PUBLISHED BY THE SOUND CURRENCY COMMITTEE OF THE REFORM CLUB.

Publication Office, No. 52 William St., New York City.

Vol. II., No. 7.

NEW YORK, MARCH 1, 1895.

SUBSCRIPTION,

$1.00.

SINGLE COPIES, 10 Cents.

Each number contains a special discussion of some Sound Currency question.

The question, What is money? may seem as puzzling as Pilate's famous question, “What is truth?" but the puzzle in both cases is about words, not things. Invert the questions and apply them to some actual case. Is a certain thing true? Is a certain thing money? Straightway the puzzle vanishes and we know how to seek out answers. Truth is established by evidence; money is recognized by its ability to perform certain functions. Will it buy things, or hire persons or property, or pay debts? If it will do all these things exactly as they are done by what is undoubtedly money, then the coin or note in question is money. The community may not be wise in accepting certain things as money and becoming dependent upon them, but that is a very different matter.

THE PEOPLE'S MONEY.*

W. L. TRENHOLM.

PAGE

I. INDUSTRY, COMMERCE, FINANCE AND THE PEOPLE.
II. CASH AND CREDIT.

IV. NATURAL BASIS OF MONEY.

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75

76

78

XIII.

TREASURY-NOTE, OR DUE-BILL CIRCULATION.

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* This pamphlet is published by the courtesy of Charles Scribner's Sons, owners of the copyright and publishers of "The People's Money," by W. L. Trenholm, New York, 1893, of which the discussion here given is but an abstract.

THE PEOPLE'S MONEY.

No apology is necessary for the attempt to condense for general distribution Mr. Trenholm's thorough work, which is not merely the latest of its kind, but has been made even more timely by the events of the last year than it was at the date of its publication.

I. INDUSTRY, COMMERCE, FINANCE, AND THE PEOPLE.

This is essentially an industrial age, and in no country of the world is industry more universal or more varied than it is in the United States. Here nearly every. body is either an industrial worker, with brain or sinew, or is maintained by some such worker.

So many million industrial workers could not be employed profitably and constantly were it not for what Adam Smith termed "the division of labor," but what may be termed, more accurately, perhaps, in our day, "the specialization of employments." It is because the employments of modern industry have become varied and specialized that each worker is able to find continuous occupation in producing something or doing something beyond what is adapted to his own use or needs.

Communities industrially organized as ours is, on the principle of the specialization of employments, consist almost wholly of individuals who are dependent from day to day upon trade and commerce to carry on that ceaseless interchange by which alone each converts what he has, but does not want, into what he wants, but lacks. Trade and commerce effect the interchange of industrial products and services by the use of money, or its substitute, credit.

From the commercial point of view money is a receipt for value and an order for value, both in one. Commerce deals wholly in services and commodities, and it employs money or credit simply as the medium or vehicle by means of which these values are exchanged one for another. Finance, on the other hand, deals in money and credit as values in themselves distinct from their function of representing, and so conveying, value in other things.

Between commerce and finance the only common term, into which all their relations may be resolved is value, because value is the only quality common to all the objects dealt in by commerce and finance respectively; that is to say, on the one hand, services and commodities; on the other, money and credit.

Prices form the connecting link between commerce and finance; for the price of a service or of a thing is the expression of its money equivalent at the time and place of its passing from one person to another.

Two forces are in ceaseless operation, compelling activity in both the commercial and financial worlds, and these forces are demand and supply. Commercial demand springs from the wants of mankind; commercial supply flows from the universality of productive industry. Financial demand arises out of the need for capital in productive industry and in the operations by which trade and commerce are incessantly administering supplies to demand; and financial supply is furnished by accumulated capital in the form of money or credit.

Thus finance and commerce together adjust prices to services and commodities upon a basis of comparative values; and, by means of prices, each man knows how much his own talents and energies will enable him to command in the products of the energies and talents of others. Prices are invariably expressed in money, and hence money, besides being the medium of exchange, is also the general measure of values.

The

It is because of its function as a measure of value, or more obviously a gauge of prices, that the money we use becomes of immense consequence to us. little cash we ordinarily have about our persons may be in any form that passes current, because that suffices to make it a medium of exchange; but whether we handle any money at all or not, whether we ever see money or not, makes not the least difference in our absolute dependence upon whatever money is in use as the measure of values or gauge of prices at the time and place at which we live and work.

The industrial state in which we live places us all under contract to the world's commerce to deliver all we can produce, and to take in exchange all we consume, both to be measured by money. In other words, it is the dollar's worth and not the dollar itself that on the one hand we work for, and that on the other hand we enjoy in recompense for our efforts.

Every industrial worker has a right to honest money, and to be assured that his work is going to be paid for in dollars of identically the same value as the dollars

he is compelled to pay out for what he consumes. So important is it that money should be permanent in value that in all civilized countries the regulation of it is one of the prerogatives of sovereignty, and history shows that there is hardly any prerogative of which the intelligent and provident exercise is so far-reaching in its effects. Under our Constitution, Congress alone possesses the power to "regulate the value of money," and this power is exercised by means of the coinage and currency laws which establish what shall be money.

History records many instances of a currency becoming depreciated, and in every instance the laboring classes, small traders, professional men, farmers, and the like, have been the chief victims. These persons constitute the bulk of every community, and they seldom have the knowledge, skill, or opportunity to protect themselves from loss from a depreciating currency: while merchants whose transactions are on a large scale, bankers and capitalists in large cities, not only possess the knowledge which enables them to detect signs of approaching depreciation, but they have also the skill and opportunity to enrich themselves under the very conditions which are ruinous to all other classes.

Reason and history alike prove conclusively that money liable to depreciation is bad money for the people at large. The longer it circulates at full value the worse and more wide-spread will be the evils manifesting themselves as soon as its defects are revealed, and sooner or later a defective currency will surely be de tected and become depreciated.

II. CASH AND CREDIT.

Everybody is familiar with the terms "Cash and Credit," as ordinarily used and understood.. In cash transactions delivery and payment are simultaneous, while in credit transactions payment is more or less deferred. Accepting this distinction for the present, let each reader reckon up how much in coins, bills and notes, i. e., actual money, passes out of or into his hands in connection with his business, his investments and his household and personal expenditures; then let him compute what amounts are represented by checks, collections or payments by others, offsets in accounts, etc., and he will be surprised to find how small a proportion the former amount bears to the latter.

If anyone, after making these computations, will compare results with two other persons, one whose aggregate receipts and expenditures are greater, and another in whose case the amounts are less than in his, he will find that the more a man receives and pays the smaller is the percentage of actual money handled by him. The immense transactions in stocks, exchange and merchandise at New York, London and other great centres, are all settled by checks, and these checks are settled again through clearing-houses, so that very little money passes even in the final adjustment of balances.

From these considerations, and others of a like nature, it is apparent that in every community the poorer classes handle more actual money than the richer classes, a fact not generally recognized, because we are accustomed to think and speak of money being owned, paid and received in a great many cases in which no money at all is either possessed or handled.

If your bank account shows a balance in your favor you say you have so much money in bank, while in truth you have no money in bank. The moment the teller receives your deposit and enters its amount in your pass-book, that moment the money you have handed him ceases to be yours and becomes the money of the

bank.

This entry in the pass-book represents, as due from the bank, a sum of money equal to that deposited, not the same money, but its equivalent, and this sum may be fitly denominated "money at credit."

Although money at credit is now generally called "cash," still, strictly speaking, the term "cash" is applicable only to money, and all transactions rest on credit, except those balanced by a payment in cash at the moment the transaction is made. It is important to observe this distinction, for most readers will be astonished to find how immense is the preponderance, both in numbers and amount, of credit over cash transactions in every community, and how greatly the use of credit economizes the use of money.

It will also surprise many to discover that as a general thing those who give credit are more numerous than those who receive it, and that the aggregate wealth of all the creditors in a community is generally less than that of all the debtors.

Every tradesman who charges goods to his customers is their creditor for the amount charged, and they are his debtors. Every person working for wages or salary, who is not paid in advance, gives his employer credit, and his employer is destor, for the amount of compensation earned up to the moment of payment.

Every depositor in a bank, savings or otherwise, is a creditor of that institution, and every banknote is evidence of debt due by the bank to the holder of the note.

Wealth is the basis of credit, and the richer the man the more he is able to borrow.

It is evident, therefore, that there is a wide-spread popular error as to which are the creditor and which are the debtor classes of the community, an error hurtful to the masses chiefly, because it deceives them as to the extent of their interest in the monetary system of the country.

A correct understanding of facts leads to these conclusions:

1st. Since money and money-at-credit are habitually regarded as identical, and are used indiscriminately in cash settlements, the theory of a per capita supply of currency lacks the foundation usually assumed to underlie it.

2d. Credit represents money-value, not actual cash in hand, nor money-atcredit; and its use enormously extends the sphere of trade and commerce.

3d. Credit economizes the use of money by affording time for the same coins, notes, etc., to go about from hand to hand, from bank to bank, and even from city to city, settling successively an immense number of accounts; it also obviates the use of money altogether in the numberless cases in which credits are offset and balanced, one against the other.

4th. Credit accomplishes all this through the instrumentality of bookkeeping, checks, drafts, bills of exchange, banks of deposit, clearing-houses and other similar appliances.

5th. These appliances (the banks, etc.) bring the use of credit within reach not only of large commercial and financial operators, but of most people in easy circumstances throughout the United States, thus leaving the bulk of the actual money in the country for the exclusive use of those who are too poor or too little known to obtain or to utilize credit.

The farmers are, in one sense, the great creditor class. The crop and the stock are debtors to the farmer not only for the capital invested, but also for the value of all labor bestowed upon them by the farmer and his family. The farmers, therefore, are vitally interested in our money laws, for there is a long time between sowing and reaping, and the farmer needs to collect from the produce of his fields and flocks and herds, as good money as he puts into these investments.

III.-MONEY.

The question: What is money? may seem as puzzling as Pilate's famous question: "What is truth?" but the puzzle in both cases is about words, not things. Invert the questions and apply them to some actual case. Is a certain thing true? Is a certain thing money? Straightway the puzzle vanishes and we know how to seek out answers. Truth is established by evidence; money is recognized by its ability to perform certain functions. Will it buy things, or hire persons or property, or pay debts? If it will do all these things exactly as they are done by what is undoubtedly money, then the coin or note in question is money. The community may not be wise in accepting certain things as money and becoming dependent upon them, but that is a very different matter. We are not yet considering what the material and form of money ought to be.

Let us next inquire: What is the function or office of money?

However far the collection and comparison of facts may be carried, all the inferences from them will be found to coincide in establishing the primary functions of money to be these:

1st. To pass from one person to another in exchange for property or in recompense for labor or services.

2d. To measure the value of whatever is obtainable by purchase, hire or other form of money payment.*

These two functions of money characterize it in every land, and have always characterized it. When Abraham offered to buy Ephron's field he proposed to pay the full money it is worth," and when he took possession of his purchase he paid in "money current with the merchant."

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Whenever money passes in exchange for property, services, etc., its value is presumed to be equal to that of the thing for which it is exchanged; hence the amount of money paid-the price-becomes the expression of the value of that thing. In this respect a dollar is as absolutely a measure of value as an inch is a measure of length, or as a pound is a measure of weight. In many cases, however values are estimated and expressed in money terms when no money is present, and

*Money has other functions, some evolved out of these, others imposed upon it by law or custom, all of which will be considered hereafter, but for the present our apprehension of the subject will be facilitated and kept clear by confining attention to what is simple and familiar.

some persons have found a difficulty in understanding how these can be accepted as instances of the measurement of value by money.

Such difficulty will disappear when it is considered that from the constant use of any standard in actual measurements we acquire more or less skill in estimating similar measurements without applying our standard, and since money is by far the most frequently used of all standards of measurement, it is quite natural that there should be fixed in our minds a value-scale marked off in dollars and fractions of a dollar sufficiently accurate to serve ordinary purposes. In these cases, therefore, while we may not actually measure with money all the values we are dealing in, our estimate and acceptance of these values proceeds wholly from belief in the accuracy of our mental value-scale, and accuracy in this case means, of course, conformity with actual money values. The fact is that money performs its function of measuring values chiefly through the medium of computation.

The weight of the earth has been ascertained, and that of some of the planets; yet no balance could hold them. In like manner one may accurately estimate values and express them in dollars, even though he may never have had dollars enough to exchange for even a fraction of such values.

In various parts of the world money is of different substances and forms; but what gives to every form of money all the force it has, what can alone confer upon anything the power to pass unquestioned from hand to hand, exchanging and measuring values, is the confidence and consent of the people among whom it circulates. Except for the settlement of contracts, the payment of debts, and the discharge of public dues, the power of the government to prescribe a currency is absolutely limited by the acquiescence of the people, and stability in the purchasing power of such currency depends from day to day upon the continuance of that acquiescence.

In countries where the laws do not prescribe any particular form of money, the money in use depends for its force entirely upon conventional recognition, and this is always found sufficient.

To facilitate interchange of values and to measure such values may be regarded as the natural functions of money, but in most civilized countries it has another function, which is artificial and established by law, viz., that of a legal tender in payment of taxes and in discharge of debt. Debt is a product of civilization; it can arise only where credit exists. Taxation is also peculiar to civilization; it is the civilized and orderly form of levying contributions for the support of the State.

Since, therefore, taxes and debt exist only under conditions which presuppose an organized society and the prevalence of law, we find money invested with the functions of a legal tender only by positive enactment. As the law defines debt and enforces its payment, the law must say what is sufficient payment; as the law levies taxes and requires them to be paid in money, the law must instruct the citizen as to what the medium of payment is to be.

It is evident that popular confidence and consent are not in any degree necessary to the support of a legal-tender currency. Within its sphere of discharging debts and satisfying the demands of the government, a legal-tender currency exists by force of law alone.

Putting together the results of onr inquiries up to this point, we get this definition:

Money is a conventionally recognized and generally accepted medium of exchange and measure of value; it is also, by force of law, a medium for the settlement of contracts and debts, and for the discharge of public dues.

We all know that the gold in an eagle is worth more than the silver in ten standard dollars, and much more than that in twenty half-dollars, forty quarters, etc., while bank-notes and greenbacks have but little intrinsic value; yet it is a matter of daily experience that ten dollars in one of these forms is precisely equivalent, for the ordinary purposes of money, to the same sum in any other form; that is, all our dollars are of equal money force.

It is evident, therefore, that the character of money is not conferred upon a coin by intrinsic value only, nor upon a note or bill by fully secured representative value, but coins and notes and bills become money only when invested with that character by some power competent to give them general currency in the community.

Since money alone is universally accepted in exchange for whatever is to be disposed of, everybody knows that it is with money alone that he may buy what he likes; hence he will accept only money for what he has to sell, and since the need to sell is quite as coercive as the need to buy, he who has money may command anything that is for sale. So, too, the need of being hired is quite as pressing as the need to hire; hence money commands services as well as thins.

The compulsion of taxation and of debt applies almost universally, so that the