Arizona republican., 1922-05-24
BY Frederic J. Haskin

WASHINGTON, D. c. May 1S-
The Bank Of England has issued in
vitations to the central banking in
stitutionS of the principal nations of
the world TO attend conference, the
purpose of which will be to study
questions relating to paper money
which have arisen as result of the
war. The federal reserve board,
which stands at the head of the
American banking system, has re-
ceived such an invitation and prob
ably will participate. Such con-
ference as this is deemed necessary
at this time because of the tangled
condition into which the paper cur
rency systems of the world have been
thrust by the business abnormalties
of the war and the jost -armistice pc
riod.
Money is an invention, designed
for the conyeniece of mankind just
as the cotton gin or the printing
press are inventions. In fact there is
less actual value to money of any
kind than to a mechanical invention
Metal money. such as gold, silver
and copper, has more real value than
paper money but not much more.
These metals have beauty and
strength but they cannot be eaten
or worn, They are valuable as money
because all people have agreed to
consider them so. They were selected
because of their convenience in hand
ling.
Paper money merely is another step.
A paper dollar has very little actual
value. but the American people have
agreed that they will pretend that it
has a fixed value and SC. it passes
for the equivalent for that amount.
Money of all kinds constitutes a
striking example of what people can
do by agreement. First the people
agree that gold shall have a definite
value. then they agree that a bit or
paper which promises the payment
OF the gold shall have an equal value
and the scheme works. Paper money
in this country is taken in preference
to gold because it is easier to handle
But the scheme works only as con-
fidence exists in the ability of the
central bank, or the government. to
come forward with the actual gold
when ii is demanded And the gold
itself only has value so long as the
nation in which it circulates has
goods which can be purchased with
gold or paper promises to pay gold.
There Is an old legend of man
who starved to death on a mountain
of gold. In terms of gold he was the
richest man in the world, but his
wealth was worthless because there
was nothing to spend it for These
facts must be understood thoroughly
to make possible a comprehension OF
how money systems work In mod
ern times there never has been a
complete absence of food and clothes
as in the case of the man who
starved to death. But in the past
few years there has been an abund-
ance of gold in the United States and
n relative scarcity of things of real
value. The result has been an in
crease in prices. That means the gold
has not been worth so much
The American paper money system
now is working better than any in the
world. The bulk of our paper cur
rency is issued by the Federal Re-
serve Banks and it is based to a
large extent on things of value
rather than on gold. This is a rec
ognition Of the fact that gold after
all. is an artificial value.
What A Paper Bill Represents
The crisp note you get in your pay
envelope may seem to come out of
nowhere at the waving of a magic
wand As matter of fact what you
hold in your hand Is merely a token
for bale of hay. a bale of cotton a
bushel of potatoes or pair of silk
stockings. This is how 1t happens.
John is shoe dealer. He orders
form a shoe manufacturer $4,000
on his note which is secured by the
shoes. Now the bank has made many
similar loans to other dealers. in all
kinds of things. taking notes secured
by the goods themselves 1t finds
itself out OF money. Therefore the
bank gathers up all these notes.
which run from 80 to 80 days, and
takes them to the Federal Reserve
Bank. The Federal Reserve Bank
lends to the local bank and gives it
money in the form of it's own Federal
Reserve notes. A stock of these notes
always is kept on hand. fresh from
bureau of engraving and printing at
Washington which manufactures
paper money just as wall paper or
sandpaper are manufactured.
The local bank now has these
Federal Reserve notes and they are
paid out over its counters in the rou-
tine of the days business. Thus they
get into public circulation.
AS John sells his shoes he curtails
makes payments on his note at his
local bank. The same is being done
by the other dealers. AS the local
bank collects from its borrowers. it
pays back it's loan to the Federal Re-
serve Bank. All the time these Fed
eral Reserve notes have been out
standing the actual security for them
has been Johns stock of shoes and
the other goods of the other dealers
Tn addition the Federal Peserve ia nls