Conservative.
so the legal tender provisions naturally
followed this course.
A state may select a valueless com
modity as a standard , but that will not
make it of value to those who would al
ready give nothing for it ; and so , it may
give the legal-tender quality to a thing
which has become valueless , but that
will not of itself insure the maintenance
of its former value. This proposition
may , at first , appear to be opposed to a
widely-spread belief ; but its soundness
can be fully supported. It should be
learned that a commodity , or a standard ,
holds its value for reasons quite inde
pendent of the fact that it is given legal
recognition. It has happened that legal
recognition has been given to it because
it possessed qualities that gave it value
to the commercial world , and not that
it came to have these qualities and this
value because it was made a legal
tender.
A good illustration of this truth Is to
be found in international trade. Money
which is not dependent on artificial in
fluences for its value , and which is not
redeemable in something else , is good
the world over at its actual commercial
value , not at its value as fixed by any
legal-tender laws. It is not the legal-
tender stamp that gives a coin its value
in international payments. A sovereign ,
an eagle , a napoleon , is constantly given
and received in international trade not
because of the stamp it bears , but be
cause of the number of grains of a given
fineness of gold which it contains the
value of which is determined in the
markets of the world. And an enor
mous trade among the great commercial
countries goes on easily and effectively
without regard to the legal-tender laws
of the particular country whoso coins
are used.
By imposing the attribute of legal
tender , however , upon a given metal or
money , it may be believed that thereby
a new demand is created for that metal ,
and that its value is thus controlled.
And in theory there is some basis for
this belief. It is , of course , true that ,
in so far as giving to money a legal-
tender power creates a new demand
creates for it ( which without that
power would not have existed ) an
effect upon its value can be produced.
But this effect is undoubtedly much less
than is usually supposed. It must be
remembered that the value of gold , for
instance , is affected by world influences ;
that its value is determined by the de
mand of the whole world as compared
with the whole existing supply in the
world. In order to affect the value of
gold in any one country' , n demand
created by a legal-tender enactment
must bo sufficient to affect the world-
value of gold. Evidently the effect
will bo only in the proportion that the
now demand bears to the whole stock in
the world. It is like the addition of a
barrel of water to a pond ; theoretically
the surface level is raised , but not to
any appreciable extent.
It may now be permissible to examine
into the extent to which a demand is
created by legal-tender laws. If the
article endowed with a legal-tender
power is already iised as the standard
and as a medium of exchange , it is given
110 value which it did not have before.
The customs and business habits of a
country alone determine how much of
the standard coin will be carried about
and used in hand-to-haud purchases ,
and how much of the business will be
performed by other media of exchange ,
such as checks or drafts. The decision
of a country to adopt gold when it had
only paper before , as was the case in
Italy would create a demand for gold
to an extent determined by the mone
tary habits of that country ; and this de
mand has an effect , as was said , only in
the proportion of this amount to the
total supply in the world. This opera
tion arises from choosing gold as the
standard of prices and as the medium
of exchange. To give this standard a
legal-tender power in addition does not
increase the demand for it , because the
stamp on the coin does not in any way
alter the existing habits of the commun
ity as to the quantity of money it will
use.
use.But
But in case an equal power to pay
debts is given to fixed quantities of two
metals , while each quantity so fixed has
a different metallic value but the same
denomination in the coinage , Gresham's
law is set in operation with the result
that the cheaper metal becomes the
standard. After this change has been
accomplished , the legal tender has no
value-giving force. "When the cheaper
metal has become the standard , its
legal-tender quality does not raise the
value of the coin beyond the value of
its content. This cheaper standard , in
international trade , would be worth no
more in the purchase of goods because
it bore the stamp of any one country.
Prices must necessarily be adjusted be
tween the relative values of goods and
the standard with which they are com
pared. If the standard is cheaper ,
prices will bo higher , irrespective of
legal-tender acts. Where two metals
are concerned , then , the only effect of a
legal-tender clause is an injurious one ,
in that the metal which is overvalued
drives out that which is undervalued.
The example of an inconvertible pa
per , such as our United States notes
( greenbacks ) in 1862-1879 , is still more
conclusive. Although a full legal ten
der for all debts public and private ,
their value steadily sank until they were
at one time worth only 85 cents in gold.
In California , moreover , these notes ,
although legal tender , were oven kept
out of circulation by public opinion.
In short , the value of inconvertible pa
per can bo but slightly affected by legal-
tender powers. Its value is more di
rectly governed , as ill the case of token
coins , by the probabilities of redemption.
As bearing on the point that the value
of the paper was more influenced by the
chances of redemption than by legal-
tender laws , we may cite the sudden
fluctuations in the value of our United
States notes during the Civil War. With ]
change in the legal-tender quality and |
no change in the indebtedness which 'I
might bo paid with such notes , their 1
value frequently rose or fell many per I
cent in a single day owing to reports of !
Federal successes or defeats in battle ,
which had a tendency to affect one way
or the other the public estimate of the
probabilities of an early resumption of *
specie payments. The fact that they
were legal tender evidently had 110 ef- i
feet whatever in maintaining their I
value.
In view of the evident fact that legal-
tender acts do not preserve the value of
money , it is clear that the demand
created by such legislation must be in
significant. And this must be so in
principle as well as in fact.
There is but one thing which the
legal-tender quality enables money to do
which it could not equally well do with
out being a legal tender ; that is to pay
past debts. An examination , however ,
shows that tin's use of money is very
small compared with its other uses.
The amount of past debts coming due
and which might be paid in any year ,
month or day is insignificant when com
pared with the total transactions of that
year , mouth or day so very small as to
lose all measurable value-giving power.
In other words , the one thing which
legal-tender money can surely do in
spite of the habits , wishes or prejudices
of the business community in which it
exists , namely , cancel past debts , is in-
finiteismally small when compared with
those other things which man wishes
money to do for him. It is for this
reason that it ceases to give value , and
this is why history has shown so many
instances where money endowed with I
legal-tender power has become utterly
valueless. The legal-tender money is
no longer money if it will not secure for
man the things which are most import
ant for liis welfare , if it will not buy
food , clothes and shelter ; for it per
forms none of the functions of money j
except the subsidiary one of canceling '
past debts.
Moreover , the obligatory uses of legal-
tender money are in fact very inconsid
erable. A law requiring a past debt to
bo satisfied with money of a certain
kind has for its essence only the pay
ment of something of a definite value ,
or its equivalent ; in practice it does not
oven bring about the actual use of a
legal money , since the monetary habits
of the community will not necessarily
require the debt to bo paid in such
money. Take the extreme case of a
judgment by a court against a defend
ant for fulfillment of a contract ; in such
