Front Page Titles (by Subject) LESSON IV. One Dollar - The A B C of Finance
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
Also in the Library:
LESSON IV. One Dollar - Simon Newcomb, The A B C of Finance 
The ABC of Finance: or, the Money and Labor Questions Familiarly Explained to Common People in Short and Easy Lessons (New York: Harper and Bros. 1877).
About Liberty Fund:
The text is in the public domain.
Fair use statement:
The first idea to which I allude is, that if anything is called a dollar by act of Congress, if every one passes and accepts it as a dollar, it must therefore have a definite and fixed value, and be for all practical purposes just as good as a gold dollar. You think, perhaps, that a dollar must be worth just one dollar, and neither more nor less; how, then, can its value be uncertain? I answer that two kinds of dollars can differ from each other in value just as much as two loaves of bread can in size and quality. You know very well, for instance, that during the past ten years our paper dollar has been worth from five to thirty per cent. less than the gold dollar. To explain the matter fully, I must perhaps be a little abstruse, and therefore ask a closer attention than I will elsewhere.
When I say that a paper dollar can have no definite and fixed value, I mean that it cannot be insured to buy you any fixed and definite quantity of the necessaries of life. Money has no value at all except for the things it will buy; you can neither eat it, drink it, nor wear it; nor can you even gain interest on it while it remains in your pocket. What you want of it is to buy things to eat, drink, and wear, and the number of these things it will buy, and not the number of dollars, is the measure of its value. You would not give a fig for a pocketful of dollars if you could buy only the half of a fig with them. If this year you had supported your family on five hundred dollars, but next year it should require one thousand dollars because, on the average, prices had doubled, people would say that the value of everything was twice as great as before. But this would be an incorrect use of language. Really the value of your dollars is only half what it was before. Please remember that this is the only sense in which I now use the word "value," and the only sense in which it has a definite practical meaning. Dollars and all other kinds of money are worth what they will buy you to eat and wear; and measuring value by any other standard is like trying to feed a hungry man on acts of Congress.
All the difficulty of this matter arises from the fact that value is something which cannot be seen nor felt. If Congress should enact that all the foot and yard measures of the country should be made of a kind of rubber which would shrink to nine inches in the course of a few months, but which were nevertheless stamped "One foot, by act of Congress," or "One yard," as the case might be, everybody would see at a glance how ridiculous it would be to require every one to buy and sell by such measures. If a man should boast of having grown a foot and a half in the course of a year, because last year he measured only five feet, while with the new india-rubber measures he was now six feet and a half by act of Congress, his neighbors would laugh at him. The fact that everybody might call the new rubber measures one foot, and might buy and sell by them, would not, in the view of any sensible man, make them as long as the old foot-rules.
The reason that these india-rubber measures would look so much more ridiculous than similar dollars is simply that their deficiency in length is obvious to the eye, whereas the depreciation of the dollar is not obvious. In reality, calling a thing one dollar, and legalizing it as such, no more makes it the equivalent of a gold dollar, or of anything else in value, than calling it a foot will make it a foot long, no matter what its real length may be. But we cannot see nor feel the depreciation of the dollar as we would see the shortening of the foot measure. We become aware of it only by the general rise of prices, and the general increase in the cost of living. This rise of prices, however, proves the depreciation in the same way that the little man measuring six feet six in his stockings would prove that the foot-rule with which he was measured was too short.
If, now, the reader will hereafter remember that "dollar" is only a word, not a thing; that calling a thing a dollar does not change its nature, and does not make it worth twenty-three grains of gold, any more than calling a piece of paper a horse, and having it declared and stamped a horse by act of Congress, would make it draw a carriage—if, I say, he will permanently remember this, he will have taken the first great step towards comprehending the financial question.