 
 about an evergrowing amount of that 
 paper money, becoming ever more dis- 
 proportionate to the slowly growing stock 
 of gold. 
 
 Such, however, is only the general 
 analogy of cause and effect between the 
 early years of paper money and now. But 
 one important diflference has arisen. For- 
 merly the paper money was simply an 
 addition to the gold in circulation ; but 
 now money is needed, not only for circu- 
 lation, but equally to repose in bank 
 vaults as reserve against the new fangled 
 money of account. It is true, of course, 
 that on the other hand circulation is now 
 helped out by checks. If these did not 
 render aid, the amount of tokens would 
 have to be that much larger. The latter 
 would be exposed to the danger of depre-
 
 THE SOCIAL INSOLVENCY 73 
 
 ciation in case of shrinkage of the value 
 or price of the commodities to be circu- 
 lated. In 1908, for instance, the money 
 turnover in this country was 30 per cent 
 less than in 1906. 
 
 It is a noteworthy fact that prior to 
 the establishment of the federal reserve 
 the American people left generally nearly 
 half of their money in banks. For the 
 latter that was equivalent to an accumu- 
 lation of the daily cash deposits of 29 
 consecutive days without any with- 
 drawals. In other words, the bank "re- 
 serves" could be considered formally as 
 the initial cash receipts for 29 days, after 
 which the daily receipts are balanced by 
 the daily disbursements. The earlier de- 
 positors may be formally considered as 
 beginning to draw as much cash as the 
 later ones deposit. Of course, the money 
 has to stay in the bank for some time, 
 namely, the difference of time between 
 the average "banking" of the wages of a 
 theoretical common wage period and the 
 withdrawing again of the money for 
 another national payroll. 
 
 The common wage period is estimated 
 by Irving Fisher, as quoted and ac-
 
 74 THE COLLAPSE OF CAPITALISM 
 
 cepted in a report of theAldrich Monetary 
 Commission, at 20 days. Therefore, the 
 wages are spent and "banked" on an 
 average in 10 days. That leaves 10 
 days for the money to stay in the banks 
 before the next pay day comes around. 
 But it is necessary to draw the money the 
 day before pay day in order to prepare 
 the payroll. Consequently, nine days is 
 all the time that the money has to stay 
 in the banks in the regular course of cir- 
 culation, instead of 20 days. This shows 
 that, so far as the active circulation is 
 concerned, there was no technical neces- 
 sity of there being then left in the custody 
 of the banks more than $500,000,000 cash, 
 instead of the $1,500,000,000 they had. 
 Evidently there existed a billion more 
 tokens than circulation needed. Against 
 this excess we find an issue of notes of 
 national banks, clearly made for no other 
 purpose than to provide additional re- 
 serves against the growing deposits. 
 For although, naturally, the banks cannot 
 print notes, exchange them with each 
 other and then claim that they have more 
 money than before, singly or as a system, 
 they can pass them ofif to the public, col-
 
 THE SOCIAL INSOLVENCY 75 
 
 lecting and retaining instead the gold 
 certificates (which are storage receipts 
 for actual gold) and other legal tenders 
 theretofore in general circulation. 
 
 Nevertheless, the time had not yet come 
 for the token to depreciate, because there 
 still was a preponderance of gold over 
 tokens, and some gold had, therefore, to 
 be in circulation all the time. That stead- 
 ies the values of the tokens. But the ten- 
 dency to their depreciation is irresistible. 
 Production expands more or less steadily. 
 Sometimes it is intensive; prices of com- 
 modities rise, as do those of land and secu- 
 rities. More currency is needed for wages 
 and general spending. Depositors draw 
 more from the banks. The so-called "re- 
 serves" shrink, which is only another 
 way of saying that the depositors, instead 
 of leaving their money in the banks 29 
 days, leave it only 28, 27, etc., days. In 
 still another way this can be expressed 
 as the increasing rapidity of the circula- 
 tion of money until a point is reached 
 when money is doing its maximum of 
 work. Then the issue of more paper 
 money becomes imperative. 
 
 The foregoing can be illustrated by
 
 76 THE COLLAPSE OF CAPITALISM 
 
 the relative increase from 1898 to 1914 of 
 the money in active circulation (prac- 
 tically wages) and of the money in banks 
 as reserves against deposits (which are 
 in the long run all profit). The former 
 was 54 per cent, the latter 137 per cent. 
 
 This would be all very fine for capital- 
 ism, if the thing did not run up against 
 a stone wall beyond which it cannot go. 
 The paper depreciates. It is in our time 
 no longer issued by the governments of 
 the leading capitalist countries, save 
 under very exceptional circumstances, 
 but by semi-governmental institutions, 
 called national banks in Europe and the 
 Federal Reserve Bank here. They are 
 central banks for the individual banks 
 whose reserves they hold. It is a unified 
 system of banking for each country. 
 
 Can two banks print bank notes, each 
 for a million, exchange them with each 
 other, and then claim that they now have 
 jointly two millions more money than 
 before? Hardly ; and no more can a whole 
 national system perform a similar trick. 
 What the banks can do is to pass their 
 notes to depositors willing to take them 
 and retain as money reserves all the geld
 
 THE SOCIAL INSOLVENCY 11 
 
 coming their way. But in due time they 
 strike a snag. When the channels of cir- 
 culation are filled with notes to the entire 
 exclusion of gold then, in the event of 
 business depression or the necessity of 
 gold shipments, depreciation knocks at 
 the door, unless the banks give up gold 
 and keep their notes, which latter, of 
 course, cannot count as reserves at all. 
 This alternative, either of opening the 
 door to depreciation by clinging to the 
 gold or of reducing their legal or volun- 
 tary reserves, will present itself to the 
 banks again and again, and must end 
 with the confessed insolvency of all the 
 banks and the destruction of money. 
 
 To avoid the clearly dangerous aug- 
 mentation of paper money, why could 
 not capitalist society restrict the circu- 
 lating medium so that each unit of gold, 
 or its symbol, can buy a greater com- 
 modity value, thus counteracting the 
 increase of the total value of the stock 
 of commodities as expressed in gold, or 
 preventing any continued tendency of 
 prices to rise? 
 
 Such an idea implies the overvaluation 
 of gold and would have to overcome the
 
 78 THE COLLAPSE OF CAPITALISM 
 
 desperate resistance of the debtor class, 
 less interested than the creditor class in 
 the maintenance of capitalism. The idea, 
 further, would have to be reconciled with 
 the prospect of the concentration of an 
 inordinate and constantly growing share 
 of the world's wealth in the hands of the 
 owners of gold mines. But far more im- 
 portant than these considerations is the 
 fact that the circulation requirement, 
 though it thus may be impeded, cannot 
 be permanently confined. The restriction 
 of the issue of paper money to a perma- 
 nent proportion with the gold is incom- 
 patible with capitalism, whose expansion 
 is irresistible as a result of competition. 
 In time it would become impossible to 
 circulate such commodities as are below 
 a certain minimum of value. At the same 
 time bank deposits would continue to 
 grow from the inevitable profit accumu- 
 lation. Instead of receiving additional 
 cash for their reserves, the banks would 
 see them practically exhausted. Reach- 
 ing that point does not exhaust the de- 
 mands for money by the depositors whose 
 needs are imperative. Contraction is not 
 workable for any length of time.
 
 THE SOCIAL INSOLVENCY 79 
 
 A longer lease of life for the things that 
 are is promised by permitting inflation, 
 as the need of it arises. Inflation, there- 
 fore, it shall be. However, a merely tran- 
 sitional form of society cannot be made 
 permanent by following one policy any 
 more than another. As all roads lead to 
 Rome, inflation leads in the end to exactly 
 the same point as contraction — to the 
 social insolvency. 
 
 For a shrinkage in the value of paper 
 money (and, therefore, of money of ac- 
 count) cannot be made good by printing 
 more paper money. No matter how 
 much is printed, the value of the sum of 
 the tokens is not increased one iota, while 
 the value of each unit is diminished. 
 Overwhelming necessity has, neverthe- 
 less, compelled Europe since the war to 
 have recourse to this ruinous proceeding 
 on an immense scale, considering the 
 shortness of the period. Yet the same 
 thing was bound to happen, though, no 
 doubt, more gradually, in the perfectly 
 normal course of monetary development. 
 
 As the depreciation progresses the 
 amount of the daily deposits of paper 
 money increases. The passage of this
 
 80 THE COLLAPSE OF CAPITALISM 
 
 money through the banks accelerates the 
 growth of money of account. The swell- 
 ing of the deposits calls for a relative in- 
 crease of the reserves. But the additional 
 reserves cannot come from the increased 
 deposits of the depreciated money. Under 
 the regime of gold, when this is the 
 measure of value, the total price of the 
 commodities in circulation calls only for 
 a definite maximum of money. Any ex- 
 isting surplus of gold or symbols thereof 
 find lodgment in bank vaults, and can 
 stay there for an indefinite time. 
 
 But it is otherwise under the regime of 
 depreciated paper. The issue of tokens 
 has been called forth by the needs of 
 circulation, but once they are issued in 
 excess of the economic law, they will not 
 retire to bank vaults longer than tech- 
 nically necessary. Their aggregate value 
 is determined by the aggregate value of 
 the commodities in circulation ; therefore, 
 all the units of the token issue are at all 
 times needed in circulation. Granting 
 that the gold basis has been frankly 
 abandoned, and that the banks consider 
 their own notes, or promises to pay (but 
 pay with what?) as money, it is, never-
 
 THE SOCIAL INSOLVENCY 81 
 
 theless, plain that the gain of reserves by 
 the banks must be small relatively to the 
 growth of deposits. 
 
 On the other hand, the strain on the 
 banks becomes more severe constantly. 
 While the reserves grow little, the de- 
 posits grow much, and, naturally, cause a 
 growing demand on the banks for cash. 
 How are these to meet the situation? 
 There are two ways. 
 
 One is to pass new paper money out 
 of the paying teller's window. This in- 
 creases prices, which necessitates the 
 issue of still more paper. It is now the 
 method adopted by Europe in grandiose 
 style since the war. But it is a vicious 
 circle, from which there is no escape until 
 the value of money is destroyed in due 
 course of the process, or this process is 
 ended deliberately by the dethronement 
 of money and the establishment of com- 
 plete Socialism. 
 
 The other way is for the banks to re- 
 duce their loans and thereby their 
 "deposits." This is, likewise, a road of 
 thorns. It is clear that if tokens have 
 depreciated, say 50 per cent, the borrow- 
 ing world needs to double its borrowings
 
 82 THE COLLAPSE OF CAPITALISM 
 
 to continue the industries on the estab- 
 lished scale. On the contrary, it now has 
 to face the withdrawal of the loans. To 
 the extent that productive and mercantile 
 capitalists can manage to pay off their 
 bank debts they must reduce their opera- 
 tions. By this reduction of money capital 
 alone, aside from other difficulties, great 
 numbers of workers are forced into idle- 
 ness. 
 
 But many other industrial capitalists 
 are too involved to pay up. Their entire 
 business is founded on the expectation of 
 material support by bank loans. Already 
 the rising prices strain their capital. 
 Many failures of industrial capitalists of 
 this caliber would add greatly to the 
 already existing unemployment. But, 
 what is much more important in eco- 
 nomics, these failures would go close to 
 the heart of many banks, perhaps of all. 
 Many banks have outstanding loans to 
 the tune of 10 or more times their capital 
 and surplus (one very large bank in Eng- 
 land even 20 times), so that the loss of 10 
 per cent and even less of their outstand- 
 ings loans would wipe out both their 
 capital and surplus and destroy the
 
 THE SOCIAL INSOLVENCY 83 
 
 "solvency" of such banks. A loss of 25 
 per cent would strike fatally all banks. In 
 stating these percentages I leave out of 
 consideration that banks are heavy cred- 
 itors of each other, and as such creditors 
 may be involved also in losses through 
 the failure of other banks. 
 
 This book does not concern itself 
 with states of mind which may be pro- 
 duced by changing conditions. I am 
 well aware of the possibility that loss of 
 faith in the social solvency may become 
 epidemic and result in an universal as- 
 sault on the banks, or that the workers 
 may be fired to revolutionary action 
 through their sufferings. My object, how- 
 ever, has been to show the trend of recent 
 economic development, of which social 
 bankruptcy, followed by complete Social- 
 ism, is the inevitable outcome, regardless 
 of states of mind. In our discussions we 
 have come across several phenomena 
 which show that the process is well under 
 way. How near we may be to the catas- 
 trophe will be the subject of the next 
 chapter.
 
 CHAPTER VI. 
 The Money Source for the War Loans. 
 
 THE New York Times of August 3, 
 1917, contained the following special 
 cable from London : 
 
 New Europe, a weekly publication possessing 
 special sources of continental information 
 . . . says: "We learn from an unimpeach- 
 able source that a secret conference of inter- 
 national financiers, which recently took place 
 in Switzerland, was inspired by somewhat dif- 
 ferent motives from those which were ascribed 
 to it at the time. Acting purely in the interests 
 of the great capitalists of all countries, it 
 aimed, above all, at an immediate peace, such 
 as would arrest the growth of international 
 Socialism and the rising tide of revolution 
 throughout Europe. The gathering sought to 
 forestall the holding of the Stockholm confer- 
 ence by a direct arrangement between the 
 belligerents in which national claims would 
 be entirely subordinated to consideration of 
 world-wide finance." 
 
 And so it is the international financiers 
 who, of all capitalistic elements, are the 
 first to perceive the necessity of attempt- 
 ing to call ofif the dogs of war. Since 
 when have these gentry become distin- 
 guished as having the clearest vision of 
 the menace of international Socialism?
 
 MONEY SOURCE FOR WAR LOANS 85 
 
 Before the war there was 'no set of men 
 more incapable of comprehending the 
 economic trend, except, perhaps, the pro- 
 fessors of political economy. Socialism 
 was beneath their notice — too absurd to 
 give a minute of their time to. And now, 
 instead of delegating their trained poli- 
 ticians or other retainers, they must meet 
 personally for consultation, lest in fight- 
 ing for "national claims" all of "world- 
 wide finance" become engulfed in one 
 whirlpool. 
 
 Now, why have the international finan- 
 ciers become afraid of the approach of 
 international Socialism? What do they 
 see? 
 
 Immediately there comes to the mind 
 of most people the immensity of the war 
 debts and the oft expressed, though un- 
 proved, idea that the interest cannot be 
 paid ; wherefore the conclusion is near 
 at hand that what the financiers dread is 
 repudiation. Now, repudiation may be 
 partial or complete. The rate of interest 
 might possibly be reduced from 5 to 4 
 per cent or be cut in half, reducing the 
 selling value of the bonds proportionately. 
 But that complete repudiation should be
 
 86 THE COLLAPSE OF CAPITALISM 
 
 necessary is fanciful, to say the least. 
 Even if repudiation became necessary, but 
 involved nothing more than depriving 
 private bondholders of part, or even the 
 whole, of the revenue which they had 
 purchased, it would be hard to explain 
 why this must necessarily result in inter- 
 national Socialism. In fact, as the case 
 stands today, there is no reason why the 
 interest cannot be paid in full, as agreed. 
 It is as easy to pay five billions annually 
 with money depreciated 50 per cent as it 
 would have been to pay half that sum 
 with the money of full value of pre-war 
 time. Looking at the matter in this light, 
 it still remains true that the former load 
 of interest of one billion dollars has been 
 increased by an additional two and a half 
 billions. But this addition might be made 
 good, in the main, by reducing the mili- 
 tary budgets currently reported to have 
 stood at two billions before the war. 
 That this might be done is a reasonable 
 supposition, as the countries of Europe 
 will be too exhausted for many years to 
 contemplate and prepare for another 
 physical trial of conclusions. Also, higher 
 taxMion than before the war might be
 
 MONEY SOURCE FOR WAR LOANS 87 
 
 resorted to. Although the capitalists 
 grumbled much then, as a matter of 
 course, their eyes have since been opened 
 wide as to what taxation might really- 
 mean. Great Britain, alone, during the 
 fiscal year ended March 31, 1917, raised 
 by taxation two and a half billion dollars, 
 figuring the British pound as being worth 
 about par, which, however, is undoubt- 
 edly far from being the fact, in spite of 
 the artificial rate of exchange. 
 
 If the international financiers perceive 
 danger to the existing form of society 
 from continued war borrowings, why do 
 they not pass the word along quietly to 
 the ordinary banks that repudiation must 
 come, and that it were better to strike 
 against further loans? Is it only because 
 these gentlemen know that the banks are 
 between the devil of coercion above and 
 the deep sea of bankruptcy below, so that 
 nothing can save the whole of finance 
 and capitalist society except the im- 
 mediate cessation of the war? To bring 
 the latter about is the aim of the interna- 
 tional financiers, strangely coinciding 
 with the purpose of the Stockholm con- 
 ference of international Socialists, their
 
 88 THE COLLAPSE OF CAPITALISIVf 
 
 enemies. But this tremendous and sacri- 
 ficial world war will not pass into history 
 as having been in vain. It is to be re- 
 corded as the deliverer of Socialism out 
 of the womb of the old society, and will 
 not stop its work until its purpose is ful- 
 filled. Capitalism had reached the stage 
 in its development where it needed this 
 war, and by this war it shall die. 
 
 In truth, the war, and the war loans on 
 which it feeds, may go on for some time 
 yet, so far as the final necessity of the 
 mere repudiation of the debts is con- 
 cerned, provided the depreciation of the 
 currencies continues in proportion to the 
 increase of the debts. The interest always 
 will be payable in money of lesser value 
 than that with which the loan was paid. 
 It is not the loans in themselves which 
 constitute the danger of capitalism, but 
 the abnormal impetus which they give 
 to the otherwise perfectly normal eco- 
 nomic process that results in the destruc- 
 tion of money. That is what the inter- 
 national financiers are scenting. 
 
 Let us now proceed to take a close view 
 of the destructive process as it is being 
 furthered by the war."
 
 MONEY SOURCE FOR WAR LOANS 89 
 
 The first question is: Where did the 
 $90,000,000,000 which ostensibly could be 
 spared for investment in war bonds come 
 from? The sum taxes our power of con- 
 ception. 
 
 At the beginning of the war the opinion 
 was widely expressed by financiers and 
 their clerks, the political economists, that 
 it hardly could last as long as six months, 
 owing to the probable immense cost, 
 which would exceed the availabe re- 
 sources in money. As long ago as June, 
 1915, the National City Bank's circular, 
 estimating that a year of war would re- 
 quire the raising of $15,000,000,000, stated 
 that that could only be done by "pyramid- 
 ing credit," that is, by piling credits on 
 substrata of other credits. Now the war 
 has gone on three times as long as that 
 contemplated by the bank, and the loans 
 are even six times as large as that esti- 
 mate. 
 
 Such financing was entirely beyond the 
 conception of the experts. They were 
 thinking within the traditional rules of 
 fairly conservative banking, and they be- 
 lieved that, when the ordinary financial 
 limits were reached, the war would have
 
 90 THE COLLAPSE OF CAPITALISM 
 
 to Stop. Little did they dream that the 
 financiers and the whole ruling class 
 would lose control of the war and be 
 controlled by it ; that the patriotic beast, 
 once unleashed, could not in its fury be 
 kept within desired bounds ; that it would 
 drag their society, as the devil does the 
 poor soul, into perdition. They meant to 
 give the devil a finger, but he irresistibly 
 extended his clutch over the whole hand. 
 When we come to answer this question 
 of the loan funds, let us first dispose of 
 the supposition that it may have been to 
 a considerable extent current money, the 
 identical pieces of coin or paper having 
 been used over and over. Inasmuch as 
 the loans were payable in installments, 
 it might be imagined that the money paid 
 to the governments on one installment 
 would return into circulation as wages, 
 etc., and become available for the next 
 installment. However, we glean from 
 figures published by the German gov- 
 ernment, the only one which has done 
 so, that 1,794,084 subscribers took 154,- 
 000,000 of marks, while 725 subscribers 
 took 2,448,000,000 millions of the fifth 
 loan. In England, where the per capita
 
 MONEY SOURCE FOR WAR LOANS 91 
 
 circulation is much smaller than in Ger- 
 many, and the middle class nonexistent, 
 the small payments with actual currency 
 must have been almost a nullity. In short, 
 the loans were not paid in current money, 
 and the participation in them by the 
 workers and middle class (mostly peas- 
 ants) is negligible, so far as amount is 
 concerned. 
 
 We may, therefore, now proceed to 
 inquire whether the loans were paid out 
 of the profit-originated money of account. 
 
 For several years up to the war the 
 annual capitalization in London, Paris 
 and Berlin was about three billion dollars. 
 That is to say, that, after part of the 
 annual profit above living expenses of 
 the capitalists and their retainers — sol- 
 diers, lawyers, professors, etc. — had been 
 used to extend their businesses, the 
 aforementioned sum remained as a bal- 
 ance in money form available for tem- 
 porary investment in new issues of 
 securities. Upon the outbreak of the war 
 private issues were prohibited in order 
 to monopolize the money markets for 
 government issues. Thus there became 
 available for the latter during the three
 
 92 THE COLLAPSE OF CAPITALISM 
 
 years of war nine billion dollars. To this 
 may be added two billions of merchants' 
 capital laid idle in domestic and foreign 
 commerce, owing to the direct control by 
 the governments of more than half of the 
 industrial production and to the blockade 
 of Germany, but offset to quite an extent 
 by the additional capital called for by 
 the advance of as much as 1,000 per cent 
 in the cost of ships, etc. 
 
 Thus we find eleven billion dollars to 
 be all the visible money available for war 
 loans. It was probably on some such 
 calculation that financial authorities 
 based their prediction already referred to 
 that the war could scarcely last six 
 months. Yet loans of eight times as much 
 have been paid, and we are consequently 
 not much nearer an answer to our ques- 
 tion : Where did the money come from? 
 
 "But wait !" I hear some Socialist glibly 
 interject, "you forget the outrageous war 
 profits." 
 
 What has attracted our Comrade's at- 
 tention and confused him is the profit of 
 our American capitalists, who really have 
 something tangible to show — billions in 
 gold and American securities formerly
 
 MONEY SOURCE FOR WAR LOANS 93 
 
 owned in Europe and now transferred to 
 them. The American capitalists grew 
 richer, but the European poorer to the 
 extent that their own governments' ol)li- 
 gations were worth less than gold or 
 American securities. Besides the latter 
 had been a source of unadulterated rev- 
 enue, whereas the money for the payment 
 of interest and the redemption of the prin- 
 cipal of the war bonds which the Euro- 
 pean capitalists got in exchange has to 
 come out of their own profits in the shape 
 of taxes. 
 
 The vaunted "war profits" of the Euro- 
 pean capitalists cannot have added mate- 
 rially to the amount of money available 
 for the war loans placed by the belligerent 
 governments in their respective countries. 
 Let us take a look at these so-called war 
 profits. 
 
 When a productive capitalist turns out 
 a quantity of a divisible product, one part 
 of this may be considered to represent 
 the value of the material consumed, and 
 another part the new value added by 
 labor. This new value is divided between 
 those who produced it and the capitalists. 
 The latter's share is called surplus value
 
 94 THE COLLAPSE OF CAPITALISM 
 
 or profit, according to certain relations. 
 The worker receives his share in the 
 shape of a quantity of products necessary 
 to keep him going, or rather of the money 
 to buy them hifhself. 
 
 What matters to the capitalist class is 
 the quantity (or rather, value) of the 
 products which it can appropriate to it- 
 self. The more active the process of pro- 
 duction is, the more the workers can be 
 made to work, the greater the value of 
 the products going to the capitalists, both 
 absolutely and relatively, the latter owing 
 to the comparatively lesser increase of 
 general expenses. The money derived 
 from such real profits is a source for war 
 loans. 
 
 In ordinary times goods are universally 
 exchanged with each other on the basis 
 of their comparative values, as measured 
 by the cost of producing gold. But now 
 there is abroad a spendthrift buyer, pay- 
 ing, not with money, but by running into 
 debt, having no commodities to sell. He 
 cares not about price, and what he buys 
 he destroys promptly. 
 
 When demand is thus active, outrun- 
 ning production, prices advance, and the
 
 MONEY SOURCE FOR WAR LOANS 95 
 
 more so, if production centers mainly on 
 useless things, such as cannons. The pro- 
 gressive rise of prices enables the pro- 
 ductive capitalists to make an additional 
 gain. But this gain is illusory for the 
 capitalist class considered as a whole and 
 therefore not available for war loans. 
 
 Price fluctuations are the ever renewed 
 capitalistic attempt to adjust the division 
 of the product between the owners of 
 money and the owners of commodities, 
 incidentally regulating wages. These fluc- 
 tuations do not affect the mass (or rather, 
 value) of the product which goes to the 
 capitalists. To express its total in ever 
 so high a price, does not make it more. 
 Every money unit of profit can only buy 
 so much less. Among the individual cap- 
 italists the gain of one, procured by rising 
 prices, must be the loss of another, not 
 necessarily at the same time, as in the 
 case of the money capitalist receiving a 
 fixed rate of interest, but at a later time, 
 when the market moves downward. The 
 gains and losses, not being profit, or the 
 result of labor performed, must offset 
 each other. 
 
 If the illusory gains (they'are so largely
 
 96 THE COLLAPSE OF CAPITALISM 
 
 also for Other reasons to be mentioned 
 presently) are nevertheless invested by 
 some capitalists in war loans, they de- 
 prive the capitalist class as a whole of 
 the means of meeting the losses when 
 they come. The severity of the resultant 
 crisis is the measure of retribution which 
 an anarchic form of society must sufifer 
 for its imperfection. 
 
 But suppose that for the first time in 
 economic history there comes no falling 
 market after the war. Then there are 
 only two possibilities which could explain 
 such a phenomenon. Either gold has 
 
 undergone a sudden and permanent de- 
 cline of value, or price is expressed by 
 depreciated paper money. The first men- 
 tioned explanation is quite gratuitous, as 
 the cost of producing gold has actually 
 risen since the war. What depreciation 
 means to our present social order we need 
 not repeat here. 
 
 American capitalists may gain billions 
 by price advances, but foreign capitalists 
 must lose correspondingly, either at once 
 or later. The capitalist class as a whole 
 cannot gain by price advances. If the 
 European capitalists have, as many think,
 
 MONEY SOURCE FOR WAR LOANS 97 
 
 been able to gouge their governments, 
 the latter must exact the return in due 
 time of every penny by the taxes neces- 
 sary to pay off their debts and the in- 
 terest thereon. The capitalist class cannot 
 add to its profit by gouging. It cannot 
 exact anything from society but the reg- 
 ular surplus product. 
 
 Supposing the productive capitalists to 
 have been able, after the outbreak of the 
 war, to take advantage of the other ele- 
 ments of society, w^ould not the latter 
 have so much less money to invest in 
 war loans, as the former had more? 
 
 Before the governments had been able 
 to replace capitalist anarchy by their 
 centralized control of the industries, the 
 productive capitalists exacted exorbitant 
 prices from the reckless, debt-making 
 governments. But these extra gains, 
 which would have become illusory, any- 
 how, in the course of time, as above ex- 
 plained, were promptly reclaimed by the 
 governments in the shape of war taxes. 
 The British government has raised the 
 taxation from 815 million dollars in the 
 last year of peace to 2,570 million dollars 
 for the fiscal year ending March 31,
 
 98 THE COLLAPSE OF CAPITALISM 
 
 1917. The German industrial organization 
 permitted of speedy regulation of war 
 production and prices. 
 
 There was another source of vaunted 
 "war profits" which, however, in reality 
 is only a delusion. Concerns showed un- 
 precedented increases of surplus on their 
 balance sheets, but these extraordinary 
 profits reflected depreciated money. This 
 depreciation was the inevitable result of 
 the inevitable inflation of the paper 
 money circulation in every warring coun- 
 try. The issues in the course of the war 
 have been increased six to twelve fold in 
 different countries. The reader knows 
 from the theory of tokens of money pre- 
 sented in a previous article that such in- 
 flation results in higher prices. After 
 having sold at the advancing prices, the 
 capitalist is obliged to enter the market 
 again as a buyer, and in his turn pay the 
 highest price. He finds that his swollen 
 purse can buy no more than his former 
 more modest one. If he has indulged him- 
 self personally with the increase of his 
 cash, or if he has invested it in war loans, 
 he will find that he cannot continue pro- 
 duction on the former scale. But, no mat-
 
 MONEY SOURCE FOR WAR LOANS 99 
 
 ter what the individual capitaHst might 
 do, the finale would be the same. Money 
 has depreciated 50 per cent, and unprece- 
 dented increases of surplus appear on the 
 books of accounts — great war prosperity ! 
 Money further depreciates 95 per cent, 
 and every little capitalist has become a 
 millionaire. The depreciation reaches 99 
 per cent, and — a yawning abyss opens 
 before the eye. The illusion that there 
 can be prosperity as the result of a wan- 
 ton destruction of the fruit of labor has 
 vanished. 
 
 The only conclusion, therefore, is that, 
 while a certain amount of additional 
 profits from intensive production during 
 the war, minus the increase in taxation, 
 may have been a contributory source of 
 money supply for the war loans, the 
 legitimate profit-originated money of ac- 
 count cannot have furnished the where- 
 withal to a large extent. 
 
 We have now completed our investiga- 
 tion with the result that bank-made credit 
 money stands revealed as the main finan- 
 cier of the war together with the equally 
 fictitious accretion to the profit-originated 
 money of account due to rising prices.
 
 100 THE COLLAPSE OF CAPITALISM 
 
 How this financing was accomplished will 
 be told in the next chapter, in which will 
 also be considered the final effects of this 
 financing on the condition of the banks 
 and of capitalist society.
 
 CHAPTER VII. 
 The War, Birth Deliverer of Socialism. 
 
 THERE are two ways which the banks 
 may consider for financing war by 
 means of bank-made credit money. 
 
 One is by direct subscription to the 
 war loans for their own account ; the 
 other is by making the necessary loans 
 to depositors willing to subscribe. 
 
 The former was adopted by the banks 
 at the beginning of the war, when the 
 general opinion among bankers was that 
 the war would necessarily be short owing 
 to exhaustion of the money supply. The 
 latter way was the one followed later 
 to procure the great bulk of the borrow- 
 ings of the governments, when the dis- 
 illusionment regarding the possible dura- 
 tion of the war began to spread. 
 
 What is the difference between the two 
 methods in their effects on the situation 
 of the banks? 
 
 In lending to the government, the bank 
 accepts a long term obligation. The re- 
 turn of the principal cannot be had except 
 
 101 
 
 ^rtfrrrrrooiTV nrcnilTHPRN n/VI IFflF^NlA 1 \M
 
 102 THE COLLAPSE OF CAPITALISM 
 
 by sale of the bonds at whatever may be 
 the stock exchange quotation at the time 
 the bank wants to sell. The banks can- 
 not go very far in long time investments, 
 remembering well that in panics, just 
 the time when money is wanted, it had 
 become impossible to sell at almost any 
 price. 
 
 In lending to depositors the bank gets 
 their reasonably short obligations, usually 
 divided into what appear as manageable 
 instalments. The bank, furthermore, 
 promises renewals in case of necessity, 
 although such promises are made in a 
 form not legally binding on the bank. In 
 this way the bank counts on a fairly reg- 
 ular inflow of money, instead of being 
 tied up with long term investments. In 
 the latter condition, banks are apt to be 
 heavily drawn on, with but little coming 
 in, and the balance must be made good 
 at the clearing house with actual cash or 
 at the central bank with whatever may 
 be satisfactory to it. The war bonds 
 themselves are taken by the banks as 
 collateral security. 
 
 But there is another difference nor- 
 mally, even more important.
 
 WAR. BIRTH DELIVERER 103 
 
 The borrowed money is disbursed by 
 the government principally by issuing 
 checks to the productive capitalists who 
 deposit them in their banks. The bank 
 deposits, or the banks' liabilities payable 
 on demand, are thus swelled. This is, of 
 course, true in either case, whether the 
 government funds are obtained direct 
 from the bank or from private investors. 
 But for the banks, there is this all-im- 
 portant difference that, if they have ad- 
 vanced the money direct, the deposits will 
 stay swelled, with all the attendant dan- 
 gers of increasing and perhaps sudden 
 demands by the depositors for cash; 
 whereas, if the banks advanced the money 
 to subscribers, the swelling of the deposit 
 accounts of the industrial capitalists is 
 accompanied by the reduction of the de- 
 posit accounts of the holders of bonds, as 
 the money borrowed by them is being 
 paid off. 
 
 How the banks could advance the 
 fabulous sums for the war is no longer a 
 mystery to the attentive reader of the 
 analysis of bank-made credit money in a 
 previous article. If the banks had turned 
 over their cash to the government, there
 
 104 THE COLLAPSE OF CAPITALISM 
 
 would at no moment have been any in- 
 crease whatever of the money of account ; 
 or, if the banks had discounted com- 
 mercial paper at the central banks for 
 the purpose, the increase would only 
 have been quite temporary. Also with 
 such simple methods the banks' financing 
 of the war would soon have reached its 
 end. The trick is how to pay unlimited 
 amounts without paying a penny. Bank- 
 made credit money had long solved this 
 problem. The private subscriptions were 
 collected by the banks which transmitted 
 them to the government with authoriza- 
 tion to issue demand drafts on them for 
 the aggregate. These drafts, in due 
 course, were deposited by the productive 
 capitaHsts and cleared against each other 
 in the approved system of money of 
 account. 
 
 Can billions upon billions of dollars' 
 worth of labor products be taken out into 
 the open and blown up, without costing 
 anybody anything, owing to an ingenious 
 financial system? Is there no day of 
 reckoning coming? It seems hardly 
 necessary to pause here and consider. 
 
 That much was clear to the govern-
 
 WAR, BIRTH DELIVERER 105 
 
 ments and the leading banks that it was 
 of the utmost importance to induce the 
 general investors to subscribe. To raise 
 the "Victory Loan" in England last 
 spring a campaign was set on foot such 
 as had never been seen in that country 
 for any purpose. In due time the world 
 was informed that the "Victory Loan" 
 had been a great victory. However, it 
 will be instructive to take a little closer 
 look at it. 
 
 This 5 per cent loan was issued at 95; 
 that is, the government gave its obliga- 
 tion for £100 on payment of only £95. 
 The banks mutually agreed to lend the 
 depositors £90. All the subscribed had 
 to put up was £5. Accordingly, he collects 
 from the government interest on the 
 obligation of £100, or £5, and he pays to 
 the bank 5 per cent on £90, or £41/^. His 
 own contribution of £5 yields him the 
 difference between the £5 he receives and 
 the 414 he has to pay, or £1^, which is 
 10 per cent. The banks allow this ad- 
 vantage to the investors with an eye to 
 the pressure which they may exert here- 
 after on their debtors so that these may
 
 106 THE COLLAPSE OF CAPITALISM 
 
 reduce iheir deposits by paying up their 
 matured instalments. 
 
 Here, then, is a loan in which the banks 
 have not directly invested at all, but 
 which was paid, all but 5 per cent, with 
 bank-made credit money. 
 
 The savings banks of Germany have 
 subscribed to war loans in excess of the 
 amount of their deposits, although these 
 were already supposed to be invested. 
 The reader may well be pardoned if he 
 considers this statement as absurd. Still, 
 the fact is that the savings banks pledged 
 their investments to the War Loan Banks, 
 receiving 75 per cent in cash for invest- 
 ment in the impending loan. When the 
 next loan came around they similarly 
 pledged their 75 marks in war bonds for 
 another loan of 75 per cent of the value 
 of these; that is, 56^/4 marks, etc. The 
 war loan banks, which are in reality 
 nothing but unofficial appendages of the 
 Imperial Bank, do not admit having had 
 outstanding at any time more than 4,000 
 million marks in notes. These banks, as 
 well as any other banks in Germany and 
 in the other belligerent countries, may 
 prevaricate, dress their windows for
 
 WAR, BIRTH DELIVERER 107 
 
 special dates, or suspend publication of 
 reports, but they cannot conceal the gen- 
 eral facts as to the condition they are in 
 as a whole. 
 
 The expansion of deposits precedes 
 and calls forth the inflation of the token 
 currency. This is doomed to depreciation. 
 Only England (and to a lesser degree her 
 protege, France) has only indirectly 
 (through depreciation of the dollar in 
 neutral countries) to acknowledge such 
 depreciation as a consequence of the war. 
 This is due to England's shipments of 
 gold to the United States, to the inhibi- 
 tion of such shipments to other countries, 
 the reduction of her gold reserve to a 
 minimum, the sacrifice of her best securi- 
 ties, the assistance of the United States 
 first by loans against security, and now 
 by shipments of goods without payment 
 and the purchase of neutral Sterling 
 drafts at the gold value. As a conse- 
 quence of the last mentioned assistance 
 the dollar is now depreciating in the 
 neutral countries, gold shipments to them 
 being under embargo. Nevertheless, 
 what America is doing to sustain the 
 pound (and, secondarily, the franc) does
 
 108 THE COLLAPSE OF CAPITALISM 
 
 not appear sufficient to the Journal des 
 Debats, the distinguished French capi- 
 talist mouthpiece, which, according to a 
 cablegram in the New York Times of 
 August 7, 1917, says that "America must 
 open credits to the allies as large as may 
 be needed," "for to refuse them would 
 make a continuation of the war impos- 
 sible." 
 
 I do not pretend to have any idea how 
 much strength the dollar can contribute 
 to sustain the financial structure of Eng- 
 land and of the world, or how soon we 
 may succeed in ending the war by throw- 
 ing our military power into the scale. 
 Should the war last another year, the 
 demand debts of the European banks will 
 have increased by another 50,000 million 
 dollars, the value of money will be fur- 
 ther reduced, and perhaps near the van- 
 ishing point, aside from spending the 
 strength of the dollar in which borrow- 
 ings of 18,000 million dollars are now 
 contemplated for the year. A sudden 
 debacle need surprise nobody; least of 
 all could it surprise the international 
 financiers and the bankers. They have 
 been drifting along, feeling themselves
 
 WAR, BIRTH DELIVERER 109 
 
 powerless in the hand of fate. Ere long 
 the banks, and with them the great mass 
 of the industrial capitalists, might reach 
 that frame of mind in which continued 
 struggle against Socialism, for the sake 
 of the little that may be saved, may not 
 seem worth the anxiety, and conclude 
 that they may as well surrender sooner 
 as later. 
 
 In the meantime the governments are 
 making supreme, though unconscious, 
 efforts to prepare the world, through 
 social regulation of production and con- 
 sumption, for the impending transforma- 
 tion of the political form of social organ- 
 ization into the industrial form. The 
 political form has been adequate for in- 
 dividualistic production, even when, with 
 the development of capitalism, produc- 
 tion took on an entirely social aspect. 
 Money was the indispensable tool to 
 make this evolution possible in a funda- 
 mentally individualistic society. When 
 society becomes an organism, conscious 
 of being such, the necessity of money 
 disappears at once. Or to reverse the 
 statement, when the category of money 
 is destroyed through the operation of
 
 no THE COLLAPSE OF CAPITALISM 
 
 some economic law, the commodity- 
 producing society and its organic form, 
 the political state, disappear at once, and 
 Socialism, organized industrially, arises 
 spontaneously. 
 
 Such appears to be the inevitable im- 
 mediate outcome of a continuation of the 
 war for the comparatively short time 
 necessary, at the present and steadily 
 growing cost, to insure the mechanical 
 collapse of capitalism. There remains for 
 us now only to take a prospective of the 
 condition in w^hich capital, the controlling 
 element of society, would find itself, 
 should the Socialists or financiers, or any 
 other group, succeed in bringing about 
 immediate peace. 
 
 In spite of deterioration of the ma- 
 chinery of production and transportation 
 during the war ; in spite often of scarcity 
 of raw and accessory materials, and the 
 withdrawal of the most efficient mental 
 and manual workers from industry, the 
 general productive efficiency has been 
 materially heightened by centralization 
 and co-ordination of eflfort through gOF- 
 ernment control. It was possible to reach 
 and maintain the maximum of production
 
 WAR, BIRTH DELIVERER 111 
 
 attainable under existing technical con- 
 ditions, because production was carried 
 on for the direct purpose of consumption 
 by an insatiable and spendthrift cus- 
 tomer. This maximum is not likely to 
 be exceeded, or even equalled, when profit 
 becomes the object of the buyer of the 
 goods, when this profit must be paid out 
 of current income, instead of by I. O. U.'s 
 on the future. More likely will produc- 
 tion decrease. 
 
 Then will the smaller mass of com- 
 modities still be confronted, and their 
 price be expressed, by the existing and 
 undiminished mass of tokens. Deprecia- 
 tion makes another step forward, prices 
 rise further. Usually the rising tendency 
 of prices has induced contracts for future 
 delivery of goods, and thus has inaugu- 
 rated an industrial boom. But this time 
 speculation is nipped in the bud by the 
 extreme scarcity of loanable capital. 
 Therefore, the sum of tokens now will 
 suffice for peace time circulation, and 
 the war time pressure on the banks, when 
 the growing circulation requirement 
 necessitated their constant issue of new 
 notes, relaxes.
 
 112 THE COLLAPSE OF CAPITALISM 
 
 But the pressure does not cease alto- 
 gether. Whatever the sum of depreciated 
 tokens, it always will be required for the 
 circulation, allowing merely for a portion 
 to remain in banks during a technically 
 necessary time. The percentage of re- 
 serves against the huge deposits must, 
 therefore, remain perilously small, unless 
 the banks are able to reduce the deposits 
 materially. Now, we know that it is only 
 the bank-made credit money which is 
 subject to being reduced. Its cancellation 
 can be efifected only by means of profit- 
 originated money of account. In other 
 words, it takes new profit accumulation 
 in money form to pay off the bank loans. 
 The wastage of war cannot be made to 
 count for nothing through mere financial 
 hocus-pocus ; the wastage must be re- 
 placed by productive labor, namely, that 
 part of the latter which is appropriated 
 by the capitalists. 
 
 In the three years of war bank-made 
 credit money and fictitious profit-origin- 
 ated money has been issued at the rate 
 of nine times the ante bellum profit ac- 
 cumulation in money form. That means 
 that nine times three years, or 27 years,
 
 WAR, BIRTH DELIVERER 113 
 
 are necessary to pay off the debts of the 
 bondholders to the banks, and to cancel 
 the fictitious profits (really only gains) 
 by the necessary losses. This period 
 might be shortened in individual cases 
 by extra profits, the conversion of mer- 
 chandise stocks into money and the sale 
 of the securities. But none of these 
 things is possible on an extensive scale, 
 and nothing can shorten the average 
 time. 
 
 For, since the deposits can be dimin- 
 ished only very gradually, relief to the 
 banks from this direction (prompt relief 
 from diminished circulation requirement 
 was mentioned above) must be equally 
 slow. Therefore, the banks will continue 
 to remain in a precarious condition. They 
 may be able to drag along for a number 
 of years by resuming the issue of addi- 
 tional paper money, whenever their funds 
 give out, in spite of the reduced mass of 
 commodities. Thus they once more enter 
 the vicious circle, with little hope of ever 
 escaping from it. The only possibility of 
 rising out of the death swamp of depre- 
 ciation lies in a rapid increase in the mass 
 of commodities by a demand for them.
 
 114 THE COLLAPSE OF CAPITALISM 
 
 For this, however, there exists little 
 chance for many years to come for the 
 following reasons : 
 
 First — The banks cannot entertain any 
 thought of adding to their outstanding 
 credit money. This circumstance alone 
 prevents an industrial revival. But the 
 whole truth is, that there will exist prac- 
 tically no loan capital of any kind. Dis- 
 missing all idea of continuing the 
 accustomed and, according to Marxian 
 economics, necessary industrial expan- 
 sion, the industrial capitalists will have 
 enough trouble merely to make both ends 
 meet. Their profit accumulation in money 
 form, on the pre-war scale, already is 
 pledged for many years for the redemp- 
 tion of their bank loans. None of it can 
 serve as loan capital. The merchants, 
 whose capital normally relieves the pro- 
 ductive capital, expect to realize on their 
 investments in order to put back the 
 money in its former channel. But where 
 is this money to come from? 
 
 Next, it might be suggested that more 
 profit would be accumulated in money 
 form by accumulating less in means of 
 production. Supposing that the aggre-
 
 WAR, BIRTH DELIVERER 115 
 
 gate profit equals ante bellum years, then 
 this is precisely what must be done — not 
 to lend wings to capitalism, but to allow 
 it to walk on crutches. For out of the 
 additional funds so gained, at the expense 
 of industrial advancement, must be paid 
 the merchants' capital, supposed to have 
 been only temporarily invested, and now 
 needed ; the renovation of plant, the 
 worse for wear and partly obsolete 
 through new discoveries ; and taxes, 
 greatly increased compared to former 
 times. 
 
 As stated, all this is predicted on the 
 former scale of profits. The prospect of 
 its materialization is not, however, very 
 flattering with the industrial capitalists 
 expected to operate without borrowed 
 money, and with 30,000,000 men back 
 from the war with impaired productive 
 capacity, but accustomed to liberal con- 
 sumption. 
 
 The competitive struggle will be 
 sharpened. Some industrial capitalists 
 are bound to progress, but more of them 
 than ever before will fall by the wayside. 
 The sale of the government bonds among 
 their assets, together with the sale of
 
 116 THE COLLAPSE OF CAPITALISM 
 
 merchants' bonds, the very high rate of 
 interest which any loanable money com- 
 mands — all depress the stock exchanges. 
 The securities in which the banks have 
 invested their own capital, shrink in 
 value. Even in the spring of 1917 the loss 
 of value of the securities dealt in on the 
 London Stock Exchange was estimated 
 at $3,500,000,000 since the beginning of 
 the war. The solvency of the banks, 
 nominal as we know it always to have 
 been, may become a question in the minds 
 of a considerable number of depositors, 
 and finally bring about the universal 
 "run." Instead of the long-drawn out 
 agony we then would have the sudden 
 collapse. 
 
 But we seem to forget all about those 
 little piles of gold which each central 
 bank is guarding so jealousy. The pres- 
 ent intention of the Germans, always in 
 the vanguard of economic organization, 
 is to hold its gold for international trade 
 conducted by their government as the sole 
 buying and selling agent of the produc- 
 tive capitalists. There would be, for in- 
 stance, one selling agent in the United 
 States for German chemicals, who would
 
 WAR, BIRTH DELIVERER 117 
 
 be at the same time the buying agent of 
 cotton. The transactions in chemicals 
 and cotton would be made dependent on 
 each other. This would compel the Amer- 
 ican government to act likewise as sole 
 buyer and seller. Thus another great 
 step forward will be made not only to- 
 ward national but toward international 
 control of industries. The gold is to be 
 used in cases where barter is impossible. 
 Otherwise it has lost its significance. 
 
 Many great capitalists, as well as the 
 rank and file of their class, even now live 
 in the illusion that nothing but the polit- 
 ical class state and the ancient system of 
 exploitation are thinkable. Those of one 
 country believe they can be benefitted 
 by victory over those of another country. 
 They dream even now of empire in 
 China, Africa, or wherever subjugation 
 is possible. 
 
 But in reality the long vista of capital- 
 ism has vanished. The moment was 
 approaching when, even in the normal 
 course of its development, it was to be 
 wrecked by its fundamental flaw, the 
 necessity of commodity money. When 
 this became insufficient the game was
 
 118 THE COLLAPSE OF CAPITALISM 
 
 played with paper. This represented 
 titles to the money commodity and passed 
 from one to the other as being as good 
 as the real thing. If the game can be 
 said to rest on any theory, it is that these 
 titles are not meant to be ever made good ; 
 that they must remain unredeemed in all 
 eternity, and that they may reach the 
 colossal figures of astronomy. For, were 
 they ever redeemed, whether in gold or 
 in another kind of paper, the payment 
 would be worth nothing. Faith excludes 
 the thought of redemption. It is for 
 science to discover the forces that will, 
 by compelling redemption, end the ab- 
 surdity. 
 
 Early peace offers the prospect of the 
 lingering death struggle of capitalism, its 
 last years attended by widespread suf- 
 fering and probably intense economic and 
 political perturbation. 
 
 Continuance of the war assures the 
 early and sudden downfall of capitalism 
 in consequence of the worldwide failure 
 of the financial mechanism. 
 
 But, whether it be peace or more war, 
 the days of the rule of gold are numbered. 
 History never can overestimate the im-
 
 WAR, BIRTH DELIVERER 119 
 
 portance of the part played in human 
 progress by the yellow metal. It was the 
 tool placed by nature into the hands of 
 man for the erection of an edifice in which 
 was to dwell a race emancipated from 
 physical care and free to devote its mental 
 gifts to the highest aims. But in all 
 animate nature the evolution of lower 
 to higher forms is replete with the 
 tragedies of the struggle for exitence. 
 The golden tool became the master of the 
 workman, setting the pace for him and 
 driving him pitilessly and relentlessly 
 toward the completion of a task he under- 
 stood not. Now the tool fails for further 
 service. It is breaking in man's hand. 
 But, behold! Completed is the dwelling 
 in which the struggle between man and 
 man shall be unknown, and in which the 
 fateful gold, stripped of power, cleansed 
 of blood, will be restored to its natural 
 character — that of being a mere thing of 
 beauty and innocent joy. 
 
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