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FACTS AND FALLACIES IN FINANCE (with Response)
TWENTIETH CENTURY. January 18, 1894.
That money need have intrinsic value, Mr. W. H. Stuart deems "a shallow economic superstition." But money must have either a commodity or a credit basis. If a credit, it still must be one which carries commodity value. If there be not intrinsic value in the commodities the credit represents, then Mr. Stuart is right. He uses intrinsic in a sense exclusive of commercial values. I did not, however, anticipate so wide a departure from fact as he starts off with: "The first issue of sixty millions of demand notes were legal tender." In fact these demand notes were not legal tender in any sense or at any time. They kept at par or at a premium solely because the nation’s credit was valuable, the same as gold and silver is valuable, or as Mr. Stuart’s note is valuable and will purchase commodities to the extent that it is estimated to have substantial value behind it.
In no sense were the demand notes fiat money. They could not be forced on any one against his will, which is the only function imparted by the legal tender to money of any form. Mr. Stuart is equally unfortunate in his reference to the bank of Venice. That wonderful organization for the exchange of commercial credits, so effective in promoting international commerce, had no fiat quality, at least outside of its little domain, which was utterly insignificant contrasted with the vast empires of three continents to which its commerce extended. These credits circulated everywhere, with no law to enforce their acceptance, either in purchase or in payments. That this money represented commodity value and not fiat value, there can be no more doubt than that an honest man’s obligation to deliver a horse he has been paid for, has value, whether the law will compel him to deliver or not. To compel the first owner to take such obligation for his horse, or any other thing, against his will, is all there is virtually in a legal tender law. It seems impossible for "fiat" money men to understand this, or to imagine that credit money can exist without such law and yet be far more just and useful. That these credits of the bank of Venice had no compulsory feature outside its own little domain, at most, is unquestionably the reason why they retained their purchasing power all over the world through centuries of constant warfare and when the political map of Europe was reconstructed in every decade, or oftener.
Fiat imparts only a fiat (fictitious) value, to money and which commerce detects at once, and is sure to discount sooner or later. There are a number of facts and fallacies in regard to credit money which still other correspondents have missed. Mr. Bilgram’s position on the "inadequacy of money" has been conclusively answered by the editor. "The interest bearing power of money" is sequence of human law enforcing usury, and an effect rather than, as he supposes, a factor in capitalistic regime. If, however, it be a factor, in some sort it is only one among a number of others springing from unequal laws, which have no relation to finance; as of land tenure, patent right, trade privileges, government franchises and monopolies, wholly independent of adequate or "inadequate money." Capitalistic (co-operative) production is all right. Capitalistic division only needs correction. The money problem gives but an imperfect key for that work.
February 8, 1894
MORE FACTS IN FINANCE.
BY S. D. BINGHAM.
I want to say a word regarding "Fallacies about Facts in Finance," by Mr. Ingalls. There is no such thing as "intrinsic value" in anything. Everything possesses intrinsic qualities, but qualities and value are entirely different things. A ton of coal in the mine possesses certain intrinsic qualities, and these qualities are not changed by transportation to Boston, but the value of the coal in Boston is entirely different than when it was in the mine. If the value was intrinsic, it would be the same in Boston as in the mine. "Intrinsic means qualities inherent in material, much or little, which cannot be imparted to it," value is an estimate of the human brain; commercial value is governed largely by supply and demand, legal value is created by law.
You say, "these demand notes were not legal tender in any sense or at any time." To the law and the testimony: The act of congress August 5, 1861 (statutes 12, page 313), authorized the issue of 50,000,000 demand notes. They were not made legal tender by this act, but were made redeemable in coin. They went to a discount of from four to twelve per cent, when the secretary of the treasury ordered them received for duties, and they immediately went to par with gold. The act of February 12, 1862 (statutes 12, page 338), authorized the issue of 10,000,000 more of these demand notes in the same form as the others. The act of congress March 17, 1862 (statutes 12, page 370), made both these issues legal tender for everything, which they had never previously been. I have here referred to the law declaring those notes legal tender, and why do you say they were never legal tender? Now I ask why did these notes go to a discount when they were redeemable in coin? They did not keep at par when they were so redeemable, but they always kept at par with gold from the day they were made a legal tender, while all the notes issued after that time went to a discount, and it required at one time as much as $2.80 of these non-legal tender notes to buy $1.00 of the legal tender notes referred to. I, therefore, claim that they did not keep at par with gold "because the nation’s credit was valuable" solely, else all the notes would have kept at par, but because they would perform all the functions of gold money, and the non-legal tenders would not.
I will say further for your benefit that there is not an instance in history where a full legal tender paper money, issued by a responsible government, ever fell one mill below the gold money of that government.
Further, all money is fiat money. Money is law fiat, impressed upon some substance. Many things are used instead of money, but all money is fiat.
You say the notes of the bank of Venice "had no fiat quality outside of its little domain." Will you inform us of any nation whose money has "fiat quality" outside its domain? There is no such thing s cosmopolitan money, fiat or law. There is no such thing as international money, for the simple reason that no nation can make law for another. Neither gold or silver money are fiat or legal tender in any other nation than the one issuing it.