Jasper Republican, Volume 2, Number 19, Rensselaer, Jasper County, 21 January 1876 — What Gives Value to Paper Money? [ARTICLE]

What Gives Value to Paper Money?

or that the firm which issues it is very wealthy or powerful. The holder of the paper must have an acknowledged right -to the gold which ths bank is not going pass foe check will be able to get the gold • for lt then ths check will be depreciated. If it is certain that no one can ever get the gold for it its ritlue wfll be just that of a pretty picture for the children to play With, no matter how strongly it may be declared to represent SI,OOO. Now, with a single exception, which we shall consider presently, the value of the Government paper money is determined in precisely the same way with that of mercantile paper. In itself it has no value at all. Congress may stamp it $1 or SIOO, but nnless it entitles Che owner to claim something it is a mere piece of paper. If the owner can actually get a gold dollar with it it is worth a gold dollar; otherwise it will be more or less depreciated in value according to the hope of.future payment which the holders may entertain. Of course Congress can make everyone call it a dollar and receive it under that name; but wo have seen in the first lesson that this does not give ft real value —that is, purchasing power. If anyone is compelled to take it he simply puts up the price of everything he has to sell in proportion to the depreciation of the paper, so that the result is the same as if the paper passed at a discount. We must now point out the fallacy by which the supporters of irredeemable paper money often try to get round these

cdpsideratiqns. It is said that, the greenbacks, or their proposed paper are to- be issued “ on the credit of the nation,” and therefore must have value’ia-propor-tion to that credit,,even If the nation does not redeem foem.^. f <>'' j, ‘ . J The word “ credit” is here used in some peculiar sense which no one can fully explain, wholly different from its commercial sense. In the world of business “ credit” includes the ability and the obligation to pay all demands in c ish as they become due. A man or a firm that cannot do this has no credit* hov&ver excellent it may be in other respects. Buppose ymjt, should be traveling in a distant cim and going to the cashier of your hotel for change he hands you a ten-dol lar bill on the banking firm bf Spread, Brothers & Co. “Are you sure this bill is gbod?” you. inquiry. . 'JL.i.V “Good as golfi,-wir; the firm’of Spread; Brothers & CO.’ is the greatest in this Stele, possessed of unboiinded wealth, and its operations eitend over the whole globe.” * v/ “ Then,” you reply, “I suppose if I take this bilLto their counter they will pay it’” “Pay it! Why, no, sir; you would be hooted by the small boys in the street and laughed at by Spread’s clerks. The credit of th!' firm is so excellent, and all its debts so well secured by real estate and bonds worth millions of dollars, that both the firm and the community concluded, ten or twelve years ago, that there was not the slightest need of their redeeming their bills, and they are never going to do it.”

“I don’t understand that kind of credit. In my State credit paper is something which the party issuing is bound to pay when required; and if he does not pay he has no credit, no matter how rich he is.” “Of course twopenny firms must pay. But we claim that a firm so great, powerful and wealthy as that of Mr. Spread need not pay.” ... a “ Well, sir,” you would reply, “I don’t see what difference it makes to me how wealthy Spread’s firm is, or how well thair paper is secured, if I can’t get any of their wealth in exchange for toy bill. I always thought the advantage of having the paper of a wealthy firm was that it was surer to be paid; but if the- richer the firm, the less the need of paying, I would rather have the bill on some smaller house.”

“ Ah, you know nothing about finance, I see; and I’ll get you some foreign money rather than argue further with you.” If a hotel cashier should talk in this wayto you, you would be a little puzzled to say whether he was joking or in earnest. And yet great statesmen do argue in just that way about our greenbacks. There are bills to the amount of $400,000,000 afloat, reading: “ The United States will pay the bearer dollars.” Yet if you should take on* of these bills to the Government’s counter, asking that this promise should be redeemed, the clerks would laugh at you. A year or two since some-one-did this very thing, and the newspapers speculated on the man’s sanity,, while a Treasury official thought he was only trying to make himself notorious. If a politician tries to justify permanent nonpayment he will talk about the credit and wealth of the nation exactly as the hotel clerk talked about Spread, Bros. & Co. Now it will be a very profitable mental exercise if the reader will ask himself what is meant by the promise: “The United States will pay the bearer doland if, also, for each theory of the subject he may form, he will consider how it will look for a banking firm to put that sime interpetation upon its promises. To gits the reader time to think this matter over I will here close this lesson.*—Prof. 8. Newcomb, in Harper'» Weekly.

.. . About 100 years ago Mrs. John Adams wrote to her husband: “Our money is very little better than blank paper.” Yet the Continental currency was a legal-tender, based on the faith and resources of the nation, battle-born, bloodstained, etc. Our inflationists wish to show their reverence for the fathers of the Republic by going back to the sort of shinplasters that made the fathers bank rupts. It was the collapse of the currency that threw Robert Morris, the financier Of the Revolution, into a debtor’s prison at Philadelphia.— Chicago Tribune. .. An intelligent trade journal,: the Boston Commercial Bulletin, prints the following in capital letters in its editorial column: “ Supposing the weight of a ton or a pound were to be liable to daily change, at the dictation of speculators, do you think business would long be conducted against such odds? And is ft not the same thing with the currency* Is it not this constant fluctuation of the greenback that is killing business’”