Financial CatechismCHAPTER I.
Question. What is money ?
Answer. Money is a medium of exchange created by law, by which the value of all commodities produced by labor are represented and exchanged.
Q. If money is created by law, is it money outside of the limits of the government that created it ?
A. Nounless by the agreement of different governments to recognize as money that created and issued by each other, and this can only be done through laws enacted by the several governments entering into such agreement.
Q. Did not the United States Government recognize and use the money of other nations in the earlier period of its history ?
A. It did ; but it required an act of Congress creating a law by which the coins of certain other nations were recognized as money. The Act of April 2, 1792, made the gold and silver coins of European, Mexican, Central American and South American nations legal-tender money of the United States, and set the value upon them by lawthus making money of them. On the 21st of February, 1857, Congress passed an act withdrawing the money property from all foreign coins, and they have not been money in the United States since. The law both makes and unmakes the money.
Q. If the metallic coins of other nations are not money in the United States, what are they ?
A. They are nothing but a commodity, with the stamps of a state or a nation, vouching that they are of a certain weight and fineness, and are received in the market at their commercial value, just as those metals of the same fineness are received without being coined or containing the stamp of any government.
Q. Does the rule apply to all nations, or only to the United States ?
A. To all civilized nations. As soon as the coin passes the limits of the realm that created it, its money property ceases to exist until recoined or stamped according to law by the government to which it has been transferred.
Q. If this is true, is there any such a thing as a money of the world ?
A. There is not. The term money of the world is used for the purpose of mystifying the subject of finance, and deceive those who have not made themselves acquainted with the fact that money can only be created under sanction of law.
Q. If gold and silver are not money until the law makes them such, why do the uncoined metals, as commodities, stand so near on a par in value with the same metals after they are coined and declared the money of a nation ?
A. The fact that these metals have been largely used by the nations of the world for the purpose of coining them into money, creates a demand for them for that purpose, which governs their prices in the market.
Q. If the nations of the earth should cease to use gold and silver as money, what would be the result ?
A. Those metals would then depend upon their own intrinsic value, and stand like other commodities in the market, their price being governed by demand and supply.
Q. What are we to understand by intrinsic value ?
A. It is the property which an article possesses within itself to contribute by its use to the comfort and happiness of man, and the advancement of the civilization of the world.
Q. Does gold and silver possess more of this intrinsic value than other metals ?
A. No ; iron, copper, zinc, tin and lead, all possess greater intrinsic value than gold and silver, because they can be used so much more extensively in the manufacture of implements and material for the use of man.
Q. Why then is gold and silver used for coining money ?
A. History does not run back to the time when it was first so used, but the probability is that it was adopted when man was in a very rude and barbarous condition, and was selected on account of its scarcity, beauty and durability. It is known that in this rude state of civilization there was but little stability in governments, and these metals were used as money, so that in case of war those who held it could remove it to a place of safety and thereby secure themselves from loss.
Q. If this was the object of selecting gold and silver to use as money, did it not endanger the stability of the government by placing it in the power of the citizen to remove the coin from circulation in time of war when it was most needed ?
A. It does ; and the fact is realized by all civilized nations, but in every war through the history of the ages, the same thing has occurred wherever metallic money was used ; the coin has been removed to other countries, buried in the earth, or otherwise secreted so as to not serve the purpose of a circulating medium.
Q. Why has its use been continued in our more advanced state of civilization ?
A. The avarice of mankind had much to do with this. First, it was discovered that the amount being small compared with the needs of commerce for a medium of exchange, it could be concentrated in the hands of a few persons, who, by withdrawing it from circulation, could greatly enhance its purchasing power. Having made this discovery, the next step was to instil it into the minds of the people that these metals possessed a peculiar fitness for money, which could not be found in anything else, and a consequent engrafting in the statutes of the different nations, laws making coins of these metals of a certain weight and fineness, legal-tender money.
Q. By what standards of measurement is the value set upon these metals when used for coin ?
A. By an arbitrary standard fixed by law, declaring that so many grains of a certain fineness shall be worth a dollar, shilling, or a pound. The law thus sets a fictitious value on gold and silver which these metals do not possess for any other purpose. This is fiat value, and every gold or silver coin of any nation on the earth, is a fiat coin to the extent that its legal value exceeds its intrinsic value.
Q. In purchasing a piece of property and paying for it in gold and silver coins, what does the party selling receive for his property ?
A. Gold and silver of course. These are commodities worth, perhaps, one-fourth of their legal values as such ; the other three-fourths is money created by the fiat of the government issuing the coins.
Q. If the value of coins are established by the fiats of the different governments issuing them, may not those values be changed from time to time ?
A. Yes, they can ; and have been for time immemorial, as will be seen by consulting the following table of English money prepared by Sir Frederick Eden, covering a period from 1060 to 1610, in which the value of an ounce of gold was changed by the fiat of that government fifteen times being nearly three times as great in 1060 as it was in 1610 :
|A.D. 1060 Gold per ounce..............
|2£ 18s 1½d|
2 17 5
2 12 5¼
2 11 8
2 6 6
1 18 9
1 11 0
1 7 6¾
1 3 3¾
0 13 11½
0 9 3¾
0 4 7¾
1 0 6¾
1 0 5¾
1 0 8
1 0 0
Q. Has not the advancing civilization, since 1610, settled the value on gold, so that it can be relied upon as a uniform standard of value by which all commodities can be justly measured and exchanged ?
A. No. By examining the following table, taken from Doubledays Financial History of England, page 277, you will discover that the value of an ounce of pure gold at the Bank of England for the ten years running from 1810 to 1820, changed ten times, or once for every year :
|1810 an ounce of gold was worth............
|4£ 5s 0d
4 17 1
5 8 0
5 10 0
5 1 0
4 12 9
3 18 6
4 0 0
4 1 5
4 3 0
3 17 10½
Still later, in 1845, during the Peel Administration, the English Government passed a law making one ounce of gold worth £3 19s. 9d.
Q. Has the United States Government ever changed the weight or relative value of any of its metallic coins since the establishment of its mints ?
A. Yes. The law of April 2, 1792, made the silver dollar to contain 412½ grains of silver, nine-tenths fine, and made it the unit of value and the money of account throughout the United States. The same law made 27 grains of gold, eleven-twelfths fine, equal in value to the silver dollar. The law of June 28, 1834, made 25 8-10 grains of gold, nine-tenths fine, equal to the silver dollar. The weight of the gold was reduced one and 2-10 grains, but the legal value was the same.
The eagle, created by the law of 1834, contains 15½ grains less pure gold than the one created by the law of 1792 ; yet their legal value is the same. The law of 1792, made one pound troy of gold, equal to fifteen pounds of silver.
The law of 1834, made one pound of gold worth sixteen pounds of silver, and they were bought and sold at these relative values until the law of February 12, 1873, when the silver dollar was demonetized.
The silver dollar was not money in the United States from that time until February 28, 1878, when Congress passed a law over the veto of the President, remonetizing the silver dollar, thus reinstating it as money. These dollars now bear the same legal relation to gold, sixteen pounds to one.
Q. If the silver dollar has taken its former place as money, why is it called the ninety-cent dollar ?
A. This law of 1878, providing for its coinage and the restoration to its legal-tender property, did not restore it to free coinage as before. It provides that the government shall buy the bullion on the best terms it can in the market, and coin not less than two million dollars per month. In consequence of the demonetization of silver by this and several of the European nations, the demand for silver bullion declined in the market, until the amount in a dollar would only bring from 86 to 90 cents.
Q. What kind of coins was first issued from the United States mint ?
A. The first coin issued from the United States mint, under the law of 1792, was copper cents and half-cents. Each cent contained 260 grains of pure copper. One hundred of them made a dollar, and contained 26,000 grains. These copper coins were full legal-tender, the same as gold and silver coins, which were issued later.
Q. Have there been any changes in the copper coins since that time ?
A. Yes. The law of February 21, 1857, provides for a one-cent coin, composed of 88 parts copper and 12 parts nickel, to take the place of the pure copper coins. These coins were also made legal-tender, notwithstanding they differed widely in weight, in the metal of which they were composed and in commercial value.
Q. Has the government ever issued any other one-cent coins ?
A. Yes. The law of April 22, 1864, provides for the coinage of a new one-cent and two-cent piece ; the cent to weigh 48 grains, and to be composed of 95 parts copper and 5 parts tin and zinc. These coins were made legal-tender, the one-cent coin to the amount of ten cents, and the two-cent piece to the amount of twenty cents. One hundred of these one-cent coins contain 4,800 grains, while those coined under the law of 1792 contained 26,000 grains, but the law made them of the same value.
Q. What is the commercial value of a pound of metal of which these one and two-cent pieces are composed ?
A. Twenty cents.
Q. How many one-cent pieces can be coined from a pound ?
A. One hundred and sixty, worth one dollar and sixty cents.
Q. How is it that a pound of metal, the commercial value of which is twenty cents, is converted by coining into one dollar and sixty cents of legal-tender value ?
A. It is by the fiat of law. The Congress of the United States has said let it be done, and it is done. In every one hundred of these one-cent pieces there is twenty cents worth of commodity used, upon which to impress the stamp of the government, and one dollar and forty cents in money created by the fiat of law.
Q. Are there any other instances in which the government has exercised this fiat power in coining money ?
A. Yes. The law of March 3, 1865, provides for coining a three-cent piece, and the law of May 16, 1866, provides for the coinage of a five-cent piece. Both of these coins are composed of 75 parts copper and 25 parts nickel. The commercial value of a pound of this metal is seventy cents.
Q. How many five-cent pieces are coined from a pound of this metal ?
A. One hundred, worth five dollars in gold or any other legal-tender money. In one hundred of these coins there is a commodity, valued in commerce at seventy cents, and four dollars and thirty cents of money created by law. Each one of these coins contain 7 6-10 per centum of commodity at its commercial value and 92 4-10 per cent. of value created by fiat of law.
Q. If the government has power to increase the value of these commodities for the purpose of making money of them, may it not with equal propriety select any other material suitable for the purpose, and coin it into money and declare it a legal-tender ?
A. The fact of the government having exercised this power in the foregoing instances is the best of evidence that it possesses such power ; but we are not left to infer how much power is guaranteed to Congress on this subject, for the Constitution expressly declares that it shall have such power.
Q. Are there any other instances in which the government of the United States has by fiat of law increased the value of any of its coins as compared with the commercial value of the metals of which they were composed ?
A. Yes. By the law of 1792, half dollars, quarter dollars and all fractional parts of a dollar, contained its proportional weight of the silver dollar of 412½ grains ; and was legal tender for any amount. The law of 1853 reduced the weight of all the fractional silver coins 7 per cent., and made them legal-tender for five dollars only. Up to five dollars they have an additional fiat value of 7 per cent. above the silver dollar. Above five dollars they are only commercial bullion 7 per cent. light.
Q. Is there any instance in which the government has entirely withdrawn the legal-tender property from any of its coins and still authorized their coinage at the mints ?
A. There is. The coinage act of 1873 authorized a silver coin of the same fineness as the standard dollar of 412½ grains, to be designated as the trade dollar, and to contain 420 grains ; which dollar was made a legal-tender for only five dollars. The law of July 13, 1876, takes away the legal-tender property altogether ; so that, notwithstanding it is a United States coin containing 71 grains of standard silver more than the dollar of 412½ grains, this is a full legal-tender for all sums at its coin value of 100 cents, while the trade dollar is only worth its weight at the price of bullion in the market. The law of 1873 made it money, and fixed the value on it. The law of 1876 robbed it of its money property, and by so doing changed its value. The law both makes and unmakes the money.
Q. Why was the trade dollar demonetized ?
A. It was done at the instance of those who favored a single gold standard, that there might be no metallic money in circulation except the light weight silver coin and the compound minor coins, none of which was full legal-tender.
Q. Why was the half dollar and all the similar silver coins made 7 per cent. light ?
A. It was claimed to be necessary in order to prevent exportation to other countries in case of extraordinary demands for silver. These coins being worth more at home as money, than they would be abroad as bullion, the country would at no time be robbed of the use of them for change.
Q. Why, then, were they deprived of their legal-tender property, and made legal-tender for five dollars only ?
A. It was done in order to compel its circulation among the small dealers and laborers of the country, and protect the bankers and money-dealers from the trouble and loss sustained by handling them in large amounts. It was the first step taken by the American government in adopting the British system of finance.
Q. What loss does coin sustain by abrasion in ordinary circulation ?
A. The loss is estimated at one-half of one per cent. per annum, making a loss of 10 per cent in twenty years.
Q. When it becomes so much worn as to be too light for circulation, how is it renewed ?
A. It is gathered up by bullion brokers at a discount sufficiently large to give them a good margin of profit when they sell it to the government by weight as bullion. It is then recoined and put into circulation again to pass through the same process.
Q. Who bears the loss sustained by the use of these light coins and their constant loss by abrasion ?
A. The small dealers ; the working people ; and the poor, who handle but little money, sustain the loss, on account of being unable to procure enough at one time to return to the mint for recoinage.
Q. Has any other government adopted a similar system of flat and light-weight coins ?
A. England has a single gold standard, but the principal part of her retail trade is with copper coins, and silver coins 6 per cent. light when they come from the mint. These coins the English government, by its fiat, has made full legal-tender in sums of two pounds sterling, about ten dollars-above that amount they are not money at all. The law of 1879 made the subsidiary silver coin of the United States legal-tender for ten dollarsthus adopting the English system.
Q. What is the practical result of the use of this lightweight silver coin in trade ?
A. It is a tax on productive industry of 7 per cent. in the United States, and 6 per cent. in England, when this money first goes into circulation and is of standard weight ; and if used in trade, a steady loss of one-half of 1 per cent. per annum, until it becomes so far worn as to compel its return to the mint for recoinage. The loss of one-half of 1 per cent. for twenty years amounts to 10 per cent., as before stated. This loss by wear, added to the 7 per cent. light weight, makes a tax on the industries of the United States of 17 per cent. for the use of small silver coin for twenty years, and a tag on the industries of England of 16 per cent. for the same period. Now, admitting the estimated standard of loss to be correct, in order to keep the coinage within 10 per cent. of its legal weight, it would have to be recoined once in twenty years.
In one hundred years it would have to be recoined five times. The brokers profit for buying and returning to the mint would not be less than 3 per cent. for each twenty years, which would amount to 15 per cent. This added to the 7 per cent. light weight, and 10 per cent. loss by wear in each twenty years, would make 100 percent. the laborer of America is taxed for the use of subsidiary silver coin, or 1 per cent. per annumwhile the English laborer is taxed 99-100 of 1 per cent. per annum for the same purpose, while in both countries gold, the money of the rich, is subject to no such tax.
Q. What amount of subsidiary silver coin have we in the United States ?
A. A little more than $50,000,000. In addition to the tax of 7 per cent. for light weight, the people pay an annual tax of 5 per cent. on the $50,000,000 of bonds which were sold by the Secretary of the Treasury in order to pay for the bullion which was coined into these subsidiary coins.
Q. Why were these subsidiary coins issued ?
A. It was a part of the plan of specie resumption. We had in circulation $50,000,000 in fractional paper currency, issued by the government, which was more convenient and better than silver ; for when any of the notes became unfit by use for circulation, they could be sent to the Treasury and exchanged for new ones without loss, while the loss on the silver by use is sustained by those who use it. This paper currency, like the United States notes, cost the people comparatively nothing, and therefore must be withdrawn and replaced with coin 7 per cent. light, in order to make a market for $50,000,000 of bonds, at an annual expense to the people of $2,500,000. At the end of twenty years, when these bonds mature, the people will have paid $50,000,000 in interest, added to the $50,000,000 of principal, making in round numbers $100,000,000 for the privilege of using silver coin 7 per cent. light for twenty years ; while the use of the fractional paper currency for the same period would not have cost more than 1 per cent. or $1,000,000.
Q. Are those subsidiary coins redeemable in any other money which is a full legal-tender ?
A. They were not under the law creating them, redeemable in anything ; but the law of June 9, 1879, provides that these coins shall be legal-tender in sums of ten dollars ; that the government shall pay it out at par in sums of twenty dollars ; and that it shall be redeemed in legal-tender notes in sums of twenty dollars and upwards. Since legal-tender notes are as good as gold, it makes the seven per cent. fiat in these coins as good as gold also. This is another demonstration of the fact, that it is the law that makes the money.
Q. Has there ever been any fixed standard of value in Europe between gold and silver bullion ?
A. Yes, for more than one hundred years, before silver was demonetized, England and most of the European nations had set the value of gold and silver as one to fifteen and a half-one pound of gold for fifteen and a half pounds of silver, at which rate it was bought, sold and exchanged. The law in this case, not only set the value upon the money, but upon the metal of which it was coined.
Q. What is the value of the smallest gold coin issued by the English Government ?
A. The half-sovereign, worth in money of the United States standard coin, $2.43¾ cents. All below that is lightweight silver and copper coins.
In the city of London, containing five million inhabitants, and one hundred thousand retail stores, nearly all the money used in the daily retail trade is copper and light-weight silver coin. More than half of this money is copper. Some idea of the extent of this trade may be drawn from the fact that it requires thousands of tons of copper coins to supply it ; and that the copper coins in England amounts to the enormous sum of four million four hundred thousand pounds.
Q. What is the metallic or commercial value of these copper coins in England, compared with their legal value ?
A. About one-fifth. In a pound sterling of these coins, there is 20 per cent. commodity and 80 per cent. money created by law. On account of the demonetization of silver, silver bullion is at a discount of 15 per cent.; this added to the 6 per cent. light-weight, makes the commercial value of the silver coin 21 per cent. less than its legal value, but the fiat of the English Government has added a money value to the silver coins of 21 per cent., and to the copper coins four hundred percent., making them equal with standard gold to the value of two pounds sterling. The same power has issued its fiat, that above two pounds these coins are not money at all.
The English Government, by its fiat, both makes and unmakes money.
Q. What is the relative effect in trade upon the rich and the poor by the use of these light-weight coins which are not full legal-tender ?
A. To draw continually from the substance of the poor, for the benefit of the rich.
Q. How do you make that appear ?
A. The poor are the ones who are compelled to use this kind of money in their business transactions ; their purchases and sales being necessarily small, they must use this kind of money ; and every time one of these coins passes from hand to hand in the retail trade, it levys a tax on labor of 6 per cent. in England, and 7 per cent. in America ; while the rich deal in large amounts, and payments are made in full weight legal-tender money, and therefore use but little of the subsidiary coin,and what they do get, they pay out at par to laborers. Senator Sherman stated very accurately the working of English and American law, providing money for the people of their realms, in his speech in the United States Senate in 1866, when he was advocating the bill providing for $50,000,000 of subsidiary coin, when he said, Gold is the money of the rich,of those who have acquired property, but copper and subsidiary silver is the money of the poor and laboring classes. The merchant who deals in thousands and millions is furnished a money composed of gold, a commodity, the price of which is fixed by fiat of law, and is legal-tender for any amount ; so that he is fully protected from loss. The working man,the great mass of the people, are furnished with a money which is made by law, many times more valuable than the commodity of which it is composed, and demonetized entirely above a certain amount, so as to force its circulation among those who most need the protection of their government, and get the least of it.
Q. What metal is the most extensively used by the different nations of the world as a material for coining into money ?
A. Copper. All nations use it. Some use nothing else. All gold and silver coins are alloyed with it except the gold coins of Persia, which are the only pure gold coins in the world.
Q. If it is in the power of a government to make money a legal-tender without regard to the value of the metal composing it, why is such costly material as gold and silver used for that purpose ?
A. It is done for the purpose of benefiting that class of citizens who deal in money. The scarcity of these metals creates a demand for them for the purpose of coining in all parts of the world, so that, when the demand for them at home is not equal to that abroad, they can be shipped from one country to another as commodities, with a profit like that which has flown from Europe to the United States in 1879-80.
Q. Why should gold and silver have left Europe and come to America at this time ?
A. Short crops in Europe for several years produced a famine, and consequently raised the price of the necessaries of life far above the normal standard compared with gold ; while, on the other hand, the contraction of the volume of the currency in the United States, and a succession of large crops produced here, caused the price of the necessaries of life to be relatively lower in this country when compared with gold. The result was, that those holding gold in Europe, saw that they could largely increase their wealth by shipping their gold to the United States and exchanging it for the cheap provisions to be obtained here, produced by labor at starvation wages, and selling them to the starving people of their own country at a large advance.
Q. What effect will this drain of gold from Europe have on the productive industries of that country ?
A. It will reduce the price of productive labor there in an exact ratio with the reduction in the amount in gold ; the banks will raise the rate of interest, and thereby stop the outflow of gold ; loans will be called in and the currency in circulation contracted, producing great prostration in business, and a period of bankruptcy, until the money dealers become sufficiently gorged by the wreck, when they will lower the rate of interest, increase their loans, and prepare for another harvest to be gathered from human suffering.
Q. Will the same results follow in the United States ?
A. Certainly. The flow of gold from Europe is already becoming slack. Should our crops be short for one or two years, and those of Europe be good, the tide of gold would turn the other way, and we should have another panic ; the price of labor with all its products would be prostrated, and all the people suffer, except those dealing in money, annuitants, and those receiving fixed salaries. This class always thrive on low prices for everything but money. They constitute the law-makers of all nations ; and while the people permit this to be the case, such laws will certainly be the result.
Q. Where do governments obtain the power to coin money and set a value upon it ?
A. Coining money is an act of sovereignty, and belongs to the people. Nations under despotic governments have had the right usurped by their rulers.
The money of those nations is issued by the fiat of the despot, and by arbitrary power. In representative governments this power is delegated by the people to their representatives, either through legal enactments acquiesced in by the people, or specifically stated in a constitution. The Constitution of the United States is very explicit on this point ; it says, Art. 1, Section 8, Congress shall have power to coin money and regulate the value thereof, and of foreign coins, and fix the standard of weights and measures. In adopting the constitution, the people of the United States surrendered this right of sovereignty to their representatives in the two Houses of Congress, so that whatever power the people possessed before the adoption of the constitution, Congress has possessed since its adoption.
Q. Does not the constitution prohibit Congress from making anything but gold and silver a legal-tender in the payment of debts ?
A. No. The constitution, in defining the power of a state, Article 1, Section 10, says :
No state shall enter into any treaty, alliance or confederation ; grant letters of marque and reprisal ; coin money ; emit bills of credit ; make anything but gold and silver coin a tender in the payment of debts ; pass any bill of attainder, expost facto law, or law impairing the obligation of contracts, or grant any title of nobility.
This provision applies to the power of individual states and has nothing to do with the power of Congress.
Q. Did the people of the colonies ever exercise the sovereign power to issue money and make it a legal-tender previous to the adoption of the Constitution ?
A. They did. We learn by consulting Sumners Reminescences of Colonial Times, that the Massachusetts colony was the first to issue money. This occurred in 1690, six years before the Bank of England was established.
Q. Was this money gold, or silver ?
A. It was neither gold nor silver. It was paper money, issued in bills of from five shillings to five pounds, and the issue amounted to seven thousand pounds sterling. These notes were made receivable for all dues to the Colonial Government, and circulated at par with gold for twenty years. In 1703, an additional fifteen thousand pounds was issued and made legal-tender for both public and private debts. One hundred and fifty thousand pounds was issued in 1716, and was loaned to the people of the colony, at five per cent. per annum in specific sums on real estate security, for a term of years. Fifty thousand pounds more was issued in 1720, making in all 222,000 pounds, or $1,110,000. The issue of this money enabled the colony to declare herself clear of debt in 1773.
Q. Did any of the other colonies issue money during their colonial existence ?
A. Yes. Rhode Island issued bills in 1720, which were a legal-tender for all debts. Connecticut issued money from 1709 to 1731. New York issued money first in 1709 ; Pennsylvania, in 1723 ; Maryland, in 1733 ; Delaware, in 1739 ; Virginia, in 1755 ; and South Carolina, in 1703. The first issue of Virginia bore 5 per cent. interest, and was soon locked up by hoarders as a safe investment. Thomas Jefferson says : The next issue was bottomed on a redeeming tax, and bore no interest. These bills, he says : were readily received, and never depreciated a farthing. He further says, that several hundred thousand dollars of this colonial paper money remained in circulation more than twenty years At par with gold, with no other basis or advantages than being receivable for debts and taxes.
Q. How were those colonies governed at the time they issued this money ?
A. They were under the control of the English Government with governors appointed by the crown. Their legislatures were elected by the people. That government had passed no law providing for issuing money by the colonies ; so they asserted their right of sovereignty and provided the necessary legislation themselves.
So long as there was no law of the English Government prohibiting this exercise of sovereignty, the bills issued by these colonies was, to all intents and purposes, the money of the people, and circulated as such, at par with coin.
Q. Did the English Government sanction the acts of the colonies in issuing this money ?
A. No. It took no action whatever in the matter until 1751, forty-eight years after the first bills were issued, when the growing prosperity of the colonies aroused the jealousy of the money lords, and they prevailed on Parliament to pass a law forbidding the issue of any more money by the colonies. Not satisfied with that, in 1763 they procured the passage of a law declaring all acts passed by the colonies providing for the issue of money void. Here is another striking instance, in which the fact is demonstrated, that money is created by law. The law of the colonies made these bills, issued by them, money ; and they performed all the functions if money. The English Government, being superior to the Colonial Governments, declared it was not money, by declaring the legislation of the colonies providing for its issue void ; when it ceased to be money at all.
Notwithstanding its demonetization by Great Britain, it vas received for tax by the Colonial Governments, until it was all retired from circulation without the loss of a dollar.
Q. What effect did this act of Parliament have on the colonies ?
A. It produced wide-spread dissatisfaction among the people, and contributed largely toward the culmination of that feeling which resulted in the Declaration of Independence.
Q. Why did the bankers and money lords of England oppose the issue of money by the colonies ?
A. The success attending the use of this money in developing the weak, struggling and neglected colonies into wealthy and prosperous communities, was educating the people to understand that they could be independent of the usurers of the world ; and hence, must be crushed out, in order to satisfy the greed of the money sharks, who dictated the policy of the British Government, just as the same class now dictate the policy of the American Government.
Q. How did the colonies procure their money after they declared themselves independent, and before the adoption of the constitution ?
A. They fell back on their right of sovereignty and issued what is known in history as continental money ; the consideration or which we reserve for a subsequent chapter.
Q. Are we to understand that previous to the introduction of paper money into use, all metallic money was created by the fiat of law ?
A. Yes. There never was a dollar, a shilling or a penny coined by any nation that was not fiat moneyand any metal coined without the fiat of law, is not money. Money is that which will pay any debt or obligation, public or private, and the refusal to accept which by any creditor, when tendered by a debtor, releases such debtor from further obligation to such creditor. This money must be absolute, and can only be made so by the fiat of the government by which it is issued.
Q. Can you give any instances in which this proposition has been sustained by the decision of the courts ?
A. Yes, and in order to do this, we will quote from the very able work of Judge Warwick Martin, on the fiat money of England, page 143. He says :
Before the invention by England of bank notes, by which one dollar of coin was made to represent twenty dollars of liabilities, and before the people were enslaved by the issue of interest-bearing bonds, governments supported their wars and provided for their newly contracted debts by increasing the fiat or legal-tender value of their coins, or by adding greatly to the copper alloy therein. By these means they added greatly to the amount of coin in circulation.
This was done by a long line of English kings, among whom were Edward III., Henry IV., Henry VII., Henry VIII., and Queen Elizabeth. Each one of these monarchs reduced the quantity of pure metal by making it light weight, or by substituting copper for pure metal, sufficient to increase the quantity of money to meet the demand. These fiats of monarchs did not relate to paper money. Until 1694 no paper money existed. Their fiats related to and changed the metallic money, which was then the only money in use. These fiats always changed the fiats of their predecessors upon the same thrones, the former fineness of the coins having been established by the fiats of former kings.
When Elizabeth greatly changed the fineness of the coins of her realm, increasing the alloy therein, a citizen refused to receive the new coin in payment of a debt contracted before the new coin was made. A suit at law was commenced to collect the debt in old coin. The defendant pleaded a tender of the coin of the Queen to the full amount of the claim. The most learned judges were called upon to hear and try the case. The decision of the court was in favor of the defendant. It sanctioned the money of the Queen and the right of the sovereign to issue such money as she saw proper. The report of the case is very voluminous, and in substance as follows :
That six things or circumstances ought to concur to make lawful money.
First, weight ; second, fineness ; third, impression ; fourth, denomination ; fifth, authority ; sixth, proclamation. For every piece of money ought to have a certain proportion of weight or poise, and a certain proportion of purity or fineness, which is called alloy ; also, every piece ought to have a certain form or impression, which may be knowable and distinguishable ; for as wax is not a seal without the stamp, so metal is not money without an impression, and money is named from monendoinformingbecause by its impression it informs us whose money it is. Whose image is this ? asked Christ. Cæsars. Then render to Cæsar the things that be Caesars. Also, every piece of money ought to have a denomination or valuation for how much it shall be accepted or paid, as for a penny, a groat, or a shilling ; and all this ought to be by the authority or commandment of the Prince, for otherwise the money is not lawful ; and it ought to be published by proclamation, for otherwise the money is not current.
These circumstances appear in the ancient ordinances made by the King for the coinage of money, as well in this kingdom (Ireland) as in England, which are to found in the tower of London and in the castle of Dublin. Also the indentures between the King and the masters of the mint prescribe the proportion of weight, fineness and alloy, the impression or inscription, the name and the value. And the King, by his proclamation, may make any coin lawful money of England, a fortori, he may, by his proclamation only, establish the standard of money coined by his authority within his own dominions. And that the King, by his prerogative, may also put a price or valuation on all coins, appears by a remarkable case in the twenty-first reign of Edward III.
Thus, for hundreds of years, the Kings of England changed either the fineness of the coin or the weight thereof and were sustained in so doing by the common law and the decisions of their highest courts. The fiats of the Kings created and regulated all the money of the country. In the reign of Elizabeth, the sterling money was created by her fiat. It was all silver. A troy pound of silver was coined into twenty shillings, which were a pound sterling. The silver was made 925 parts pure in the 1,000 parts and 75 parts alloy. This fiat has stood as the English standard of fineness of silver from that time until now. But by a subsequent fiat of Parliament, though this fineness was continued, a troy pound of silver was coined into 62 shillings, making more than three times as much money out of the pound of silver as had been made by the former fiat. The pound of silver by this fiat was made to have more than three times the money value which it had under the fiat of the Queen.
The money of the country was then increased by fiat, as the increase was demanded. The value was then given to the money by fiat. This money, however, was just as good as the former, and answered all the purposes of money that the former had done.
This fiat remained in force and unchanged until 1816, when the fiat of Parliament authorized the coinage of 66 shillings out of every troy pound of silver. This reduced the weight of the coin just 6 per cent., though the standard of the fineness of the metal in the coin was the same as before. This fiat of 1816 remains the law of the land, and all silver coins in England are 6 per cent. light and money for only forty shillings.
Forty of these shillings, though light weight, are equal to two pounds sterling or two sovereigns, though over that sum they are not money, but light bullion, at least 21 per cent. discount.
So far as gold money is concerned, the fiat of Parliament, many years ago, made it eleven-twelfths fine, and this fiat has never been changed, and in all probability, it never will be so long as the debt of Great Britain remains payable therein.
In 1694 the Bank of England was established, not upon coin or money of any kind, but upon a loan of one million two hundred thousand pounds sterling, to the government. At this time a public debt was created, and funding was brought into use. Since that time the government has not been so often driven to the necessity of changing the weight and fineness of its coins to increase the volume of public money. The government has never resorted to it excepting in 1816, and then the change was in weight only.
When England needs money now, which she cannot collect by taxes, she borrows it of the Bank of England, or realizes it from the sale of her bonds. The nation is therefore always increasing its debt, and the people are being weighed down with interest, which is worse for them than any kind of fiat money.
In 1816, England demonetized all silver above forty shillings or two pounds sterling. Previous to 1816, silver had been for centuries the only full legal tender fiat money of the nation. All money is fiat. The fiat regulates the value. The value of all bullion and of all coins of gold and silver are now regulated in Great Britain by an English fiat. Let the fiat of England say, let gold no longer be money, and it would at once cease to be money in the Kingdom. It would be as silver now is, over forty shillings, at a heavy discount for silver or whatever the fiat money of the nation might be. If the fiats of all nations were to say, let gold and silver no longer be money, they would both fall in price below copper, as they would have nothing to commend them but their inherent values to supply the wants of man, which are much less than iron, copper, and other metals.
Q. What was the character of the first subsidiary coins of the United States ?
A. The first subsidiary coin of the United States was authorized by an act of Congress on the 26th of February, 1853. Previous to this time, all copper, silver, and gold coins of the United States had been full legal-tender, as well as many gold and silver coins of other nations, the value of which had been fixed by acts of Congress.
Q. Is not all of the subsidiary silver coins of the United States debased coin ?
A. No, it is not debased coin. Under the law of 1837 all the silver coins of the United States contained 90 per cent. silver and 10 per cent. copper. But it is 7 per cent, light weight.
Two half-dollars of this coin contain 28½ grains less under the law of 1853, than our silver dollar of 412½ grains. Each half-dollar contains 192 grains, and two of them weighs 384 grains, but in any sum not exceeding five dollars, the government, by its fiat, has made two of these half-dollars worth as much as the standard silver dollar of 412½ grains.
There was one peculiarity about the law of 1853, which is worthy of notice. It makes those light-weight subsidiary coins a legal-tender to the amount of one hundred dollars when used by the Treasurer in purchasing gold for the mint. With the government it is legal-tender, and equal to gold to the amount of $100. Between individuals, and in payments to the government, it is legal-tender for only $5.
This law and the coinage law of 1873, are both framed in the interest of the rich and against the poor and laboring people. They provide for the rich, full-weight par coins. The poor and laboring classes are compelled to accept 93 cents in standard silver and 7 cents national fiat for a dollar. If the laborer asks the reason why this should be so, he is informed, by organs of political power, that the American laborer must make up his mind henceforth not to be so much better off than the European laborer. He uses light-weight coin, and the American laborer must do likewise. Men must be contented to work for less wages. In this way the workingman will be nearer to that station in life to which it has pleased God to call him. The act of February 21, 1857, is a striking illustration of the power of a national fiat on metallic money. Under the operation of the laws of the United States making foreign coins a legal-tender, large quantities of British sovereigns and half-sovereigns, French 20 franc pieces, Spanish and Mexican doubloons, and the silver coins of Norway, Sweden, Denmark, Germany, Austria, Spain, Mexico, and Central and South America had accumulated in the United States and was performing all the functions of money. This act, by the fiat power of the government, withdrew the legal-tender property from all these coins, and they immediately ceased to be money in the United States.
French fiat money.1. Back in the days of Henry VIII. of England, the King of France greatly reduced the commercial value of the coins of his country by increasing the copper aloy thereof. His right to do so was not only sustained by France, but conceded by Henry VIII. of England, who increased the alloy in all English coins, and justified himself in so doing, because the King of France had done it.
Again, not long previous to 1720, the Royal Bank of France was established. It was a bank of issue. To provide against a future increase of alloy in the coins of the country, and to make the notes of the bank popular with the people, they were made payable in the coins of France, at their then standard fineness, as our 5, 4½, and 4 per cent. bonds were made under the laws of 1870 and 1871, as to our standard fineness of gold and silver coins. But the Royal Bank had not been long in operation until the French government increased the copper alloy in its coins until they were fully one-half copper. The bank protested against this act, but it was of no use. The fiat went forth, and the coins were so alloyed and made lawful money. But the bank continued for some time to pay according to the face of the notes in coin of the fineness created by the former fiat of the government. This greatly added to the credit of the notes, but operated against the new fiat money of the government. The result was that the government compelled the bank to disregard its contract upon the face of the notes, and to pay demands in the newly alloyed coin. This caused people to lose confidence in the bank, and to make such a run upon it as compelled it to do what all banks of issue sometimes do, suspend specie payment.
The notes of the bank was not fiat money. The bank, therefore, went down, but the new coin, being lawful, regular fiat money, remained the standard of payment. The fiat of the French government provides for limited legal tender silver and copper coins. She has about one billion six hundred million dollars of fiat metallic money.
The fiat of the United States government, in 1792, said that gold and silver and copper coins should be coined at the mint then created, and it was done, and by the same fiat they were made lawful money of the United States.
In the whole history of metallic coins, there has never been any issued and declared money by any government, unless it was fiat money. It is the fiat of the nation issuing it that makes it money.
Q. In using the word fiat, what force or power do you apply to it ?
A. The same force and power that is contained in the word law. Both words imply a superior power who issues the fiat or enacts the law. Fiat is a command to do something ; and when issued by a recognized law-making power, it carries with it all the force of the nation whose law-makers issue it. In national affairs, it is the command of the government. In the collection of taxes, it says how much shall be collected, upon what the levy shall be made, and what shall be exempt. In providing money for commerce, it says how much shall be made ; what material shall be used, and what value shall be set on each piece. Every mandatory law on the statute books of any nation, is simply the fiat of the nation placed upon record.