A stable community requires a stable currency. It follows then that if the value of money is unpredictable, then its utility will be impeached, and civilization itself, given its monetary origins, will be threatened. Let me develop this argument further. If money is the universal standard by which we measure economic value, we intuitively presume it to be what it must be, namely, a constant unit of account. Cash money is not unlike a yardstick (invariably 36"!) and other universal standards of measurement upon which the inhabitants of our ordered city may fairly well rely. Stable expectations (about the future value of cash balances) form the bases of sound money in a civilized community, just as stable expectations about the absence of violence in society undergird a lasting legal order. For we recall that money is a political institution; and if the police and the courts are the regulators of an enduring 1egal order, we should not be surprised to discover that sound money is the constabulary of a stable economic order.
We agree then that money, call it cash, is the most efficient voluntary and universal means by which we can make an immediate demand upon society. If we assume that the actual cash balances of the members of society are equal to their desired cash balances, we know then that one must first offer a supply to the market in order to make a demand. That is, if we will not give up any cash in order to make our economic demands, then we have no alternative but to produce something new in order to consume. And we must always accept money in exchange for what we produce anew. This unconditional style of exchange is what is meant by the obligatory phrase on every currency note: -- "This note is legal tender for all debts, public and private." Now, in a well-ordered and equitable society the incapacity to make a specific demand on society (to consume), without first supplying it with something of equal value (to produce), completely alters human behavior. As one is required to accept cash money, legal tender, for production and labor of a stipulated value, we naturally expect the money we receive to retain a stable value in the future. This is what economists mean when they say of money that it is a store of value: -- The cash balances we save are the means by which we conserve the value of our labor which we choose not to expend on current consumption. Money, therefore, if it is to be anything, must be at least an efficient instrument by which plain people accumulate capital through savings. This process, you will remember, we identified at the beginning of this paper as the fountainhead of civilization.
Since, in our peaceful and ordered city, the stable expectations of our citizens stem largely from the stability of their political institutions, we now can understand why they must be so concerned with the stability of the key financial institution of their political economy, the monetary unit. Men and women carefully save cash balances from the proceeds of their honest labor. Surely they will insist that the future value of their money, itself the necessary condition of their original decision to save, must be directly proportional to the present value of their labor. This relationship must be so, our citizens intuitively sense, because the value of most products, offered in a free and open market, is in the long run proportional to the quantity of labor bestowed upon them before they are offered in the market.
Now, if the factors of production are mobile and the price mechanism is flexible, then the value of a product, or service, must be proportional over the long run to its real costs of production, primarily measured in terms of the sweat of a man's brow. And this sweat, this labor, (along with the anticipation of a modest profit which induced our citizen's effort in the first place) constitutes an objective basis for determining the specific value of money wages. We will not labor and save for money wages; we can almost hear the citizenry murmuring, if the real value of our money savings will not endure. And therein lies the ineluctable connection, the implied convertibility if you will, between a unit of real money, on the one hand, and an article of wealth produced by labor for the market, on the other. In order to assure the retention of its value, irrespective of the power of enemies and tyrants, the monetary unit must itself be convertible into a unit of a real commodity, itself requiring labor to be produced.
Why is that, you say? If in the long run the objective economic value of a product is regulated by its proportionality to its real costs of production (primarily labor), then the value of inconvertible paper money will have no regulator -- because the marginal cost of production of one more unit of a flimsy piece of paper approximates zero! But if the monetary unit must be an unvarying standard, like the yardstick, and it is set equal to a specified weight unit of a scarce and fungible real commodity which men labor to produce, then there will be an enduring relationship, a proportionality, between the value of the labor of men and the objective value of the monetary unit.
In the end, the fundamental relationship, the moral covenant, between laborer and society, (in a civilized community) must be joined by a real money whose value endures. From time immemorial, civilized men have chosen to set the monetary unit equal to a specified weight and quality of, among other real commodities, gold. By establishing a real money, men rule out its debasement. By choosing a monetary institution worthy of the moral covenant between working men and their beneficiaries, men choose to rule out inflation. In the long run, the value of an ounce of gold is proportional to the immense quantity of labor invested to mine and to fabricate it, in order to supply it to those who, since the dawn of civilization, have desired it. It is real, scarce, storable, measurable, immutable, transportable, malleable, and fungible. But above all these things the value of a monetary unit, defined by a weight unit of gold, has a fair and efficient regulator of its value in a civilized community, namely, its real costs of production. If it requires 50 man hours to produce one ton of coal, and 100 man hours to produce one ounce of gold, then approximately two tons of coal will be exchanged for monetary units sufficient to buy one ounce of gold. If in the market this relationship were to change substantially, say men could for a time exchange one ton of coal (50 hours of labor) for the money to buy one ounce of gold (100 hours of labor) – men would cease to labor to mine gold and they would labor enthusiastically to mine coal. They would produce coal for money and purchase the gold they desired, until the increased supply of coal and the increased monetary demand for gold once more reestablished an equilibrium ratio in the underlying value of the two commodities -- a ratio proportional, that is, to the quantity of labor required to produce them.
You see, the real costs of production (primarily labor) must be the underlying regulator of the value of a convertible monetary unit, just as these real costs will be the objective regulator of the value of all other articles of wealth produced for the market. Contrast this to the value of an inconvertible paper currency produced at will, under monopoly conditions, by a sovereign government. Such a currency can have no objective and reliable regulator, since the quantity and value of fiduciary paper money largely depends upon the subjective whims of the government monopoly which produces it. Human nature and history suggest that government money monopolies will, in the long run, overproduce such paper money until its value approximates its marginal cost of production, that is to say, zero. And indeed, it is just such a fall in the purchasing power of inconvertible paper money which characterizes the age of inflation through which we are living. Today, the world is inundated by inconvertible currencies and it should be no surprise to us that we are being carried away by a global inflation.
We know now that the social invention of a stable monetary unit was a midwife of our ordered and urban civilization, itself no more than an improbable contingency in this vast and eternal universe. So also must we know that the contemporary instability of the monetary unit, let us simply call it inflation, will give rise to the disintegration of the precious social order we call Western Civilization. History suggests to us that the sustained fall in the purchasing power of an inconvertible paper money, toward its zero marginal cost of production, generates first social distemper (Italy), then decline (England), and finally entropy (Ancient Rome). There is no inevitability to this devastating inflationary process. But only a bold act of political courage will arrest its frightening momentum. What must Americans do?
To assure the future of a free and ordered Western Civilization we must restore to the world a real money. To restore the spirit of free men and women, willing to labor and to save in money wages, we must restore their belief in the enduring and objective, even the moral, relationship between the value of their labor and the objective value of the monetary standard. If we would inspire once again, in all the heirs of Occidental culture, the incentive to work and to save, that is, the desire to create capital, and therefore to provide for the future of our children and of our children's children, then we must provide for them an enduring monetary unit. If the third century of our great nation is to be what it might be, truly a beneficent American century, we must restore to Western Civilization the hallmark of its birthplace, a sound and stable currency. Indeed, to raise up America, to elevate her people to preeminence once again, confident in a just and enduring reward, to set all her people free from the satanic scourge of inflation, we will have to restore to America a real money, that is to say, a convertible currency.