Honest Money - free ebook by Arthur Isaac Fonda

HONEST MONEY

HONEST MONEY BY ARTHUR I. FONDA New York MACMILLAN AND CO. AND LONDON 1895 All rights reserved Copyright , 1895, By MACMILLAN AND CO. Norwood Press: J. S. Cushing &amp; Co.—Berwick &amp; Smith. Norwood, Mass., U.S.A....

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PREFACE.

In an article in the "American Journal of Politics" for July, 1893, I gave a brief statement of the conclusions I had reached in an attempt to analyze the requirements of a perfect money. The limits of a magazine article prevented a full discussion of the subject; many points were left untouched, and all quotations from the works of other writers, in support of the brief arguments given, were of necessity omitted. As the course of events since the article referred to was written has more fully c

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Definition of Value.

A clear conception of the meaning of the term value is the first essential to a discussion of the subject of money. Under the general term value the older economists recognized two distinct conceptions, which they distinguished as value in use and value in exchange . To the former they gave little attention, merely stating that while it was essential to value in exchange, the latter was not proportional to nor determined by the former, and citing air and water as familiar examples of objects hav

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Supply and Demand.

All economists recognize the fact that the immediate determiner of value is the relation between supply and demand. These terms in their economic sense mean something more than mere desire and mere quantity. Supply means the amount offered in exchange, and demand means not only a desire, but a desire coupled with the ability and willingness to give other commodities in exchange for the one wanted. In this sense the terms are strictly correlative. The supply of a commodity (that is, the amount of

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The Standard of Value.

We may use the value of anything as a measure by which to compare the values of any and all other things, but as all the factors that determine value are variable, the value of everything is variable. Any value may rise with reference to some other value, and at the same time fall with reference to a third. By what standard, or invariable measure at all times and places, can we compare the values of goods to determine their constancy or variability? We must not forget that there are two kinds of

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Definition of Money.

Money has been variously defined by different writers. Perhaps the definition given by Prof. F. A. Walker, though lengthy, is the most comprehensive. He says: "Money is that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it, and without the intention of the person who receives it to consume it, or enjoy it, or to apply it to an

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The Functions and Requirements of Money.

Professor Jevons, in his valuable work, "Money and the Mechanism of Exchange," gives to money the following threefold functions, viz. as:— A medium of exchange. A measure of value. A standard of deferred payments. He also inquires if it does not perform a fourth function as a 'store of value.' All authorities give the first two of the above as the principal money functions. Some include one or both of the others, and some omit both. Prof. F. A. Walker objects to the use of the term "measure of v

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Money Value.

That money is a commodity, and that its value varies like that of every commodity in accordance with the law of supply and demand, are incontestable. The fluctuations in the value of money can be detected, it is clear, in the same way that changes in the value of any commodity can be detected, by comparison with all other commodities,—by its average purchasing power, in short. The value of a commodity, when measured by money and expressed in terms of the unit of money, is called its price . If t

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Money Demand and Supply.

Mill affirms that: "The supply of money is all the money in circulation at the time." Money that is hoarded has no more effect on prices than if it did not exist. Money lying in banks or in the hands of merchants or others to the extent necessary for the safe conduct of their business may be considered money in circulation, but beyond the amount needed for conducting any business the excess may be considered as hoarded. The supply of money in any country depends directly and primarily on the leg

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Necessity for Invariable Money Value.

Returning to the reasons for an invariable money value, they are best appreciated by considering the effects of one that is variable. While the statement of Mill, previously quoted, "that the money prices of all things should rise or fall, provided all rise or fall equally, is in itself and apart from existing contracts, of no consequence," is true, yet is it true only under the condition specified, that all shall rise or fall equally , and this condition in the case of a fluctuating money value

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The Gold Standard.

The wide and long-continued use of gold as money has led to a popular impression, current even among well-informed men, that somehow, or in some mysterious way, gold has stability of value and is independent of those fluctuations which they recognize in the values of all other substances. That this is wholly erroneous is admitted by every writer on finance, and quotations are hardly necessary to support the statement that gold varies in value in the same way and is subject to the same law of sup

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Gresham's Law.

It was noticed and stated many years ago by Sir Thomas Gresham that full-weight coins would not continue to circulate with clipped, worn, or light-weight ones, and that the latter would drive the former out of the country. This statement has been extended and enlarged into what is known as Gresham's Law, which, as generally formulated, is that a poorer money will drive a better one out of circulation. In this form it is commonly accepted as true, but is often misunderstood and misapplied. It is,

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The Silver Standard.

When the money system of a country is based on silver, and that metal has free and unlimited coinage in the mints, as gold has in countries using the gold standard, the same laws apply as in the case of gold. Exactly the same forces operate to affect the volume and value of the money except that the production of silver, its use by other nations, etc., are the factors, instead of gold supply and use. The coin and the bullion are equal in value, weight for weight, and Gresham's law applies the sa

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Bi-metallism.

The theory of bi-metallism—a money founded upon both gold and silver coin—is based upon the fact, before stated, that the value of each of these metals is really determined by the value of the money, as a whole, of which they form a part—their use for money purposes being so much greater than their other uses as to be the determining factor. If all nations, or a sufficient number of the leading ones, agree to coin both gold and silver in any amounts presented, and at the same ratio, the values o

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Paper Money.

Paper money differs radically from coin in one respect. Its circulation is confined to the country of issue. It may indeed be confined to a small part of such country—as in the case of some of the old bank-notes—when the solvency of the issuing power is unknown or uncertain. This, however, may be regarded as an abnormal case. When issued by the Government or by authorized banks whose solvency is unquestioned, it is accepted as freely as coin, and if not so accepted, cannot be considered good mon

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Gold-Standard Prices.

Having considered theoretically the limitations and possible merits and defects of the money systems now in use, we shall next consider in how far the money under such systems conforms in practice to the chief requirement,—stability of value. Economic writers do not claim that either gold or silver is, or has been, of invariable value; but many of them do claim that gold is more nearly invariable than any other commodity, and that it is sufficiently so for money purposes, the changes in value be

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Silver-Standard Prices.

There is a quite prevalent belief that the value of silver has fallen greatly since 1872. This is a natural sequence to the belief that gold has been stable in value, as the gold price of silver has declined from $1.32 per ounce in 1872, to $0.82 per ounce in 1892 (and since then the decline has been much more). This fall of about 38 per cent. must be deducted from the rise of from 24 to 41 per cent. (according to the different authorities) in the value of gold, in order to show the true change

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CHAPTER V. CRITICISM OF SOME GOLD-STANDARD ARGUMENTS.

Before proceeding with the main line of this argument, we will digress to notice some of the arguments put forth in support of the stability of the value of gold by those who cannot but recognize the great fall in general prices. While such writers do not deny the truth of the fundamental principles we have already considered, they either forget or ignore them. Notable among such writers is Mr. David A. Wells, and as his views may be taken as representative of many others, some statements from h

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CHAPTER VI. FOREIGN COMMERCE.

It is claimed by many writers that international trade is carried on upon a gold basis, and that it is necessary, therefore, if a country is to maintain and increase such trade, that it should have its money based upon gold, since its "balance of trade" must be paid in gold. The idea of foreign trade involved in such statements is a relic of the old "mercantile theory" that the great object of any country was to export as much as possible of its products and receive in return the largest possibl

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CHAPTER VII. MONEY IN THE UNITED STATES.

Turning from the consideration of money systems in general to the particular case presented in our own country, we find a most curious system—if, indeed, anything bearing so little evidence of rational adaptation to its purpose is entitled to that name. The unit of the system is the gold dollar, containing 25.8 grains of standard gold, nine-tenths fine, coined in five, ten, and twenty dollar pieces. There is also a silver dollar, containing 412½ grains of standard silver, nine-tenths fine, the r

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CHAPTER VIII. SOME PROPOSED CHANGES IN OUR MONEY SYSTEM.

Of the many plans that have been proposed to correct the evils of our existing money system, it is not necessary to notice here more than two or three. Most of the others are more or less temporary expedients which, even if meritorious, fall so far short of an adequate or permanent solution of the problem as to merit little attention. The change which has been most urgently advocated is a return to the free coinage of silver. It is not proposed to enter into any extended discussion of the merits

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The Standard of Value.

Let a commission be appointed by Congress to select a sufficient number of commodities, say, one hundred, to be used as a standard of value. This selection should comprise the commodities most largely bought and sold and most independent of each other in their values; preference should be given to those which are products of this country,—but foreign products should also be included,—and to those which are reliable in quality and of which the prices are regularly quoted—such, for instance, as wh

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The Medium of Exchange.

After the statistical work outlined above had been completed, Congress should repeal the present monetary laws, substituting for the definition of the "dollar" the new definition agreed upon. It should then provide a currency or money to take the place of that now used. This currency should be a paper money similar to our "greenbacks." It should be a legal tender for all debts public and private (except, of course, such as by their terms are payable in gold). In fact, the only difference between

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Merits of Plan.

The merits of the plan are believed to be:— (1) It furnishes a standard of value as nearly invariable as it is possible to obtain in practice. (2) It gives a medium of exchange conforming in value closely to the standard, one which is cheap, convenient, elastic, and to be had in any amount needed. (3) It would prevent panics. This may seem an extravagant assertion, but further consideration will show that it is well founded. A panic, whatever the cause, manifests itself as an unreasoning fear an

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Objections Answered.

It is to be expected that many objections would be raised to a plan, seemingly so radical as a whole, although it is in reality composed of old and tried methods in most of its parts. It may be well, therefore, to anticipate some of the objections likely to be brought forward and to endeavour to answer them. Probably one of the first points to be raised against the plan, and one that, judging from recent discussion in magazine articles, would be strongly urged, is that it would have a bad effect

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CHAPTER XI. CONCLUSION.

A universal money for the whole world has been the dream of some writers. This in many respects would be a convenience, as would a general uniformity of weights and measures; but its benefits would be confined mainly to a saving of clerical work, and even this would not be as great an advantage as might be supposed, since differences in value of bills of exchange would continue to exist, even as they now exist between countries using the same money, or even between different cities of the same c

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Transcribers' Notes

Punctuation, hyphenation, and spelling were made consistent when a predominant preference was found in this book; otherwise they were not changed. Simple typographical errors were corrected; occasional unbalanced quotation marks retained. Ambiguous hyphens at the ends of lines were retained. Index not checked for proper alphabetization or correct page references. Page 205 : Page number for "distinction between capital and money" was missing from the original text, but has been added by the Trans

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