The A B C of Finance
The Mystery of Money
When, in the early years of the greenbacks, our statesmen saw gold going up in the market, and wished to explain it without supposing a depreciation of the dollar, they coined a word to express their view of the matter, and said gold was "demonetized," and turned into a mere article of traffic, like leather and iron. I allude to this notion because it is based on a very common fallacy which underlies many of our notions about money. This fallacy consists in supposing that by being used as a medium of exchange gold becomes monetized, and thereby is affected with some mysterious power as a measure of value. We see this fallacy in the importance sometimes attached to the question what is and what is not money, the idea being that if a thing is money it is very different from what it would be if it were not money. In fact, however, anything is money which people universally give and take in exchange for their labor or merchandise. Salt, cattle, and iron have been used as such. In our colonial times, tobacco was used for money, and clumsy though it was, it was far better money than the bills of credit the States used to issue with such disastrous effects. Its use as money did not in any way change its nature, its properties, or even its real value. As men advance in civilization they find that these clumsy things will no longer answer, and take to gold and silver. The advantages of the precious metals are: (1) they include a great value in a small space; (2) they are not liable to decay or other damage from keeping; (3) they can be divided up into small and definite portions.
Gold in its crude state, entirely uncoined, was very recently in use as money in some parts of California and Mexico. But the difficulty of being sure of the weight and quality of the metal is a serious evil in such cases; so at a very early stage in civilization governments step in and coin the gold. Coinage, as we have already explained, has no other value than that of a certificate of the quantity and fineness of the gold in the coin.
Thus far there is no mystery. A coin is simply so much gold or silver, which people pass from hand to hand as the Indians used to pass wampum, and the colonists tobacco. The next step is the use of credit paper. In any mercantile community it would soon be found that there was no need of actually counting out the coin for every payment, and that trouble and danger of loss would be avoided by keeping the gold in a bank, and paying over checks or bills entitling the holder to so much gold at the bank. As every owner of a check could go to the bank and get the gold if he wanted it, they are just as valuable as the gold itself. We might thus imagine all the money of a community kept in one bank, and all payments made by checks on the bank. The gold would then lie there in the vaults year after year, disturbed only when some one required it, from time to time, to send away, or to melt into some useful article. The bank would also have to be paid for the expense of keeping the gold and paying the checks. To avoid this, the modern banking system is introduced, by which the bank is allowed to loan part of the gold out at interest for short periods, and thus compensate itself by the interest it receives. It still holds itself responsible to pay every one who wants it his gold on demand; and as long as the confidence of the business community is maintained, it can do this with perfect safety. It may have credits out, payable on demand, to three or four times the amount of gold in its vaults; but, unless an extraordinary number of depositors should rush after their gold at once, all demands can be satisfied. Unless a panic occurs, there is no more danger of this than of every one wearing out his shoes at once, and besieging the shoe-stores on the same day for a new pair. Even then the worst that can happen to the holder of the note is having to wait a few days for his money.
Such is the history of money, in brief. It is simply a commodity like gold, or a paper certificate entitling the holder to a commodity. Seeing these paper certificates pass from hand to hand, with only one man in a hundred going to get the gold to which they entitle him, people of wild ideas are constantly jumping to the conclusion that they need not entitle the holder to anything, and that a stage of progress may be reached in which mere stamped paper will answer the purpose of money. The plans for attaining this end are as numerous and as chimerical as those for attaining perpetual motion. One might with equal reason claim that the human race would reach a state of things in which such gross food as bread and beef would no longer be necessary, and people would live entirely on ideas.
The Evil of a Depreciating Currency
At this stage the reader may ask, What harm if the currency does depreciate? What difference whether it takes two or two dozen paper dollars to buy a pair of shoes, so long as they pass current? To answer this question fully would require me to write a large book. The history of mankind for the last two centuries is full of examples showing that a depreciating currency is the greatest source of injury to the business of a nation, being nothing less than a national calamity. A brief summary of the most obvious evils is all we now have time for.
1. People are constantly bargaining for the sale of their goods or their services in exchange for a certain number of dollars, to be paid them at some future time. Salaried men and laborers engage themselves by the day, the month, or the year. Economical people put money in the savings-bank, to be repaid, perhaps, at the end of many years. All these arrangements are made under the belief that the dollars you are going to receive will buy you, on the average, as many of the means of living as they will now. If you are to be paid in gold dollars, you may be morally certain that your expectations in this respect will be fulfilled, because the experience of mankind in all ages has shown that the purchasing power of gold is never subject to great and rapid fluctuations. But if you are to be paid in paper dollars, no man knows what they will buy. The laborer will find, week after week, that prices rise so fast, his wages will buy less and less for his family. If the policy is once adopted to issue all the paper dollars that may be required by commerce, it is not only possible, but highly probable, that thirty of them would not, twenty years hence, buy a decent meal. See scale of prices in Hayti, for example, where this policy has been adopted. What does the proposed paper money bond amount to? It will say that the United States will pay the bearer one hundred dollars. What does this mean, on the new plan? Simply this:
On demand the United States promises to print and stamp for the bearer one hundred paper dollars, and does hereby guarantee that the said papers shall be called dollars everywhere in this country.
If the United States also guaranteed that these dollars should buy some specified portion of the necessaries of life—forty pounds of flour, or eight pounds of beef, for example—the promise might amount to something. But when all reason and all experience show that the paper dollars will probably lose nearly all power of purchasing, who will agree to take them? Is it right for the Government to adopt a policy which will end in the bitter deception of all its citizens who do not know the difference between gold and paper dollars?
2. The second evil of depreciating paper is, that it necessarily enriches speculators at the expense of the rest of the community. The sharp speculator is no theorist. He knows exactly what the effect of depreciating paper is, and takes advantage of it. He buys goods on credit, and holds them until their prices rise, then sells them, and pays off his debt with a part of the proceeds, pocketing the balance as profits of the operation. Of course great business activity is thus produced. The manufacturer hires operatives at present prices, well knowing that the goods they produce will rise on his hands so as to yield him a handsome profit. The operatives receive their pay in depreciated dollars, and are the real sufferers.
3. The third evil is, that extravagance is fostered. Sudden fortunes are made by speculation, while no one really feels any poorer. The salaried man finds it hard to make both ends meet; but, as he gets his usual income, he must not complain of the high prices. Property of all kinds rising in price, property-holders are at first very much pleased. They do not clearly see that the rise is due to the fact that the dollars by which the value is estimated are worth less than before. They are much in the position of a man who, having a handful of gold dollars, should be furnished with a pair of spectacles which made every dollar look like an eagle, and who, therefore, thinks he has suddenly increased his wealth ten times. If he is a goodhearted man, he spends some of his surplus in giving a feast to all his friends, and this is done by so many that we have almost an era of extravagance. Of course the extravagance has to be bitterly paid for.
4. The fourth evil of depreciating currency is, that it aggravates the very evil which it is designed to prevent, not only by making the rate of interest high, but by making it almost impossible to borrow money on any terms whatever. This may seem paradoxical, but it is a fact well proved by the bitter experience of those unfortunate people who have been attracted by the song of the paper-money siren. There are two reasons for this effect. One is, that, owing to the enormous nominal prices to which all goods mount under a system of depreciated paper money, more money is required to transact the business of the country just in proportion as more is issued. When everything costs twice what it now does, you must take twice as much money in your pocket when you go on a journey or make a purchase; and you would, from this cause alone, find money just as scarce as before. If your wife wants two or three hundred dollars every time she goes shopping, you need a large pile of money. But the principal reason is, that the constant rise in prices stimulates borrowing for the purpose of speculation, as just explained. When a large number of people are anxious to borrow all the money that can be had, and willing to pay a high rate of interest for it, money to borrow must be scarce. When every one is anxious to buy, and wants to borrow all the money he can get to buy with, a competition must send up the rate of interest.
All this is little more than history in brief. If the reader requires further details, he must read the financial history of the French Revolution, of the American colonies, of our own Revolution, and of business and gold speculation during the early years of our civil war. Indeed, I can hardly conceive of a reasonable man reading these histories, and remaining a believer in irredeemable paper money, any more than I can conceive of his wanting to drive across a ricketty bridge after knowing that every heavy vehicle which ever tried to cross it had fallen through and been destroyed. As very few of my readers will have time to consult these histories, I shall try, in a subsequent lesson, to give an idea of what they are. To those who desire to inform themselves farther, I commend such books as Gouge's "Short History of Paper Money and Banking in the United States," Sumner's "History of American Currency," and the financial chapters of Thiers's "History of the French Revolution."
When reason and history unite in showing such serious evils as the result of depreciating currency, and no fruits but such as turn to bitter ashes in the mouth, what shall we say to those ignorant or visionary men who promise a millennium under a paper-money system, telling you that there shall be no more panics and no more scarcity of money?
A Few Facts
It is very common, in discussions of subjects like this, to call for "facts," many people thinking that a single fact is worth bushels of reasoning. Whether this opinion is well or ill founded, there is nothing which the advocates of inflation so carefully conceal as the well-known facts of the history of money. Wendell Phillips, for instance, is credited with saying that specie payments mean specie when you do not want it, and nothing but paper when you do. No better illustration of the wildness with which such men talk can be given than merely putting this statement alongside of facts. These facts are such as no inflationist will have the hardihood to deny, however much he may try to explain them away, and they are worthy of being carefully borne in mind.
First Fact.—For fifty years past there has not been a day when an owner of an English bank-note could not get it paid in gold, nor is it likely that such a day will be seen for five hundred years to come. Nor has there, in all probability, been a business day at the banks when one or more persons, and generally dozens or hundreds of them, did not want gold. Hardly a business day now passes in which the Bank of England does not pay out gold to the amount of tens or even hundreds of thousands of dollars, to people wanting it. Remember this when you read or hear that specie payments cannot be kept up on the limited supply of gold now available. In thus talking as if there were some great difficulty in keeping paper always redeemable, and as if a suspension every twenty years was a matter of course, people bear in mind only the experience of our comparatively weak banks, and do not look at the reason of the thing. In the fact that the Bank of England has never suspended specie payment, or thought of suspending, for a day since 1822, we have an example much more worthy of imitation. Having gone on so successfully for two entire generations, the governors of that institution would now almost as soon think of committing suicide as of suspending.
Second Fact.—Under this policy of constant adherence to specie redemption, the little island of Great Britain has maintained the commercial supremacy of the world. London has become its great monetary centre, and, in spite of her system of land tenure and other institutions which tend to the disadvantage of her poorer classes, the average laborer of England is better off than that of any other country in Europe.
Third Fact.—There is no case recorded in history of a government issuing paper money not redeemable in gold or silver, and in quantities sufficient for commerce, without that paper money depreciating. The cases of such attempts and of their failure are so numerous that a whole volume of history would be required to recount them.
Fourth Fact.—There is now twice as much paper currency per capita of our population as during the six years preceding our civil war. Between 1854 and 1861, the total bank circulation averaged between one hundred and ninety and two hundred millions. Now, including our legal tenders and national bank-notes, it is not far from six hundred millions. Without aiming at any useless refinement in numbers, we may say, in a general way, that we have now 50 per cent. more population, and three times as much paper currency, as between 1854 and 1861. Therefore, it cannot be from any want of currency that we are suffering.
If you tell these facts to an inflationist, he may denounce them vigorously, and complain that you remember them, and say they have nothing to do with present questions; but he will not dare to deny them unless he cares nothing for truth. There is, however, one deception against which you must be on your guard. The Government of England has, on several occasions, when there was a great pressure for money in London, "suspended," temporarily, a certain clause in the banking law which prohibits the Bank of England from issuing notes when its supply of specie falls below a certain limit, and a class of inflationists frequently try to deceive those of their hearers who are not acquainted with financial history by talking as if this were a suspension of specie payment. Really, this suspension is only a permission to issue notes, of which the Bank would not think of availing itself, if there were any serious danger of having to refuse their redemption.
The Lessons of History
To compress anything like a history into a single chapter is, indeed, extremely difficult. Still, there are certain general and universal features in the history of paper money, both in this and other countries, which are too instructive to be neglected. To understand what those features are, we must revert to some ideas set forth in Lesson IV., viz., that the words "dollar," "pound," etc., are mere names of some tangible thing; and that if the things to which those names attach differ from each other, the fact that they are called by the same name does not give them any common value. It is said that in one period of Roman history the Gauls had to pay a certain monthly tribute to the Romans, and that one of the governors of Gaul ordered that the year should be divided into fourteen months, in order that the Gauls should thus be compelled to pay a greater amount of tribute in the course of a year. The meaning of the words in a contract was thus altered after the contract had been made, in order that it might mean something different from what the parties originally intended. This kind of legal fraud is so obvious, and so repulsive to every sentiment of honor in the mind of man, that it can never be practised except when the alteration in the meaning of words is not apparent. The only case in which people can be readily imposed on by such alteration is that of money; and the great feature of the history of money, especially paper money, to which I wish to call attention, is the manner in which words expressing value, such as "dollar," "shilling," "pound," "florin," "mark," etc., were made to express different degrees of real value at different times, in order to meet the supposed exigencies of the hour.
We scarcely know when this kind of fraud began. It is said that the Roman Emperor Elagabalus, being entitled to receive annually from his subjects a certain number of pieces of gold, each of which pieces was called an aureus, cunningly increased the amount of gold in this coin so that they had to pay him more than they bargained for. The history of England in its earlier stages affords many instances in which the cheat was in the opposite direction. It has been no new thing, when a king of England found himself heavily in debt, to diminish the amount of silver in the pound sterling, in order that the debt might be more easily discharged. From the Norman Conquest until the reign of Edward the Third, the pound sterling contained a pound of silver. It has now less than one-third of its original value; that is, a pound silver is now worth more than three pounds sterling. In Scotland the practice was carried still farther. The house of Stuart, in a century and a half, reduced the quantity of silver in the pound to less than one-twentieth of its original amount. This kind of fraud was just as mean as if the kings had owed their subjects a certain number of yards of cloth, and had then by royal decree made a yard measure shorter, in order that they might more easily discharge their debts.
In the times which we have described, paper money was almost unknown. A few centuries ago it was gradually discovered by bankers that a bill of credit in any form whatever, entitling the holder to a certain amount of gold in a bank, would pass from hand to hand as money just as readily as the coin itself. As this sort of currency had some advantages over gold, and could be made profitable to the bankers, the paper-money system of the present time was gradually introduced into nearly all civilized countries. Then arose the delusion, the exposure of which is one of the objects of these lessons, viz., that because these pieces of paper passed from hand to hand without being immediately returned to the bank for the gold to which they entitled the bearer, it was not necessary that they should entitle the bearer to anything. It was thought that if the Government would only declare these papers to be themselves pounds, florins, dollars, marks, piastres, etc., they would be just as valuable, and would take the place of these several coins. A regard for common-sense and honesty has, however, prevented this policy from being carried out except under two conditions. One of these conditions is that of such gross ignorance of political economy on the part of the public that they think there must be some real connection between the value of these pieces of paper and that of the coins called by the same name. The other condition is that of the Government failing to collect sufficient revenue to meet its expenses, and thus being driven to pay these expenses by issuing paper money to its creditors. A Government having the power to make its issues a legal tender can get along for a while without revenue by paying its expenses in this kind of money; and if the Government is a weak one, engaged in war, the temptation to this policy is especially strong.
Among our earliest colonists, the first of these conditions was completely fulfilled. To say that they knew nothing of political economy is not a reproach to them, because such a science did not then exist. The delusion that value depended in some way upon the stamp or word of the Government, and not on the desire of men to possess useful things, had a strong hold on the minds of men everywhere. There was so little specie in the colonies that a resort to some substitute seemed an absolute necessity; and the most convenient substitute of all was the issue of bills of credit by the several colonial governments, because these bills cost the governments nothing but the expense of printing, and could be used to pay out to the public creditors. Ingenious as are the projects now afloat for the issue of paper money, I do not believe there is one which you will not find to have been tried during those times, and to have proved a total failure. The amount of money afloat was increased and diminished without any regard to the wants of commerce, and thus the most disastrous fluctuations in its value were produced; so that no one who had to pay a debt of five pounds could say, two or three years in advance, what the value of the pounds would be at that time. Our colonists tried notes with interest, and notes without interest; notes issued to pay their expenses, and notes issued as a loan on security; but the result was always the same. The more they were issued, the more they were depreciated, the measure of this depreciation being the rise in the price of silver. As they depreciated, they drove what little silver currency there was from the colonies, and it did not return until the notes were withdrawn.
The most well known of these paper money systems was that of the Continental Congress, known as "Continental money." The first issue of these notes, to the amount of six millions, was made in 1775. They were, perhaps, the nearest approach on record to the ideal paper money for which our greenback friends are now wishing. They were, in fact, simple certificates that the bearer thereof was entitled to a certain number of Spanish milled dollars, without any statement as to when or how he was ever going to get these dollars. They bore no interest; they were not convertible into coin or any kind of bonds; they were not secured by anything at all. The only point in which they failed to conform to the ideal greenback of the future was, that instead of being declared "dollars" pure and simple, the words "Spanish milled dollars" were used. After the issue exceeded a certain limit, the inevitable process of depreciation commenced. It continued slowly, but regularly, throughout the whole Revolutionary War. Every fall in the value of the paper necessitated larger and larger issues, until, finally, two hundred millions of it were in circulation, and all hope of redemption vanished. It might have been supposed that when the war closed, and the power which issued it became a recognized independent nation, its value would increase; but such was not the case. Instead of increasing, it became so completely worthless that it no longer served the purpose even of money, but had to be completely thrown aside, and replaced by silver coin and issues based upon coin.
The worst feature of this issue was not, however, its depreciation, nor its final disappearance from commerce; but the premium which it offered to speculators who foresaw what was coming. Keen-sighted men, knowing the result of this continual issue of paper money, saw very well that the prices of all commodities, especially those which were necessary to carry on military operations, would inevitably rise. Accordingly, it became good policy for these men to invest all the money they could earn or borrow in food and clothing, and to hold on to this food and clothing until the price should rise. For instance, suppose that flour was now ten dollars a barrel. A man borrows a thousand dollars from his patriotic neighbor, and with it buys a hundred barrels of flour. He keeps this flour a year, and the price having doubled in the mean while, or, to speak more exactly, the dollars he has to pay being only worth half as much as they were when he borrowed them, he can sell out half of his flour for money enough to pay his whole debt, and can keep the other half as a clear profit on the operation. We had an expedience very similar to this in the earlier years of our Civil War, when gold speculators, foreseeing the depreciation of the Government currency, made their fortunes by buying gold on time. Returning to the Revolutionary period, many of my readers may remember the complaint of Washington of the great injury done the country by the "forestallers," as these speculators were called, and his wish that they could all be hanged. Such complaints were very natural, but they were simply complaints of what, taking human nature as it is, were the inevitable results of the financial policy pursued by the Government.
When the Constitution of the United States was framed, the members of the Convention met together with the experience of more than a century of paper money weighing upon their minds. They saw innumerable evils without any good to counterbalance them. Every argument for the alluring cause of the evil had been refuted by the bitter test of experience. They thought that one of the greatest boons they could bestow upon their posterity would be that of making this crying source of national evil impossible. Accordingly, they introduced a provision absolutely prohibiting the States from ever issuing bills of credit. As no power to issue such bills was given to the United States, they no doubt supposed that in doing this they had forever relieved the country from the greatest source of financial trouble with which it had ever been afflicted. This provision of the Constitution was deemed so important by Judge Story that we shall quote his words, and those of the Federalist, to show the views of the subject taken by those who spoke more directly from experience than we do:
"The prohibition to emit bills of credit cannot, perhaps, be more forcibly vindicated than by quoting the glowing language of the Federalist, a language justified by that of almost every contemporary writer, and attested in its truth by facts from which the mind almost involuntarily turns away at once with disgust and indignation. 'This prohibition,' says the Federalist, 'must give pleasure to every citizen in proportion to his love of justice and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government, constitutes an enormous debt against the States chargeable with this unadvised measure which must long remain unsatisfied, or, rather, an accumulation of guilt which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice of the power which has been the instrument of it.'
"It was the object of the prohibition to cut up the whole mischief by the roots, because it had been deeply felt throughout all the States, and had deeply affected the prosperity of all."
So great a reform as the prohibition of irredeemable paper could not, however, be inaugurated all at once, any more than a country could become civilized in a single generation. The evil which it was sought to blot out forever has always reappeared from time to time, in a milder form, it is true, but one which is still an evil, namely, over-issues of bank-notes.
The story of our bank-notes is very much of the same general nature with that of our colonial money, only not so bad. In times when business is brisk, when everybody is happy, and when speculation is rife, the banks would issue paper, and discount the notes of merchants to an unusual extent. What little specie there was in the country would then, in great part, leave it; and after a while the inevitable crash would come. The banks would be compelled at the same time to suspend specie payments, and to contract their issues. Speculators would be unable to meet their engagements, and a general fall of prices would result, accompanied with great distress among the laboring classes. The most notable case of this, a case which every one of my readers either remembers or has heard of, is that of the great crash of 1837. We are just finishing up a similar experience at the present time. The enormous issue of paper money by our Government and our national banks during the Civil War is now followed by precisely the same consequences which have followed every previous issue recorded in history.
In our own case, it is remarkable that the depression and crash have come before the withdrawal of the paper money. We have still in circulation nearly all the greenbacks and all the national-bank notes ever authorized; and yet the general distress and depression of business could not have been greater if they had all been absolutely withdrawn from circulation, and people had been left to get a new currency as best they could.
The French, during the earlier years of their Revolution, had an experience not dissimilar to our own. The national expenses were so much in excess of the revenues of that nation, that it was determined to issue bills of credit known as assignats. These bills bore a greater resemblance to some of our earlier legal-tender notes than any other system of paper money with which I am acquainted. Not only were they a legal tender, but they were declared to be redeemable in land; each note bearing a certain daily interest, and entitling the holder to confiscated lots equal in value to the face of the note, just as our early notes entitled the holders to certain United States bonds. At first the new scheme worked well, as such schemes always do. The people were delighted to be freed from the visits of the tax-gatherer. The assignats paid off the public creditors, purchased army supplies, and kept the Government going. They furnished the people with money, the great national want. Very soon, however, the other side of the picture began to be seen. All the necessaries of life gradually rose in price. There was an almost total stoppage of productive industry, everybody trying to make money in any other way than by regular work. The Convention, backed by the mob and by the guillotine, vainly endeavored to fix a maximum of prices. Bakers who refused to sell their loaves at the old prices had their heads cut off and carried through the streets on poles by the mob; but the only result was to make bread still more scarce by frightening the bakers from their work.
So great did the evil become, that in the year 1796, in the very midst of the first Italian campaign, when the twenty years' struggle of France with the other European powers was but just fairly begun, the paper money had to be entirely withdrawn and its place filled by coin. If our theories of the necessity of paper money are correct, this downfall of the circulating medium must have been disastrous in the extreme. But so far was this from being the case, that productive industry rapidly recovered from the depression of the paper money. Men raised grain and made bread in the full confidence that no mob would punish them for their pains by compelling them to part with it for worthless rags. The war was continued nineteen years without any attempt to issue more paper money; and in the only instance since that time in which irredeemable bills have been allowed to circulate in France, their amount was carefully limited so as to be insufficient for the purposes of currency, and thus necessitate the circulation of more or less specie.
The Public Faith
"More greenbacks," "The dollar of our fathers," and" The repeal of the Resumption Act," are, at the present time, three loud cries, which we hear on all sides. What is meant by the second cry, however, is not really the dollar of our fathers, but a certain silver dollar which for forty years has been unknown in commerce. The advocates of this dollar claim that the repeal of the law making it a legal tender in the year 1873 was a great wrong. In making this claim, they tacitly assume that the dollar was in use previous to that time, and that by thus demonetizing it a portion of the money power of the country was withdrawn. In fact, however, for the last two generations the gold dollar has been cheaper than the silver one; so that the latter was not really in use at all. The act complained of was nothing more than the acceptance of a fixed fact, the fact that the silver dollar had gone out of use. Not one word of this cry would ever have been heard had it not been for the recent immense fall in the price of silver. The very fact that the dollar has been unknown in commerce for more than forty years is itself one of the strongest possible reasons against reviving it. Another strong reason is, that to revive it would be simply taking the cast-off money of Germany to use ourselves. But the strongest reason of all is found in the fact that gold is immensely better, and more convenient material for making money in large sums, than silver is. Of course, for all small payments silver has been used, and will continue to be used; but when we come to payments involving thousands of dollars, the silver is entirely too cumbrous to be conveniently handled, and is, besides, less durable than gold. The superiority of gold is so obvious that the only real reason for favoring the silver dollar is, firstly, that it is now the cheapest one; and, secondly, that its introduction would tend to make specie payments more difficult. In the second reason, the whole question which we are considering is involved. We shall therefore not consider it at present. Respecting the first, we shall only say that a cheap dollar merely means a dollar which will not buy you so much food and clothing. When the men who live by wages once fully understand that this is the reason why the silver dollar is recommended to them rather than the gold one, very little further argument will be necessary.
The issue of greenbacks, and cheap money generally, is frequently supported on the ground that we shall thus have an instrument with which to discharge debts, and that the more plentiful this instrument, the more readily will the debts be discharged. Those who think thus seem to think paying a debt is a mere matter of form which a person has to go through, and there is an end to it. If we look at it a little closer, we shall see that the payment of a debt is the fulfilment of a contract in which we are to be guided, not by any mere form, but by the intent and meaning of the contract itself. The fact that one person may have made a bad bargain, and may suffer by having to fulfil it, is no reason whatever for annulling it. Now, to issue more greenbacks and new kinds of dollars, in order to enable debtors more easily to fulfil their promises to pay money to their creditors, would be as complete a fraud as it would to take a lot of cornmeal, pass a law calling it first-class family flour, and pass it off on the consumer in fulfilment of a contract to sell him the latter sort of flour. Every contract to pay money made during the last eight years has been made with the legal understanding that it might have to be paid in gold or its equivalent.
In 1869, the Congress of the United States passed a solemn act pledging the faith of the Government to provide for the payment of its notes in coin. As many of my readers may not have seen this law, I will here quote the provisions bearing on legal-tender notes from the Revised Statutes of the United States:
"The faith of the United States is solemnly pledged to the payment, in coin or its equivalent, of all the obligations of the United States not bearing interest known as United States notes. *** The faith of the United States is also solemnly pledged to make provisions at the earliest practicable period for the redemption of the United States notes in coin."—Revised Statutes of the United States, p. 735.
In pursuance of this solemn pledge, Congress, in January, 1875, provided for resuming specie payments on January 1st, 1879. I think I have sufficiently shown that the highest interest of the country in all its departments demands this policy. But, interest aside, the solemn faith of the Government is pledged to it, and the law cannot be repealed without a most gross breach of that faith against which no amount of merely material advantage could be placed. Every man who since that time has incurred a debt, has incurred it knowing that, when it became due, the paper in which he paid it would, by the law of the land, be redeemable in gold coin.
During the interval referred to, the rate of interest has been lower than it ever was before in this country, owing to this very expectation of resumption of specie payments. It is the debtor's own fault if he find that he must now pay more valuable dollars than he expected to. If you are a debtor, you say, perhaps, that you did not expect that specie payments really would be resumed and the gold dollar again come into use. If so, you are simply pitting your own interests against those of society. Your position is very much like that of one of a large number of persons who have given their promissory notes for a much greater amount than value received, under the impression that there was a fair chance of their never being collected. You and I would both be very sorry for those who had taken so heavy a risk on the assumption that law was not to take its course; but that would not be any reason for refusing payment of their notes.
To prevent a possible misapprehension, it must be remembered that resumption does not mean contraction of the currency, and does not of necessity involve any contraction. All it requires is, that Government shall stand ready to redeem the promise printed on the face of every greenback, if the holder desires it: if he does not desire it, but prefers using the note as money, no law will compel him to exchange it for gold. If the total amount of currency in circulation does not exceed the wants of business, none will be sent in for redemption, and there will be no contraction; but if there is more than is really necessary, then the excess will be gradually sent in. And we must never forget that the more certain redemption is to be the permanent policy of the Government, the less owners of currency will send for redemption. The great facts and principles of sound currency can in great part be condensed into three sentences.
1. The experience of the whole human race in all ages shows that exchangeable value can reside only in things which men desire to possess, and that, among the various articles of desire, gold and silver are those best adapted to answer for use as money—the former for large payments, the latter for small ones.
2. Under no circumstances should any paper tokens be allowed to circulate as money except those with which the holder can obtain their face value in gold and silver whenever he wishes it.
3. So long as the payment of all paper money in gold at the pleasure of the holder is well secured, there is no necessity of placing a fixed limit upon its volume.
The Cause and the Remedy
That the present state of the labor of the country exhibits some distressing features, no one denies. No one will refuse his assent to any measure which will really and permanently relieve it without bringing on greater evils in the future. If we can form some idea of the causes of the present state of things, we shall be better able to judge of the remedy.
No doubt, one of the principal causes is to be found in those inevitable fluctuations of business and of industry which have always been the common experience of civilized men. At one time business is brisk; every one is employed; wages are high; and men generally are happy. In the course of a few years an era of depression sets in; capital ceases to make any profit; wages are lowered, and laborers find themselves suffering for want of the necessaries of life. These fluctuations, I say, are simply inevitable, and there is no remedy against them except to patiently fight them through, in the full consciousness that as times have improved after every such depression heretofore, they will improve in the future.
But in our own case the depression is no doubt aggravated by two other causes: the first of these is, we fought a great war very largely on borrowed money, and for more than ten years we have been largely living and developing our resources by borrowing. It is estimated that a large proportion of the public debt of the country is now held in Europe. Every bond that we have sent to Europe has been sent in payment for some service or commodity received from there for us to add to our resources. In other words, we have practically been running in debt to Europe, and living beyond our income for a period of some fifteen years. Now, this practice of living beyond one's income is something which must inevitably come to a stop, whether practised by a nation or by an individual; and it is something the stoppage of which is always accompanied by distress.
The second cause to which I allude is our irredeemable paper currency. The history of paper money in this and other countries, when issued in quantities greater than could be redeemed, exhibits some common features. The first effect always is to introduce an era of seeming prosperity. Notwithstanding that it has hardly ever been issued except in times which would otherwise be considered as times of great national distress, such as an exhausting war, it has always produced an amount of extravagant expenditure which would otherwise be impossible. The blood seems to course through the veins of the body politic at a rate never before known. It was so in our colonial times; it was so in the French Revolution; it was so during our Revolutionary War, and, to a certain extent, during and following our Civil War, although its stimulating effect was then less felt, because the issues were not made with the extravagance which generally characterizes this policy. Still, there was some such effect, as was seen in the almost entire absence of depression during the period immediately following the war. The depression we might have experienced was greatly diminished by the constant export of our Government bonds to Europe in payment for goods. But the depression must come, sooner or later. The nation which indulges in paper money acts exactly on the principle of the man who indulges in drink. First, we have stimulation; then, depression, which the victim thinks he can overcome only by more drink.
Again, the policy of specie resumption and the gradual appreciation of the currency seemingly increase the difficulty, just as total abstinence on the part of the man who has been long indulging in drink gives great temporary distress. It is, no doubt, in the combination of all these causes that we are to look for the source of the depression of business at the present time.
When the caravan is passing over the Desert of Sahara, it is not uncommon for its thirsty souls to be deceived by the mirage. At a few miles' distance they see what seems to be a lake of clear water; and, leaving their road to go and quench their thirst, they are led on and on, only to find themselves the victims of the bitterest delusion. The remedy for the present difficulties now most strongly urged upon us is of this character. It is to depreciate the currency, and give up all that we have gained in the direction of specie payments during the past ten years, by issuing a larger supply of greenbacks. Undoubtedly, such a policy would for the moment please a large body of the more thoughtless class, who would again find themselves receiving two or three, or perhaps ten, dollars a day for their work. Their joy would be very much like that of the men who had just left their caravan to go in search of the mirage, and who think they see the water they are to drink only a few hundred yards away. The result would be that the laborer would soon find that his two or three or ten dollars would buy him no more food and clothing than would fifty cents, for which he had before refused to work; and he would be then just as badly off as if his wages had in the beginning been reduced to fifty cents a day. And then, as an end must come at last, the end of it all would be a depression much greater than that which we now suffer, and the consciousness of a dishonored national faith in the bargain, besides a blow to our public credit and our national prosperity, from which it would take a whole generation to recover. The true course is directly the opposite. The surest and quickest road to general prosperity is to be found in immediate resumption. The difficulties of the present crisis are greatly aggravated by the uncertainty which hangs over the future. Nobody is yet quite certain that we are really coming to specie payments, and everybody is more or less fearful, or some, perhaps we might say, are more or less hopeful, that before 1879 unlimited greenbacks will be the order of the day. So long as this uncertainty exists, it is absolutely impossible for the business of the country to go into operation on a really healthy and settled basis. But when it is once undoubtedly established that the only legal dollar is the honest gold dollar, the dollar made of the only material which the experience of all countries, through thousands of years, has shown to be always effective, then every one will know exactly on what basis he is to go. The laborer will then be satisfied with wages which, compared with those of the last ten years, may be low, because he will know that, when paid in honest gold, they will buy him more of the necessaries of life. But the millennium will not be inaugurated. Progress is necessarily slow and gradual; and no arrangement which can possibly be made will secure to people in general better food and clothing, or houses, than those which on the average they have enjoyed during the past twenty years.
Meanwhile, privations must be patiently borne, and the difficulties which beset us must be gradually worked away. The more ready the laboring classes are to accept the inevitable low wages of the present time, and to work for whatever their employers are able to pay them, the more quickly will better times come. The inauguration of strikes at the present time is like bleeding a man who is just beginning to recuperate from the prostrating effects of sickness.
Let us now bring together the reasons why the policy of inflating the currency in any way should be condemned, and why the policy of resumption should be carried out.
1. All experience shows that gold and silver form the only stable basis for any system of currency. Gold always has been, now is, and for generations to come will continue to be, the standard of value for the whole world, no matter how many paper dollars we may issue.
2. Repeated laws of Congress have pledged the national faith to all creditors that its legal-tender notes should be paid in coin; and the repeal of those laws would be an act of the grossest national dishonor, having no other result than the legalized robbery of one class of the community for the benefit of another class.
3. The only way to permanently relieve ourselves from our present financial difficulties is to take such measures that every laborer in the land shall receive his wages, be they low or high, in honest gold and silver, or in notes convertible into gold.
4. By continued resumption, we shall be saved from having again to suffer the evils of a depreciated currency; whereas, to now take a backward step would be to plunge into them again, and to go once more through all the difficulties we are now encountering.
Some General Thoughts
This question of regulating the currency is no easy one, to be settled by an offhand opinion even of wise men, much less of men entirely ignorant of the history and laws of the subject. It perplexes the best intellects of the world, and will probably continue to do so for a long time to come. It is so intricate that only a mathematical head can unravel it—the same kind of a head which can solve a tough problem in algebra, or settle the accounts of the Tweed Ring, and tell just how much money each man owes. Neither fine writing nor oratory will afford the slightest help, any more than it will help a man to understand a steam-engine.
The advocates of redeemable money have no millennium to offer. They know that the sentence, "In the sweat of thy face shalt thou eat bread," cannot be commuted by any human contrivance; that there is no real value which can be commanded by any other agency than labor of the hand or head. They perfectly know the difficulties which beset any system of redemption of paper in coin, and are as keenly alive to them, and as anxious to remedy them, as the strongest paper-money advocates can be. But they know also that to undertake to avoid these difficulties by doing away with redemption in gold is as foolish as if the passengers in a ship, finding that she was tossed by the storm, frightfully beaten by the waves, and in danger of destruction, should scuttle her and take to swimming, for fear of suffering shipwreck. I think most readers must have a faint suspicion that the wisest of the human race are opposed to irredeemable paper. If you were to take a vote of the political economists, the close students, the bankers, the professors, and the historians on the subject—in fine, of all those men who, either by their knowledge or their powers of investigation, are best fitted to understand the subject, the vote for irredeemable currency would be astonishingly small. If the reader distrusts his own judgment, this fact is worth thinking of.
We can hardly conceive a scene of more dramatic interest than that of the people of our country preparing to decide whether they will taste the tempting cup which the advocates of inflation are holding to their lips, and accept the honeyed words in which they are told that it contains the magic elixir of life, which will put money into every poor man's pocket. A hundred generations of the human race have held their breath as they have heard or read the song of the sirens addressed to Ulysses, which would have allured him to destruction if he had not filled the ears of his crew with wax:
"Oh stay, pride of Greece, Ulysses, stay;
The drunkard, holding the intoxicating cup to the lips of the innocent boy, and saying, "just swallow this, my boy, and your thirst will be quenched—you will feel new life in your veins, new strength in your limbs, and a happiness in your spirits of which you never dreamed," affords the moralist a scene on which he has dwelt ever since the days of Solomon. The present crisis in our national history is similar to that in the life of Ulysses when the song of the sirens charmed his soul, or in the life of the boy when he has to decide whether he will taste the cup. The promises are as fair as those of the sirens, the words as tempting as those of the drunkard; the result, a disaster to our national prosperity from which it would take long, long years to recover.