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Chapter 10
How To Make A Bona Fide Medium Of Exchange Acceptable
In order to learn what should be done to make bona fide media of exchange easily acceptable, we should learn how non-bona fide media of exchange became acceptable. How is it that supposedly well-informed people today accept non-bona fide, even inflationary, media of exchange?
Let me explain. When the goldsmith first issued his certificates of credit or written “promises to pay,” those documents were bona fide and were used as bona fide media of exchange. The people who accepted them knew (because some of them had deposited their gold with him) that the documents were evidence of a just claim for gold held by the goldsmith. They knew from past experience that the goldsmith would give to the bearer of those documents the amount of gold specified on those documents.
Later, when the goldsmith wrote and loaned out his “promises to pay” in an amount that was greater than the value of all the gold in his possession, the people also accepted them, even though they were non-bona fide, because the documents had the same appearance, the same writing and the same signature as the previous bona fide documents. The people believed them to be bona fide. That is why they accepted them.
Let me also explain what took place as different series of Federal Reserve notes were introduced. In 1914 when the first Federal Reserve notes were issued, the writing on those notes stated that they would be redeemed with gold. In the beginning the Federal Reserve banks had enough gold to redeem every note they issued. Those notes were bona fide documents; they also were bona fide certificates [p. 81] of credit. Therefore, they were accepted and used as a medium of exchange.
To explain further, let us say that a certain Federal Reserve bank had $10,000,000 worth of gold with which it could redeem the notes it might issue. Therefore, the first $10,000,000 worth of notes that it issued could be redeemed with gold. The next step took place when the government permitted that bank to issue and loan out another $15,000,000 worth of notes without making it increase its gold reserve.
Thus, it was allowed to loan out $2.50 worth of notes for each $1 worth of gold it had in its possession.
However the second group of notes had written on them “Redeemable in gold,” just as it was written on the first notes.
38 As time passed, the Federal Reserve banks were allowed to issue four dollars’ worth of their notes for each one dollar’s worth of gold in their possession. Still later, in 1968, the government gave permission to the Federal Reserve banks to issue and loan out their notes without requiring them to have any gold for the purpose of backing their notes.
The Federal Reserve notes, also, are not redeemable with other goods or services. They are, therefore, non-bona fide media of exchange which are accepted because they were bona fide in the beginning. The changes took place so gradually that most people did not realize that subtle changes were being made. A similar story may be told regarding our silver coins. In 1965, when copper and nickel coins began to replace the silver coins, the new coins were sold to the banks for the same price as the silver coins. The banks also sold them to the public for the same price as the silver coins. The people, therefore, accepted them and used them as if they were equal to silver coins. The silver coins were gradually withdrawn, leaving only the copper and nickel coins in circulation.
Thus we see from the foregoing examples that the people were first given a bona fide medium of exchange. [p. 82] Later they were given a non-bona fide medium of exchange along with the bona fide medium and were told that both were of equal value.
The next step took place when the bona fide medium of exchange was withdrawn, leaving only the non-bona fide medium in circulation. The people accepted the non-bona fide media of exchange because they felt they had no other choice and because the non-bona fide media seemed to work as well as the bona fide media.
(What is wrong with the use of a non-bona fide medium of exchange as long as people accept it? One can buy and sell with it. What is wrong with it?
The answer is that a bona fide medium of exchange is interest-free and it has none of the other harmful effects that come with the use of a non-bona fide medium of exchange. For example, when a bona fide medium of exchange is used, inflation, deflation, international money crises, interest-bearing government debt, and unjust nongovernmental debts can be avoided.
People who borrow their medium of exchange are always in debt. Governments that borrow their medium of exchange are also always in debt, and in addition they are not sovereign; they are dependent on those from whom they borrow.)
People were conditioned to accept the non-bona fide medium of exchange because it was given to them subtly and gradually. The change back to a bona fide medium of exchange should be properly planned and likewise done gradually. The non-bona fide media now in use should be continued in use without any changes while the people learn to issue and use a bona fide medium of exchange.
(If the people are not willing or able to learn how to issue and use bona fide media of exchange, they will continue to use non-bona fide media and experience the above-mentioned problems.)
The bona fide tax credit certificates and certificates of credit should be issued and circulated as equal (even [p. 83] though they are superior) in value to the non-bona fide media in circulation. People will soon learn that the bona fide medium can be obtained without borrowing and without charges for interest payments.
THE MOST ACCEPTABLE CREDIT CERTIFICATES
If and when the United States government would issue enough tax credit certificates to meet its needs there would be sufficient media of exchange for a very large portion of the needs of the people in the United States. A sample of the appropriate form is shown here.
Tax Credit Certificate
10 of 10
No. THE UNITED STATES OF AMERICA Date |
This certificate is receivable, at its face value, for the payment of all customs, fees, fines, and other charges due the United States government. It is redeemable in the payment of taxes due the United States, or in cash at the office of the United States treasury in Washington D. C. |
(Signed by)
Treas. of U.S. | (Signed by)
Sec. of the Treasury |
For
10 TEN DOLLARS 10 |
Note: It is redeemable for the taxes which were levied at the time the certificate was issued. It is receivable as cash for all other charges due the United States. Such a certificate would be a bona fide medium of exchange and would be accepted as cash by everyone.
THE LESS ACCEPTABLE CREDIT CERTIFICATES
The less acceptable credit certificates are those issued by state and local governmental bodies and those issued [p. 84] by private corporations and persons. However, if they are written so that they can be redeemed for cash, then they too will be very acceptable. The following examples will show the forms necessary to accomplish that objective:
10 Tax Credit Certificate 10
No. of Date
THE STATE OF CALIFORNIA |
This certificate is receivable, at its face value, for the payment of all fees, fines, and other charges due the State of California. It is redeemable in the payment of State taxes, or in cash by the State Treasurer. |
| (Signed by)
State Treasurer |
For
10 TEN DOLLARS 10 |
10 Tax Credit Certificate 10
No. of Date
THE COUNTY OF LOS ANGELES |
This certificate is receivable, at its face value, for the payment of all fees, fines, and other charges due to the county of Los Angeles. It is redeemable in the payment of county taxes, or in cash by the county treasurer. |
| |
(Signed by)
County Treasurer |
For
10 TEN DOLLARS 10 |
[p. 85]
10 Certificate of Credit 10
No. of Date
THE BLANK CORPORATION |
| This certificate is redeemable, at its face value, for any of the products, goods, or services being offered for sale by the Blank Corporation, or for cash by its treasurer. |
|
(Signed by)
County Treasurer |
For
10 TEN DOLLARS 10 |
When the above certificates are redeemed for cash by the respective treasurers, the certificates are redeemed for cash at the option of the treasurer as long as goods, services, and unpaid taxes are available for which the certificates were issued as a claim. If the goods or services for which the certificates were issued as a claim were sold for cash before they were bought by the credit certificates, the cash would be on hand for the purpose of redeeming the unused credit certificates. Likewise, if a governmental body had collected all taxes for which the tax credit certificates were issued and still some tax credit certificates were outstanding, those outstanding certificates would have to be redeemed with cash. However, the credit certificates may be redeemed for cash at any time.
Cash and credit certificates should circulate as media of exchange of equal value. The seller of goods or services of the treasurer of a governmental body will not refuse cash just because a person does not have credit certificates. Also, the above certificates are to be accepted by banks for deposits as equal in value to cash. They are to be paid out by the bank, also, as cash. They are to be redeemed for cash only by the issuer.
A credit certificate may also be issued as a combination of credit certificate and bank check. Then such a certificate [p. 86] will be cashed at banks. Of course, the issuer must keep a checking account at a bank for that purpose. One large mail order company issues such a credit certificate as a refund draft. The important writing on it is as follows:
THE MAIL ORDER COMPANY May 1969
PAY TO BEARER EXACTLY $5 |
Within two years after date hereof, this draft may be applied on your next order or cashed at any of our retail or catalog stores, or at any bank. |
PAYABLE THROUGH
The Blank Bank
City, State | (Signed by)
Asst. Treasurer |
Other examples, showing how combination credit certificates and bank checks may be written, are also given here:
10 Tax Certificate of Credit 10
No. of Date
THE STATE OF WISCONSIN
PAY TO THE BEARER TEN DOLLARS ($10) |
This certificate is receivable, at its face value, in the payment of fees, fines, and other charges due the State of Wisconsin. It is redeemable in the payment of state taxes, or it may be cashed at the office of the State Treasurer, or at any bank. |
Payable Through
THE DAIRYMENS BANK
Madison, Wisconsin | (Signed by)
State Treasurer |
For
10 TEN DOLLARS 10 |
[p. 87]
10 Tax Credit Certificate 10
No. of Date
THE CITY OF PORT WASHINGTON
PAY TO THE BEARER TEN DOLLARS ($10) |
This certificate is receivable, at its face value, in the payment of fees, fines, and other charges due the City of Port Washington. It is redeemable in the payment of city taxes, or it may be cashed at the office of the City Treasurer, or at any bank. |
Payable Through
THE FISHERMENS BANK
Port Washington, Wisconsin | (Signed by)
City Treasurer |
For
10 TEN DOLLARS 10 |
10 Certificate of Credit 10
No. of Date
THE BLANK CORPORATION
PAY TO THE BEARER TEN DOLLARS ($10) |
This certificate is receivable, at its face value, for any of the products, goods, or services being offered for sale by the Blank Corporation, or it may be cashed at the office of the Treasurer, or at any bank. |
Payable Through
THE WORKINGMENS BANK
Granville, Wisconsin | (Signed by)
Corporate Treasurer |
For
10 TEN DOLLARS 10 |
[p. 88]
The above combination of credit certificate and bank check would be acceptable by almost everyone.
The idea could be used in order to acquaint people with the practice of using credit certificates. Later the regular credit certificates could be issued and circulated.
However, there may be times when some credit certificates will not be acceptable, especially by people who live some distance from the place where they are issued. A similar situation now exists when personal checks are issued by a person who is away from his home city or when he is not known. The American Express Company saw that problem as an opportunity to render a service for a profit. For a small fee a person can take his personal check and, so to speak, have it changed into an American Express travelers’ check which is acceptable almost everywhere. The American Express Company advertises several times daily on the radio in order to encourage people to use their travelers’ checks. It is, therefore, reasonable to expect that it or a similar company will, for a fee, exchange their own checks for bona fide credit certificates.
PROTECTION AGAINST LOSS
The credit certificates will have an extra advantage because they call be issued and transferred in such manner that the owner of the certificates will not suffer a loss in the event his certificates were lost, destroyed, or stolen.
PROTECTION FOR THE ISSUER
The issuer will have the certificates printed in advance on paper similar to what is now generally used for bank checks. Every certificate will have a serial number on it. When it is used to pay for some goods or services, the issuer will date it and make a record of the certificate number, the value and to whom it was paid. Thus the certificate will have no value and the issuer will suffer no loss if it is lost, destroyed, or stolen before it is paid out and recorded. [p. 89]
PROTECTION FOR THE BEARER
On the back of the certificate in small print should be written the following: This certificate must be redeemed or exchanged for a certificate of equal value within one year of the date of issue. (The period of time could vary.)
The person to whom it is first paid should carefully write his name and the date he received it on the back of the certificate. Every person to whom the certificate is subsequently given should also endorse the certificate with his name and the date on which he received it. Then in the event the certificate is lost, destroyed, or stolen, the owner of the certificate can report the fact to the issuer who can observe, when the certificate is returned, the names of the endorsers and thus have a means of determining how each payee came into possession of the certificate. If a person were suspected of having stolen it, he could be called in and asked to explain how he got possession of it from the previous owner.
If the certificate was reported lost or destroyed, and it was really lost or destroyed, it would never come back to the issuer. After the redemption date arrived and the certificate was not presented for redemption, the issuer could reimburse the owner in a manner that was mutually agreeable. The certificates can be used without any endorsements, but by using endorsements the owners are protected against loss.
Thus we can conclude that once the people learn of all the advantages that come with the use of credit certificates they will find them very acceptable or they will adopt methods to make them acceptable. [p. 90]
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