|
|
From
the archive
A Chinese Tale
Once upon a time a revolution of
lasting import took place in China: the invention of paper and the
simultaneous invention of paper money. Silk products had long been used as
the material on which documents and contracts could be written. The
revolutionary character of paper was to be seen in the fact that it was a
thousand times cheaper than silk, and it could still carry the same message
just as efficiently.
The most potent
message that paper was capable of carrying was the promise of the Imperial
Treasury to pay the bearer a stated sum of silver coins on demand. The
Treasurer, Ding, discovered that he could pay the suppliers of goods and
services to the Celestial Court with such paper promises. People trusted the
Treasury and accepted its promise to pay as equivalent to payment in silver
coin.
Soon afterwards the
Treasury ran out of free silver, as it found that all the silver coins in its
coffers had been mortgaged in the form of outstanding promises. Ding refused
to issue more paper money except in exchange for silver coins paid into the
Treasury. In his view any other course of action would compromise not only
the integrity of the promises of the Treasury but also that of all the
contracts in the Celestial Empire, affecting a value far greater than the
value of paper money in circulation. Contracts made by third parties in good
faith would be rendered impossible of fulfillment
and the standard, or measuring rod, of honest dealings among the populace
would be destroyed. A decline in prosperity would follow in due course, as
the cornerstone of economic well-being is the integrity of promises men live
by.
But the Deputy
Treasurer, Dong, was an ambitious man and he saw that Ding had painted
himself into a comer. Dong threw himself at the feet of the Emperor, pleading
thus: "Sire! Let me issue further promises to pay silver coins against
the cutlery, candelabra, and other silverware of the Celestial Court!"
The Emperor promptly fired Ding, and rewarded Dong for his resourcefulness by
making him Treasurer.
Dong could not
enjoy his newly found glory and power long. Other ambitious men in the Court
took careful note of what happened at the Treasury. They got the ear of the
Emperor in suggesting that even more paper money could be issued against
silver that had not yet been brought out of the imperial mines, as well as
against the silver in the Moon. Because the Moon was considered a province of
the Celestial Empire, and it was thought to consist of silver 95% pure, a
belief confirmed by a recent scientific study released by the Heavenly
Research Council, there was a plausible case for expanding the issue of paper
money. The Emperor fired Dong, and thereafter the change of the guard at the
Treasury became a frequent ritual, each time a more unscrupulous adventurer
succeeding a less unscrupulous one. The promises of the Treasury to pay
silver coins on demand had lost all their remaining value.
In the aftermath of
the depreciation of paper money a Great Cultural Revolution engulfed the
Celestial Empire. People took to the streets, purged the Heavenly Research
Council, and hanged all the past Treasurers on makeshift gallows erected
along the Square of Heavenly Peace, stuffing their mouths with the paper
promises that they had signed
Not worth a Continental
The United States, in its infancy,
attempted the same process by the issuance of Continental currency. This
currency collapsed in the same way as its ancestor in China. Later,
one of the greatest orators of all times, Daniel Webster, denounced
irredeemable paper money on the floor of Congress in 18?2 in these words: "Of
all the contrivances For cheating the laboring
classes of mankind none have been more effectual than that which deludes them
with paper money. Ordinary tyranny oppression, excessive taxation... these
bear lightly on the happiness of the mass of the community compared with
fraudulent currencies and the robberies committed by depreciated paper."
Today we reject the dictum of Daniel Webster, and indulge in the same
national sin which promises to exact, some day, severe penalties for our
belief that we can challenge with impunity such fundamental truths as those
involved in the maintenance of standards of common honesty in the fulfillment of our promises.
The ballot box is not
enough
The principle of redeemability
of the currency asserts that, if a citizen believes that there is too much
money in circulation, he must have the right to do something about it. He
should be allowed to hoard, melt, or export the gold coins in his possession,
thereby redeeming the commodity value of the monetary standard. It also
asserts that the citizen should be allowed to withdraw the gold reserves
which form the basis of the monetary system, to the extent of his holdings of
paper money or bank deposits. When a currency is redeemable in standard gold
coins, any individual disturbed by the behavior of
the government or banks can attempt to protect himself
by presenting for redemption such paper currency as he may command. It is
this power of individuals that holds, or tends to hold, banks and government
in check. Without this power the people, as individuals, are helpless insofar
as control over their banks and government is concerned. The power of the
ballot box provides no protection, after the government has freed itself from
the obligation to redeem its promissory notes, and acquired power to expand
the volume of paper money without fear of adverse public reaction. The way to
government dictatorship has been opened up. Human freedom has been
endangered. The variety of ways in which freedom could be impaired or
destroyed is practically countless as the government takes more and more
power from the people and to itself. Limited government is not possible
unless the principle of redeemability of the
currency is respected.
A nursery of tyranny,
corruption and delusion
In his classic monograph Fiat Money
Inflation in France, the distinguished scholar Andrew D, White, joint
founder and first president of Cornell University, quoted Mirabeau of France
as saying in 1789 that irredeemable currency is "a nursery of tyranny
corruption and delusion: a veritable debauch of authority in delirium."
His contemporaries ignored the admonition, issued the assignats
and the mandats - and history has attested the
accuracy of Mirabeau's prophecy.
The act of inflicting an irredeemable currency
on a people is an act of dishonesty by the government, and the influence of
that dishonesty spreads through an endless number of channels and in an
endless number of forms to the mass of people who are then corrupted in
countless ways. To use White's words: such corruption grows "as
naturally as fungus on a muck heap. It was first felt in business operations,
but soon began to be seen in the legislative body and in journalism." As
to the corruption among legislators, he stated that "there was enough to
cause widespread distrust, cynicism and want of faith in any patriotism or
any virtue. Worse still was the breakdown of morals of the country at large,
resulting from the sudden building up of ostentatious wealth and from the
gambling, speculative spirit, spreading from large towns to small, and to
rural districts. The disgraceful result was the
decay of national good faith." White stated that "there came cheatery in the nation at large and corruption among
officials and persons holding public trusts... Faith in moral considerations,
or even in good impulses. yielded to general
distrust. National honor was thought a fiction
cherished by hypocrites. Patriotism was eaten out by cynicism."
"It ended in the complete financial,
moral and political prostration of France - a prostration from which
only a Napoleon could raise it."
White concluded, in his Fiat Money
Inflation in France, that "every other attempt of the same kind in
human history under whatever circumstances, has reached similar results in
kind if not in degree."
No doubt the authors of the assignat and mandat thought
that they were acting on firmer scientific basis than the Treasurers of the Celestial Empire. Yet, from the perspective of the
20th* century observer, the only breakthrough was the replacement of the
gallows by the more efficient guillotine.
*
(1985)
Antal E. Fekete
September,
2005
|
|
