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 $............