HOW THE PEOPLE ON THE ISLAND CAME TO USE CURRENCY IN THE PLACE
OF MONEY.
As time went on, changes in the method of doing business gradually
occurred on the island. Instead of being an isolated and unknown
community, their existence as an organized, civilized state became
generally known to the rest of the world, and a brisk trade and
commerce resulted from the exchange of the products of the island for
the products of other countries. An excellent harbor existed at each
end of the island, and about these points the population naturally
aggregated, and built up two very considerable towns. The middle of
the island, on the other hand, was elevated into high mountain ranges,
covered with dense forests, in crossing which travelers journeying
between the two cities were often robbed of all the gold they carried
about them. To obviate this danger, and avoid the necessity of carrying
gold, persons living at opposite ends of the island, therefore, adopted
a system of giving written orders for money on each other, which each
reciprocally agreed to pay to the person whose name was written in
the order or draft, and then periodically settled or balanced their
accounts by offsetting one order or payment against another. In this
way value or purchasing power was transmitted long distances much more
cheaply and conveniently than could be effected by the transmission
of gold itself; and also much more safely, inasmuch as the thieves
could make no use of the orders, even if they obtained them. And thus
it was that the people on the island became acquainted with and first
used what were afterward known as "bills of exchange." [14]
This labor-saving and danger-avoiding device, moreover, proved so
useful, that the idea soon suggested itself that by an extension
of the principle involved in the bill of exchange the necessity of
carrying gold at all in any quantity might also be avoided. A public
office was therefore established, where people might deposit their
gold under the guardianship of the state, and receive a ticket or
receipt for the amount, payable in coin on demand; which tickets,
from the fact that every body knew that they were convertible into
gold at will, and that no more tickets were issued than corresponded
to gold actually deposited and retained, soon came to be regarded as
equally good and valid as gold itself, and vastly more convenient
for the purpose of making exchanges. And thus it was that currency
(from the Latin curro, to run) originated and came into use on
the island as a substitute and representative of money. [15] The
name originally given to these receipts was first "bank-credits,"
and then "bank-notes," but after a time people acquired a habit of
designating them as "paper money." But this latter term was conceded to
be but a mere fiction of speech and a bad use of language; for every
intelligent person at once saw that a promise to deliver a commodity,
or an acknowledgment of the receipt of, or a title to, a thing, could
not possibly be the commodity or the thing itself, any more than a
shadow could be the substance, or the picture of a horse a horse,
or the smell of a good dinner the same as the dinner itself.
Nevertheless, as an instrumentality for transferring commodities used
for money, and avoiding the loss and waste unavoidable in handling and
transporting such commodities, the currency thus devised was a great
invention, and being always represented by, or, as we may express it,
covered with, the commodity--gold--which, of all things, fluctuates
least in value, it perfectly answered the purpose of money, without
actually being so. It also furnished another striking illustration of
the superiority of the commodity gold to serve either as money or as
an object of value for deposit, against which receipts or certificates
of deposit might be issued to serve as currency; for if other valuable
commodities, like cattle, corn, cloth, or coal, had been selected for
a like purpose, the bank would have been obliged to erect large pens,
sheds, and warehouses for the storing of the deposits; and, let them
be guarded ever so carefully, their value or purchasing power would,
after a time, rapidly diminish from natural and unavoidable causes.
The value of most commodities, even in a perfect condition, furthermore
differs so much by reasons of mere locality, that there could be no
possible uniformity in the value of the receipt for the deposit of
one and the same article, issued by banks in different places, to
serve as currency; the value or purchasing power of a ton of coal,
or a fat ox, being one thing at the mouth of a coal-mine or on a
prairie stock-farm, and quite a different thing ten, twenty, or a
hundred miles distant. But in the case of gold, the space needed to
store up what represents a vast value is very small, while the value
or purchasing power of gold not only is, but is certain to remain,
on the average, very constant all the world over. [16]