MONEY AND MAN Money A SI nil Survey of JVfclll Experience By Elgin Gmseclose Fourth Edition, revised and enlarged by the Author UNIVERSITY OF OKLAHOMA PRESS : Norman By Elgin Groseclose THE PERSIAN JOURNEY OF THE REVEREND ASHLEY WISHARD AND HIS SERVANT FATHI (1937) ARARAT (1939, 1974) THE FIREDRAKE (1942) INTRODUCTION TO IRAN (1947) THE CARMELITE (1955) THE SCIMITAR OF SALADIN (1956) THE DECAY OF MONEY (monograph) (1962) SILVER AS MONEY (monograph) (1965) FIFTY YEARS OF MANAGED MONEY: THE STORY OF THE FEDERAL RESERVE (1966) THE SILKEN METAL SILVER: PAST, PRESENT, PROSPECTIVE (monograph) (1975) Fourth edition of a book originally published in 1934 under the title MONEY: The Human Conflict Library of Congress Cataloging in Publication Data Groseclose, Elgin Earl, 1899- Money and man. First ed. published in 1934 under title: Money, the human conflict. Bibliography: p. Includes index. 1. Money—History. 2. Currency question. I. Title. HG231.G7 1976 332.4'9 75-40960 ISBN 0-8061-1338-3 ISBN 0-8061-1339-1 pbk. Copyright 1934 by the University of Oklahoma Press, Publishing Divi- sion of the University. Copyright 1961, 1967 by Elgin Groseclose. Fourth edition, revised, copyright 1976 by Elgin Groseclose. Manufac- tured in the U.S.A. First printing of the new edition, 1976; second printing, 1977. To E. Ellice McDonald, Jr. and Charles A. Mason who understand the moral dimension of the money problem FOREWORD TO THE FOURTH EDITION N 1934, Joseph A. Brandt, then editor of the University of I Oklahoma Press, asked me to write a work that would ex- plain in simple terms the devaluation of the dollar that had just occurred and the events that made this devaluation necessary. It was evident that an explanation of these happenings could not be reached through any of the monetary theories then cur- rent, all of them in eclipse with the collapse of the economic structure following the Great Crash of the stock market in 1929. A deeper examination was necessary, one that went to the nature of man's experience with money. A survey of this experi- ence was indicated. What wisdom did the records offer? The library shelves held an endless array of works devoted to the theories of money; only an insignificant number treated its history. Few went back beyond the times of Adam Smith for either theory or experience. Most textbooks, even today, treat the development of monetary experience as proceeding from barter to money to the institutions of credit. Yet, as the ar- cheological evidence from Mesopotamia makes clear, institu- tions of credit were fully developed before those of money. The work was published in 1935 as Money: The Human Conflict. In the interval the vast currents set in motion by the fiscal policies of the New Deal and the torrents raised by World War II created a new monetary landscape requiring its own geography. These developments led to the republication of the work in 1961 and again, in a revised edition, in 1967, under the present title. This present edition incorporates further revisions by the author in order to take account of more recent happenings. ELGIN GROSECLOSE Washington, D.C. INTRODUCTION: The Meaning of Money* NY discussion, to be fruitful, should proceed from an agree- AL ment upon the meaning of words and concepts. No greater confusion prevails than that surrounding the meaning of money—even among persons who are well qualified to examine the question. If this statement is doubted I would refer you to an article by that distinguished member of the New York Times economic staff, Mr. Edwin L. Dale, in the July 20, 1975, issue entitled, "Money Supply: A Growing Muddle," in which he states the question, "What is money nowadays?" Or one in the Wall Street Journal of August 29, 1975, which comments "The men and women involved in this arcane exercise [of watching the money supply]—brokers, in- vestors, businessmen, economists and Federal Reserve officials —aren't exactly sure what money supply consists of." I would submit that if these experts do not know what money is, no one knows. <«§ §•> This is understandable. About a decade ago certain econo- mists, not content with leaving the matter complex, set about to simplify our understanding of money by the process of frag- menting the word—and thereby made the subject more complex. The error into which they fell, and into which in falling they have carried the economy down into its present morass of con- fusion, is that of dealing with qualities and attributes rather than substance. It is a common error of philosophers. To illustrate in the- * Based on an address by the author to the Conference on "The Role of Money in Prosperity and Depression," arranged by the Committee for Monetary Research and Education, Inc., in cooperation with Clemson and Furman Universities, Atlanta, Georgia, October 2, 1975. Vll Vlll MONEY AND MAN ology, God in the Old Testament revealed himself to Moses as Being—"I am that I am"—Being of infinite attributes, of power and compassion and justice and wisdom.1 An ancient school of Hebrew theologians, however, impressed with God's wisdom began to apotheosize one quality as Divinity—that of Wisdom—until God ceased to be regarded as ultimate Being, and instead as ultimate abstraction. Eventually the philosophers so atomized the concept of Divine Wisdom that it became no longer understandable except by the very learned, and a vast cabalistic literature arose that for a time threatened to suffocate the Jewish faith in a fog of occult theosophy. Fortunately a later and more inspired generation threw out of the Old Testament canon the Wisdom literature, but the heresy continued to plague early Christendom under the theology of Gnosticism and its variants. Present-day Christianity is under the influence of its own heresy—that of deifying the attribute of love to the neglect of God's justice, and half the federal government's revenues are given over to misguided subsidies generated by a so-called com- passionate concern for the welfare of humanity, including the whole world—with over 150 billion dollars spent in the past quarter century in misused foreign aid benevolence. To turn from theology and metaphysics to more tangible aspects of the subject before us, let us note that our treatment of money today is the same as that of offering a hungry man a whiff of hamburger and suggesting that he has been fed. The fragrance is not the substance. The heresy of money, the misunderstanding of its true mean- ing, is that of dealing with one of its attributes rather than with its substance. I refer to purchasing power. With money you can buy things—almost anywhere—almost any time. Not every- where, of course. It may not get you a drink of water in the Sahara; heaven cannot be bought; and there are times when one would give his fortune for another day of life. But in a stable, civilized environment the purchasing power of money is the common denominator of trade and the measure of its appeal. INTRODUCTION IX But other things have purchasing power. A song, a woman's smile, the promises of kings, all have purchasing power of a sort; even the absence of substance, like the absence of two feet of stature that made Tom Thumb rich, has purchasing power. More to our proper subject, in the nineteenth century the grow- ing use of checking accounts led to the realization that these were a form of purchasing power that was not money, but so close to it that except in times of financial panic—as in 1933— a check was as useful as money as purchasing power and usually more convenient. The notion that checking accounts were the same as money was particularly congenial to a school of economists concerned with social control. It was also an attractive idea to politicians who look to government as the Ephesians looked to Artemis— the great, fructifying Earth Mother, cradler of mankind and dispenser of all earthly benefits. The Constitution, it was recalled, gave Congress the power to coin money and regulate the value thereof. It was an easy step to forget the limitation of the words "to coin" and to ex- pand on the words "to regulate." The government, it was advo- cated, had the responsibility to regulate the purchasing power found in bank deposits. In 1913 Congress passed the Federal Reserve Act. This gave to an independent corporation authority over the deposit accounts of member banks. It was an authority of immense latent potential. Gradually its exercise grew wider and wider and with it, its control over the economy, that is to say, the livelihood activities of society. In the early 1960's the kind of purchasing power of which we are speaking became generally known in the trade as Mi, that is, government-issued purchasing power—note that I do not use the term "money"—plus commercial bank demand de- posits, that is, deposits subject to checking or instant with- drawal. Along with this extension of governmental authority over the economy through regulation of purchasing power represented by bank deposits went a changing attitude on the part of managers of the Federal Reserve System as to its functions. No X MONEY AND MAN longer was the Federal Reserve the agency of Congress whereby to regulate the value of the coinage—or even the official pur- chasing power—but it now undertook direct regulation of the economy. The first major use of its leverage came in 1923, when the Federal Reserve began to exercise an authority upon prices— a function that had long been considered that of the free market place.