a few days later, alice, while rolling along one of the elevated streets of the city with ralph, inquired how the present monetary system had been evolved: "you know," she confided, "i know very little of economics."
"well," said ralph, "all monetary systems of the past or present are based on one principle—the exchange of one thing for another. at first it was simply a bartering or swapping of such things as a goat for a pig, or a string of beads for a piece of cloth. only much later did money evolve. before we had coins, certain rare shells were used as tokens. still later, precious metal was exchanged for goods, using the weight of the metal as a basis. later on, coins were developed, and still later on, paper money replaced part of the coins. where the shells, the precious metals, and, later the metal coins, had intrinsic value, the paper money had no such value. the public accepted with faith and confidence a piece of paper across which was printed the guarantee that the bearer of it would receive so many metal dollars in exchange for the piece of paper. the paper money was built upon confidence that the people had in the government issuing the paper money.
"very few people ever thought of going to a bank or to[pg 111] the government's treasury to exchange the paper money for gold or silver coins. instead, they freely circulated this paper money among themselves, and after people became accustomed to it, they accepted the paper money to the practical exclusion of gold and silver. particularly in the former united states did this system reach a high development, more so than in old europe, where paper money was used in conjunction with gold or silver coins.
"in the united states, however, nothing but paper money was eventually used, even to the exclusion of the smallest coins. whereas up to a certain period the dollar bill was the smallest paper money unit used, this was later split into the former coins of fifty cents, twenty-five cents, ten cents, five cents, and one cent. it was found that small paper bills the size of former postage stamps were not very practical when issued in separate pieces, so the printed tape coins, which we have today, came into extensive use.
"the small metal box you carry, and from which you unroll your printed perforated tape, still represents the old paper money. when you, therefore, make a purchase today and you unroll fifty cents in ten cent denominations on your perforated roll, you are using a portion of the old system.
"but the real monetary system is built upon confidence. it could not be otherwise today because we have no more precious metals. when, about 95 years ago, the frenchman p865 + finished the transmutation of all the precious metals, the death-knell of the old monetary system was sounded. everybody could make gold and silver for less than iron used to cost in the old days. consequently, if you had a one hundred dollar bill that said on its face[pg 112] that you could exchange it for one hundred dollars' worth of gold, you could have gone to the treasury and received five twenty dollar gold pieces, which, however, were not worth more, perhaps, than one or two cents. so of what use was the one hundred dollar bill?[6]
"when p865 + made his announcement, it caused neither panic nor confusion. several centuries prior there would have been panic, but the world had been progressing in knowledge, and understood that commerce and economics are stabilized by confidence.
"there is only one thing in this world that has a real value, and that is man's work. you can replace almost everything else with something else, but you can not replace labor. the modern economic structure is, therefore, reared entirely upon man's work.
"when the check came into use, in the 19th century the monetary system underwent a great change. instead of people paying what they owed by means of coins or banknotes, they took to paying each other by means of a written piece of paper—the check. billions upon billions of dollars and cents changed hands, simply by signing a check to some one else, the check clearing through the bank. while one account was credited, another was debited. there was little actual money that changed hands, either between the man who wrote the check and the man who received it, or even between the banks who cleared the checks. in other words, this entire check system was based upon credit. you received a check for one hundred dollars from a man who owed you one hundred dollars. you took this check in good faith because you knew that[pg 113] he must have the one hundred dollars in the bank—otherwise he probably would not make out the check. you sent the check to your bank, which, in turn, collected it from the bank in which your debtor had his account. in all these transactions no real money ever changed hands. it was credit, pure and simple, all the way through.
"so when p865 + demonstrated his synthetic metals, the situation did not change at all. the people appreciated the fact that the government, in one way or another, must be good, and that although the money reserves as figured in metal dollars and cents had become valueless, every one knew that the country was not founded and based upon valueless metals alone. incidentally, no government, the entire world over, could have redeemed in gold or silver coin all of its outstanding obligations.
"therefore, when gold and silver became practically valueless, nothing happened, because actual coins were no longer used, and every one used checks, so that even banknotes had become obsolete.
"but, with the devaluation of the so-called 'precious' metals the governments substituted other values. this was done at first by setting fixed values on property, such as real estate, buildings, manufacturing plants, etc. valuations of these were made several times a year, and whoever owned such properties was given a 'state-value certificate.' a building, valued at $50,000, was appraised by the state three or four times or more, a year, and a certificate was given to you which you took to your bank, the latter immediately crediting you with part of the $50,000. if you wanted to sell your property to a friend for $50,000 or more, you would take his check and then, demand from your bank the return of the original deed,[pg 114] which in turn would be transferred to your friend. in that case your bank would credit you with the $50,000 check of your friend, while he would have the property.
"of course the illustration which i gave is not exactly accurate, for the reason that you could not get from your bank the exact amount of the valuation of whatever realty changed hands. the bank advanced about seventy percent of the appraised value, with certain exceptions. this also was in no wise different from the way our ancestors were accustomed to do, because in the old days such a transaction would simply have been called a mortgage. the important difference, however, later on, was that the valuation was made by the state and such valuation was final. this tended to stabilize real estate and property valuations.
"merchandise, today, is bought and sold the same as it was bought and sold centuries ago, and that is by check. so is everything else, including labor. every workman is, of course, paid by check, which check he can use either in his own bank account or for buying merchandise from his grocer or tailor, getting the difference in a check or otherwise in fractional paper tape coin.
"these government paper tape coins and banknotes—the few that are being used—instead of being covered by gold and silver bullion, are now covered by real estate bonds or other tangible property."
"but," alice asked, "suppose there were a panic, as described in some of the ancient books, and everybody ran to the bank at once to get his money, what would happen?"
"nothing," said ralph. "absolutely nothing. suppose there was a 'panic,' as you call it. in the first place, why[pg 115] should there be one? there is no reason for it and no one nowadays would think of running to the bank and getting his or her 'money.' there is no 'money,' as you call it.
"remember, the banks are all under government control, and if a bank should fail, which no bank has done for the last four hundred years, the government would be obliged to make good the shortage out of its own resources. if everybody ran simultaneously to every bank throughout the country, a bank would simply make out a check for each total balance, and pass out a check for the amount. then the next morning, as the people could not eat their checks for breakfast, they would have to do one of two things: either take the check back to the bank and redeposit it, or exchange the check for commodities.
"that means that within twenty-four hours all the checks would have found their way back to the banks and things would be just exactly where they had left off before the 'run' on the bank. as banks are no longer under the necessity of paying in coin or banknotes, but under the law can pay by check, there is no reason why any one should wish to make a 'run' on the bank, simply to get a check."
"but," alice persisted, "suppose you draw out more than you have to your credit? suppose you write out a check for more than you have in the bank? what happens then?"
"you probably can answer that just as well as i can," replied ralph. "to do so is a prison offense, and again, it would do you no good, because following the first offense you would get a warning from the government, and at the second such offense you would get a still stronger warning, and on the third, you would go to jail, because[pg 116] the first two offenses could perhaps be mistakes, but the third could not. on top of this, your account would be withdrawn from all banks and you would not be able to open another account again for ten years, because all checks as you know, are identified with fingerprints in addition to the signature. the fingerprint experts of the government would prevent you from opening another account in any bank anywhere in the country. so no one abuses his checking privilege and writes out checks when there are no funds to his credit."
a few days later ralph took alice to one of the great industrial artificial cloth works. they flew to pennsylvania, where the great artificial silk, cotton, and wool mills were located. ralph explained that during the 20th century silk had finally been made artificially from wood and chemicals. this was then known as artificial silk. but only during the last century had it been possible to manufacture artificial cotton and artificial wool, synthetically from wood and other chemicals. moreover, they wore better than real cotton and real wool.
in the enormous plant were immense tanks in which the raw materials were first cooked and then treated by chemicals until the fibers issued in fine microscopic streams from nozzles under hydraulic pressure, the threads were then wound on huge reels. from here the hanks were sent to the spinneries and cloth-weaving mills.
of particular interest was the new kind of cloth, which was much fighter than wool or cotton, and, at the same time, cooler in summer and warmer in winter. this material was made from cork, which was first pulverized and then afterwards digested by means of chemicals. under hydraulic pressure, a somewhat thick thread was obtained,[pg 117] which had all the good properties of cork, but none of its poor ones. this cork thread, when woven into cloth, made a texture both light and durable, had a velvety touch to the fingers, and being a poor heat conductor, protected the wearer from heat in the summer and cold in the winter.
a number of combinations were made whereby cork thread and silk thread were spun together, giving an entirely new product, with all the virtues of silk as well as those of cork.
