Robinson Crusoe's Money

6

“Some years since, Mademoiselle Zélie, a singer of the Théâtre Lyrique at Paris, made a professional tour round the world, and gave a concert in the Society Islands. In exchange for an air from ‘Norma,’ and a few other songs, she was to receive a third part of the receipts. When counted, her share was found to consist of three pigs, twenty-three turkeys, forty-four chickens, five thousand cocoa-nuts, besides considerable quantities of bananas, lemons, and oranges. At the Halle (market) in Paris, the prima donna remarks, in her lively letter printed by M. Walowski, this amount of live stock and vegetables might have brought four thousand francs, which would have been good remuneration for five songs. In the Society Islands, however, pieces of money were very scarce; and as mademoiselle could not consume any considerable portion of the receipts herself, it became necessary in the mean time to feed the pigs and poultry with the fruit.”—Jevons’s Money and Mechanism of Exchange.

7

In 1658, it was ordered by the General Court of Massachusetts that no man should pay taxes “in lank cattle.”—Felt’s Massachusetts Currency.

8

This incident is related by Burton, in his “Explorations of the Lake Regions of Central Africa” (1858-’59), as one within his knowledge of actual occurrence.

9

In one of the mints there is exhibited as a curiosity a case in which this fact is demonstrated in the most striking manner. It contains some fifty or more very thin ribbons, or strips, of gold, half an inch wide by three inches in length, placed in a row, parallel to, but separated from each other by a slight interval. The first ribbon is composed of gold of the highest standard of purity; the second differs from the first to the extent of one per cent. of admixture with a baser metal; while the third contains two per cent., the fourth three per cent., and so on, until in the last ribbon, or strip, the amount of gold and alloy is equal. The color of the first ribbon is, in the highest sense of the term, golden or typical. The color of the second differs from the first by a shade, which shade in every successive ribbon changes and becomes more and more marked as the proportion of alloy entering into its composition increases: and so peculiar are these differences of color that it is possible for an individual unskilled in metallurgy, but having access to the standard, to make a comparatively accurate test of the purity of any article of gold in his possession by a simple comparison of color.

10

In 1862 Mr. Eckfelt, then principal assayer at the mint in Philadelphia, communicated to the American Philosophical Society the result of some exceedingly curious examinations demonstrating the very wide distribution of gold. The city of Philadelphia, he stated, was underlaid by a bed of clay having an area of about ten square miles, with an average depth of about fifteen feet. Specimens of this clay—all natural deposits—taken from such localities as might furnish a fair assay of the whole—the cellar of the market on Market Street, near Eleventh, and from a brick-yard in the suburbs of the city—all yielded, on careful analysis, small amounts of gold; the average amount indicated being seven-tenths of a grain—or about three cents’ worth—of gold for every cubit foot of clay. Assuming these data to be correct, the value of the gold, according to Mr. Eckfelt, which lies securely buried underneath the streets and houses of Philadelphia must therefore be equivalent to $128,000,000; or if we include all the clay contained in the corporate limits, the amount of gold contained in it must be equal to all that has yet been obtained from California and Australia.

“It is also apparent,” says Mr. Eckfelt, “that every time a cart-load of clay is hauled out of a cellar in Philadelphia, enough gold goes with it to pay for the carting; and if the bricks which front our houses could have brought to their surface, in the form of gold-leaf, the amount of gold which they contain, we should have the glittering show of two square inches on every brick.”

11

On the Rhine, near Strasburg, a good able-bodied laborer can earn on an average one franc seventy-five centimes per day, washing gold from the sands of the river; but, as under most circumstances he can earn ten sous more by working in the fields on the banks of the river, and without so much risk of getting rheumatism, gold-washing on the Rhine is not often adopted as a regular employment.

12

“And when the substitution is made” (of a silver for a paper fractional currency), “what will be the consequence? The metal currency will have to be considerably debased, or else every old woman in the country will fill her stockings with it and bury it. It will be hoarded, sir; hoarded to the extent of removing millions from the currency of the country.” The general paused, glared at a village wrapped in rain, by which we were rattling, chewed his cigar vigorously, and lapsed into silence.—A Newspaper Reporter’s Interview with General Butler, September, 1875.

13

Gold in its crude state, and uncoined, was until recently in use as money in some parts of California, Mexico, and on the West Coast of Africa.

14

Historically, bills of exchange probably originated with the Jews of the Middle Ages, who, ever liable to persecution, adopted a system of drafts, or written orders, upon one another, which each agreed to honor and pay to the person named in the draft.

15

It was in this manner that the first bank of which we have any record originated in 1171, namely, the Bank of the Republic of Venice. Venice in that year was at war and needed money. The Council of Ten, or the Government, called upon the merchants to bring in their gold or coin into the public treasury, and gave credit on the books of the state for the amounts so deposited; which credits carried interest (always promptly paid) at the rate of four per cent. per annum. Soon after the establishment of this bank one of the depositors died; and it becoming necessary to distribute his estate among five children, his bank-credit was divided into five portions and transferred to five new owners. A system of transferring bank-credits was thus introduced, and proved so useful that in a brief time the merchants adopted it very generally as a means of paying balances in all great business transactions. The banks of Amsterdam and of Hamburg were also subsequently established on substantially the same basis, and are doing business to-day successfully. The Bank of Venice did business for five hundred years; during which period the state was prosperous, and there were few failures among the mercantile classes.

16

If to any it may seem puerile and unnecessary to enter into such explanations, it may be well to remind them that one of the schemes for a new currency, which has of late found some earnest advocates in the United States, is that of Josiah Warren, of Ohio, who proposed that currency “should be issued by those men, women, and children who perform useful service”—i. e., grow corn, mine coal, catch cod-fish, pick up chestnuts and the like—“but by nobody else;” such results of service being deposited in safe receptacles, and having receipts of deposit issued against them to serve as “equitable money.” A further axiom of Mr. Warren was, “that the most disagreeable labor” (not the most useful) “is entitled to the highest compensation;” and, therefore, inferentially entitled to issue the most money. A specimen of this equitable money before the writer reads as follows:

$1.00

Cincinnati, Ohio.

No. —, F– Street.

Time is Wealth.

Of course, to make this money equitable, and its issue, as claimed, “the satisfactory solution of the great problem of labor and capital,” there must be some presupposed equitable relation between eight hours of shoe-making and a hundred pounds of corn. But one hundred pounds of corn in Illinois are the result of only a quarter as much labor as a hundred pounds in New England; and what comparison is there between eight hours’ work of a skilled mechanic and that of a mere cobbler in making shoes? or of the man who performs a disagreeable, slavish piece of work, and of the genius who invents or makes a machine that makes this disagreeable work unnecessary?

E. D. Linton, of Boston, one of Warren’s most eminent disciples, improves on Warren’s ideas, and proposes that the United States Government should prepare and issue a currency, which should read as follows:

The United States will pay One Dollar to Bearer, on demand, in – bushels of Illinois Fall Wheat, at United States No. 1 Store-house, No. 12 River Street, Chicago, Ill.

And the same inferentially in respect to pigs, coal, shoes, and the services of doctors, lawyers, and cooks. So, then, if the note is not to be on its face a lie, and the promise is to be actually performed on demand, the necessity will be absolute on the part of the Government of the United States to have store-houses for wheat at Chicago, pig-pens at Peoria, coal-mines or dépôts at Pottsville, and trained professionals ready on call to plead a case, preach a sermon, cure a cold, and cook a dinner; and all of these last must take their pay in pigs if required. But as a pig has one value at Peoria, and another value at almost every other place, the dollar’s worth of pig which the United States would pay might be a whole pig in one place, a half in another, and possibly only the snout in another.

17

Although, to all who have investigated the subject, the evidence is conclusive that an irredeemable fluctuating paper money is always made an agency for taxing with special severity all that class of consumers who live on fixed incomes, salaries, and wages, it has, nevertheless, always been a somewhat difficult matter to find illustrations of the fact so clear and simple as carry conviction by presentation that it does thus act to the classes most interested. With a view of obtaining such an illustration, application was made some months since to an eminent American merchant, whose large and varied experience abundantly qualified him to discuss the subject; and the result of the application may be thus stated:

Q. In buying in gold and selling in currency, what addition do you make to your selling price, in the way of insurance, that the currency received will be sufficient—plus profit, interest, etc.—to replace or buy back the gold represented by the original purchase?

A. We do but very little of that now; hardly enough to speak about.

Q. But still you make insurance against currency fluctuations an item in your business to be regarded to some extent?

A. Why, yes, certainly; it won’t do to overlook it entirely.

Q. Well, then, if you have no objections, please tell me what you do allow under existing circumstances?

A. I have certainly no objections. We buy closely for cash; sell largely for cash, or very short credit; and, within the comparatively narrow limits that currency has fluctuated for the last two or three years, add but little to our selling prices as insurance on that account—say one to two per cent. for cash, or three months’ credit; and for a longer credit—if we give it—something additional. During or immediately after the war, when the currency fluctuations were more extensive, frequent, and capricious, the case was very different. Then selling prices had to be watched very closely, and changed very frequently—sometimes daily. My present experience, therefore, is exceptional; and to get the information you want, you must look further. I think I can help you to do this. We buy regularly large quantities of a foreign product—let us suppose, for illustration, cloth, for the large manufacturers and dealers in ready-made clothing. We buy for gold, and we sell for gold, and do not allow the currency or its fluctuations to enter in any way into these transactions. But how is it with my customers? I allow them some credit; and the amount involved being often very large, I, of course, must know something of the way in which they manage their business. They transform the cloth, purchased with gold, into clothing; and then sell the clothing, in turn, to their customers—jobbers and retailers—all over the country, for currency, on a much longer average credit than they obtain from me for their raw material. As a matter of safety and necessity, these wholesale dealers and manufacturers must add to their selling prices a sufficient percentage to make sure that the currency they are to receive at the end of three, six, or nine months will be sufficient to buy them as much gold as they have paid to me, or as much as will buy them another lot of cloth to meet the further demands of their business and their customers. How much they thus add I can not definitely say. There is no regular rule. Every man doubtless adds all that competition will permit; and every circumstance likely to affect the prospective price of gold is carefully considered. Five per cent., in my opinion, on a credit of three months would be the average minimum; and for a longer time, a larger percentage. If competition does not allow any insurance percentage to be added, there is a liability to a loss of capital, which, in the long run, may be most disastrous—a circumstance that may explain the wreck of many firms, whose managers, on the old-fashioned basis of doing business, would have been successful. The jobbers and the retailers, to whom the wholesale dealers and manufacturers sell, are not so likely to take currency insurance into consideration in fixing their selling prices; but to whatever amount the cost price of their goods has been enhanced by the necessity of insurance against currency fluctuations, on that same amount they estimate and add for interest and profits; the total enhancement of prices falling ultimately on the consumer, who, of necessity, can rarely know the elements of the cost of the article he purchases.

Q. So Mr. Webster, then, in his remark, which has become almost a proverb, that “of all contrivances for cheating the laboring classes, none has been more effectual than that which deludes them with paper money,” must have been thoroughly cognizant of the nature of such transactions?

A. Most undoubtedly; for such transactions are the inevitable consequence of using as a medium of exchange a variable, irredeemable currency.

The illustration above given, therefore, in the place of being imaginary, is based on the actual condition of business at the present time—January, 1876.

18

In 1864, a ship was built in New York, at the time when labor and materials, reckoned in currency, had touched their highest prices. In 1870, another ship was built in the same place and on the same model—like the former in every particular. It was expected that, as wages and the cost of materials were less in 1870 than in 1864, the cost of the latter ship would be much less than that of the former; but the result showed that this was not the case.

19

When the Japanese embassy visited the United States, in 1872, they were seriously advised to create, by some means, a national debt as soon as they returned home, and make use of it as a basis for the creation and issue of currency.

20

Machiavelli, in his “Discourses on the First Ten Books of Livy,” book ii., chap, iii., in explaining the great difference in the relative growth of the Roman and Spartan republics, relates that “Lycurgus, the founder of the Spartan republic, believing that nothing could more readily destroy his laws than the admixture of new inhabitants, did every thing possible to deter strangers from flocking thither. Besides denying them intermarriage, citizenship, and all other companionships (conversationi) that bring men together, he ordered that in his republic only leather (non-exportable) money should be used, so as to indispose all strangers to bring merchandise into Sparta, or to exercise any kind of art or industry there, so that the city never could increase in population.”

21

Examination will show that the United States, for one-sixth part of their existence as a federated nation, have been in a state of war; and, for the future, there is no good reason for supposing that the country is to be any more exempt from the vicissitudes of nations than it has been in the past. With irredeemable paper, violation of plighted faith, gold demonetized and banished, in what condition is the nation for maintaining a great national struggle?

22

In a case often overlooked (Bank vs. Supervisors, 7 Wallace), the United States Supreme Court decided that “United States notes are engagements to pay dollars; and the dollars intended are coined dollars of the United States.” Refusal to pay such notes in coin is clearly, therefore, repudiation.

23

Irving’s “Conquest of Granada.”

24

In every cabinet of rare coins in Europe there will be found specimens of what are known as “obsidional” coins, or coins struck in besieged places to supply the place of coined money. These coins appear, in all instances, to have been regarded as obligations sacred in their nature, and their repudiation a high crime against morality and patriotism.

25

Speech of General B. F. Butler, United States House of Representatives.

26

Letter of Wendell Phillips to the New York Legal-tender Club, 1875.

27

Charles Moran, New York Commercial Bulletin, October 5th; 1875.

28

Opinion of the United States Supreme Court, by Justice Strong.—Wallace, 12, p. 553.

29

The Indians on the Atrato River (Central America), when first visited by one of the recent inter-ocean-canal exploring parties, were found to be unaccustomed to the use of much, if any, clothing; but after a little intercourse with civilized man, some of the more intelligent of the natives presented themselves with their bodies painted in close imitation of clothes, which they claimed to be superior in every respect to the genuine articles worn by their visitors.

30

This was what actually happened in Connecticut in 1704 and thereabouts. See “Madame Knight’s Journal,” quoted in Felt and Bronson’s “Histories of New England Currencies.”

31

Whatever may have been the immediate effect of the gold-discoveries in California and Australia, no economist of repute now holds to the opinion that the average purchasing power of gold all the world over is any less than it was in 1849-’50; or, in other words, that any increase in the quantity of gold since 1849-’50 has resulted in any present depreciation.

32

This is the American interpretation. The English interpretation of “legal tender” was brought out in a debate in the House of Lords, in June, 1811, when it was shown to mean, in its application to Great Britain, no more than this: that in a suit between creditor and debtor, if a judgment went against the debtor, he was allowed to plead a tender of bank-notes in arrest of execution, but he could not claim that the notes should be forced upon the creditor in discharge of the debt. During the long suspension of specie payments in Great Britain, therefore, bank-notes were never made legal tender in the American sense.

33

After the Revolutionary war it was considered disgraceful to take advantage of the legal-tender character of the depreciated Continental or State paper money to liquidate debts with it; and the Society of Cincinnati expelled a member for so doing. The State of Rhode Island also, which longer than any of the other States endeavored to maintain by law the legal-tender character and use of such money, was often spoken of in consequence as “Rogue’s” in place of “Rhode” Island.

34

To any who may desire to know how far imagination has been drawn upon for this picture, reference is made to the speech of Hon. O. P. Morton, United States Senate, “Congressional Record,” vol. ii., part i., Forty-third Congress, First Session, p. 669.

35

The pertinacity “with which a mind befogged on the subject of money and currency holds on to the delusion that the making and issue of promises to pay, and calling the same money, is equivalent to the creation of wealth; and, vice versâ, that the cancellation or withdrawal, by payment, of such promises is the same thing as the destruction of wealth, and also tends to make money—in the sense of capital—scarce, and interest high, finds many amusing illustrations, which for educational purposes are better than arguments.

For example, we have, first, the assumption of a leading Senator of the United States (already referred to, and which, if not on record, would seem incredible) that because an increased supply of horses and hogs made available to a market make horses and hogs cheap, therefore an increased supply of evidences that capital had been borrowed, used, and never paid, would tend to increase the quantity and rate of interest of loanable capital. A corresponding illustration is also to be found in the case of the member of the Continental Congress mentioned by Pelatiah Webster, who, when the subject of increased taxation for the support of the war was under consideration, indignantly asked “if he was expected to help tax the people, when they could go to the printing-office and get money by the cart-load?”

The experience of the Irish mob also finds an appropriate place under this head, which made a bonfire of all the notes issued by an obnoxious private banker that they could gather, little imagining, as they shouted and capered with wild delight about the fire that consumed them, that, in place of impoverishing, they were really enriching, their enemy.

The following story, also illustrative of the same popular fallacy, passes current in one of the towns of Eastern Connecticut: During the severe financial panic of 1857, an honest country farmer and deacon, who, by virtue of being a considerable stockholder in one of the local banks, had been placed as a figure-head on its board of directors, was applied to by a farmer friend to help him in procuring from the bank a small loan. Knowing that the times were hard, and money scarce, the deacon, although desirous of obliging his friend, did not at once commit himself, but promised to go to the bank, and make his action contingent upon the state of affairs which he might there find. The two friends, accordingly, went into town the next day (which happened to be the culminating day of the crisis, when every promise to pay issued by any bank was, in the general distrust, gathered up and rushed in for redemption); and, while the applicant for the loan waited outside, the director entered the bank to reconnoitre. Passing into the directors’ room, and thence behind the counter, he said little, but, keeping his eyes wide open, did not fail to notice the extraordinarily large packages of bills, filling safe and drawers, which, to the annoyance and strain of the bank, had been recently sent in for payment. Seeking no further proof of the financial strength of his institution, he returned to the street, and, informing his friend that every thing was all right, the latter next entered, and confidently asked for his discount. To his great surprise, he received the usual polite answer, that “they would be too glad to oblige him, but that, really, they had no money.” “Out of money!” said the deacon, when the result of the application was made known to him. “Out of money! How can they lie so, when I have just seen the safe and drawers full of it? As a Christian man, and an officer of the church, I can’t conscientiously be a director and stockholder any longer in such an immoral institution.” And yet, if, on returning home, the good deacon had found in his table-drawer a number of his individual promissory-notes, signed and ready to issue, but not issued, he would not have thought himself any richer by their existence, but, on the contrary, would have felt much more comfortable at such a time to know that the notes were all under double-lock security, or, better, if he saw them vanishing into ashes. And yet, in the case of the bank-notes, he couldn’t understand why they were not money, to be used at all times and under all circumstances!