The Washington times., 1935-01-11

which bear no Lewis Haney
interest, and which merely prom
ise to pay you something some
time" what would you call it?
You would say that this cor
poration was defaulting-that it
was repudiating its debt and
committing fraud upon its
bondholderS.
And what would happen to the
price of its bonds? The market
for them would break immedi-
ately, and the price would fall
to some nominal figure close to 0.
1t is strange, therefore, to
find so many people today who
are thinking about having our
Government do exactly the same
thing that this corporation would
be doing. Many men who are
Shrewd and honest in their own
affairs get mixed up when think
ing about Government. They
wonder if maybe the United
States might not do we'll to de-
fault on its bonds, and to re-
pudiate its debts by issuing ir-
redeemable notes in lieu thereof.
Let us consider the questions
which these usually honest people
ask.
1. "Why pay interest on
Government bonds? Why not
save this expenSe?"
The answer is that Cd the
individual who puts his money
into the bond has had to save
and that CD the Government
gets the use of the individuals
money. The Government has to
pay interest on money it bor-
rows just as a corporation does.
1t can afford to pay interest as
long as it uses the borrowed
money wisely.
Nobody can borrow unless he
is able and willing to pay in
terest. Unless the Government
does so, it cannot induce people
to put their savings into it's
bonds. It's only alternative would
be to force people to pay more
taxes, or to force them to take
its notes" in the form of cur
rency. Such currency would in
evitably decline in purchasing
power (see below.
2. "Why not reduce taxes by
refusing to pay interest on
bOndS?"
The answer is that Government
expenses would be increased more
than the saving" in bond interest.
It's credit would be weakened.
The notes" (greenbacks) would
lose purchasing power, thus rails
ing prices and increasing Gov
ernment expenses.
3. "Why not reduce public
debt by issuing notes instead of
bOndS?"
The answer is this: Cd If the
notes are good and represent real
promises to pay, they are binding
debt, and would not reduce total
debt. CO II they are not good,
and do not represent real promises
to pay, they mean reputation and
utterly destroy the credit of the
nation.
You can't pay off debt by print
ing notes unless the notes are
worth as much as the bonds. If
they are worth that much, they
must be as much the debt of the
Government as the bonds were.
Notes (greenbackS) are not the
same as bonds, and are not as
good as bonds. They pay no in
tereSt. They do not promise to
pay anything but more notes. In
fact, irredeemable Government
notes are nothing but Government
Credit-Government IOU'S.
They represent a forced levy
on the people who have to accept
them. The more notes a govern
ment issues, the more it strains
its credit, and the less security
its notes have.
If tomorrow our Government
were to announce the issue of say
three billions of greenbackS. Gov
ernment bonds would fall at least
20 per cent in a week or two.
And if it were to force its bond
holders to take Misunderstanding
notes in place of bonds. Govern
ment bonds would probably drop
at least so per cent.
You may think they should not
but they would. And that is the
answer.