Convertibility

“ The second error in this popular view of wealth is that, in estimating property which we cannot use as wealth, because it is exchangeable, we in reality confuse wealth with money. The land we have no skill to cultivate, the book which is sealed to us, or dress which is superfluous, may indeed be exchangeable, but as such are nothing more than a cumbrous form of bank-note, of doubtful and slow convertibility. ”

“ Convertibility is the distinguishing mark of railroad bonds. Generally speaking they may be more easily marketed than any other class of bonds. Compared with stocks they exceed public-utility, mining, and bank stocks in point of convertibility, and yield only to railroad stocks. It is hard to say whether or not they possess greater convertibility than industrial stocks, but it is probable that they do, allowing for the fact that an undue impression is created by the activity of certain prominent shares. ”

“ Everybody can understand convertibility; every one sees that what can be at any moment exchanged for five pounds, is worth five pounds. Regulation by the price of bullion is a more complex idea, and does not recommend itself through the same familiar associations. There would be nothing like the same confidence, by the public generally, in an inconvertible currency so regulated, as in a convertible one: and the most instructed person might reasonably doubt whether such a rule would be as likely to be inflexibly adhered to. ”

“ It is this proffered and immediate convertibility into coin that enables the promissory notes of a bank to circulate as money, while the notes of other corporations and individuals equally solid and solvent do not circulate as money. ”

“ For a person not endowed with high and subtle imagination the distinction between such a convertibility and absolute inconvertibility is too thin to persuade him that the two systems are radically different; indeed, when we come to analyse the problem of prices in India and outside India we shall find another piece of evidence to show that they are not different, and that the analogy between the two is perfect enough for all practical purposes. ”

“ If the issues continue in excess of demand, the value will lower, even to the point of utter worthlessness; but if properly controlled and limited, the value of the money can be maintained at any point desired far more readily and easily than in the case of a convertible paper and coin system, since many variable forces are excluded when the convertibility is dropped. ”

“ It is very common, for example, when he wishes to make a permanent investment and has no thought of reselling, to find him purchasing [16] securities which possess in a high degree the quality of convertibility. ”

“ Fluctuations in the value of currency are always injurious, and to reduce these fluctuations to the lowest possible point, will always be a leading purpose in wise legislation. Convertibility, prompt and certain convertibility into coin, is generally acknowledged to be the best and the surest safeguard against them ”

“ The substitution, therefore, of paper for the precious metals, should always be carried as far as is consistent with safety; no greater amount of metallic currency being retained than is necessary to maintain, both in fact and in public belief, the convertibility of the paper. ”

“ The supporters of the ‘currency theory,’ whose principles were adopted by Peel and embodied in the act, were represented by Samuel Jones Loyd, baron Overstone [q. v.] , Robert Torrens [q. v.] , and George Warde Norman [q. v.] They contended that banks of issue, by the arbitrary extension of their circulation, could produce a direct effect upon prices, and thus stimulate speculation, with the consequent fluctuations and revulsions of credit; that the mere enactment of convertibility on demand was not a sufficient safeguard against these evils ”

“ There is therefore a great preponderance of reasons in favour of a convertible, in preference to even the best regulated inconvertible currency. The temptation to over-issue, in certain financial emergencies, is so strong, that nothing is admissible which can tend, in however slight a degree, to weaken the barriers that restrain it. ”

“ The only difference is, that in the convertible system the money value is partly determined by the natural causes affecting the supply of coin, partly by the laws and conditions of business in foreign countries, and partly by the legislation at home, restricting the coinage or the issue of paper; while in the inconvertible system it is determined wholly by the control of the issues relative to the demand for money. ”

“ Considerable capital is required by the converter, as goods bought in the gray have to be paid for on practically a cash basis, and he may have to carry them for a time before they are finally marketed. ”

“ An inconvertible paper acts in the same way as a convertible, while there remains any coin for it to supersede: the difference begins to manifest itself when all the coin is driven from circulation (except what may be retained for the convenience of small change) , and the issues still go on increasing. When the paper begins to exceed in quantity the metallic currency which it superseded, prices of course rise ”

“ When we come to apply the act to gains acquired through an increase in the value of capital assets acquired before and converted into money after the taking effect of the act, questions of difficulty are encountered. The suggestion that the entire proceeds of the conversion should be still treated as the same capital, changed only in form and containing no element of income although including an increment of value, we reject at once as inconsistent with the general purpose of the act. ”

“ The surplus beyond the prices which would be fixed by a freedom in exchanging property, gained by the owners of factories, transfers property without any equivalent, and goes in company with the other enumerated means, to the accumulation of a property-transferring capital, and not to the increase of a property-exchanging currency. ”

“ The sequel of our investigation will point out many other qualifications with which the proposition must be received, that the value of the circulating medium depends on the demand and supply, and is in the inverse ratio of the quantity; qualifications which, under a complex system of credit like that existing in England, render the proposition an extremely incorrect expression of the fact. ”

“ We live under the dominion of capital, that is to say, of property other than land, or rather, perhaps, of an accumulated, and still accumulating, interest or dividend-bearing essence of all property (which is labour stored up in some material) , 107reconvertible at will, for productive purposes, into land, labour, or anything men have of exchangeable value. This mighty essence of all property is within the reach of us all, in proportion to our respective opportunities and abilities, and the efforts to gain possession of it we choose to make. ”

“ When a standard of value is a convertible paper money the provisions as to reserve act as a check on its expansion. But when a standard of value consists of a money the value of which is greater than its cost and is inconvertible, the currency must be said to be fraught with the fatal facility of indefinite expansion, which is another name for depreciation or rise of prices. ”

“ But I maintain that one who moves in properties does not pass out of himself, but subsists in these same properties, in which he is ever inconvertible; while in the case of one who is susceptible of conversion, the effect is that he is placed outside the pale of properties, and passes within the sphere of accidents. ”

“ But as a rise or fall of a commodity in money during the periods in which money is considered as constant, cannot indicate any other variations than those which arise from intrinsic causes, it follows necessarily, that when we refer to the variations in the values of commodities, in the ordinary sense in which the term is used, we refer exclusively to their purchasing power arising from intrinsic causes, or to that kind of value which may be denominated their intrinsic value in exchange. ”

“ First, Induction more or less busy for two thousand years has given at last an exact and acceptable definition of the Science, and impliedly an exact description of the class of facts with which it is conversant, namely, the Science of Sales, or what is exactly equivalent, the Science of Value; and Deduction at all points along this slow road has helped to correct and to broaden successive imperfect inductions, which an inquisitive and tentative and cautious spirit—the mainspring of Constructive Science—has instituted from time to time. ”

“ The growing complexity and interdependence of the machinery of production, which makes each shock or stoppage propagate itself through a widening circle; the essential defect of currencies which contract when most needed, and the tremendous alternations in volume that occur in the simpler forms of commercial credit, which, to a much greater extent than currency in any form, constitute the medium or flux of exchanges ”

“ Throughout his life he maintained the 'predominance of exchange,' exposed the 'tricks of the exchangers,' and urged that exchanges should be settled on the principle of 'par pro pan, value for value.' Naturally, therefore, he sought to revive the staple system, and appealed to the government to put down the exchangers. ”

“ If commodities, or commodities and money, of equal exchange-value, and consequently equivalents, are exchanged, it is plain that no one abstracts more value from, than he throws into, circulation. There is no creation of surplus-value. ”

“ The change of form, C—M—C, by which the circulation of the material products of labour is brought about, requires that a given value in the shape of a commodity shall begin the process, and shall, also in the shape of a commodity, end it. The movement of the commodity is therefore a circuit. ”

“ If an individual sells his land to another, though he receives currency, he receives in fact an equivalent for his land in other property which the currency represents. But, when an individual pays money or currency to a government or to exclusive privileges, that portion of his property which the currency represents, is transferred without his receiving any equivalent in other property, and is to him an actual loss. ”

“ Those who found their brains turned into common property would be apt to institute an inquiry why land and capital of all kinds should not be common property also, and if defeated in this, they would, as far as practicable, emigrate to other lands, where the rights of their brains might be respected; and the glory of England would have departed. If a simple sewing-machine produces fifty-eight millions per annum in the United States, what must be its value here? ”

“ I would never have disposed of the Concession as a speculator disposes of a valuable right to a company—for cash and shares, to grow rich eventually if possible, but at any rate to put some money at once in his pocket. ”

“ So soon, now, as the commodity has been changed into money, the money becomes its transient equivalent-form, the use-value of which equivalent-form is to be found in the bodies of other commodities. Money, the final term of the first transmutation, is at the same time the starting point for the second. The person who is a seller in the first transaction thus becomes a buyer in the second, in which a third commodity-owner appears on the scene as a seller. ”

“ That is to say, in addition to the change in value effected by the change in individual ownership, there is actual deterioration, produced by accumulation, whoever the individual may be who is responsible for that accumulation. ”

“ After a nation has fixed what its money shall be, it then issues different forms of credit money all of which are directly or indirectly redeemable in the commodity to which a fixed and stable value has been given. ”

“ The converter sells to the cutting-up houses, to jobbers, and to retailers, or, in fact, to whatever trade he seeks. Large and profitable businesses have thus been built up. Many converters have adopted their own distinctive trade marks, and since the goods that they handle are known by these trade marks, the identity of the mill which made them originally is often entirely unknown to the ultimate consumer. The converter can give his business to whatever mill, at the time, will give him the best value for his money. ”

“ When money, however, comes to serve, as it will at some future time, almost exclusively as a measure and standard of value, the system of exchange, being one of perfected barter, such properties become a matter of comparative indifference, and stability of value, joined perhaps to portability, is the most important quality. Before venturing, however, to discuss such complex questions, we must proceed to a preliminary discussion of the properties in question, which [Pg 19] may thus perhaps be enumerated in the order of their importance:
1. ”

“ Those who attach an exclusive value to new labour as distinguished from old labour—or labour as distinguished from capital—say that the new production shall be stimulated by the old production, without allowing the old production to be exchanged against the new;—that is, that the old production shall be an instrument for the reward of new labour, but not a profitable one to its possessor. ”

“ When paper is substituted in the room of gold and silver money, the quantity of the materials, tools, and maintenance, which the whole circulating capital can supply, may be increased by the whole value of gold and silver which used to be employed in purchasing them. The whole value of the great wheel of circulation and distribution is added to the goods which are circulated and distributed by means of it. ”