It recognizes the fact, accepted by all men throughout the world, that value is inherent in the precious metals; that gold and silver are in themselves values, and being such, and being in other respects best adapted to the purpose, are the only proper measures of values; that these values are determined by weight and purity; and that form and impress are simply certificates of value, worthy of absolute reliance only because of the known integrity and good faith of the government which gives them …
Payment of money is delivery by the debtor to the creditor of the amount due. A contract to pay a certain number of dollars in gold or silver coins is, therefore, in legal import, nothing else than an agreement to deliver a certain weight of standard gold, to be ascertained by a count of coins, each of which is certified to contain a definite proportion of that weight. It is not distinguishable, as we think, in principle, from a contract to deliver an equal weight of bullion of equal fineness. It is distinguishable, in circumstance, only by the fact that the sufficiency of the amount to be tendered in payment must be ascertained, in the case of bullion, by assay and the scales; while in the case of coin it may be ascertained by count … the tender must be according to the terms of the contract.U.S. Supreme Court, Bronson v. Podes, 7 Wall 229 at 249, 250, 252.
In the Middle Ages, it was believed that to lend money at interest — then called usury — was unethical. To lend at any rate of interest was unethical. With the development of the science of economics in the 18th century, it was recognized that any transaction (including lending at interest) between consenting adults was ethically valid. If a person agreed to something, then it was probably to his benefit. And if it was not, then what other person or institution could better safeguard his interests than he himself? The liberal economists, therefore, defended interest. Since it occurred between consenting adults, it had to benefit both parties — although they never found the explanation of how.
It remained for the Austrian School of economics in the late 19th and early 20th centuries to answer this question. Every man, they said, has a time preference. Each man prefers to consume his wealth today. Postponing consumption is painful. But the man who makes a loan sacrifices his time preference. He tightens his belt and does without. It is right that he should be compensated for this sacrifice. On the other hand, the man who borrows indulges his time preference. He consumes immediately a value which he will not earn until later. For this indulgence it is right that he should pay an extra amount beyond that which he borrowed.
Interest has turned out to be crucial to the exchange of capital, and its legalization has made possible our industrial civilization. We drive automobiles, read by electric light and jet across the continent in 6 hours because in our society it is legal to charge interest on loans. And yet early in this century a system was established to abolish interest and return us to the Middle Ages. Indeed, in real terms (corrected for the depreciation of the currency) for the past 60 years the yield on safe investments (such as bills of the United States Treasury) has been 0%, and the collection of fools which the public mistakenly calls economists believes that there is nothing wrong with this state of affairs.
This book is both a manifesto and an instruction manual for those people who wish to follow the 19th century American practice of retiring in their old age and living off the interest on their accumulated savings. To use words which will be explained in the course of the book, it is dedicated to the rebirth of the rentier.
This material is made available with the generous permission of Howard Katz (1931-2012).