' V\
t'rl ' a
Conservative *
measurement ; and a receptacle of value.
That these two elements are not essen
tial is shown by the fact that during
our civil war , paper money was issued ,
and thus the money function was per
formed by that of which no definite
amount was taken as a standard , and
which had no stored-up value.
FrnintaoH-to-l'iiy.
It is needless to dwell at length on the
nature of paper money. Its use in daily
transactions has made all more or less
familiar with the real character of this
kind of money. It is simply a promise
to pay. The question naturally arises ,
to pay what ? For the statement that
paper money is a promise to pay implies
that back of the paper money there is
something else. Such , in fact , is the
case. The various kinds of paper
money now in circulation , as for exam
ple , greenbacks , silver certificates , na
tional bank notes , etc. , are secured by
metallic money. Paper money which is
thus secured is called redeemable ; while
that behind which there is no metallic
money has been termed irredeemable.
The necessity of keeping paper money
at par with gold and silver is perhaps
the chief reason why it should be re
deemable.
Irredeemable paper money may pro
perly be called pure fiat money. What
then is meant by fiat money ? As pop
ularly conceived fiat money is irredeem
able paper money , which the govern
ment has declared a full legal tender.
The error in this conception is the re
stricted application of the term fiat.
The word comes directly from the Latin ,
and its meaning , let this be , clearly in
dicates that it may be applied to money
other than that which is irredeemable.
Our gold dollar , which by force of law
is accepted in payment of all debts ,
both public and private , is in the true
sense of the word fiat money. We may
safely say that irredeemable paper
money is fiat money , but not all fiat
money is irredeemable.
Paper money , whether redeemable or
irredeemable , ought always to be limited
in supply ; otherwise , its use would give
rise to conditions wholly undesirable.
In this matter , as well as in all other
matters which present themselves , the
welfare of society ought first of all to betaken
taken into consideration. Should there
be an unlimited amount of paper money
issued , for how long a time would it
remain at par with gold and silver ?
Certainly not long ; for the point would
soon be reached when to redeem in gold
and silver all the paper money which
might bo issued , would be impossible.
All confidence in such money would
consequently be lost , and paper money ,
being no longer greatly desired , would
depreciate in value. This depreciation
in value , together with high prices , a
natural result of expanding the money
volume , would produce great hardship.
Furthermore , it must be remembered
that high prices would not bring about
an immediate increase of wages , salar
ies , etc. , and it is evident that dis
tress must follow. While it is true that
an unlimited supply of paper money
would injure rather than benefit so
ciety , yet could the supply bo limited ,
there then remains no reason why pa
per money could not perform the money
function as well as do the precious met
als ; for by far the greater per cent of all
transactions is effected by means of the
instruments of credit.
What Volume of Money IH Needed ?
Thus far , we have dealt merely with
the various kinds of money , but we
come now to the all-important qnestiou
of how much money is needed. Should
there be a largo or a small amount of
money in circulation , and how is the
amount to be determined ? To lay
down a fixed rule , as one might do for
the solution of a mathematical problem ,
is absolutely impossible. It is estimated
that only about five per cent of all
transactions is made by means of
money. This five per cent includes all
minor transactions. It is necessary
then that there be in circulation at least
so much money as will make it possi
ble to effect the small exchanges , such
as are made daily , by employing money.
If there were but little money in cir
culation , its scarcity would intensify
desire ; which means simply that money
would have high value. Because of
high value , there would be no unit
equivalent to a day's wages of an un
skilled laborer. This would result in
great inconvenience. There should be
in circulation an amount of money suf
ficient to prevent such high value.
There are , it is true , payments to be
made for less than a full day's work ;
but in order that this may be done , it is
not necessary that there should be so
large an amount of money that it will
have small value. Neither is it neces
sary that the small exchanges be ef
fected by means of barter ; for by em
ploying subsidiary coins , as we now do ,
all such difficulties are removed.
Whether a country needs much or
little money will depend , at least in a
degree , on the stage of civilization
which the country has reached. In the
early stages of development , the
amount of money needed is far less
than that needed by a highly civilized
people.
As had already been shown , the
development of trade led to our present
mode of exchange. If then , the money
volume were suddenly to be contracted ,
how would such contraction affect the
industrial life of a people ? With a de
crease in the amount of money , to effect
all exchanges by means of a medium
would be impossible. What mode of
exchange must then of necessity be
adopted ? Plainly , there remains no
other mode save that of barter. It
need hardly be said that a return to the
extensive use of barter would bo a step
backward. Barter , because of its great
inconvenience , would seriously interfere -
fore with trade ; and all progress , or at
least all economic progress , would be
checked.
What Contraction Would Moan.
Aside from impeding the progress of
a country , yet one other reason may be
given why the money volume should not
be contracted. To decrease the amount
of money in circulation is a gain for the
few ; but only adds to the burdens of the
many. It is the debtor class that must
suffer. As the money volume is con
tracted , prices fall. That this fall in
price may be clearly understood , it must
be borne in mind that the law of supply
and demand governing all commodities ,
governs money as well. As we buy eco
nomic goods with money , so we may
think of buying money with economic
goods. Thus the man who sells wheat
at a dollar a bushel buys a dollar with
a bushel of wheat. If now the money
volume wore to be contracted to half the
amount which was in circulation , theo
retically , the fanner would receive for
his wheat only fifty cents ; which means
simply that it would take twice as much
commodity ( and therefore labor ) to se
cure the same amount of money as be
fore. *
This illustration serves to show that a
contraction of the money volume in
creases all debts , mortgages , etc. ; for if
after a debt has been contracted prices
fall , the debtor must give more of a
commodity than he would have been
obliged to give had there been no change
in the amount of money.
The creditor would receive in money
nominally no more than was actually
loaned ; yet because of the greater pur
chasing power of money , more would be
received than was justly due ; or , in
other words , the creditor would receive
something for nothing.
The discussion of the contraction of
the money volume naturally suggests
the question as to whether or not a
change in the opposite direction would
produce effects distinctly opposed to
those just given. To decrease the
amount of money in circulation makes
the debtor a loser ; while for the cred
itor it is a gain. To increase suddenly
the amount of money simply reverses
conditions ; and the creditor now be
comes loser ; while it is the debtor who
gains. A sudden expansion of the
money volume is wholly undesirable ;
but with a steadily increasing business ,
there ought also to be a gradual increase
in the amount of money.
* [ It is not surprising thnt the fallacies of the
quantitative theory of money should deceive a
blind person who has never been blessed with
the power of seeing things. The relation of
supply to demand regulates values. As de
mand declines values decline. When demand
ceases value deceases. If there were a million
dollars per head circulating in the United
States and there wore a million of acres of land
per head for Hale at the same time in the United *
States and all the people demanded to buy was
an average of one acre each , would the per
capita circulation , or the per capita desire and
demand for acres of land , fix land values and
land prices ? EDITOU. ]