Wood County reporter. [volume] (Grand Rapids [i.e. Wisconsin Rapids], Wis.) 1857-1923, 1875-11-18
What "Faith" Does For Currency,

Faith and credit are pretty much the
same thing. Faith is a state of mind.
Giving credit to a man is putting faith in
his ability and willingness to keep his
promise to pay. Thus credit fulfills some
OF the functions of currency, inasmuch as
1t delays the demand for a certain part OF
the existing circulating medium, and so
enables that part to pass from hand to
hand and satisfy other debts before it is
needed to satisfy this particular debt. If
Asells B S100worth of goods and requires
payment IN cash, Is must hand over 500
in currency. But If he takes BIS note,
due IN ninety days, the 800. that would
otherwise be paid at once may pass from
Is to G, G to ID, etc, and settle a hundred
accounts before B uses it, or its equiva-
lent, TO pay 4. When credit is so COM
mon and thus serves, in many cases, as
currency, it is not strange that many peo-
pie should confuse the two, just as one
sch DOL of economists confuses credit and
capital, and imagine that permanent
currency may be got by simply using
credit as its basis. 1t is important,
however, to remember that credit
exists simply because it is not permanent.
If BIS note were never to be paid 4 would
never take it. If the United States should
announce that the greenbacks were never
to be redeemed, the precarious credit they
have now would utterly disappear, and
they would be worthless, except for curl
osities. The Confederate graybacks"
became valueless simply because they
Will never be redeemed. The credit they
ask is an eternal one. But eternal credit
cannot exist. Giving credit to man is
believing that he will pay what he promises
to pay. If he declares that he will never
do so, this belief, this credit, of course
yanishes.
1t should never be forgotten that credit
merely postpones the use of money. 1t
does not obviate its use. For this reason
then, credit can never take the place of
money absolutely.
Credit is necessarily limited in time
Permanent credit is an absurdity. For
this reason then a permanent currency
cannot be created out of mere credit.
A note is the sign of credit. 1t is a
promise to pay money. Its passage from
B to A shows that A has faith in BIS
ability to pay it on maturity. There are
two elements in this transaction. one tangi-
BILE, the other intangible. The first is the
note, the second is the state of mind which
induces A to receive it. The latter is the
more important For if it exists, A may
take BIS spoken promise instead of his
written one. But whether the promise is
spoken or written by an individual, or
printed by bank or nation, the state of
mind must exist in order to allow the
promise to fulfill, even for an instant, the
functions Of currency. And this mental
state is wholly dependent upon the sup
posed chance of the ultimate redemption
of the note. Thus, persons who believe
that bit of Government paper, redeema-
BILE, if at all, only in other paper that is
redeemable only in it, can circulate as
permanent currency practically say that
BIS note will buy AS goods, when A
knows that B will never take up the note
save with another, and will never redeem
the second except with the first! This
Te3uctiO 0d absurduna effectually disposes
of the fallacy that credit or faith can
be utilized as the permanent basis of cur
Chicago Tribune.