Academic journal article Journal of Money, Credit & Banking

The Monetary Economics of Henry Meulen

Academic journal article Journal of Money, Credit & Banking

The Monetary Economics of Henry Meulen

Article excerpt

A CONSEQUENCE OF THE RECENT INTEREST in "free banking" has been a resurgence of interest in the theories of neglected earlier writers whose work anticipated modern developments (see, for example, Cowen and Kroszner 1987, Summer 1990). A major contributor to this earlier literature is Henry Meulen (1881-1978) whose important though flawed analysis of money and credit foreshadows recent work on free banking, the impact of legal restrictions and the "new monetary economics". Meulen was the last of a long and until recently almost forgotten tradition of British free bankers that goes back to the early nineteenth century when a prominent free banking school had called for the abolition of the privileges of the Bank of England and the extension of Scottish "free banking" to the rest of the United Kingdom (see, for example, White 1984b). Parliament instead suppressed Scottish free banking with the Bank Acts of 1844 and 1845, and free banking ceased to arouse much interest afterwards. The issue was eventually almost forgotten, and by the late 1880s the remaining British free bankers had split into two streams that were apparently unaware even of each other. One group gathered around the American Benjamin Tucker,(1) while the other consisted of A. E. Hake and O. E. Wesslau.(2) After them came Arthur Kitson,(3) and then Meulen who brought the two streams together again.

Meulen first became interested in monetary reform when he was introduced to Tucker at the age of eighteen, and he spent the "leisure of the next ten years" (1949, p. 7) studying the subject in London libraries. He was heavily influenced by Kitson's early work and was a prominent member of Kitson's Banking and Currency Reform League which was founded in 1910 to advocate the repeal of all laws interfering with the freedom of exchange. In 1912 Meulen joined the libertarian Personal Rights Association, and in 1930 he became editor of its journal, The Individualist, a position he held until his death in 1978. He write a book, Industrial Progress through Banking Reform (1917), a revised version of which, Free Banking: An Outline of a Policy of Individualism, was published in 1934. Most of his later work on monetary economics was published in The Individualist, and he continued to write on the subject until he died. Meulen saw himself as carrying on and refining the earlier U.K. free banking tradition, but he believed that this earlier work was seriously incomplete and he was critical of its failure to meet the objections of orthodox economists (1934, pp. xi-xii).

THE IMPORTANCE OF CREDIT

At the center of Meulen's analysis was his theory of credit. He sought "to show that a paper exchange medium, issued by private bankers, is the natural outcome of a movement which has been proceeding from the earliest days of the division of labour, and that an essential feature of the movement has been the gradual voluntary displacement of a commodity exchange medium by a circulating paper evidence of mutual trust" (1934, p. xii). For Meulen this natural outcome was also a desirable one which has been frustrated by state intervention which led to the "control of gold dominat(ing) production, owing to legal prohibition of the use of efficient substitutes for gold" (1934, p. 20). Legal restrictions on other forms of wealth tend to harm only consumers of that wealth, and "even this harm is usually mitigated by the speedy introduction of a substitute," but the "prohibition of credit and exchange medium . . . affects the entire wealth production of the community" (ibid.).

Credit was important for two reasons--it provided resources for producers to survive until their product was sold, and it aided in the sale of the final product (1934, pp. 49-50). In the former capacity, the "one and only function of a credit token" is to "announce to a community wherein superfluous wealth already exists and is offered for sale, the commercial capacity and reliability of the individual" (1934, p. …

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