First Principles

Oscar B. Johannsen

[Reprinted from The Gargoyle, May, 1957]

Henry George's essay, "First Principles" points out that "for every social wrong there must be a remedy, but the remedy can be nothing less than the abolition of the wrong."

To cure the social disease which leads to embruting poverty and insecurity is to remove the injustice which causes it. "The just distribution of wealth is manifestly the natural distribution of wealth." And that is "That which gives wealth to him who makes it, and secures wealth to him who saves it. ...Nature gives wealth to labor, and to nothing but labor. ...And, no matter how great be the population, or how elaborate the society, no one can have more wealth than he produces, and saves, unless he gets it as a free gift from, some one else, or by appropriating the earnings of some one else.

He warned against the wild schemes of the socialists to redistribute the wealth by merely taking from the industrious, and giving it to the poor, and reducing every one to -the same dead level. Socialistic societies as envisioned by Louis Blanc are only possible when there is "a deep, definite, intense, religious faith, so clear, so burning as utterly to melt away the thought of self."

George felt that while justice was not the highest quality in the moral hierarchy "it is the first. That which is above justice must be based on justice, and include justice, and be reached thru justice. ...Until the eternal justice is perceived, the eternal love must be hidden. As the individual must be just before he can be truly generous, so must human society be based upon justice before it can be based on benevolence."

Though he honored those who gave to charities, he was shocked that there was such a great need for it, and proved that injustice was rampant. To those who feel it is hopeless to struggle he said, that "he who struggles for that recognition of justice which, by securing to each his own, will make it needless to beg for alms from one for another, is doing a greater and higher work than he who builds churches, or endows hospitals, or founds colleges, and libraries.

He makes the very interesting observation that the idea of "God voluntarily descending to the help of men, which is embodied not merely in Christianity, but in other great religions" contains a deeper truth than is recognized. He shows that the deliverers, the liberators, the advancers of humanity are men who were moved by the sight of injustice, tho they themselves did not suffer to any extent. Moses, for example, came from the Court of Pharaoh to lead the Children of Israel out of the House of Bondage.

The deep religious fervour which animated George, is clearly shown in this essay as he indicated that it isn't the wealth, fame or material possessions you accumulate which matters as it is how you have used the talent which the Master has entrusted to you to serve Him.

MONEY SUBSTITUTES

Probably much of the confusion which exists in the minds of the public on money is occasioned by the fact that so much of the actual transference of wealth is accomplished by means of money-substitutes, and superficially, at least, money itself is hardly used.

Now, money is an article of wealth which is commonly used at a particular time and place as a medium of exchange.

A money-substitute may be defined as a claim to money payable upon demand.

Money Certificates

Such a substitute might take the form of a simple receipt stating that a certain quantity of money (usually gold)is on deposit at a particular place and will be paid to the bearer upon presentation of the receipt. Goldsmiths issued such receipts to people who put their gold in the vaults of the goldsmiths for safe keeping. They are usually called money certificates today.

At first whenever an individual wished to purchase something he probably took his receipt (money certificate) to the goldsmith to redeem his gold, with which he then bought the thing he wanted. As it was quite likely the seller would then, in turn, place the gold with the same or another goldsmith for safekeeping, receiving a receipt for it, eventually it must have dawned on these traders that the same result could be accomplished if the buyer merely handed over to the seller the receipt for the gold. The seller could then redeem the gold himself if he wanted it. What was more likely, however, he probably would leave it in the goldsmith's vaults and instead use the receipt for any purchases he wished to make.

It was, therefore, natural that these receipts (money certificates) circulated throughout the town effecting transfers of wealth. No doubt, as confidence in them grew, they were utilized more often than the actual gold itself and were probably only redeemed when the piece of paper became so worn as to be almost illegible.

No one was foolish enough to assume that these receipts were money any more than a person would be foolish enough to assume that a coat-check evidencing the fact that a coat was handing in some hotel's coat-room was a coat. But just as the ownership of the coat could be transferred merely by turning over the coat-check to some other person, so the ownership of the money (gold) was transferred by turning over the receipt.

It must be noted that while the gold was physically idle in the goldsmith's vaults, actually, in effect, it was very much in use. The ownership of the money was changing hands thru the medium of the receipts or money certificates. But it must be emphasized that no one would have taken the receipts if he were not certain he could redeem the receipt fair money. The money (gold) was still the medium of exchange, The money-substitute (the receipt) was merely a convenient means of recording who owned the money. The money substitute, itself, was not the medium of exchange.

The old gold certificates which circulated before 1933 were true money certificates. They stated: "The United States of America will pay, on demand, Ten Dollars in Gold, or whatever other sum was involved. As the dollar was then defined as 25.8 grains of gold, nine-tenths fine, a ten dollar gold certificate meant the government would give you ten times 25.8 grains, or 258 grains of gold .900 fine.

Bills of Exchange (Checks)

Another money substitute which is widely used to this day, particularly in Europe, is the bill of exchange. It developed out of the transfer of goods between towns.

A merchant in Genoa might order some goods of another merchant in Venice. At first money (that is, a specific weight of a metal, as gold) would be sent with the order, and the goods would be received by the next caravan returning.

With the passage of time, however, it probably occurred that a merchant, Mr. A in Genoa might ship goods to Mr. B in Venice, and require goods of some other merchant, Mr. C also in Venice. Mr. A would send along with the goods he sold to Mr. B, a note directing Mr. B to send the money over to Mr. C, who then, in turn would ship the goods to Mr. A. In this way, there was only a transfer of the particular commodities desired between the two towns. The money, itself was transferred between the two merchants in Venice, which was more economical and safer.

The order directing this transfer of money is called a bill of exchange. The maker of the order, Mr. A, directs a second party, Mr. B, to pay money to a third party, Mr. C.

There never was any question that this bill of exchange was merely a written order directing the payment of money. The bill of exchange was not money, and it is hardly likely that anybody considered it money. The money was the actual metal commonly used as the medium of exchange, gold or silver.

The common garden variety check is a bill of exchange. It too has three parties to it, except that the second party is a bank. The drawer, or maker, of a check directs a second person (a Bank) to pay to a third person a certain sum of money. It is a money substitute. No one will accept a check if there is any question of its ability to be redeemed in money.

The check is much more convenient than money in many instances, particularly where large sums are involved. It is, of course, much safer. In addition, by successively endorsing the check it is possible to transfer the ownership of the money in the bank to different people in succession, almost as easily as one transfers money by turning over money, certificates to them.

The fact that today in America, neither checks nor money certificates can be redeemed in gold constitutes is an arbitrary perversion of their function by the action of the government. This problem and the fact that economists talk of checks as "checking account money" will be discussed at some later time. This discussion on "Money Substitutes" will be concluded in next issue of The Gargoyle.