Note:  For readers not familiar with the concept of our “Melmania” section, this is where your editor can take any subject and develop arguments regarding some ultimate conclusions.  Since some of those conclusions might sound extremely radical, the name of “Melmania” seems appropriate.

One of our true philosophical heroes in the entire illustrious history of the literature of freedom is the American patriot, Thomas Paine. It is said that Paine alone turned the American Colonies against the British Monarchy and toward independence with his masterpiece, “Common Sense”. He then followed up this work with yet another widely-read and treasured volume, “The Rights of Man”.

But Paine wrote widely on a number of subjects, and one of them was gold as money. He was an avid advocate of the principle that money had to have intrinsic value in order to function as money and nothing fulfilled that role as did gold. He also observed that paper was not money, never should be money, and the attempt to make it so would only unleash severe problems on any assembly which tried to make it so.

Here are important quotes, written by Paine in 1787 during the period when the United States was being newly-born as a nation.

“Gold and silver are the emissions of nature: paper is the emission of art. The value of gold and silver is ascertained by the quantity which nature has made in the earth. We cannot make that quantity more or less than it is, and therefore the value being dependent upon the quantity, depends not on man. Man has no share in making gold or silver; all that his labors and ingenuity can accomplish is, to collect it from the mine, refine it for use and give it an impression, or stamp it into coin.

Its being stamped into coin adds considerably to its convenience but nothing to its value. It has then no more value than it had before. Its value is not in the impression but in itself. Take away the impression and still the same value remains. Alter it as you will, or expose it to any misfortune that can happen, still the value is not diminished. It has a capacity to resist the accidents that destroy other things. It has, therefore, all the requisite qualities that money can have, and is a fit material to make money of — and nothing which has not all those properties can be fit for the purpose of money.

Paper, considered as a material whereof to make money, has none of the requisite qualities in it. It is too plentiful, and too easily come at. It can be had anywhere, and for a trifle.

There are two ways in which I shall consider paper.

The only proper use for paper, in the room of money, is to write promissory notes and obligations of payment in specie upon. A piece of paper, thus written and signed, is worth the sum it is given for, if the person who gives it is able to pay it, because in this case, the law will oblige him. But if he is worth nothing, the paper note is worth nothing. The value, therefore, of such a note, is not in the note itself, for that is but paper and promise, but in the man who is obliged to redeem it with gold or silver.

Paper, circulating in this manner, and for this purpose, continually points to the place and person where, and of whom, the money is to be had, and at last finds its home; and, as it were, unlocks its master's chest and pays the bearer.

But when an assembly undertakes to issue paper as money, the whole system of safety and certainty is overturned, and property set afloat. Paper notes given and taken between individuals as a promise of payment is one thing, but paper issued by an assembly as money is another thing. It is like putting an apparition in the place of a man; it vanishes with looking at it, and nothing remains but the air.

Money, when considered as the fruit of many years' industry, as the reward of labor, sweat and toil, as the widow's dowry and children's portion, and as the means of procuring the necessaries and alleviating the afflictions of life, and making old age a scene of rest, has something in it sacred that is not to be sported with, or trusted to the airy bubble of paper currency.”

(Quotes taken from Von Mises Institute website, articles@mises.org  April 24, 2008)

Seldom have we seen the case for specie (gold) put more simply or more forcefully and there is little that we can add. Our only desire is for the monetary authorities in the USA, Canada, Europe and Asia to study such writings and to become aware of the inherent frailty of paper as money.