Fiat money

“ Of course, with such security, the fiat dollar ought to be worth its face in gold, and thus you may think of foreclosing that mortgage on the wealth of the country. Maybe you are a laboring man who have some money in a savings bank, which formerly was worth enough to buy a little house with, but in its fiat condition, money being plenty, appears just sufficient to pay for a jack-knife. You may go to the next best public building to see whether you can find any of the wealth of the country there, which is security for your fiat money, to lay your hands upon. ”

“ Such promises to pay as greenbacks and national-bank notes are withdrawn to make room for fiat money. It will not be necessary to make any provision for the withdrawal of gold and silver, for the precious metals, finding no further employment, will take leave of themselves, and go abroad, where they are wanted. Now the fiat money is master of the field. It goes into circulation, and for some time it will indeed circulate, for, it being the only tool of exchange left to you, you will have to take it and use it ”

“ The fiat dollar will not promise anything, and just that is the beauty of it. According to the fiat money doctors, it was the weakness of the greenback, that it promised something. The fiat dollar does not promise anything, for it is in itself the performance of the promise—it is a dollar. The fiat money promises nothing beyond itself, for it does away with all other things. Gold and silver are antiquated stuff, entirely unsuitable for this progressive age and country. The fiat money once out, gold and silver will no more be thought of. ”

“ This observation made by a leading citizen of the time when fiat money was forced upon the people with no provision for redemption in specie, illustrates a condition which, in the very nature of things, must ever exist when an unknown quantity is offered in exchange for a fixed value. ”

“ Clipped shillings, French assignats, and Continental and Confederate currency, were no more fiat money than are American double eagles or five-pound Bank of England notes. It is the stamp of the government, the fiat of its power, that turns the metal or the paper into money.”
“But do not all financiers consider inflation a disaster, Mr. Morning?”
“Inflation,” replied the gentleman, “whether of metallic or paper currency that is accepted by the world or by a great commercial nation as a legal tender, can do no harm except to those who loan money. A dollar is a mere term. ”

“ By the mere expansion of paper money the amount of your savings in dollars is not increased one cent. But by the depreciation of the paper money following that expansion, the purchasing power of your savings is decreased to the amount of that depreciation. It is as plain as daylight. And do not your greenbackers and fiat-money doctors tell you that irredeemable paper money must be made plenty, to raise prices and to make business lively? ”

“ A more effective expedient was a law confiscating the property of all Frenchmen who left France after July 14, 1789, and who had not returned. This gave new land to be mortgaged for the security of paper money.
All this vast chapter in financial folly is sometimes referred to as if it resulted from the direct action of men utterly unskilled in finance. This is a grave error. That wild schemers and dreamers took a leading part in setting the fiat money system going is true ”

“ The year 1775 witnessed the revival of paper money as a legal tender by authority of the provincial congress. The nature of this currency was akin to the old bills of credit which seemed to have bequeathed to the new currency the destiny of fate. The whole system of fiat money fell by its own weight in 1778. Mr. Jonathan Amory, the great Boston merchant, says, December 16, 1780: "Everybody asks silver or gold or paper, as they please, paper having been for a considerable time at 75 per cent; goods bring three for one." ”

“ The public felt morally certain that the prosperity of the province was proportionate to the volume of currency in circulation. "Considering the demand of the Government as to their taxes and the great occasions of the People as to their trade" [45] more money of some kind was necessary to facilitate trade and commerce. But the one great principle of redemption for all paper currency in specie of intrinsic value was a conception they did not grasp. Hence every effort made to relieve the burden only tightened the ligatures of a cheaper fiat money. ”

“ Suppose the Government should issue a thousand millions of fiat money, how would it regulate the value thereof? Every creditor could be forced to take it, but nobody else. If a man was in debt one dollar for a bushel of wheat, he could compel the creditor to take the fiat money; but if he wished to buy the wheat, then the owner could say, "I will take one dollar in gold or fifty dollars in fiat money, or I will not sell it for fiat money at any price." What will Congress do then? In order to make this fiat money good it will have to fix the price of every conceivable commodity ”

“ When we hear our greenback or fiat-money apostle talk about the great things their schemes are to accomplish, we might almost receive the impression that a new issue of paper currency meant this: That some government officials would go round the country with big bags of money, putting some of it into everybody's pocket. Intelligent men need scarcely be told that this is not the way it would work. ”

“ Cambon, especially, ranked then and ranks now as among the most expert in any period. The disastrous results of all his courage and ability in the attempt to stand against the deluge of paper money show how powerless are the most skillful masters of finance to stem the tide of fiat money calamity when once it is fairly under headway; and how useless are all enactments which they can devise against the underlying laws of nature. ”

“ Thus, whatever expedient you may resort to, gold will be and remain the standard of value as to the fiat dollar. Your fiat dollar will be brought up before that tribunal to have judgment pronounced as to its worth, and the idea that by introducing here a paper-money system of your own you can withdraw from the rules that govern the commerce of the world, and change the real standard of value in your business transactions, will appear as one of the most absurd and childish conceptions the human brain has ever been guilty of. ”

“ It will also maintain a certain current value, as long as its volume is kept within the quantity that would circulate in the form of specie and paper convertible into specie. But you must consider that the fiat money plan is brought forward by earnest inflationists, whose principal object is to make money plenty by issuing enough of it to keep all the boys in cash—and why should we not? it costs nothing, and we may just as well have much as little. ”

“ Suppose your greenbackers, your fiat-money apostles, get into power to carry out their schemes, and a loss of only a million or two will appear to you as a trifle scarcely worth speaking of. When they begin to “make money plenty,” and, in consequence of currency inflation, it depreciates only five per cent. which is comparatively little, the loss of those who own the $1,000,000,000 of deposited savings will be how much? Not only a million or two, it will be $50,000,000 at one blow. When the currency depreciates ten per cent. ”

“ They look upon everything that is natural with distrust. Thus the scheme of so-called fiat money was brought forward, and many well meaning innocent people seem to have been talked into the belief that this at last is the true thing. ”

“ Danger and toil have always attended the explorers in finance, and they always will. Nevertheless the path is the way of civilization. The greater the development of civilized life, the larger will be the values in paper and credit."
The pathway to our present monetary standard is lined with the wrecks of different forms of currency, country pay, debased coinage of the Boston mint, credit bills of the Colony of Massachusetts, fiat money of the Province of Massachusetts Bay, legalized fiat money, inflated currency, land bank bills, silver notes, treasury notes, continental currency. ”

“ No matter how skillfully the bright side of such a currency was exhibited, all thoughtful men in France remembered its dark side. They knew too well, from that ruinous experience, seventy years before, in John Law's time, the difficulties and dangers of a currency not well based and controlled. They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages ”

“ So ended the reign of paper money in France. The twenty-five hundred millions of mandats went into the common heap of refuse with the previous forty-five thousand millions of assignats: the nation in general, rich and poor alike, was plunged into financial ruin from one end to the other. ”

“ As the power of any private monopoly over price is relative, not absolute, so is that of the government over the value of political money. The money use is the source of value of the paper notes. It is this which gives the economic condition for value in paper money and strictly limits the power of the government—a fact overlooked by the fiat-theorists. Business conditions remaining unchanged, the limit of possible issue without depreciation is the number of units in circulation before the paper money was issued, the saturation point of full-weight and full-value coins. ”

“ Whenever any nation intrusts to its legislators the issue of a currency not based on the idea of redemption in standard coin recognized in the commerce of civilized nations, it intrusts to them the power to raise or depress the value of every article in the possession of every citizen. ”

“ It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid. 85
The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange ”

“ The washerwomen of Paris, finding soap so dear that they could hardly purchase it, insisted that all the merchants who were endeavoring to save something of their little property by refusing to sell their goods for the wretched currency with which France was flooded, should be punished with death; the women of the markets and the hangers-on of the Jacobin Club called loudly for a law "to equalize the value of paper money and silver coin." ”

“ Despite the efforts of the legislature to debase the currency, the precious coin found its way to foreign lands. The interests of trade and commerce, which had received an impetus for a time, very soon had to pay the cost of this novel experiment in finance. [13] It was the beginning of a mischief which proved an almost constant source of annoyance to the government and people, and which was increased as new enactments of the legislature and private banks sought to relieve the pinching wants of a people with a scanty and bedraggled medium of exchange. ”

“ The farmer often found that he could not raise his products at anything like the price required by the new law, and when he tried to hold back his crops or cattle, alleging that he could not afford to sell them at the prices fixed by law, they were frequently taken from him by force and he was fortunate if paid even in the depreciated fiat money—fortunate, indeed, if he finally escaped with his life. ”

“ This sum—four hundred millions, so vast in those days, was issued in assignats, which were notes secured by a pledge of productive real estate and bearing interest to the holder at three per cent. No irredeemable currency has ever claimed a more scientific and practical guarantee for its goodness and for its proper action on public finances. On the one hand, it had what the world recognized as a most practical security,—a mortgage an productive real estate of vastly greater value than the issue. ”

“ But to the surprise of the great majority of the French people, the value of the assignats was found, after the momentary spasm of fear had passed, not to have been permanently increased by these measures: on the contrary, this "fiat" paper persisted in obeying the natural laws of finance and, as new issues increased, their value decreased. Nor did the most lavish aid of nature avail. The paper money of the nation seemed to possess a magic power to transmute prosperity into adversity and plenty into famine. ”

“ One simple fact, as stated by John Stuart Mill, which made assignats difficult to convert into real estate was that the vast majority of people could not afford to make investments outside their business; and this fact is no less fatal to any attempt to contract large issues of irredeemable paper—save, perhaps, a bold, statesmanlike attempt, which seizes the best time and presses every advantage, eschewing all juggling devices and sacrificing everything to maintain a sound currency based on standards common to the entire financial world. ”

“ Many then living had felt the result of such an experiment—the issues of paper money under John Law, a man who to this day is acknowledged one of the most ingenious financiers the world has ever known; and there were then sitting in the National Assembly of France many who owed the poverty of their families to those issues of paper. Hardly a man in the country who had not heard those who issued it cursed as the authors of the most frightful catastrophe France had then experienced. ”