But more serious matters than the making and issuing of money soon claimed the attention of the people of the island. It will be remembered that Friday was first brought to the island by the cannibals, for the purpose of being cooked and eaten, and that he was rescued from this fate by the valor of Robinson Crusoe, as was subsequently also Friday’s father and others of his countrymen. But the cannibals, although then repulsed, did not at the same time lose their appetites, or the remembrance of the good cheer that had escaped them; and meat becoming scarce in their own country, they projected a grand invasion of the island, with the intent of capturing and cooking Friday, if he was still there, or, in default of Friday, any body and every body they might happen to catch. The islanders all at once, therefore, found themselves precipitated into a terrible war, and were obliged to struggle not only for their homes, but for their individual existence.

The Government was active and energetic, but to carry on the war a vast expenditure of commodities was necessary; and as the Government of the island—in common with all other governments—never had, or could have, any commodities or money to buy commodities with, other than what it obtained through loans and taxes, the people, one and all, were called upon to help. There was, however, some fear that if the calls for help were put in the form of taxes, the fires of patriotism might not burn as brightly as was desirable, and it was therefore deemed expedient to say little about taxes at the outset, and rely mainly on loans, to be repaid after the war was over.

The people, on their side, responded most cheerfully. Some gave one thing and some another. Some gave service as soldiers, laborers, and artificers; others contributed timber for canoes, cloth for tents, iron for spear-heads and guns, corn and flour, hay, medicines, and money—in short, all sorts of useful things, the results of previous labor and economy on the part of the individual contributors. In return, the contributors received back from the Government a promise, expressed on paper, to repay the commodities borrowed, or their value in money. These promises were of two kinds. In one the promise was made definite as to the time of its fulfillment, and the amount or value of the promise carried interest. These were called bonds. In the other, the promise, although definite, specified no particular time for making it good, and its amount or value was not subject to interest. These latter, from the circumstance that they were written on blue paper, were popularly termed “bluebacks.” When the people got the bonds, they put them carefully away, for the sake of the interest that would accumulate upon them; but when they got the bluebacks, they were at first at a loss to know what to do with them. They were in some respects unlike any thing they had ever seen before; and yet there was a very close resemblance between them and the certificates of deposits of gold in the public repository, which they had now been in the habit for some time of using as currency. And as the one promised, on the part of the Government, to pay money equally with the other, there seemed to the public to be no good reason why one should not be used as the representative and equivalent of money as readily as the other.

The real difference was, that their former currency, composed of tickets or certificates given in exchange for a deposit of actual gold, represented an actual accumulation of an equivalent of every thing desirable which labor could produce all the world over; while, on the other hand, the promises to pay which the island authorities issued in ex- change for the commodities loaned them by the people, and subsequently used up in fighting the cannibals, represented an actual destruction of almost every thing useful and desirable in place of accumulation. The people, however, did not see this; and by reason of not seeing it they continued to accept and regard the promises to pay, which represented loss and destruction, as the same thing as money, and naturally also as wealth; and as the creation and issue of this sort of money or wealth increased as destruction increased, they finally, one and all, came to the conclusion that the more and faster they destroyed, the richer they should all be; and that, by a happy series of accidents, they had at last solved that great problem which the world had so long been anxious about—namely, “of how to eat your cake and at the same time keep it.” And, as a further illustration of the extent to which this idea acquired a hold upon the public mind, it may be mentioned that some of the most popular books which were published about this time on the island had the following suggestive titles: “A National Debt a National Blessing;” “Don’t Pay as you Go, a sure Way to Get Rich;” “Pulling at your Boot-straps the best Way to Rise in the World,” and the like.

Undoubtedly one great reason which encouraged the people of the island in their delusion was the circumstance that the Government promises to pay, although they had ceased to represent accumulation, or a definite equivalent of any thing in particular, did not thereby cease to be instrumentalities for effecting exchanges; but, on the contrary, continued to constitute great labor-saving machines, performing a work precisely similar in character to that performed by a ship or a locomotive—namely, the removal of obstacles between the producer and consumer. But, in becoming a representative of a debt to be paid in place of representing a means of paying a debt, the new currency lost at once the really most important quality of good money; inasmuch as it ceased to be a common equivalent, or in itself an object of value in exchange, and therefore became incapable of properly discharging the function of a standard, or measure, for estimating the comparative value of other things; resembling, in this deficiency, a ship without a rudder, or a locomotive without a track to run on. The removal of a rudder from a ship, or the taking up the track in front of a locomotive does not impair the capacity of the one for cargo, or the power of the other for pulling. But if it is attempted to use a ship or a locomotive under such circumstances for the purposes for which they were constructed—i.e., as agencies for effecting and facilitating exchanges—the result of their work will be so uncertain and hazardous that the owners of the things to be exchanged would require large insurance against the possible action of the exchanging agencies. And so it was with this blueback currency of the island, which, ceasing to represent or be convertible on demand into a constant quantity of any commodity, ceased to be a constant equivalent or measure of value of any thing.

If the news came one day that the cannibals had been repulsed, a given number of the bluebacks would buy a bushel of wheat. If the news came the next day that the black troops, although they had fought nobly, had been driven back, and that there was some prospect that every body, sooner or later, would be cooked and eaten, then the same number of bluebacks bought only half the quantity of wheat. Consequently, every body, in selling commodities representing expenditure of time and labor, added to the price of the same, in order to insure himself against the fluctuations of the purchasing power of the currency he received; or, in other words, to make sure that what he received should remain, for a greater or less length of time, the equivalent of what he gave. But as no one could tell what the cannibals were likely to do from day to day, and therefore what were to be the fluctuations in the purchasing power of the currency, every body in selling any thing felt that he incurred a risk, in addition to the risks usually attendant upon ordinary buying and selling. And as the data for estimating these risks were just as uncertain as the data for estimating the results of dice-throwing, every body guessed at the amount of insurance needed, or, what is the same thing, bet on the purchasing power of the currency at future periods. An abnormal gambling character, therefore, necessarily became a part of every business transaction, and worked to the great detriment of all that class of people on the islands, who had only labor to sell, which loses its entire value for the time, if not bought at the moment it is offered for sale, and the selling price of which, when once established, can only be changed with difficulty. And as this was a very important matter in the financial history of the island, it is desirable to illustrate it by relating the details of what actually happened:

The people on the island clothed themselves largely in cloth made in foreign countries; and as the island currency was non-exportable, the cloth was paid for by exporting gold, or commodities which could readily be exchanged in other countries for gold. The cloth thus purchased with gold was made up into clothing by the “ready-made” clothing dealers in the cities, and sold in this form for currency, to smaller or retail dealers on a credit of from three to six or nine months. Had the currency involved in this transaction throughout been gold, or certificates representing deposits of gold, the credit price of the ready-made clothing would have been the cash price, with a small amount additional to represent interest on the credit-time, and a possible risk of non-payment; and the seller would never for one moment have taken into consideration the question whether the currency, or representation of money in which he was to be paid, three, six, or nine months afterward, would have the same value or purchasing power that it had on the day the debt was contracted. He might have doubted whether his customer would pay him at all, but he never would as to the quality of that which he was entitled to receive as payment. But as the currency involved in so much of the transaction as occurred after the cloth was made into clothing was neither gold nor any thing which represented gold, nor any other valuable commodity, and therefore, like a ship without a rudder, or a locomotive without a track, was sure to be unreliable as an exchanging instrumentality, the seller knew to a certainty that what he was to receive in payment of his goods, three, six, or nine months afterward, would not have the same value or purchasing power that it had on the day the debt was contracted. It might be greater, it might be less; but the seller never bet on the former contingency, or allowed for it by deducting any thing from the time price of his goods, for to do so would be to discard in anticipation a possible incidental profit. But he always, as a matter of safety, felt obliged to bet on the latter contingency, and then cover the bet by adding correspondingly to the price of every thing he sold on credit. When, by reason of the disturbed condition of things, the purchasing power of the currency fluctuated greatly in brief intervals, the seller on all his time sales bet in favor of great risks, and bet differently every day, and added ten, fifteen, twenty, or even thirty per cent. to his prices over and above the general aggregate representing cost, profit, interest, and ordinary risk, in order to make sure of receiving currency of sufficient purchasing value to enable him to buy back as much gold as he was obliged to give for the cloth originally.

When, on the other hand, the fluctuations in the purchasing power of the currency became limited, the insurance percentage added to price became also limited, and followed a somewhat general rule. Thus, when a clothing-dealer sold goods on three months’ credit, for currency whose purchasing power was so much less than gold that it took one hundred and fifteen of currency to buy one hundred in gold, he added five per cent. to his sale price, or he bet that the depreciation of currency at the end of three months would be indicated by one hundred and twenty for gold; while for a credit longer than three months he bet that the risk of depreciation would be greater, and added, to cover this risk, an average of ten per cent. to his price. If now, at the end of three months, it required one hundred and twenty-five in currency to buy one hundred in gold, the dealer lost five per cent. through the payment of his debt. But if, on the other hand, the fluctuation of the purchasing power of the currency was the other way, and it required at the end of the three months only one hundred and ten of currency to buy a hundred in gold, he made ten per cent. over and above his ordinary and legitimate profit, while an equivalent burden or loss fell on the consumers.1 As the dealers were shrewd, the result of this betting and insurance was rarely loss, and so constantly profit, that some dealers after a while came to regard the obtaining of this species of profit as the main thing for which all business was instituted; while others, more clear-headed and discerning, concluded that the wisest and easiest way to get rich was to bet directly on the varying quantity of currency which it would take from day to day to buy the same quantity of gold, or other valuable commodities, instead of attempting to do the same thing indirectly, through the agency of stores, stocks of goods, clerks, books, credits, and the like. The last, accordingly, wound up their business, and, in the language of the day, “went on to the street,” and made their living by selling on time what they did not possess, and buying on time what they never expected to receive, and reckoning profit or loss according to the difference in prices growing out of the fluctuations of the currency between the day of buying or selling, and the day of receiving or delivering. In short, as with the magic fiddle in the fairy tale, which, when played upon, made every body dance, no matter whether in the brambles or on the plain, so the use on the island of a currency which continually fluctuated in purchasing power, because it was not a constant equivalent of any thing, made every body gamble that could; some because they liked to, and others because they had to, to protect themselves from losses. The masses who could not conveniently gamble tried to protect themselves by asking high prices in return for their services, or by giving less in proportion to what they received;2 but, in the long run, they learned by hard experience that they were not as well off as they expected to be; and that if one effect of an overabundant, non-equivalent-to-any-thing currency was to stimulate production, another and greater effect of it was to unequally distribute the results of production, transferring from those who had little to those who had much, and thus making the rich richer, and the poor poorer.