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Title: Honest Money
Author: Fonda, Arthur Isaac
Language: English
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  New York

  _All rights reserved_

  COPYRIGHT, 1895,

  Norwood Press:
  J. S. Cushing & Co.--Berwick & Smith.
  Norwood, Mass., U.S.A.


In an article in the "American Journal of Politics" for July, 1893, I
gave a brief statement of the conclusions I had reached in an attempt
to analyze the requirements of a perfect money.

The limits of a magazine article prevented a full discussion of the
subject; many points were left untouched, and all quotations from the
works of other writers, in support of the brief arguments given, were
of necessity omitted.

As the course of events since the article referred to was written has
more fully confirmed the conclusions stated therein, a desire to give
the subject ampler treatment, which its importance seems to demand, has
led to the writing of this little work.

If apology is needed for a further contribution to the mass of
literature on the subject of money, with which the country has of late
been flooded, it must be found in the above explanation of the reasons
which have led to the production of the present volume, coupled with
the fact that the questions involved are far from being settled, and
that the loud complaints, and the many financial schemes and plans,
that have appeared all over the country make it probable that further
legislation on the subject will be attempted in the near future.

It must be conceded that there is something radically wrong in a
country like the United States, rich in all of the necessaries and
most of the luxuries of life, where nature has been most bounteous,
and where the not excessive population is exceptionally enterprising
and industrious, when a large part of the people cannot at times find
employment. When, with an abundance of unoccupied land, and a great
diversity of undeveloped resources, capital and labor--both anxious
for profitable employment--cannot find it; and when men suffer for the
necessaries of life, not in one section only, but universally and in
large numbers, while our warehouses are filled with manufactured goods,
and our barns and granaries are bursting with food products. This is a
condition that is certainly as wrong as it is unnecessary.

Such a condition occurring once or twice in the history of a
country might be attributed to accident, but recurring, as it does,
periodically, it argues a fault in our economic system. So wide a
disturbance, extended also to other countries, betokens a general
cause. What that cause is, it is not difficult to perceive--all
indications point to our monetary system as the chief source of the
trouble. There are doubtless other causes that contribute in some
degree to create variations in prosperity, but no other single cause,
or combination of causes, seems to us competent to account for the
great fluctuations; while the one we have cited alone may easily do so.

This work may have little direct effect in bringing about an
improvement in our money system, but it is the hope of the writer that
it may have at least an indirect effect by helping to spread a better
knowledge of the requirements of such a system and of the principles

Much of the current discussion of the subject of money betrays
ignorance of those fundamental principles of the science which are
agreed upon by all economists, if it does not wholly disregard them.
I have endeavoured in this work to avoid such errors by a painstaking
analysis of the subject, and by a careful comparison of the opinions of
authorities on the principles involved. Starting from this foundation I
have deduced the requirements for an honest money, shown the faults of
our present system in the light of these requirements, as well as the
merits and defects of various changes that have been proposed for its
betterment, and, in conclusion, have outlined a system that seems to
meet the requirements and to correct existing faults.

I desire to acknowledge my indebtedness, not only to the many works
mentioned and quoted from herein, but to others, neither mentioned nor
quoted, which have been of material assistance in corroborating the
opinions I have ventured to advance.

          A. I. F.



  VALUE AND THE STANDARD OF VALUE                        1
      Definition of Value                                1
      Supply and Demand                                  8
      The Standard of Value                             12


  MONEY                                                 21
      Definition of Money                               21
      The Functions and Requirements of Money           25
      Money Value                                       29
      Money Demand and Supply                           36
      Necessity for Invariable Money Value              40


  EXISTING MONETARY SYSTEMS                             51
      The Gold Standard                                 54
      Gresham's Law                                     57
      The Silver Standard                               65
      Bi-metallism                                      67
      Paper Money                                       71


      Gold-Standard Prices                              81
      Silver-Standard Prices                            94




  FOREIGN COMMERCE                                     112


  MONEY IN THE UNITED STATES                           125




  A NEW MONETARY SYSTEM                                151
      The Standard of Value                            158
      The Medium of Exchange                           164


  MERITS AND OBJECTIONS CONSIDERED                     181
      Merits of Plan                                   181
      Objections Answered                              187


  CONCLUSION                                           196

  INDEX                                                205




_Definition of Value._

A clear conception of the meaning of the term _value_ is the first
essential to a discussion of the subject of money.

Under the general term _value_ the older economists recognized two
distinct conceptions, which they distinguished as _value in use_ and
_value in exchange_.

To the former they gave little attention, merely stating that while it
was essential to value in exchange, the latter was not proportional
to nor determined by the former, and citing air and water as familiar
examples of objects having great utility, or use value, yet having
little or no exchange value.

Modern economists--chiefly those of the Austrian school--have analyzed
the subject more thoroughly, especially the relation between the two
conceptions, and have shown that utility or subjective value, as it is
generally termed by them, is an expression both of human desire and
of the quantity of the necessary commodity available to satisfy such

The utility of a thing grows less as the quantity of it increases, and
it is the utility of the last increment of supply, or the marginal
utility, that determines the subjective value of the whole supply,
and it is the ratios between these subjective values that determine
exchange values. Air and water, for instance, have no great utility,
as viewed by the older economists, except where the supply is limited;
ordinarily, their abundance makes their utility, or use value, small.

It is not essential to the purpose of this work to enter into an
abstract discussion of the theory of value further than is necessary
to make clear the fact that the present analysis in no way lessens
or invalidates the distinction between the two conceptions of value
noted by the earlier economists,--a fact which has been overlooked by
some who have accepted the marginal utility theory. The distinction
remains, broad and clear. The one conception, whether called "value in
use," "marginal utility," or "subjective value," pertains wholly to the
relation which a single good, or unit group of goods, bears to a single
individual, or society unit, in respect to human well-being, and has no
reference or relation to any other individual or other good.

The other conception, called "objective value," or "exchange value,"
is dual in its nature, involving in all cases two or more commodities.
Abstractly, it is _the ratio at which commodities may be exchanged
for each other_, or, since such ratio for a unit of one commodity is
expressed by the amount of another given for it, the exchange value
of a thing is the quantity of some other thing that will be evenly
exchanged for it, or, considered in a general sense, the amount of
commodities in general it will exchange for,--_its general purchasing
power_, in short.

This latter conception--exchange value--is the one that principally
concerns us in discussing the subject of money. It is also the
conception generally in mind when the simple term _value_ is used
either by economists or by the general public, and wherever the term is
used in this work without qualification it is to be understood in that

The Austrian economist, E. von Böhm-Bawerk, says, in his "Positive
Theory of Capital," p. 130:--

"Value in the subjective sense is the importance which a good, or
a complex of goods, possesses with regard to the well-being of a

"Besides the expression 'value in exchange,' English economists
use, quite indifferently, the expression 'purchasing power,' and we
Germans are beginning in the same way to put in general use the term

The value of a thing may be considered either in a particular sense,
with reference to some other specified thing, or it may be considered
in a general sense, with reference to all other things considered as
a whole. We may say the value of a bushel of wheat is two bushels of
corn, meaning that these two commodities exchange for each other in
that ratio; or we may speak of the value of wheat having risen or
fallen, meaning that its general purchasing power, or the ratio between
that and all other things taken as a unit or a whole, has increased or

The term must invariably be used or considered in a general sense,
unless otherwise specifically stated, for we must always have some
other thing in mind besides the one whose value we are considering;
while if no other is stated, commodities in general (taken as a whole)
is that thing.

Value being a ratio, it is impossible for all values to rise or
fall simultaneously. The sum of subjective values may increase or
decrease,--indeed it is one of the great objects of human endeavour to
increase the sum of want-satisfying power,--but the sum of the ratios
between these subjective values is constant. As one term of any ratio
rises relative to the other, the second necessarily falls as regards
the first.

This principle is so universally recognized that quotations might be
given from almost every work on political economy in support of it. The
following will be sufficient, however, as regards both the definition
of value and this principle.

John Stuart Mill says, in his "Principles of Political Economy":--

"Value is a relative term. The value of a thing means the quantity of
some other thing, or of things in general, which it exchanges for. The
values of all things can never, therefore, rise or fall simultaneously.
There is no such thing as a general rise or a general fall of values.
Every rise of value supposes a fall, and every fall a rise."

Again, he says:--

"Things which are exchanged for one another can no more all fall, or
all rise, than a dozen runners can each outstrip all the rest, or a
hundred trees all overtop one another."

Prof. S. N. Patten says, in "Dynamic Economics," p. 64: "Objective
values, however, are never a sum, but only a relation between
subjective values. There can never be high or low objective values
of commodities as a whole. It is therefore impossible to add to or
subtract from them."

This latter quotation, as well as the preceding one from von
Böhm-Bawerk,--both exponents of the marginal utility theory,--may help
to correct a quite prevalent impression that this later theory does not
distinguish between the two conceptions of value, and that because the
sum of subjective values may increase, the sum of objective or exchange
values can increase also.

_Supply and Demand._

All economists recognize the fact that the immediate determiner of
value is the relation between supply and demand. These terms in their
economic sense mean something more than mere desire and mere quantity.
_Supply_ means the amount offered in exchange, and _demand_ means not
only a desire, but a desire coupled with the ability and willingness to
give other commodities in exchange for the one wanted.

In this sense the terms are strictly correlative. The supply of a
commodity (that is, the amount offered) may be considered as equivalent
to a demand for some other commodity, or for commodities in general.
We may say, then, that the value of any commodity is determined by
the ratio that the demand for that commodity bears to its supply; or
by the ratio that the demand for that commodity bears to the demand
for some other commodity,--or commodities in general, when the term
_value_ is used in a general sense and not with reference to some other
specified thing only. (The objection that has been made by some writers
that a ratio could not logically exist between a desire [demand] and
a quantity [supply], does not apply to these terms in their economic
sense; for, as above stated, they are something more than a mere desire
and a mere quantity, and the expression is translatable into the other
expression, "ratio between the demand for one commodity and the demand
for others in general.")

The statement of the later economists that exchange value depends
on, and is determined by, the ratio between subjective values in no
way conflicts with the above statement that value is determined by
the ratio between demand and supply, for the demand for a commodity
is determined by its subjective value and by that alone, and must
vary with it. Hence, as the quantity of anything increases and its
subjective value lessens, the demand for it relative to the quantity of
other articles also lessens, and its value falls, and _vice versa_.

This close connection between value and the ratio between demand and
supply--value rising as the ratio increases, and falling as it grows
less--is true in all cases. No other factor can affect the value of any
commodity except by altering the relation or ratio between these two.

Cost of production is a more remote factor that enters into the
determination of value in most but not in all cases, through its
effect on supply. It is used, like the term _value_, in two senses,
a subjective and an objective sense. In the former it means the pain
of labour and waiting that must be undergone to produce the good that
is being considered,--the negative pleasure given to get the positive
pleasure to be derived from that good. In its objective sense--the
sense in which it is generally used--cost of production means the
goods that must otherwise be given for, bartered or set against those
desired; in a simple case of direct production, it means the goods that
might have been produced, in lieu of those that have been produced,
with the same subjective cost; in more complex cases, it means the sum
of the goods sacrificed, in the shape of raw materials, rent, wages,
interest, etc., to get the one produced.

When the value of a commodity falls to or below the cost of production,
or even when it approaches it so closely as to reduce the margin
between the two--the producer's profit--below that in other industries,
then, men will cease to produce the one and turn their labour and
capital to producing the others which offer greater profit, thus
lowering the supply of the abandoned product and raising that of the
more profitable, thereby affecting the value of both.

The effect of this operation of the law of cost is to equalize profits
and make the values of things conform to their cost or be proportional

The law can only operate when men are free to turn their labour from
one industry to another. Hence arises the important exception to the
law, that the values of goods produced by a monopoly are not affected
by their cost of production. Only under free competition does the law
operate in full force. As monopoly becomes a factor cost ceases to be,
and, when the monopoly is complete, cost has no weight whatever in the
determination of value.

For analogous reasons, cost enters but partially into the determination
of the value of such goods as are dependent more or less on luck or
chance for their production, as in the case of precious stones, gold,
silver, etc.

_The Standard of Value._

We may use the value of anything as a measure by which to compare
the values of any and all other things, but as all the factors that
determine value are variable, the value of everything is variable. Any
value may rise with reference to some other value, and at the same time
fall with reference to a third.

By what standard, or invariable measure at all times and places, can we
compare the values of goods to determine their constancy or variability?

We must not forget that there are two kinds of value, and that it is a
standard of exchange value we are seeking. So far as it may be possible
to formulate a standard of subjective value, it must consist of the
pain or inutility of labour; for this kind of value pertains only to a
single good, and cannot be referred to other goods without confusing
it with the other conception. We cannot measure the absolute pleasure
a good will give to an individual except by the pain he will undergo
to get it. It is not a standard for this sort of value we want. It was
evidently some such conception as the above--confusing, however, not
only the two kinds of value but the two descriptions of labour--that
led Adam Smith to consider labour as the ultimate standard of value. He
appears also to have confused the idea of a standard of value with that
of a determiner of value.

These errors were pointed out in part by Ricardo and, in part also,
by J. S. Mill and later writers; hence the contention that labour is
in any way a standard of value has long been abandoned by the ablest
economists. The idea still lingers, however, and is frequently brought
forward in current discussions, and for this reason it seems necessary
to analyze briefly the relation of labour to value.

Labour is necessary to the production of all commodities, but it is
not itself a commodity, nor anything which for itself is desired. It
is a force, and, like every force, valuable according to the results
it accomplishes. If unproductive, it has no value; if productive, its
value varies according to the value of the commodities or utilities
it creates. We use the terms "price of labour" or "value of labour,"
implying that it is the labour which is valued, and which is bought and
sold; but the terms are merely a convenience. What is really bought
and sold is the commodity or utility such labour has produced or will
produce. If it were the labour itself, then the purchaser would receive
not only the labour, but the commodity it produced, in exchange for the
wages paid,--a double return,--which, of course, is absurd.

Three descriptions of labour may be distinguished in connection with
the value of a commodity, viz.:--

(1) The labour expended in its production.

(2) The labour in general it will purchase.

(3) The labour necessary to produce more of it.

The first kind of labour in no way affects the existing supply or
demand of the commodity, and is neither a measure of its value nor
a regulator or determining factor of such value. Evidences are not
lacking to prove that a commodity will frequently not exchange for as
much labour as was expended in producing it.

The second kind of labour, the amount in general which a commodity
will purchase, depends on the amount of commodities such labour will
produce, less the share which goes to capital as its reward; for,
neglecting rent or classing it with capital, these two, labour and
capital, are joint factors in production and divide between them
the total product. It is hardly necessary to observe that labour is
continually growing more efficient; that improved skill and methods
enable a much larger amount of commodities in general to be produced,
with a certain amount of labour, than could formerly be produced; and
that labour receives, as its share of such product, a much larger
amount than formerly.

It is thus evident, that a commodity which would exchange for the same
amount of labour now as formerly, would exchange for a much larger
amount of commodities in general now than then, and, if we adhere to
our definition of exchange value, would be worth _more_ than formerly;
while if labour be taken as a standard of value, it would be worth
the _same_. The use of this form of labour as a standard of value is,
it will be seen, incompatible with the definition of value. It may
serve as a measure of the relative values of two commodities at any
particular time and place, just as any third commodity may; but, as
Ricardo remarks, "is subject to as many fluctuations as the commodities
compared with it."

The same argument applies to the third form of labour--that necessary
to produce more of a commodity. This form of labour, however, is one of
the factors in the cost of production, and through its effect on cost
is one of the more remote factors that determine value, as explained in
considering cost of production, but this does not make it in any sense
a standard.

We may conclude, then, that labour in any form is not a standard of
value; that, as John Stuart Mill observes, it "discards the idea of
exchange value altogether, substituting a totally different idea, more
analogous to value in use."

Since the values of things can never rise or fall simultaneously,
every rise supposing a fall, and every fall a rise, it follows that
the values of all taken together must be constant; in other words,
that general values cannot change. Thus it is that we find whether
any one thing has risen or fallen in value, as between one period
and another, only by comparing it with all others,--in short, by its
general exchange or purchasing power. If this has increased, then its
value has risen; if it has decreased, its value has fallen. It is
evidently not necessary that anything should exchange for more or less
of _every_ other thing to show a rise or fall of value, but only that
it should, on the average, exchange for more or less of all; that its
average purchasing power should be greater or less. If it has exchanged
at different times for the same amounts, on the average, of all other
things, its value, clearly, has remained constant.

This is the only standard, or test, which can be applied to the
exchange value of any commodity to determine its constancy or
variability, and it is inherent in the very definition of exchange

The values of commodities may be compared to the surface of the
ocean, which, vexed by winds and tides, is never at rest, every point
continually rising or falling as compared with others. As some points
rise others fall, yet there is a mean level which does not vary, and by
comparison with which the variations of level of any particular point
may be determined. So with values, there is a mean or average which is
constant, and by referring individual values to that we can determine
their fluctuations.

These ideas will become clearer as we proceed to apply them concretely
to the special case of money.

Although there can be but one real _standard of value_, invariable at
all times and places, yet, as before stated, any commodity may serve as
a _measure of value_, and the great convenience subserved, by all the
people of any locality or country using the same commodity instead of a
number of different ones for this purpose, early led to the adoption of
some one commodity in each locality as a "money" to measure values and
facilitate exchanges.



_Definition of Money._

Money has been variously defined by different writers. Perhaps the
definition given by Prof. F. A. Walker, though lengthy, is the most
comprehensive. He says: "Money is that which passes freely from hand
to hand throughout the community in final discharge of debts and full
payment for commodities, being accepted equally without reference to
the character or credit of the person who offers it, and without the
intention of the person who receives it to consume it, or enjoy it, or
to apply it to any other use than in turn to tender it to others in
discharge of debts or full payment for commodities."

This definition has been indorsed by several other writers; by some,
however, the term _money_ is restricted to coin, paper money being
called currency. The distinction is perfectly proper, though not
generally concurred in. People commonly use the terms _money_ and
_currency_ indiscriminately for both coin and paper money, since they
perform identically the same work where both are used together, and the
paper is convertible into coin at any time. Where the paper is used
alone--"inconvertible paper"--coin is really not money; it ceases to
circulate as money; it is hoarded as treasure, or bought and sold as a
commodity, but fails to have that general use in current transactions
in that country which alone entitles any commodity to be called money.

The distinction sought to be made between paper money and coin arises
largely, it is thought, from the idea that coin has a value in itself
which paper money has not. This idea is erroneous. Value, as we have
seen, is a ratio or relation, and though the value of anything is
based on a desire for it, that desire may arise either from the
satisfaction which the use or consumption of it will bring, or from the
belief that it can be exchanged for some other thing that will give
satisfaction in use or consumption. The value of money is due to the
latter of these two causes. No one wants money except for the purpose
of exchanging it for other commodities; under modern conditions it is
necessary for this purpose,--it is the indispensable requisite to the
satisfaction of certain human wants. Money, therefore, possesses an
indirect if not a direct subjective value which forms the basis of its
exchange value. Paper money possesses the power of satisfying this need
for money to the same extent that coin does, under like conditions, and
it has, therefore, both subjective value and exchange value, and the
latter is governed by the same law of supply and demand that operates
in all cases.

The fact that the material of which the money is made is, in one
instance, of great cost, and, in the other, of little or no cost, is
of minor consequence. The minting of gold and silver into coin may,
or may not, add to its value; it really transforms it into another
commodity--money--and its value is thenceforth determined by the law
of supply and demand as applied to money. The same is true of paper
money, the low cost in the production of which is not an element in
determining its value, for its production is always a monopoly. There
is no reason, then, for not considering paper currency as money, and
in using the term we will consider its meaning to be that given by
Professor Walker,--which is also its popular significance,--and as
including both paper money and coin.

It should be considered, whether of one material or of several
circulating concurrently, as a single commodity created for the purpose
it fulfils, and as separate and distinct from the material of which it
is made. In short, as that commodity to which, by common consent and
usage, generally sanctioned by law, all other commodities are referred
as a measure of value, and by means of which exchanges are effected.

_The Functions and Requirements of Money._

Professor Jevons, in his valuable work, "Money and the Mechanism of
Exchange," gives to money the following threefold functions, viz. as:--

A medium of exchange.

A measure of value.

A standard of deferred payments.

He also inquires if it does not perform a fourth function as a 'store
of value.'

All authorities give the first two of the above as the principal money
functions. Some include one or both of the others, and some omit both.

Prof. F. A. Walker objects to the use of the term "measure of value,"
on the ground that value, being a relation, cannot be measured but can
only be expressed. He proposes, instead, the term, "common denominator
of value." It is not quite clear why a relation _or_ ratio cannot be
measured,--the measure, of course, being a similar ratio,--nor does
there seem to be anything gained by the change, while the term proposed
seems less clear and correct than the one in general use. Money, or the
_value_ of the unit of money, is used as a measure in comparing the
values of other things just as a yardstick, or the _length_ of a yard,
is used in comparing the lengths of other objects.

Money, in acting as a medium of exchange, must also act as a store
of value to some extent, since it stores the value received until it
is expended; but the use of money for the purpose of hoarding is not
to be regarded as strictly one of its functions, at least not in the
sense of requiring to be especially provided for. The fact that it is
so used, however, should be borne in mind, as it interferes more or
less with its other and more important functions; but in considering
the qualities necessary to the best performance of the functions of
money we may omit this last function, as any money which fills the
requirements for the others will fulfil those necessary to this in a
sufficient degree considering its minor importance. As our inquiries
in this work will be confined to the money materials now in general
use, viz., gold, silver, and paper, we need not consider the qualities
necessary to a money material, as given by Professor Jevons,--such
as portability, indestructibility, divisibility, etc.,--further than
to say that the qualities he mentions are possessed by all of the
money materials now in use, in a sufficient and nearly equal degree.
Coin, to be sure, is more indestructible than paper; but as the paper
is sufficiently acceptable for the purpose, the difference need not
concern us.

Aside from that general acceptability, which is the very essence of
money,--without which no commodity could be considered money, and
which, therefore, all money may be considered as having,--the great
requirements of money are _invariable value_, added to _convenience of
form_, _size_, _weight_, _and value_.

This latter requirement pertains to the function of a medium of
exchange, and the degree in which it is possessed by the different
money materials or kinds of money, depends wholly on the values to be
transferred by its use. For small amounts, silver is preferable to
either gold or paper; as the amount increases, gold becomes preferable
to silver; and for all amounts above fractional currency, paper money
is unquestionably more convenient in every way than either gold or
silver, and the advantage increases with the amount.

_Invariable value_ is the great requirement for both the functions,--"a
measure of value" and "a standard of deferred payments." Indeed these
two functions may practically be considered one; the only difference
between them being centred in the element of time, and that is more
or less involved in every exchange requiring the use of money, since
some interval must elapse between the sale of one commodity and the
purchase of another with the money received,--which constitutes the
whole exchange transaction,--and during such interval the money should
maintain a constant value. When the interval over which the transaction
is spread is a large one, as in the case of notes and bonds, any
variability is more noticeable than when the change is distributed
among many holders of money.

Before considering further the great necessity for invariable money
value, it will be best to consider the laws and forces which determine
and control the value of money.

_Money Value._

That money is a commodity, and that its value varies like that of
every commodity in accordance with the law of supply and demand, are

The fluctuations in the value of money can be detected, it is clear,
in the same way that changes in the value of any commodity can be
detected, by comparison with all other commodities,--by its average
purchasing power, in short.

The value of a commodity, when measured by money and expressed in
terms of the unit of money, is called its _price_. If the prices of
all commodities, or the average of all, rise or fall, it is conclusive
evidence that the value of money has changed, for its purchasing power
is less in the one case and greater in the other. Indeed the statement
that general prices have fallen is equivalent to saying that the value
of money has increased, and _vice versa_. Therefore, if the value of
money remains stable, average prices must remain constant.

The following quotations will show that these views are correct,
and that they are generally accepted by authorities on finance and
political economy, though very commonly overlooked and neglected in
discussions on the subject.

John Stuart Mill, in his "Principles of Political Economy," says:--

"There is such a thing as a general rise of prices. All commodities
may rise in their money price. But there cannot be a general rise of
values. It is a contradiction in terms." "That the money prices of
all things should rise or fall, provided all rise or fall equally, is
in itself, and apart from existing contracts, of no consequence. It
affects nobody's wages, profits, or rent. Every one gets more money in
the one case and less in the other; but of all that is to be bought
with money they get neither more nor less than before. It makes no
other difference than that of using more or fewer counters to reckon
by. The only thing which in this case is really altered in value is
money; and the only persons who either gain or lose are the holders
of money, or those who have to receive or pay fixed sums of it....
There is a disturbance, in short, of fixed money contracts, and this
is an evil whether it takes place in the debtor's favour or in the
creditor's.... Let it therefore be remembered (and occasions will often
rise for calling it to mind) that a general rise or a general fall of
values is a contradiction; and that a general rise of prices is merely
tantamount to an alteration in the value of money, and is a matter of
complete indifference save in so far as it affects existing contracts
for receiving and paying fixed pecuniary amounts."

"The value of a thing is what it will exchange for: the value of money
is what money will exchange for; the purchasing power of money. If
prices are low, money will buy much of other things, and is of high
value; if prices are high, it will buy little of other things, and
is of low value. The value of money is inversely as general prices:
falling as they rise and rising as they fall."

"The value of money, other things being the same, varies inversely as
its quantity; every increase of quantity lowering the value, and every
diminution raising it in a ratio exactly equivalent."

"That an increase of the quantity of money raises prices, and a
diminution lowers them, is the most elementary proposition in the
theory of currency."

The expression, "other things being the same," in one of these
quotations, evidently means "demand remaining the same," and the terms
_increase_ and _decrease_ of money unquestionably refer to the increase
and decrease relative to demand, since the writer further says:--

"If there be at any time an increase in the number of money
transactions, a thing continually liable to happen from differences
in the activity of speculation, and even in the time of year (since
certain kinds of business are transacted only at particular seasons);
an increase of the currency which is only proportional to this increase
of transactions, and is of no longer duration, has no tendency to
raise prices."

_Per contra_, therefore, unless the currency be increased to meet such
increased demand, there will be a tendency to decreased prices and
consequent change in the value of money.

Stronger statements than these of Mill's, or by an abler authority,
could not be asked for.

Prof. R. T. Ely, in his "Political Economy," remarks, p. 179:--

"Values are merely relative, and consequently there can be no such
thing as a general rise or fall of values."

"Value expressed in money is called price. There can be such a thing as
a general fall or a general rise of prices. A general fall in prices
means an increase in the value of money, and a general rise of prices
means a fall in the value of money."

David Ricardo observes that:--

"The value of money, then, does not wholly depend upon its absolute
quantity, but on its quantity relatively to the payments it has to

The last edition of the "Encyclopædia Britannica" says, as a conclusion
in discussing the value of money, and referring evidently to coin

"The most correct way to regard the question of money value is that
which looks on supply and demand, as interpreted above, as the
regulator of its value for a limited time, while regarding cost of
production as a force exercising an influence of uncertain amount on
its fluctuations during long periods."

This view is in exact accordance with the conclusions previously stated
in regard to the values of all commodities.

The Encyclopædia further says:--

"Where the coinage of a State is artificially limited, the value of its
money plainly depends on supply and demand."

Quotations might be multiplied indefinitely to the same effect; but
enough have been given to show the general consensus of opinion.
Indeed it may seem that there is no necessity for accumulating evidence
in support of propositions so apparent as those stated; unfortunately,
however, not a few recent writers have ignored some of them, and the
general public seem to make the same mistake; hence, it is of the
utmost importance that they be kept clearly in mind.

_Money Demand and Supply._

Mill affirms that: "The supply of money is all the money _in
circulation_ at the time."

Money that is hoarded has no more effect on prices than if it did not
exist. Money lying in banks or in the hands of merchants or others
to the extent necessary for the safe conduct of their business may
be considered money in circulation, but beyond the amount needed for
conducting any business the excess may be considered as hoarded. The
supply of money in any country depends directly and primarily on the
legislation of that country; and secondarily, in most, but not in all
cases, on the legislation of other countries, and the production of
precious metals available for coinage, etc., all of which can be better
analyzed in explaining the different systems.

The demand for money is most complicated, since it is affected by
a great variety of forces. It varies directly with the activity of
commerce, and universally with the activity of money,--a less amount
of money doing a greater work when active than when sluggish. It
is affected by changes in the customs and habits of the people, by
changes in transportation facilities, in diversity of employment, in
concentration of population, and, more than all other, it is affected
by the extent of credit, the use of banking facilities, etc.

Credit in its various forms takes the place of money, and does its
work in this respect to an enormous and continually increasing extent.
Through the medium of banks,--which are really institutions for the
exchange of credit,--and by means of checks, drafts, notes, bills of
exchange, letters of credit, post-office and express money orders,
etc., the great bulk of the world's business is transacted.

Statistics gathered from national banks in this country in 1881, showed
that of the total deposits, ninety-five (95) per cent were in forms of
credit to five (5) per cent in actual money, the percentage of credit
paper rising in New York City to as high as 98.7.

While these percentages may not show accurately, on the whole, the
relative work done by money and by forms of credit, they do show the
enormous extent to which credit takes the place of money, and the
greatly increased demand for money that arises, when, from lack of
confidence or other causes, the extent of the credit is lessened.
Unless the volume of money immediately adapts itself to such demand,
the value of money must inevitably increase, or the demand be lessened
by a checking of all business transactions, and a partial paralysis of
the industries of the country. Generally both of these results follow.

With these facts in mind, it is evidently futile to attempt to fix any
definite amount of money, per capita, as the proper one. Not only does
the amount necessary to meet the demand vary with different countries,
per capita, even among the most civilized nations, but it varies with
the seasons in each country, as crops have to be moved or not, and with
the state of credit and enterprise from day to day. France, where the
habits and customs of the people have prevented their making so large a
use of credit and banking facilities as in England, requires a larger
amount of money, per capita, than does England.

Since the value of money depends on these two factors, supply and
demand, if we are to have a money of invariable value, we must
evidently control one or both of these. It would be hopeless to attempt
to control all the various conditions and forces which, we have seen,
affect the demand for money. Fortunately it is not necessary. We cannot
control the demand, but we have, or can have, complete control over
the supply, and we can by this means maintain that constant relation
between the supply of, and the demand for, money which is essential to
its stability of value.

_Necessity for Invariable Money Value._

Returning to the reasons for an invariable money value, they are best
appreciated by considering the effects of one that is variable. While
the statement of Mill, previously quoted, "that the money prices of all
things should rise or fall, provided all rise or fall equally, is in
itself and apart from existing contracts, of no consequence," is true,
yet is it true only under the condition specified, that _all shall
rise or fall equally_, and this condition in the case of a fluctuating
money value never obtains. Aside from the exception which Mill makes
of fixed money contracts, which can never adjust themselves at all
to a changed money value,--and the exception is of enormous volume
and importance,--the prices of many commodities are not adjustable
quickly or readily to a change in money value, especially when such
change is an increase. There is a persistency or inertia about prices
that in many instances resists a reduction. Wages can never be reduced
without friction and often strikes. The fact that commodities have
fallen and that the lower wages will buy as much, or more, than the
higher ones formerly did, is slow of appreciation; hence the employer
caught between the difficulty of reducing his employés' wages and the
falling prices of his products, is injured by an increased money value.
When the change, on the other hand, is a decrease of money value, the
employer will not as a rule advance wages until compelled to do so, and
the labourer suffers meanwhile from the rising prices of commodities.

When prices fall, the producers of a commodity are not apt to recognize
that it is a general fall, a change in money value; but accustomed to
regard money as invariable in value, as it should be, and, failing to
see anything in the conditions affecting their own particular product
that should lower the price, they delay or refuse to sell, hoping for
higher prices; and all, or a large number, doing this, makes business

The great injury and evil of changing money value comes, however,
through fixed money contracts. The enormous amount of bonded
indebtedness, railroad, municipal, county, state, and national, makes
the slightest change of money value of vast importance, and added to
these is the aggregate volume of commercial and private debts.

In short, a change of money value either way is a robbery, and none
the less reprehensible because it is legal and insidious. Indeed,
it is perhaps more damaging in its secondary effects because of its
insidiousness. An open danger may be guarded against, but the hidden
danger, known to exist, but which cannot be located or prevented, only
excites fear and distrust, and checks all movement. Nor is the damage,
in its secondary effects, confined to those involved in fixed money
contracts. Piracy on the seas or robbery on a highway, when common,
injure not alone those who are robbed. The fear and distrust engendered
by such occurrences damage and delay all commerce; and the cost of
protection against these menaces, or of avoiding them by taking more
circuitous routes, are a burden on the whole people. So the robbery by
a fluctuating money value affects, indirectly, the whole community,
while the indirect effects are far worse. In the case of a decreasing
money value the robbery does not bring such disastrous consequences in
its train as where the change is an increase, owing to the different
conditions of the people robbed.

A slight decrease of money value generally brings about a stimulation
of trade and industry, the rising prices of commodities acting as a
spur to greater production and new enterprises.

Mr. F. A. Walker, indeed, considers that for this reason, and in spite
of the recognized injustice to some classes, that such a condition
when slight and brought about by natural causes, is a benefit on the
whole. It can hardly be admitted that robbery of one large class in a
community is defensible, even if it does result in a gain to another
class greater than the loss to the first. It is indisputable, however,
that the opposite case, where money is increasing in value, brings
such disasters in its train that it would be better, if an invariable
value for money could not be attained, that the variation should be a
decrease rather than an increase. In the latter case not only is the
robbery equally great, but falling upon the most active, industrious,
and enterprising class of the community,--for it is this class as a
rule that are borrowers,--it not only imperils all they possess, but
discourages, when long continued, all forms of industry and enterprise.
In this way it throws thousands of men out of employment and brings
suffering and hardship to thousands more. No other one cause, perhaps,
is more responsible for "panics" and "hard times," with their attendant
evils--tramps, pauperism, and crime. Its evils have been painted by
many writers, and it is scarcely possible to exaggerate them. Of all
ills, war and pestilence alone seem to fill the cup of human suffering
more nearly full than the depression and stagnation of industry which
is brought about by constantly declining prices.

In view of these facts, the necessity for a money that shall vary in
its amount in accordance with the demands of business is evident.
Not only must it respond to the long-continued, slow, and almost
imperceptible increase of demand due to growing trade and population,
but it should also respond, quickly and surely, to those sudden
demands, known as panics, when credit fails for any reason to do its
usual work. This need is recognized by bankers in their demand for a
flexible or elastic currency.

Quotations are hardly necessary in support of the foregoing statements,
but a few may be given. David Ricardo, in "Proposals for an Economic
and Secure Currency," observes that:--

"All writers on the subject of money have agreed that uniformity in the
value of the circulating medium is an object greatly to be desired."

"A currency may be considered as perfect of which the standard is
invariable, which always conforms to that standard, and in the use of
which the utmost economy is practised."

"During the late discussions on the bullion question, it was most
justly contended, that a currency to be perfect should be absolutely
invariable in value."

Prof. J. L. Laughlin, in "The History of Bi-metallism in the United
States," remarks, p. 70:--

"The highest justice is rendered by the state when it exacts from the
debtor at the end of a contract the _same purchasing power_ which the
creditor gave him at the beginning of the contract, no less, no more."

Prof. R. T. Ely says, in his "Political Economy," p. 191:--

"It is not the 'much or little,' but it is the 'more or less' that
is of vital concern. Nothing produces more intense suffering than
a decrease in the amount of money, and this is on account of the
connection between past, present, and future in our economic life."

This refers to a decrease relative to the demand, evidently, and he
says, further:--

"If the amount of money is arbitrarily increased, so that the value of
all debts may fall, it amounts to virtual robbery of the creditors.
When arbitrarily the amount of money is decreased, it amounts to
virtual robbery of the debtor class."

"It may also be urged that with the progress of improvements in
industry, prices tend to fall, and that unless money increases
in amount, those who take no active part in these improvements,
nevertheless gain the benefit of them."

Prof. Sidney Sherwood, in the "History and Theory of Money," says, p.

"The ideal that we want, so far as price adjustment is concerned, is
to keep prices stable, so that a contract which is payable in one year
from now can be paid with just the amount of commodities which will
then represent the value stated in the contract of to-day....

"That is what we want,--a stability of prices that persists from one
year to another and from one generation to another....

"The object at which we aim is, as it seems to me, a currency which
shall keep prices stable, a currency which shall expand, therefore,
with the expansion of trade and commerce and development generally, a
currency which shall not be lagging behind the commerce and development
of the country, and hindering that development, and a currency
which shall not, by being too rapidly increased, lead to excessive
speculation and to loss."

We may summarize these conclusions in regard to money then as follows:--

Money should have an invariable value.

The test of invariable money value is stability of prices in general.

The value of money depends on the supply of it relative to the demand
for it.

The demand for money is variable and uncertain. It is affected by a
great variety of circumstances, most of which are beyond control.

The supply is in all cases regulated directly or indirectly by law, and
can be controlled.

In any monetary system it is necessary, therefore, that the supply
should adjust itself quickly and correctly to any changes in demand, so
that prices of all commodities shall, on the average, neither rise nor
fall. In this way, and in no other, can an honest money be obtained.

It is believed that these conclusions cannot be successfully
controverted, and, using them as a basis, we now purpose to examine
existing monetary systems, and some proposed changes therein, to see
in how far they conform to this requirement, and what can be done for
their improvement.



Various substances have been used as money in the past. The "survival
of the fittest" has, however, eliminated all but three (omitting
fractional coins), and these are used, singly or in combination, at
present in all the civilized nations of the world. These three are
gold, silver, and paper. Gold and silver are generally used in the form
of coins of definite weight and fineness. Paper money is a promissory
note issued by the government, or by authorized banks, promising to pay
the bearer, on demand, the amount of coin specified on its face.

Where this promise is kept, and coin is paid on demand, the paper is
said to be convertible. Where, for any reason, the promise is not
kept, and the amount of coin specified will not be given on demand, the
paper is called inconvertible or irredeemable.

As the coins which are used, and which are promised to be given in
exchange for paper, may be either of gold or silver, or both, the
system is said to be a gold standard or a silver standard, according
to which one is used, or a bi-metallic standard if both are used under
certain conditions. At present, as will be explained in considering
that system, there is no country that is really using a bi-metallic

Where the paper money is inconvertible, the coin on which it is based
does not circulate with it (for reasons which will appear later), and
such a system must be regarded as distinct from the others, no matter
whether the basis be gold or silver. Three systems are therefore in
use,--the gold standard, the silver standard, and the inconvertible
paper. The characteristics of each of these will be considered
separately, but, taken as a whole, some facts should first be noted.

Money in all countries is at present essentially a creature of the law.
Not only does the government fix the weight and fineness of the coins,
but it assumes the right to make the coins, and in some cases to limit
the coinage to a certain amount, or to stop coining altogether. It
also, in most cases, issues the notes or paper money, and where it does
not it controls the issue by laws regulating the banks that do issue
them. It controls therefore in all cases the volume of money issued,
both by specifying that it shall be made of certain metals which are
scarce, and perhaps limiting the coinage of those, and by limiting the
amount of paper money that is generally used, to a greater or less
extent, in all systems.

There is no international coin or money. Gold and silver when shipped
from one country to another go as so much bullion; their value is
practically the same whether coined or uncoined. As Walter Bagehot
observes, in his work "Lombard Street":--

"Within a country the action of a government can settle the quantity,
and therefore the value, of its currency; but outside of its own
country no government can do so. Bullion is the cash of international
trade; paper currencies are of no use there, and coins pass only as
they contain more or less bullion."

Not only is the value of money as a whole, in any country, governed by
the law of supply and demand; but each of these three kinds of money,
and each of the substances of which they are made, is individually
subject to the same great law.

_The Gold Standard._

The wide and long-continued use of gold as money has led to a popular
impression, current even among well-informed men, that somehow, or in
some mysterious way, gold has stability of value and is independent
of those fluctuations which they recognize in the values of all
other substances. That this is wholly erroneous is admitted by every
writer on finance, and quotations are hardly necessary to support the
statement that gold varies in value in the same way and is subject to
the same law of supply and demand which regulates all other values.

Along with this conception of stability in the value of gold, has
grown up a very natural belief that where paper or silver circulated
concurrently with gold, so long as they were mutually convertible, gold
was the medium which regulated the value of all; and that no matter
what the quantities of the others might be, they did not affect the
value of the gold or of the money as a whole. This is another popular

In one sense the gold regulates the value of the money, but only to the
extent that it limits, under the existing laws, the volume of the whole
by its scarcity. In another and wider sense the value of the gold is
itself fixed and controlled by the value of the money in its entirety.
The use of gold for money is so enormously greater than its uses for
all other purposes, that its value as money fixes its value as a whole,
since its money use is by far the largest factor affecting the demand
for it.

The demand for money is generally an indiscriminate demand, satisfied
with paper money or silver as well as with gold where they circulate
together. Hence, every issue of paper or increased coinage of silver in
any such country, demand remaining the same, lowers the value of the
money as a whole by increasing the supply, and since the value of gold
is determined by its value as money, that is lowered with the rest.

The value of gold varies, therefore, with that of the money as a whole
of which it forms a part.

In gold standard countries the coinage of gold is unlimited, and--not
to speak of the small mint charges--generally free. Under these
conditions the value of gold coin and gold bullion are the same, weight
for weight. The silver coin, which is used to some extent in gold
standard countries, does not have either free or unlimited coinage at
present. Its bullion value is less than its nominal and actual value,
which is maintained at a par with that of gold by the limitation of
its issue,--just as in the case of paper money,--and by the fact that
within the country of issue it does the same work as the gold, just
as paper money does. Men will give just as much of any commodity for
the silver coin or the paper as they will for the gold, because, their
utility being the same, their exchange value must also be the same.

With these facts explained, we can proceed to consider a very important
law affecting the value of money and its distribution among different

_Gresham's Law._

It was noticed and stated many years ago by Sir Thomas Gresham that
full-weight coins would not continue to circulate with clipped, worn,
or light-weight ones, and that the latter would drive the former out of
the country. This statement has been extended and enlarged into what
is known as Gresham's Law, which, as generally formulated, is that
a poorer money will drive a better one out of circulation. In this
form it is commonly accepted as true, but is often misunderstood and

It is, in fact, but a particular case of the more general law that any
commodity will seek the market where it is worth the most, where it
will exchange for the most of other commodities.

The full-weight coins would exchange for no more in the country of
issue than would the light-weight ones (within certain limits), but
when it was desired to ship coins to other countries where they were
valued by weight and not by tale, the full-weight ones were more
valuable, and were, therefore, selected for such shipment, leaving the
poorer ones to circulate at home.

The larger application of Gresham's law to money as a whole is as

The resultants of all the various forces acting on money value through
supply and demand evidently must be different in different countries,
and thereby may cause the money of one country to rise in value while
that of another falls. When this occurs between two countries using
the same metal as a part of their money,--that is, either between
two gold-standard or two silver-standard countries, Gresham's law
immediately operates to bring the two moneys again to a uniform value.

Since the gold varies in value with the money as a whole, it will,
under such circumstances, be worth more in the country having the
higher money value than in the other, and a flow of gold will set in
from the country where it is worth the least to the one where it has
the greater value. This flow of gold decreases the amount of money in
the country from which it goes, and increases the amount in the other,
thus raising the value of money in the one, and lowering it in the
other, until they are again on an equality within the limits of the
cost of shipping gold from one to the other.

The operation of this law, therefore, tends to make the value of money
uniform, and average prices the same in all countries using the same

The gold which thus flows from one country to another does not go,
of course, without a return of other commodities in exchange. The
operation will be clearer if stated in its converse form.

Since prices and money values are complementary terms, one rising as
the other falls, and _vice versa_, a rise in the value of money means
lower prices, on the average, in that country. People will buy in the
cheapest market, and if prices are lower in one country than in others,
they will buy in that country in preference to others; the balance of
trade, as it is called, will be in their favour; gold will be sent in
payment for the commodities bought: it will increase the money supply
and raise prices there, and at the same time it will lower those of the
country from which it goes until prices in the two are again on a level.

It must not be supposed, however, as it evidently has been by some,
that the operation of this law in regulating prices and making them
uniform as between different countries at the same time, has any effect
whatever on prices and money values as between two different periods.

An increase or decrease of money value may go on simultaneously in
all countries, and no flow of gold be caused; the value of gold would
continue to be the same in all countries, yet might be much higher or
lower at the end than at the beginning of the period.

To illustrate: the different countries may be compared to several tanks
connected at the bottom by pipes, and containing water, the level of
which, representing money value, is continually fluctuating with the
amounts of water added to or drawn from each of the tanks. If the water
rises higher in one tank than in others, a flow will set in from the
higher to the lower until all are again on a level; but if the cause of
the rise in the one tank continues, or if the cause extends to all the
other tanks, the level in all the tanks may be greatly changed.

So the continued preponderance of the forces in one direction,
operating either to decrease or increase money value in one country
alone or in all together, will raise or lower that value in all the
countries which are connected by the use of the common money metal,
under a free coinage system. Thus the large discoveries of gold in
one country will by this means gradually spread themselves over all
gold-using countries. The country where the gold is discovered, is, of
course, the richer by the amount discovered, and is none the poorer
because of its flow to other countries, for such country receives the
same value of other commodities in exchange for the gold.

Through the medium of gold, therefore, general prices are maintained at
the same level approximately in all gold-standard countries.

The great defect of the system is, that, because of this mutual bond,
no one country can adjust the volume of its money to the demand so
as to maintain prices constant. Only by an agreement faithfully
carried out by all, or by most of the leading countries, would this be
possible. There is no such agreement now existing, nor any likelihood
of the leading nations agreeing to do this, and the value of money in
all gold-standard countries is the resultant of all the various forces
that act upon its supply and demand, with no intelligent attempt to
control either; it is, in fact, the foot-ball of politics, selfish
interests, and chance.

Neither the annual supply of gold nor the total amount used as money is
the principal factor in determining its value. It cannot be doubted
that if all the nations now using the gold system were to abandon it,
the value of the metal would be but a fraction of its present value,
and on the other hand, if all the nations now using silver and paper,
in whole or in part, as money, were to change to the gold standard, its
value would be increased to many fold what it is now. The legislation,
therefore, of all countries is the great factor determining coin value,
not alone in the country legislating, but also in all other countries
using gold and silver as a basis for their system. The factor next in
importance is the extent to which credit is used in the place of money.
The total production of gold is so small beyond the amount used in the
arts and sciences that it would require a great change in its value,
and years of time, for any increased production due to higher value to
affect materially the quantity of gold coin in use. The production of
gold depends more on chance, and less on its labour cost, than the
production of almost any other commodity; and though it would be, and
is, stimulated somewhat by a higher value, there is no such certainty
of its increased production being commensurate with the increased
labour expended on it as there is in the case of most commodities.

_The Silver Standard._

When the money system of a country is based on silver, and that metal
has free and unlimited coinage in the mints, as gold has in countries
using the gold standard, the same laws apply as in the case of gold.
Exactly the same forces operate to affect the volume and value of the
money except that the production of silver, its use by other nations,
etc., are the factors, instead of gold supply and use. The coin and
the bullion are equal in value, weight for weight, and Gresham's law
applies the same as it does to gold to regulate the flow of silver from
one silver-standard country to another.

In some silver-standard countries, however, the coinage is not free
and unlimited, the government purchasing the silver at its market rate
and coining it in such quantities as it sees fit. In this case the
bullion value does not coincide with the coinage value: the latter
depends entirely on the amount that is coined, relative to the demand
for money, and is independent of the bullion value of the silver. The
coin will be of higher value than the bullion, and will not be exported
to other countries, as the bullion is equally valuable for that purpose
and less costly. It is evident that the value of money is just as
dependent on chance,--that is, on a variety of causes too intricate and
uncertain to be controlled,--in the case of the silver standard with
free coinage as in the case of gold; but as some of the forces acting
on silver are different from those acting on gold, one standard may be
much more stable than the other.


The theory of bi-metallism--a money founded upon both gold and silver
coin--is based upon the fact, before stated, that the value of each
of these metals is really determined by the value of the money, as a
whole, of which they form a part--their use for money purposes being
so much greater than their other uses as to be the determining factor.
If all nations, or a sufficient number of the leading ones, agree to
coin both gold and silver in any amounts presented, and at the same
ratio, the values of each relative to the other will be fixed at that
ratio. No other market could be found for either metal at a higher
ratio. The plan requires, of necessity, free coinage of both metals
by several nations and in the same ratio. If the ratio differs in
different countries, or if there are too few countries that are party
to the agreement, the operation of Gresham's law will separate the two
metals, and cause each to seek the country where it is worth the most
as measured in the other. The supply of each metal is independent of
the other, and their values, therefore, can only be kept the same by a
control and adjustment of the demand thereto.

Where silver and gold are both coined freely at a fixed ratio, if the
supply of gold decreases, a portion of the demand for that metal--it
being more valuable than silver--would be immediately transferred to
silver, raising the latter and lowering the former value, and thus
keeping their values at the same ratio. This, however, would not
necessarily keep the value of the money constant as regards general
commodities, and prices would still fluctuate. The variations would
be spread over both metals, and, as shown by Jevons and others, would
probably be more frequent, though less extensive.

Theoretically, therefore, a bi-metallic standard is little if at all
better than a single standard. Whether it would be better or worse
than gold or than silver would depend altogether on the conditions at
any particular time, and it is therefore as much the victim of chance
as either of the metals alone, so far as providing a money of stable
value is concerned.

As already stated, no nation is now using a bi-metallic standard.
Countries like France and the United States, which nominally have the
double standard, have long since restricted or stopped the coinage of
silver and are really on a gold basis, their silver coins being at par
with gold and worth much more than their bullion value.

Prior to about the year 1873 these nations, as well as several others,
coined silver as well as gold in any amount presented, and all nations
using coin were practically on a bi-metallic basis, the ratio between
gold and silver values having been maintained at 15-1/2 to 1 (the
coinage ratio in Europe) for many years within narrow limits. The
United States had adopted the ratio of 15.988 to 1 long before this
time, and as a result the silver had all left this country in obedience
to Gresham's law, as it was worth more relative to gold in Europe.

About the date above mentioned there was a great change in the coinage
laws of several countries. Germany changed to a gold basis, selling
a large stock of silver; France and other nations also practically
changed to a gold basis by stopping the coinage of silver. As a result
of this the relative values of silver and gold changed considerably.
The demand for gold increased, and the demand for silver decreased.
Silver fell gradually in value relative to gold, and this effect was
further affected by large discoveries and greater production of silver.

The United States also stopped the free coinage of silver at about the
same time as the other countries, but this had no immediate effect on
the relative values of the two metals, for this country was at that
time, and for several years afterward, using an inconvertible paper
money--no coin of either kind being in circulation. It had, however,
a large subsequent effect; for when the United States returned to a
specie basis, if the coinage of silver had not been stopped, silver
would have been coined in preference to gold, being the cheaper, and
this country would have been on a silver rather than on a gold basis.

_Paper Money._

Paper money differs radically from coin in one respect. Its circulation
is confined to the country of issue. It may indeed be confined to
a small part of such country--as in the case of some of the old
bank-notes--when the solvency of the issuing power is unknown or
uncertain. This, however, may be regarded as an abnormal case.

When issued by the Government or by authorized banks whose solvency is
unquestioned, it is accepted as freely as coin, and if not so accepted,
cannot be considered good money. We shall consider only the case where
it is generally accepted.

Being usually a promise to pay coin, on demand, it can, in one sense,
be considered honest only when the promise is kept. If the issues are
excessive,--that is, if by increasing the volume of the money as a
whole its value is lowered so that the coin is worth more in some other
country than as a part of that money system,--the coin will leave the
country, as has been explained in regard to gold. The paper simply
acts as so much gold or silver would act if added to the currency,
forcing out a certain amount of coin. Where both metals are used with
the paper, the one to go would depend on which was worth the most,
relatively, in other countries. If the issues of paper are continued
long enough, all the coin will leave the country, and, if still
continued, the value of the money will sink below that of the coin, as
the paper will not leave the country, but will accumulate, lowering
the value with each new issue. The system will then have changed to
an inconvertible paper system, the value of the money being no longer
dependent on the value of the coin on which it is based, and no longer
affected by changes of money value in other countries, but determined
wholly by the amount issued, relative to the demands of business in the
country of issue.

If the issues continue in excess of demand, the value will lower, even
to the point of utter worthlessness; but if properly controlled and
limited, the value of the money can be maintained at any point desired
far more readily and easily than in the case of a convertible paper
and coin system, since many variable forces are excluded when the
convertibility is dropped.

The amount of paper money that can be kept at par with coin under a
convertible system bears no fixed relation to the amount of the coin.
By a proper control of the volume of paper issues their value can be
kept equal to coin value, with almost no coin in circulation, or
in reserve. An excessive issue of the paper will cause coin to be
exported, but this export may be checked, and an import produced by
withdrawing some of the paper.

Some control, therefore, may be exercised over the value of money
under a convertible system, to make such value constant, but this is
evidently limited. If the value of the money is falling, the decline
can be checked, and its value made to rise, by withdrawing some of
the paper issues; but this will cause an importation of coin, partly
offsetting the reduction and checking such rise, and when all the paper
has been withdrawn, the power of control by this method ceases. If the
money value is rising, an increase of paper issues will stop such rise,
but it will cause the exportation of coin; and when all the coin has
been exported, the money will cease to be convertible, and the system
will have changed to an inconvertible one,--the money still possessing
the same qualifications as a measure of value that it possessed in the
former case. The only difference is, that in the convertible system
the money value is partly determined by the natural causes affecting
the supply of coin, partly by the laws and conditions of business in
foreign countries, and partly by the legislation at home, restricting
the coinage or the issue of paper; while in the inconvertible system
it is determined wholly by the control of the issues relative to the
demand for money.

This difference may constitute either a merit or a defect, according as
the control is intelligent and honest or otherwise.

The disastrous consequences that have resulted at various times from
the use of inconvertible paper money, have, in every case, been due
to a lack of proper control and to excessive issues, caused generally
by the want of a reliable gauge by which to determine the amount that
should be issued, and by a misunderstanding of the principles involved.

While paper money, though a promise to pay coin, cannot, in one sense,
be called honest, unless the promise is kept; in a larger sense the
test of its honesty is its invariability of value.

John Stuart Mill says of inconvertible paper money:--

"In the case supposed, the functions of money are performed by a thing
which derives its power of performing them solely from convention; but
convention is quite sufficient to confer the power; since nothing more
is needful to make a person accept anything as money, and even at any
arbitrary value, than the persuasion that it will be taken from them
on the same terms by others. The only question is, what determines
the value of such a currency; since it cannot be, as in the case of
gold and silver (or paper exchangeable for them at pleasure), the
cost of production. We have seen, however, that even in the case of
metallic currency, the immediate agency in determining its value is
its quantity. If the quantity, instead of depending on the ordinary
mercantile motives of profit and loss, could be arbitrarily fixed by
authority, the value would depend on the fiat of that authority, not on
the cost of production.

"The quantity of a paper currency not convertible into the metals at
the option of the holder _can_ be arbitrarily fixed; especially if the
issuer is the sovereign power of the State. The value, therefore, of
such a currency is entirely arbitrary."

Prof. F. A. Walker, in his "Money, Trade, and Industry," observes, p.

"After looking at this subject from every side, I am at a loss to
conceive of a single argument which can be advanced to support the
assertion of the economists, that paper money cannot perform this
function of measuring values, so-called. On the contrary, it appears
to me clear beyond a doubt, that just so long and just so far as paper
money obtains and retains currency as the popular medium of exchange,
so far and so long it does and must act as the value denominator or
common denominator in exchange. And I see no reason to believe that in
this single respect, hard money, so-called, possesses any advantage
over issues of any other form or substance which secure the degree of
general acceptance which is necessary to constitute them money."

He says, further, on p. 214:--

"Such money, so long as its popular acceptance remains undiminished,
performs the office of a standard of deferred payments well or ill,
according as its amount is regulated."

Paper money is a real economy over gold and silver. Its use substitutes
for those coins, that involve much labour in their production, a money
of slight labour cost, which, under proper control, performs the
functions of money even better than the coin.

If, in any country possessed of the gold basis system, the gold product
was wholly deposited in vaults, and paper certificates issued therefor
to the amount of the deposits, such certificates, if in proper form
and denominations, would answer all the requirements of a circulating
medium even better than the gold, and their value would be exactly
the same as that of the gold they replaced. By this method,--in a
measure, the English system,--the country saves the wear and tear,
besides considerable loss of gold, and is better served. The gold thus
deposited, except a comparatively small amount shipped abroad at times,
would never be called for: its sole purpose would be to regulate by its
scarcity the amount of the paper money issued; beyond this purpose, it
might as well be iron or lead as gold, or might as well have remained
in the mines, from which it was dug at the expense of so much labour,
as to be in the vaults.

It would be difficult to conceive of a method of controlling money
volume and value more expensive, more clumsy, and more inefficient than
this; for, it is to be noted, the control in no way adjusts the volume
of money to the demand, so as to maintain a stable value, but merely
adjusts the value to that ruling in other countries,--a matter, as we
shall see later, of no importance whatever.



_Gold-Standard Prices._

Having considered theoretically the limitations and possible merits
and defects of the money systems now in use, we shall next consider in
how far the money under such systems conforms in practice to the chief
requirement,--stability of value.

Economic writers do not claim that either gold or silver is, or has
been, of invariable value; but many of them do claim that gold is more
nearly invariable than any other commodity, and that it is sufficiently
so for money purposes, the changes in value being slight and covering
long periods of time, so that from year to year they are almost
imperceptible. Other writers claim that silver has been, of recent
years at least, more stable in value than gold, and is therefore a
better measure of value.

The merits of these claims can be tested, in the same way that the
stability of value of any commodity can be tested, by a comparison of
the average purchasing power of each metal at different times.

Prof. F. A. Walker, in the work already cited, observes, regarding
money value under the gold standard as tested by average prices:--

"Not to speak of the enhancement, many fold, of the value of money
through the Silver Famine of the Middle Ages, or of the sudden and
extensive decline which has been referred to as taking place between
1570 and 1640, it is estimated by Professor Jevons that the value of
gold fell 46 per cent. between 1789 and 1809, that from 1809 to 1849 it
rose 145 per cent., while between 1849 and 1874 it fell again at least
20 per cent."

Coming down to more recent times, we have more full and accurate data,
and there have been several careful compilations and averages of prices
made in different countries. The report of the Finance Committee of the
United States Senate, 52d Congress, on "Wholesale Prices, Wages, and
Transportation," known as the "Aldrich Report," is doubtless the most
accurate and complete examination of prices in this country from 1840
to 1892 that has ever been made. This report also gives for comparison
the tables of Soetbeer and Sauerbeck (two of the most distinguished
European statisticians), and the table of the _Economist_ (London) as
to foreign prices, all reduced to the same basis, and to United States
money units in gold.

In order to facilitate comparison of these data, the tables have been
platted as diagrams in Plate 1. All the tables were prepared by taking
the prices of a selected list of commodities for the year 1860 as 100,
and calculating the variations in the price of each commodity from
the price of that year as a percentage of rise or fall. The average of
these percentages for each year represents, therefore, average prices
for that year, as compared with 1860, and it is these averages which
are platted in the diagrams.

The list of commodities selected by the Senate Committee embraces 223
articles for the years subsequent to 1860. Prior to that time the
number was less, varying from 85 to 223, according as data were to be

Dr. Soetbeer's table shows prices in the port of Hamburg, Germany, of
100 commodities, mostly raw materials, joined with the export prices of
14 commodities (manufactures) in England, from 1851 to 1891.

Mr. Sauerbeck's table shows English prices of 56 commodities from 1846
to 1891.

The _Economist_ table also shows English prices of twenty-two
commodities from 1860 to 1892.

The discrepancies between these different authorities, as shown by the
variations in the lines of the four diagrams, call for a few words of

It would naturally be expected that some differences in average prices
would exist between different countries, and part of the discrepancies
may be accounted for in this way, since there are included in all the
tables, among other commodities, such as wood and coal, of which the
prices might vary considerably in different countries independently of
one another.

Several changes in the tariff in this country during the last fifty
years would account for some discrepancies between United States prices
and the others. Furthermore, the method by which these tables were in
the main prepared, that of taking simple averages of the percentage of
rise or fall in price, thus giving to each commodity the same weight
in the result, regardless of its importance in commerce, is open to
serious objection, and doubtless accounts for many of the discrepancies
that exist. For example, the great rise in prices during the period
of our civil war, as shown in the _Economist_ and the United States
tables, above those shown in the other two tables, is doubtless due
to the fact that in the _Economist_ table, four out of the twenty-two
commodities in the list are either raw cotton or cotton manufactures,
and the great rise in price of cotton during the war (a rise of from
300 to 400 per cent.) is given an undue importance in the result.
The same cause may affect the United States table, to some extent,
but a more potent factor in this table is the circumstance that this
country, during the period, was using an inconvertible paper money in
which all prices were expressed, while gold was a commodity subject to
speculation, and the price of which was much affected thereby; and,
in reducing currency prices to gold prices, for this table a somewhat
abnormal result is produced.

The _Economist_ list, it must be said, contains too few commodities to
be a reliable index of all.

The United States list is sufficiently large, but the articles selected
may be open to some criticism.

The lists of Mr. Sauerbeck and Dr. Soetbeer are preferable, but all
are open to the objection, above noted, of not giving a weight to
each commodity in proportion to its importance, and none of them can
therefore be regarded as anything but approximations to the truth. They
embrace, however, the best information on the subject extant.

The United States Committee did, in fact, endeavour to balance their
own list in accordance with the relative importance of the articles
in another table, but the result is not wholly satisfactory, as the
weighting of the averages was done by groups of articles instead of
individually for each. It represents, however, probably the most
accurate information as to the purchasing power of gold in this
country from 1840 to 1892 that can be obtained, and as such has been
platted in Plate 2, in a reverse form; that is, assuming that the 223
articles of the list, weighted according to their importance, fairly
represent _all_ commodities, and that therefore their value as a whole
is constant (since the values of all commodities cannot rise or fall
simultaneously). The diagram shows the relative values of gold for the
different years as a percentage on the value of 1860 taken at 100. In
other words, it shows the relative average purchasing power of gold in
this country in the different years.

With these explanations of the diagrams, and the limitations of the
tables from which they were platted, we can proceed to consider their
points of resemblance and what they teach.

It is evident from all of them that a great decline in average prices
has been going on, almost continuously, since 1873, in the various
commercial countries. This is a fact conceded by all students of prices.

What is equally apparent, however, but does not seem to be so generally
appreciated, is the violent fluctuation in prices, or in the value
of gold, from one year to another, amounting in many instances to
from 5 to 10 per cent. in a single year, and, during the war, to much
more. Doubtless if the tables had shown the fluctuation of prices by
months or days, instead of the averages for each year, a much greater
variation in the value of gold would have been apparent at times,
and within a shorter period than a year. Furthermore, the prices of
staple commodities (and most of the commodities in all the tables are
staples), while representing correctly the _character_ of the changes
in price of all commodities, would naturally not vary as much as the
prices of many more speculative articles of commerce. It is probable,
therefore, that gold has varied in value to a greater extent, and
within shorter periods, than is shown by the diagrams.

It would be impossible to trace all the various causes that have
produced these changes in money value, but a few of the more prominent
ones may be indicated as showing their great variety and force.

From 1840 to 1849 a great decline in prices is noticeable, similar to
the decline that we know has been going on in the last twenty years.
This is doubtless due in both cases mainly to increasing demand for
money, caused by growing population and expanding commerce, and which
the supply of gold and silver or substitutes therefor did not keep pace
with. From 1850 to 1857 prices generally rose, owing to the increased
gold production in Australia and California, aided doubtless by the
increased use of credit which rising prices always stimulates. The
collapse of this credit in the panic of 1857 sent prices down again.
The slow recovery from this condition was greatly enhanced by the
breaking out of the Civil War, during which thousands of men were
destroying instead of producing, thus raising the prices of nearly all
commodities by decreasing the supply and increasing the demand relative
to gold, while meantime the demand for gold was lessened by the use of
paper money in this country. The disbanding of the armies at the close
of the war, and the return of labour to productive enterprises, lowered
prices rapidly during 1867, 1868, and 1869. From this depression
they recovered almost as rapidly in the era of development from 1869
to 1872, the large production of silver from the Nevada and other
discoveries during that period assisting greatly in this recovery, and
the usual extension of credit at such times also contributing. This
credit collapsed in the panic of 1873, and the demonetization of silver
by several European nations about the same time prevented any increased
production of silver from affecting the decline which then set in, and
which has with one or two reactions been continuous ever since.

In the light of the facts, shown by these diagrams, any claim for even
approximate stability of value for gold, or for the money as a whole
on the gold basis, under the systems now in use, is preposterous.
Moreover, the change has been, of late years, of the worst kind,--an
increase of money value. If it were steady, its effects could be
calculated and discounted to some extent, but caused, as it is, by a
variety of forces of varying strengths, the increase is at some times
wholly nullified, or even turned to a decrease, by extensions of
credit, while again it is doubled in effect by the withdrawal of such

The reason for this great decline in prices, or the increased value of
gold, is not far to seek when we consider the relative strengths of
the forces acting on gold value. Population, wealth, and diversity of
occupations have all increased greatly over the whole civilized world,
requiring a much greater amount of money to do the business of the
world. There has been, to be sure, as an offset to this, a considerable
increase of banking facilities and some greater use of credit paper in
its various forms; but all these were in large use prior to 1873, and
their increase can hardly have been so great as to meet the demands of
growing commerce. Furthermore, of the other forces tending to raise
the value of gold, the annual product of that metal has not increased
materially, though the demand for it for other than money purposes has
increased largely, leaving a less increment to neutralize the waste and
to increase the supply of it. And lastly, many countries, as we have
seen, about the year 1873 so changed their monetary laws as to use a
much greater amount of gold, and a less amount of silver or paper. The
United States alone, it is estimated, now uses about $600,000,000 of
gold coin, while in 1873 it used practically none.

The effects of this increase in the value of money have been--as the
effects of falling prices always are--detrimental and disastrous in all
gold-standard countries, to an extent that cannot be measured. Offset
at times by increased use of credit, enterprise and industry have been
able to rise to a success that an honest money would make their normal
condition, only to be dashed down again by the collapse of credit with
nothing to take its place.

_Silver-Standard Prices._

There is a quite prevalent belief that the value of silver has fallen
greatly since 1872. This is a natural sequence to the belief that gold
has been stable in value, as the gold price of silver has declined from
$1.32 per ounce in 1872, to $0.82 per ounce in 1892 (and since then
the decline has been much more). This fall of about 38 per cent. must
be deducted from the rise of from 24 to 41 per cent. (according to
the different authorities) in the value of gold, in order to show the
true change in the value or purchasing power of silver. It is evident,
therefore, that the value of silver has been much more nearly constant
than that of gold.

This is confirmed by the statement of Mr. David A. Wells, in his work
on "Recent Economic Changes," p. 236. There, Mr. Wells remarks:--

"In exclusively silver-using countries, like India and Mexico, the
decline in the value of silver has not appreciably affected its
purchasing power in respect to all domestic products and services; but
the silver of such countries will not exchange for the same amount of
gold as formerly, and it might be supposed that, owing to this change
in the relative value of the two metals, the silver of India, Mexico,
and other like countries would purchase correspondingly less of the
commodities of foreign countries which are produced and sold on a gold
basis. But the people of such countries have not thus far been sensible
of any losses to themselves thereby accruing, for the reason that the
gold prices of such foreign commodities as they are in the habit of
buying have declined in a greater ratio since 1873 than has the silver
which constitutes their standard of prices."

He also says, in an article in _The Forum_ for October, 1893:
"Testimony was given to the recent British Commission on Indian
currency, that within the last twenty years half of the silver prices
of commodities in India have risen and the other half fallen."

In Plate 2, the dotted line shows the variations in the value of silver
since 1872. This diagram is platted from calculations of the percentage
of decline in the gold price of silver, taking the price of 1872 as 100
(this was also practically its price from 1840 to 1872, since the ratio
of 15-1/2 of silver to 1 of gold was maintained within narrow limits
during that time), and deducting these percentages of decline from the
percentage of increase in gold value.

In considering the relative constancy in the value of gold and silver,
the lines representing each should be compared with the level price
line of these metals in 1872. It will be noted that while silver has
kept closer to this line than has gold, and on the average has varied
but little from it, yet the fluctuations in the value of silver from
year to year are quite as marked as in the case of gold.

It will also be noticed that prior to 1872, under a bi-metallic
standard, both metals, while maintaining a constant relation to each
other, fluctuated in value quite as extensively as either alone has
done since.

The facts here shown as to the experience of this and other countries
for the past fifty years, bear out the theoretical conclusions before
stated, that the value of money, under any of the systems that have
been used, is subject to violent fluctuations from year to year, due to
a great variety of causes which are entirely beyond control, and that
neither silver nor gold singly, nor both combined, has ever proved a
reliable standard of value.



Before proceeding with the main line of this argument, we will digress
to notice some of the arguments put forth in support of the stability
of the value of gold by those who cannot but recognize the great fall
in general prices.

While such writers do not deny the truth of the fundamental principles
we have already considered, they either forget or ignore them.

Notable among such writers is Mr. David A. Wells, and as his views may
be taken as representative of many others, some statements from his
article in _The Forum_ for October, 1893, previously mentioned, are
here selected for criticism.

In the beginning of that article, as well as in his work, "Recent
Economic Changes," he clearly recognizes and states that there has been
a great and universal decline in the prices of a variety of commodities
within the last thirty years. He claims, however, that such a general
fall of prices does not prove that the value of gold has increased,
for the reason that, as he endeavours to show, such fall in prices was
caused by lowered labour cost of production, due to improved machinery,
better methods, greater division of labour, etc. All these facts may
be freely admitted; the error lies in supposing that it makes any
difference what the cause is. Since value is a relation, it will be
altered by a change in either of the terms between which that relation
exists, and it is immaterial whether a day's labour produces more
commodities in general, and the same amount of gold, or a less amount
of gold, and the same amount of commodities in general, as compared
with some former period. The value of gold, other things being the
same, is greater in both cases. The fact remains that if gold exchanges
for more commodities in general than formerly, its value has risen.
It is not clear what Mr. Wells' conception of value is, on which his
arguments are based. He, however, seems to regard the labour that a
commodity will purchase as the measure of its value, since he says, in
the magazine article: "And then, in respect to the one thing that is
everywhere purchased and sold for money to a greater extent than any
other, namely labour, there can be no question that its price _measured
in gold_ has increased in a marked degree everywhere in the civilized
world during the last quarter of a century."

"Measured by the price of labour, therefore, gold has unquestionably
depreciated; and can anybody suggest a better measure for testing the

The fallacy of using labour in any form as a test of value was pointed
out in the chapter on value. That the labour a commodity will purchase
is not in any way a standard of value, as between two different
periods, has been shown by almost every economist from Ricardo down to
the present time.

The above quotations, in connection with the following from the same
article, bring to light an important phase of the subject, which it may
be well to make clear. Mr. Wells remarks:--

"A decline in prices, by reason of an impairment of the ability of
the people of any country to purchase and consume, through poverty or
pestilence or by reason of the misapplication of labour and capital,
_i.e._ waste, ... is certainly an evil. But a decline in prices caused
by greater economy and effectiveness in manufacture and greater skill
and economy in distribution, in place of being a calamity, is a
blessing and a benefit to all mankind."

With growing knowledge, and the advancement of the arts and sciences,
there is a continual improvement in methods of production and
distribution, enabling the same amount of labour to produce and
distribute to consumers a far greater amount of commodities in general
than it formerly could. This has been conclusively shown in detail by
a mass of statistics in Mr. Wells' book. The question arises, to whom
should this increased product properly belong?

For the purpose of this inquiry the community may be considered as
divided into three separate classes, according to the source from which
their principal income is derived; viz.--

(1) Labourers,--including all whose income is principally derived from
their work, of hand or brain, whether as wages, salaries, or products
directly created.

(2) Employers of labour,--including all whose income is mainly derived
from investments of capital directly in productive enterprises in
the widest sense of the term,--those who take the risks of business
incident to the doing of the work of the community.

(3) Money lenders,--those whose income is derived from interest on
loans; who, not wishing to take the risks and cares of active business,
prefer to loan their capital to others who will do so, accepting as
their share of the profits a definite amount as interest.

The incomes of many people are derived, of course, from all three of
these sources, but they may be considered as belonging to the class
determined by their greatest revenue.

It is evident that labourers should have a share of the increased
product that greater skill, improved methods, machinery, etc., create;
since labour is the direct cause of such increase, and not only the
greater skill but the improved methods are due to labour.

Equally evident is it that the capitalist who has taken the risks
of business and whose wealth and enterprise have contributed to the
results, should also share in the increased product.

But all considerations of justice and equity forbid that those who,
declining to take any risk themselves, prefer to loan their capital
to others at a fixed compensation, should receive any share of the
increased product which labourers and employers may succeed in
creating, beyond such fixed compensation. Justice is satisfied when to
them is returned the _value_ they loaned with the interest agreed upon
for its use.

It must not be forgotten that what is really loaned is
capital,--commodities in general,--not money; the money is only a
medium for effecting the transfer, and a measure of the capital
transferred. What should be returned, therefore, in repayment of a loan
is the same amount of commodities in general that was borrowed,--the
same value.

It is _not_ meant that bond-holders and money-lenders should be
entitled to no share in the generally bettered condition of mankind
due to lowered labour cost of producing commodities. They should, and
in the long run would, receive their full share, through the higher
rate of interest that increased general profits would bring if money
value were constant, and by this means would obtain a _just_ share,
determined by open competition and not an unjust share, determined by
the insidious device of a varying measure. It _is_ meant, however,
that the money-lender is entitled to no share in any increased
productiveness of labour during the lifetime of his loan, beyond the
interest stated. He gets his share of such increased productiveness
through the higher interest he will subsequently receive in re-loaning
his capital.

If prices of commodities have declined while wages have increased,
as Mr. Wells claims, it shows that the labourer, on the whole, has
received some share of the increased production, since his wages will
buy more of commodities in general than formerly. Whether the employer
of labour has also received a share is more difficult to determine; but
it is absolutely certain, if prices have fallen, that the money-lender,
who is entitled to no share at all, aside from interest, has also
received a share, and a very large one in many cases; since the money
returned to him in discharge of a debt will purchase a much larger
amount of commodities in general than it would when it was loaned; and
this share has evidently been drawn from what should have gone to one
or both of the other classes, and they are wronged to that extent.

While the labourer may, or may not, have received the share to which he
was entitled during the last twenty years, it seems highly probable,
from Mr. Wells' statistics and arguments, that it is the employer of
labour--who as a rule is the borrower--who has been injured most by the
fall of prices.

One of the great aims and endeavours of mankind is to produce the
largest amount of commodities possible, with the least labour,--or to
lower the labour cost of commodities. It is this lowered labour cost,
which is "a blessing and benefit to all mankind," not lowered prices.
The two are not the same, nor have they any real connection. Lowered
labour cost depends solely on the improvement in skill, methods,
machinery, etc., which will go on as well with prices constant on
the average, as with falling prices,--in fact, even better,--and the
product will then be distributed honestly; while with falling prices
the distribution is dishonest.

It is important to keep clearly in mind the distinction between capital
and money. That Mr. Wells has not always done so, the following
quotation will show:--

"Nobody, furthermore, has ever yet risen to explain the motive which
has impelled the sellers of merchandise all over the world, during the
last thirty years, to take lower prices for their goods in the face of
an unexampled abundance of capital and low rate of interest, except
upon the issue of the struggle between supply and demand."

Capital is accumulated wealth devoted to the production of more wealth;
money is merely a medium for the exchange and transfer of wealth:
they are not synonymous terms. An abundance of capital may exist with
a small amount of money (relative to the demand) and consequent low
prices, or with a large amount of money and high prices: they have no

The rate of interest, also, has nothing to do with the question.
Interest is determined by the amount of capital seeking investment in
loans, relative to the demand, and in a time of relative contraction of
the volume of money, and consequent falling prices, will, as a rule,
be low, since there is less inducement for men to borrow capital to
engage in business, and more men wishing to lend. The risks of business
are much increased at such a time, and the profits much lessened, and
as the rate of interest is determined by the profits of business in
general, it will be low also. Mr. Wells, indeed, has recognized this
fact elsewhere in his writings, but has evidently forgotten it in the
above quotation.

The accumulation of money in banks in times of depression indicates
not too much money, but a general belief that its value is rising, or
a fear that it will rise; testifying, if to anything, to too little
money, in fact. Men do not hold a thing that brings no income unless
they expect to profit by its rise.

As to the main point of the above quotation, certainly men accept lower
prices for merchandise because of the issue between supply and demand,
but the supply of money is as much involved in the calculation as the
supply of merchandise. Men accept lower prices--that is less gold--for
commodities in general, because gold has increased in value. Mr. Wells
further says:--

"No one has ever named a single commodity that has notably declined in
price within the last thirty years, and satisfactorily proved, or even
attempted to prove, that its decline was due to the appreciation of

No one, of course, could prove by the decline in price of a _single_
commodity that money or gold had appreciated; but when a writer
admits, as Mr. Wells has done so clearly, that prices in general have
fallen, no proof is needed; the statements are but different ways of
saying the same thing.

That in order to establish the appreciation of money it is necessary
to show that _all_ commodities have fallen in price, or that the price
experiences of different commodities had harmonized in their decline,
as Mr. Wells implies, is manifestly absurd. Even if average prices
were constant, there would be continual fluctuations of individual
prices, some rising, others falling, and these continue the same with
an increasing money value, so that some prices might not alter at all,
or might rise even with a rising money value, but others again would
decline in a greater degree than if the money value were constant. If
the average purchasing power of money is greater, then its value is
greater, whatever be the cause.

So much space has been devoted to a criticism of this article because
the opinions expressed in it seem to be fundamental and dangerous
errors. Moreover, they are given added weight by the reputation and
prominence of the author, while they are more or less representative of
the arguments of other defenders of the gold standard.

Either Mr. Wells is mistaken in his conception of _value_, and of the
standard by which it is measured, or Ricardo, John Stuart Mill, and all
other authorities on Political Economy are mistaken in supposing that
the value of a commodity is its general purchasing power.



It is claimed by many writers that international trade is carried on
upon a gold basis, and that it is necessary, therefore, if a country
is to maintain and increase such trade, that it should have its money
based upon gold, since its "balance of trade" must be paid in gold.

The idea of foreign trade involved in such statements is a relic of the
old "mercantile theory" that the great object of any country was to
export as much as possible of its products and receive in return the
largest possible amount of gold and silver,--to get gold, in fact, at
any hazard. This theory was buried, a century ago, under the weight of
Adam Smith's arguments, and every economist since then has helped to
bury it deeper; but its ghost still stalks and appears now and again in
the form of such statements as the above, and in the common expressions
"the balance of trade is against the country," or "the balance of trade
is in favour of the country," meaning that gold is being exported or
imported, and implying that the one is an injury or the other a benefit
to the country.

From a mercantile point of view, there is some justification for these
expressions, and for the satisfaction felt at a condition of things
requiring the import of gold. As before stated, the value of gold
is inversely as general prices in gold-standard countries, and the
import of gold means a lowering of its value and a general rise of
prices,--which, of course, is what merchants like to have happen; and
the export of gold means a fall in prices,--which they dread.

Under a monetary system which maintained prices constant, on the
average, the export or import of gold would be of no more importance
than the export or import of corn or silk.

From an economic standpoint the term _balance of trade_ is a misnomer,
and is misleading. Equally misleading and erroneous is the idea that
gold or silver is in any way necessary to foreign commerce, or that in
consequence of a money being based on one of these metals such trade
will be in any way enhanced.

International trade is an exchange of commodities; not, to be sure,
a direct barter, but an indirect one. One country exports those
commodities which it can produce the cheapest, in exchange for those
of other countries that are either not produced at all in the first
country, or can be produced only at a greater cost than by import. The
immediate force impelling to the export and import of commodities is,
in all cases, a difference in their values in the two countries. This
is no less true of gold than of other commodities, for gold will never
move from one country to another except it be of lower value in the
exporting than in the importing country, no matter how much the one may
be owing the other. The expressions "balance of trade in favour of,"
or "against a country," means only that gold is at that time of higher
value in one than in another country, by an amount above the cost of
shipment, and is being exported or imported because there is a profit
in so doing; but this furnishes no criterion whatever of the prosperity
of a country. It frequently happens that gold moves for a considerable
time from one country to another because of large production of gold
in the exporting country. That cannot be considered a bad condition
of business or unfortunate for the exporting country, unless the
commodities received in exchange are useless, or are wasted. At other
times it frequently happens that a country is importing gold, giving
in exchange not only other commodities, but promises to pay back the
value received, in the shape of bonds and stocks--running in debt, in
fact. This may be a good or a bad thing for the country, as for an
individual, according as the value received is profitably used or not.
It certainly is no sure indication of real prosperity.

The operations of foreign trade create a great number of claims and
obligations on the part of citizens of one country against, as well
as in favour of, the citizens of all others. These claims consist of
drafts, bills of exchange, letters of credit, etc., and are expressed
in every kind of money that exists, whether based on gold or silver,
or simply inconvertible paper. Through the medium of foreign exchange
banks these claims are offset against each other and cancelled.
Between two countries having the same monetary standard there exists
what is called the par of exchange; that is, the ratio between the
weights of gold or silver in their respective units. The actual rate
of exchange--that is, the price which will be paid in one money for
claims expressed in another--seldom conforms to this nominal par. The
bills of exchange, etc., representing claims of the exporters of one
country against the importers of another may be regarded as a sort of
commodity, and subject to the law of supply and demand. If one country,
A., has more claims against another, B., than B. has against A., then
the demand will be stronger for those which are fewer, and the price
will rise, and _vice versa_.

The prices of exchange cannot vary from the par of exchange between
gold-standard countries much more than the cost of shipment of gold;
for if they do, it will become profitable to export or import gold,
and this will create new claims balancing the others. The variation
of exchange rates within these limits is quite sufficient, however,
to cause the _actual_ exchange rate, and not the nominal one, to be
reckoned on by those engaged in foreign trade.

There exists, and always has existed, an _actual_ exchange rate between
the money units of all countries, or between the claims expressed
therein, no matter what the money was based on; although there cannot
be a par of exchange except between moneys based on the same metal.
These actual rates are continually varying, even between countries
like England and Australia, which not only use the same standard, but
a common unit, and there is, therefore, no difference in the practical
working of exchange between countries having the same standard and
those having different ones.

The inference to be drawn from these facts and theories is, that it
would make no difference in the foreign trade of any country if it
did not possess an ounce of gold or of silver, or whether its money
was based on gold or was inconvertible paper; if the country produces
commodities that other countries want, and wants some that other
countries produce, the commerce will continue.

If the money of either country is fluctuating in value, relative to the
other, to any great extent, it may introduce some uncertainty that
will hamper and inconvenience trade,--though to a less extent than a
variable money would in its own country, as there are means by which
such fluctuations can be guarded against; but unless the changes are
sudden and violent, no inconvenience will be experienced, as the actual
exchange rates are more or less always fluctuating.

In support of these statements, and as showing that they are borne
out by practical experience, the following quotations are given from
Mr. Wells' "Recent Economic Changes," in reference to trade between a
silver and a gold standard country when the relative values of the two
metals were changing quite rapidly. He says, p. 239:--

"Mr. Lord, a director of the Manchester (England) Chamber of Commerce,
testified before the Commission on the Depression of Trade, in 1886,
that 'So far as India was concerned, it is not necessary to run
any risk at all from the uncertainties of exchange.' Mr. Blythell
(representing the Bombay Chamber of Commerce) testified before the same
commission, ... 'There is no difficulty in negotiating any transaction
for shipping goods to India and in securing exchange.'"

Mr. Wells says: "Thus from returns officially presented to the British
Gold and Silver Commission, 1886, it was established that the trade
of Great Britain with India since 1874 had relatively grown faster
than with any foreign country 'except the United States and perhaps
Holland.'" He also says, of Mexican exchange, p. 241: "The fluctuations
in the price of silver since 1873--Mexican exchange having varied in
New York in recent years from 114 to 140--would seem, necessarily, to
have been a disturbing factor of no little importance in the trade
between United States and Mexico; but the official statistics of the
trade between the two countries since 1873 (notoriously undervalued)
fail to show that any serious interruption has occurred."

During this period, Mexico had a silver standard, while the United
States had inconvertible paper for nearly six years of it, and a gold
standard for the remaining period.

Mr. Wells further states:--

"In forming any opinion in respect to this problem, it is important
to steadily keep in mind the fact that international trade is trade
in commodities and not in money; and that the precious metals come
in only for the settlement of balances.... The trade between England
and India is an exchange of service for service. Its character would
not be altered if India should adopt the gold standard to-morrow, or
if she should, like Russia, adopt an irredeemable paper currency,
or, like China, buy and sell by weight instead of tale.... Unless
all the postulates of political economy are false--unless we are
entirely mistaken in supposing that men in their individual capacity,
and hence in their aggregate capacity as nations, are seeking the
most satisfaction with the least labour, we must assume that India,
England, and America produce and sell their goods to one another for
the most they can get in other goods, regardless of the kind of money
that their neighbours use or that they themselves use."

From the time of the Civil War until 1879, this country, though
nominally on a gold and silver basis, was actually using a depreciated
paper money. No serious inconvenience was experienced in our foreign
trade during the greater part of this time; when the currency was most
fluctuating, it doubtless did disturb all business, both foreign and
domestic, but this was due to its great and sudden changes, and may be
regarded as abnormal, and unlikely under a proper system again to occur.

Walter Bagehot, in his work, "A Universal Money," observes:--

"If France and America had the same currencies as England, it would
still happen, as now, that bills on Paris or New York would be at a
discount or a premium. The amount of money wishing to go eastward
across the Atlantic, and the amount wishing to go westward, would then,
as now, settle how much was to be paid in London for bills on New York,
and how much was to be paid in New York for bills on London."

It must be evident that if the people of one country have incurred
debts to the people of another country expressed in foreign monetary
units, nothing but such foreign money will satisfy the claim, and
to procure it the debtors must ship some commodity in exchange
for it. What this commodity will be, will depend on which is the
cheapest--which one the debtor, everything considered, will have to
give the least of in exchange for the necessary foreign money,--it
may be claims against foreign merchants, or bankers, in the shape of
drafts or bills of exchange, or it may be gold, if that is cheaper, or
it may be wheat, or cotton, or any other commodity, but it will always
be that which the debtor can purchase cheapest. If it be gold, it will
be because the debtor can purchase enough gold to exchange for the
required amount of foreign money for less of his own money (including
transportation and other charges) than he can purchase a sufficient
amount of any other commodity, and not because the foreign money is
based on gold. In short, the gold differs in no way from any other
commodity in such transactions; it is exchanged for the foreign money,
which alone can satisfy the debt, precisely as any other commodity.

That both gold and silver may be a convenience at times in
international trade is not denied; but they are not a necessity, and
their convenience for this purpose is in no way enhanced by their
coinage or by their use as a domestic money.



Turning from the consideration of money systems in general to the
particular case presented in our own country, we find a most curious
system--if, indeed, anything bearing so little evidence of rational
adaptation to its purpose is entitled to that name.

The unit of the system is the gold dollar, containing 25.8 grains of
standard gold, nine-tenths fine, coined in five, ten, and twenty dollar
pieces. There is also a silver dollar, containing 412-1/2 grains of
standard silver, nine-tenths fine, the ratio between the two being
15.988 grains of silver to one of gold.

The gold is coined free, in any amount presented. The silver coinage
has been restricted for many years, and is now entirely stopped. The
silver dollar, however, circulates at par with gold, though its bullion
value is only about fifty cents measured in gold, which is the real
basis of the system.

In addition to the coin, and circulating on a par with it, are a number
and variety of issues of paper money.

(1) United States notes (or greenbacks),--secured only by the credit of
the government, except that there is held in the Treasury about 30 per
cent. of the amount of these notes in gold as a redemption fund.

(2) National bank-notes,--issued nominally by the various national
banks of the country, but practically issued by the government; since
they are secured by a deposit of government bonds, are guaranteed by
the government, and rest as completely on the credit of the government
as the greenbacks do, though in a different way.

(3) Silver certificates,--secured by a deposit of silver bullion.

(4) Gold certificates,--secured by a like deposit of gold.

(5) Treasury notes,--secured by deposits of silver.

(6) Currency certificates.

All of these kinds of paper money, as well as the silver coin,
circulate on a par with gold; their utilities being equal, and the
demand for money being an indiscriminate one, their values must be
equal. As a domestic money, gold cannot have a higher value than the
issues of paper money; though it may, however, have a greater value as
a commodity for foreign shipment. It is not the fact that these other
forms of money may be exchanged directly or indirectly for gold at the
United States Treasury that makes their values equal to gold value, but
the fact that their _utilities_ are equal. They would remain of equal
value with gold if the Treasury did not exchange gold for them, so long
as any gold remained in circulation as money. A gold reserve, however,
is necessary as a precaution in a gold-standard system, but only to
the extent of the probable demand for gold for export.

The system as a whole is a ridiculous one, and nearly all its features
are wasteful and uneconomic.

Gold coin, as a circulating medium, is not as good as paper; it has
a high subjective value, and such use of it is wasteful; it should
be kept as a reserve for export purposes. The gold certificates are
better, but are also wasteful; since only a sufficient reserve is
needed to meet possible demands for export, and this would be far less
than dollar for dollar.

The silver coin is open to the same objection as the gold coin as a
circulating medium, and the silver certificates to the same objection
as the gold certificates, and to the further objection that the silver
deposited to secure them is of no use whatever, even as a reserve, for
no one would demand silver bullion of the government in exchange for
paper money at the present coinage value, when they could purchase
nearly twice as much in the open market for the same money. Unless,
then, our money should fall in value some 50 per cent., not an ounce
of silver will ever be called for at the Treasury in exchange for the
paper issues based thereon; and the silver deposits are merely a clumsy
and costly method of limiting the volume of the paper money.

The greenbacks, or United States notes, are economical, and if they
were variable in volume and under proper control would be a good money.

The national bank-notes are wrong in principle, in allowing private
corporations to make a profit from the issuance of paper money.
This objection is of no practical importance, at present, as the
restrictions and high bond prices have taken away practically all the
profit to the banks on the issues, but in so doing have also taken
away about the only merit such notes ever had, that of elasticity of
volume to some extent. This was a most doubtful merit at best, as the
issues were governed by considerations of private profit and not by any
desire to make money of stable value. Whatever may have been the merits
of the national banking system in the past, the war necessities of the
government which gave birth to it, have long since passed away. It can
be viewed now only in the light of its present usefulness, and as an
issuer of money it is of no use whatever.

Paper money received by deposit of bonds instead of bullion is
economical and correct in principle, if controlled in the interests of
the public, and not left at the mercy of men whose private interests
may be opposed to the public welfare. No such control of the volume of
the money is attempted in the case of the national bank-notes, and they
are no more secure than are greenbacks, since the ultimate foundation
of both is the national credit in one form or another.

Of all our different kinds of money, the only ones susceptible of
change in volume to meet the varying demands of commerce are, under
existing laws, the gold coin and certificates. These can be changed
only by the import or export of gold, or by the product of the mines
over and above the amount needed for the arts and sciences, and which
must be divided with other gold-standard countries.

The national bank-notes are theoretically elastic in volume, but
actually are not so, to any appreciable extent. They require for
their issue the purchase and deposit with the United States Treasurer
of government bonds,--now at a large premium,--are subject to other
charges and restrictions, and are not, as a rule, profitable enough to
the banks to cause any increase of the issues above that required by
law, except in urgent necessity, and that to a very limited extent.

As a result of these conditions, the country witnessed, during the
recent panic of 1893, a resort to every kind of device known to
banking and permissible by law, to increase the volume of the currency
and meet the enhanced demand for money caused by the utter failure
of credit. Certified checks, certificates of deposit, clearing-house
certificates, and other devices were resorted to, and even then
thousands of solvent institutions over the country were obliged to
close their doors, and the industry of the whole country was paralyzed.

The events are of too recent occurrence to need rehearsal here. It is a
sad commentary on the wisdom of our legislators that, notwithstanding
all the tinkering and patching that our financial system has undergone,
and the voluminous debates in and out of Congress for years past,
the volume of our money has been so far from keeping pace with the
demands of commerce that prices have been falling for a quarter of a
century, culminating last year--a repetition, unhappily, of previous
experience--in a collapse of the overstrained credit that was vainly
trying to do the work of money, and bringing ruin and disaster to

The condition of our monetary laws to-day is such that, except by the
slow increment of gold production, which must be shared by all the
world, we possess no means of meeting either the increasing demand
for money that expanding population and commerce bring, or the sudden
demand that a failure of credit may bring at any time. This, obviously,
is a blunder on the part of our law-makers that amounts to a crime.

It is not surprising that under such conditions the industries of the
country are crippled and that thousands of men should seek work in
vain. Still less surprising is it that in the face of a continually
increasing value of money, or decreasing prices of nearly everything
else, prudent men choose, as far as possible, to turn their capital
into money, lock it up in safe deposit vaults, or let it lie idle in
banks, rather than take the great risk that any active use of capital
under such circumstances carries with it. When money is increasing
in purchasing power from five to seven, and even a higher per cent.
per annum, as has been shown to be the case many times in the past,
it means that the man who locks his money up in a vault gets that
percentage of return for letting it lie idle; or that the man who loans
it, even at a low rate of interest,--if a loan with safe security
can be found at such a juncture,--makes the five to seven per cent.
resulting from the increased value, in addition to what he gets as

Men cannot be blamed for declining to engage in productive enterprises
under such conditions, nor for hoarding money instead of using it; the
blame lies on the system that not only permits but compels such action.

There is evidently no inducement for men with money to invest it in any
productive business with the certainty, under existing conditions,
that the record of the past will be that also of the future, and that
if a return of confidence again expands credit and stimulates business
to a new activity, it is sure to be followed, at no distant day, by
another collapse.

It must be conceded, with these considerations in mind, that the
imperative need of this country is for a money that shall be at once
more honest, more simple, and more elastic, and, at the same time,
adaptable to the varying demands of commerce.

Any change in a money system must, of necessity, cause some disturbance
of business, and such change should be so devised as to cause the least
possible disturbance, and do as little injury to vested interests and
existing obligations as possible.

The system chosen should, moreover, be adapted not only to the needs
of the present, but also to the possible requirements of the future,
so that no change of system will afterwards be called for to meet
further changes in demand, and cause again a disturbance of commerce.
In short, it should be a system logical, economical, scientific, and
permanent,--not a makeshift, to be changed in the next Congress by the
addition of another makeshift, in the manner in which our present crazy
patchwork of money has been created and maintained.



Of the many plans that have been proposed to correct the evils of our
existing money system, it is not necessary to notice here more than
two or three. Most of the others are more or less temporary expedients
which, even if meritorious, fall so far short of an adequate or
permanent solution of the problem as to merit little attention.

The change which has been most urgently advocated is a return to the
free coinage of silver.

It is not proposed to enter into any extended discussion of the merits
or demerits of this proposition. Much has been written on the subject
already, most of it, unfortunately, from a partisan standpoint, and
ignoring all facts and principles, however well established, which did
not agree with the views advocated. This, it may be said, is equally
true of both sides to the controversy. It seems desirable, therefore,
to point out how the principles we have already investigated apply to
the question.

Those who advocate free coinage of silver claim that the value of gold
has increased since free silver coinage was stopped, while the value of
silver has remained more nearly constant. This claim, as we have seen,
is correct. They claim not to desire to substitute silver for gold in
the coinage, but to use both together at the ratio of 15.988 to 1,
under a bi-metallic system, increasing the volume of money, and thereby
raising prices to a higher level.

Their opponents say that free silver coinage will drive gold out of the
country and the value of our standard will at once fall to the present
bullion value of silver (about 50 to 60 cents, measured in gold), and
that bi-metallism is only practicable by agreement between the leading

That free coinage of silver would result in driving gold from the
country has been largely denied by the advocates of that measure. In
this denial they make a great mistake, not only because the statement
is strictly true, as theory and experience in the past have alike
shown, but also because it would accomplish what they are aiming at,
and is the only way in which it can be accomplished through silver
coinage. The increase in the volume of money here would raise prices,
and the flow of gold to other countries would raise their prices also,
and thus a general rise of prices and a lowering of the value of gold,
would result.

The gold-standard advocates have also made an error in supposing
that free silver coinage would result in the _immediate_ fall of our
standard to the present bullion value of the silver dollar.

It would be rather difficult to trace the immediate effects of such a
measure, as several conflicting forces would be brought into play, the
relative strengths of which could not be foretold. It seems probable,
however, that the first effect would be a large rise in the price of
silver bullion, and a hoarding of gold, followed by its export in
exchange for silver. For a time this would cause a fall in prices of
other commodities, followed by a rise, as the new coinage began to fill
the place of the gold hoarded and exported. However this might be, it
can hardly be doubted that the final result would be a rise in prices
of commodities--including silver--as measured in gold, or a fall in the
value of gold all over the world as measured by commodities. Our money
would probably remain at a slight depreciation below our gold standard,
while both together would gradually lower. This condition would be made
manifest by gradually increasing prices, and would continue either
until all the available gold had been exported, or until the rising
value of silver met the falling value of gold at the coinage ratio of
15.98 to 1. Whichever of these results took place would depend on the
relative amounts of gold available for export and of silver for import,
and could hardly be foretold. It seems more than likely, however, that
the gold would all be exported. In this case, the country would have
the silver standard, and the value of the dollar would be somewhat
lower than the value of a gold dollar then, and considerably lower than
the value of a gold dollar now, but also considerably higher than the
bullion value of the silver dollar is now.

If the two dollars reached a parity at their coinage ratio before all
the gold was exported, the country would have not only a bi-metallic
standard, but would practically force such a standard on the rest of
the world, as long at least as the gold supply held out. If foreign
nations returned also to the free coinage of silver, they would either
have to change their ratio to agree with ours, or, if they kept their
present ratio of 15-1/2 to 1, the silver would gradually leave us in
exchange for their gold.

The fear of a sudden fall in the value of the dollar, as a result of
free silver coinage, is not justified. The value of the dollar would
fall gradually as the volume of the money increased,--as would be made
manifest by gradually rising prices,--except that this fall would be
more or less counteracted at the start by a hoarding of gold, which
would decrease the supply of money, and perhaps by a disturbance of
credit, which would increase the demand for it. The first effects might
be, therefore, an increase instead of a decrease of money value.

It would probably not make so very much difference whether bi-metallism
or the single silver standard was the final result. The value of the
dollar would not be greatly different in the two cases. Before we
reached a silver basis we would have exported some five or six hundred
millions of gold, and bought its equivalent in silver, securities, and
commodities, and the result would necessarily be a great advance in the
value of silver, and a corresponding fall in the value of gold,--the
reverse, in fact, of what happened when Germany and other nations
changed from a silver to a gold basis. Whether, therefore, this country
were able or not to restore the parity of the two metals at the present
coinage ratio, the departure from such parity would not be nearly so
great as it now is. Provided that the volume of the uncovered paper
money remained the same as now, and that, when the change was finally
accomplished, credit were used to the same extent as before, the value
of the dollar would be somewhere between the present bullion values of
the gold and silver dollars, and probably nearly as high if the result
were the single silver standard as it would be if bi-metallism were

The merits and demerits of the plan may be summed up as follows:--

The change would necessarily cause a great disturbance of business,
which might result, at first, in a lowering of prices, but would
eventually result in a gradual but considerable increase of general
prices, and a stimulation of industry.

Debtors would be benefited considerably, and creditors wronged
considerably, especially in short-time obligations; though the
long-time ones--those that had run for a number of years--would not be
affected so much.

Once established, the money value would probably be less variable than
gold has been, and rather more variable than silver has been in the
past, but this could not be said with certainty, as the money value
would continue to be the result of a variety of forces, of which no one
could predict or control the strength.

The inconvenience of so bulky a metal in large amounts would almost
necessitate its deposit in vaults and the issue of paper money in its
place for actual circulation. If this paper were issued only to the
amount of the silver deposited, it would be a most uneconomical system,
since the greater part of the silver might evidently just as well be in
the ground from which it was dug, so far as any real use was concerned.
If paper were issued in excess of the silver deposited, it would not
make a market for very much more silver than we now use, and the value
of silver would be raised but little.

The value of the money would therefore depend largely on the use that
was made of paper in connection with it. Without some control of the
volume of the money besides the control the supply of silver would
give, its value would continue to fluctuate at all times, and greatly
so in times of panic, as it always has done. With proper control the
silver is wholly unnecessary, as its only use is to limit the volume
of the money, and this can be done far more cheaply and efficiently in
other ways.

Little need be said of the "Greenback" or fiat money proposals, so
prominent some years ago, though they are seldom advocated now. Their
only merit was a dim perception of the fact that gold and silver are
not necessary to a money system. Their errors were that they failed
to provide any standard by which money value could be tested, or any
control had of its volume. They also failed to recognize the fact that
money value is wholly dependent on money volume.

Various plans have been proposed for changing our money system by
increasing the issues of bank-notes. One of these plans is to repeal
the present prohibitory tax on State bank-notes, which would, of
course, result in the issue of such notes to any extent that was

Several other plans propose to increase the issue of national
bank-notes by removing some of the present restrictions, and allowing
the banks to pledge other securities than United States bonds as a
guarantee of their circulation, or by allowing their capital to serve,
in part, as such guarantee.

All of these plans are merely makeshifts, and merit little attention.
Considered, however, only as makeshifts, and with reference solely
to the claims they advance, they are of no permanent benefit to the
public. They only allow the banks to make a profit that should go to
the community. It is claimed that the money volume will be made more
elastic by these issues. This claim does not appear to be justified by
an analysis of most of them, and, so far as it holds good in any of
them, it is a most dangerous feature. If the issues are made profitable
to the banks,--and otherwise there would, of course, be no issues, as
they are not compulsory,--then the banks would undoubtedly increase
them to the full limit allowed by law at any time. If they were limited
so as to be profitable only when interest rates were high, then, when
times were prosperous, prices rising, and profits large, the interest
rate would be high, and the increased issues would enhance the "boom."
When, however, the inevitable reaction came, and prices began to fall,
and credit to be withdrawn,--the time, most of all, when more money
would be needed,--the banks would not only be helpless to increase
their issues, but would very likely reduce them, because of the
increased risk at such times, and the fact that, in times of depression
and declining prices, interest rates are apt to be low also.

Elasticity of volume is a most necessary feature of a money system,
when it is rigidly controlled, to make money value constant; but it
would be a most dangerous feature when the control was governed by
the desire only to make the most profit. It would simply result in a
greater fluctuation of money value than there is now.

We have, so far, examined these various plans for amending our faulty
money system rather in regard to the truth of their pretences than
in regard to the requirements of an honest money. In this latter
respect, all the plans ignore the necessity for an invariable standard
of value, and provide no method for controlling the volume of money,
and adjusting it to the demand, as might be done, to some extent, even
with the gold standard. The general decline of prices could not be
prevented, though some of the fluctuations might.

The fact must be faced, that any attempt to increase the volume of
money in this country, and thereby raise our prices above those of
other countries, or to maintain our prices in gold constant, while
those of other countries are declining, can result only in the export
of gold. This might not happen at once, for it takes time for Gresham's
law to operate, but it would be inevitable. It would probably be
delayed somewhat by foreign speculation in our securities,--always a
powerful factor in determining the value of our money,--but it would
come; and the resulting depression would be all the greater for the
delay and the height of the prosperity that preceded it.

So long as our money is based on a metal that forms a part of the money
of other countries, under a free coinage system, so long will the
value of our money fluctuate under the influence of foreign monetary
legislation, wars, panics, and a hundred forces beyond our control.

Only by divorcing our money from that of other countries can we control
it, and only by controlling it can it be made honest money.



In the development of commerce from simple barter between savages up
to its present complicated form and enormous volume, an evolution
is apparent, similar in character to that which has taken place in
the organic world. In both the change has been from the simple and
homogeneous to the complex and heterogeneous. In both it has been a
differentiation of the functions of the several parts, accompanied by
an increased sensitiveness of the whole.

The primitive form of commerce, direct barter, may be compared to one
of the lowest forms of animal life, in which all parts are alike mouth
and stomach, and which if cut into pieces, will exist, severally, as
a complete animal; while modern commerce, with its various parts, each
with a separate function, and its highly sensitive organism, is more
like a human being, in which each part is adapted to the work it has to
perform and is dependent on all the others, so that the failure of any
one to do its work cripples all the rest.

Just as the cutting or maiming of a low form of animal life is of
little damage to it, while a far less injury, relatively, would kill
or seriously maim a man, so an injury to commerce, that in a primitive
form would amount to little, in our modern highly developed system
would cripple it greatly. Money is one of the most important parts of
our industrial system,--the very life-blood, in fact,--and if, for any
reason, it fails to perform its functions fully and completely, the
consequences are far more disastrous than they would have been under
the more primitive systems of the past.

Along with the evolution of commerce in general has gone an evolution
of money and the mechanism of exchange. As the volume of traffic grew
larger, the use of the bulkier commodities as money was gradually
abandoned for the more valuable metals. In time, even these became too
bulky and inconvenient for use as a medium of exchange, and credit, in
its various forms, now does the work of money, as to this function, to
a far greater extent than money itself does, and even the money itself
is mostly a paper money,--a sort of certified credit.

As previously stated, about 95 per cent of the bank deposits are in
forms of credit, and of the actual money deposits only about one-tenth
is gold, the balance being paper money and silver; so that, on the
strength of these estimates, only .6 per cent of the exchanges of
commodities are effected through the direct use of gold.

This evolution of money, however, has been almost wholly confined to
the one function, a medium of exchange; there has been no advance for
centuries in regard to the other function, a measure of value. Men
have continued to cling to the fiction that gold was a standard of
value, and that, so long as their monetary system was based on that
metal, their unit was of invariable value. We have seen how little
ground there is for this claim; that a gold basis for our money is not
necessary to our foreign commerce; and how small a part gold really
plays in domestic commerce as a medium of exchange. Is it not about
time, then, to abandon the fiction that gold is either a standard of
value or a medium of exchange, in any proper sense of the terms, and
to take a forward step in the evolution of money by adopting a more
scientific standard of value, and making the money, as a measure of
value, conform thereto?

Professor Jevons, in "Money and the Mechanism of Exchange," in the
chapter on "A Tabular Standard of Value," inquires whether it is not
possible to have a standard based on a large number of commodities,--a
"multiple legal tender," as he terms it,--and concludes that the plan
would resolve itself into those severally proposed by Joseph Lowe in
1822, and, independently, by G. Poulett Scrope in 1833, and by G.
R. Porter in 1838. These plans were practically alike. Recognizing
the fluctuations of money value, and the injury done especially to
long-time debts thereby, they proposed that tables be prepared showing
the variations from year to year of the prices of the principal
commodities, taking into account, also, the amounts sold. These
tables were to be used for reference, to ascertain in what degree a
money contract must be varied so as to make the purchasing power of
the money returned equal to that loaned. The plans seem to have been
only suggestions, and the details not worked out. Professor Jevons
speaks favourably of them, as perfectly sound in principle, and the
difficulties in the way as not considerable. He suggests a method by
which the average prices of the commodities could be computed, and
closes with the statement: "Such a standard would add a wholly new
degree of stability to social relations, securing the fixed incomes
of individuals and public institutions from the depreciation which
they have often suffered. Speculation, too, based upon the frequent
oscillations of prices which take place in the present state of
commerce, would be to a certain extent discouraged. The calculations of
merchants would be less frequently frustrated by causes beyond their
own control, and many bankruptcies would be prevented. Periodical
collapses of credit would no doubt recur from time to time, but the
intensity of the crisis would be mitigated, because, as prices fell,
the liabilities of debtors would decrease approximately in the same

Prof. F. A. Walker, referring to these schemes, and to similar ones
proposed by Count Soden and by Professor Roscher in Germany, criticises
them as too cumbersome for general use, but thinks they might be
advantageously employed for long-time contracts. The criticism is
evidently just; not only are the plans too cumbersome, but they only
partially accomplish what is needed. They contain, however, the germ
of a plan which it is believed would be both more effective and less
open to the criticism mentioned. Long and short time contracts, and
cash transactions, are too intimately connected to make it possible in
practice to use different and varying standards for each.

Since the values of all commodities constitute the only true standard
of value, as close an approximation to this standard as possible should
be adopted as our standard of value.

Since the value of the circulating medium--the money--depends on supply
and demand, the supply should be so controlled that the value of the
money would always correspond with that of the standard adopted, and
since paper money is the cheapest, the most convenient, and the only
money entirely free from outside influences affecting its volume and
value, our currency should be a paper money.

The following is given as the outline of a plan embodying these
features and requirements.

_The Standard of Value._

Let a commission be appointed by Congress to select a sufficient number
of commodities, say, one hundred, to be used as a standard of value.

This selection should comprise the commodities most largely bought and
sold and most independent of each other in their values; preference
should be given to those which are products of this country,--but
foreign products should also be included,--and to those which are
reliable in quality and of which the prices are regularly quoted--such,
for instance, as wheat, corn, oats, rye, barley, cotton, wool, tobacco,
rice, gold, silver, lead, copper, tin, iron, steel, cotton and woollen
cloths, leather, hides, lumber of various kinds, sugar, beef, pork,
mutton, etc.

The aim should be, while not including all commodities, which would
of course be impossible, to include a sufficient number and of such
varied kinds as to fairly represent all. Less than a hundred might be
sufficient, or it might be better to take more than that number.

With the aid of statisticians, the average price of each of the
commodities selected, in their principal markets for a few years past,
should be ascertained and tabulated. The commodities, of course, should
be of specified grade and quality, and in a specified market, but not
necessarily the same market for all.

The length of time over which the average of prices should extend would
be determined as closely as possible by the average length of time that
existing indebtedness had run. (The reason for this will be explained
later.) In addition to the average prices of each commodity, the
approximate amount or value annually consumed in this country, should
be ascertained.

From these data, a table should be prepared showing the amount one
dollar would have purchased, on the average, of each of the commodities
for the time determined, and from this a final table should be made
taking such multiples of the amounts found in the previous table as
should represent their proportionate consumption,--in other words,
their relative importance in trade.

For example, suppose the time selected were five years, as representing
twice the average time existing debts had run; that during that time
one dollar would have bought, on the average, 1.25 bushels of wheat,
or 3 bushels of corn, or 100 pounds of pig iron, or 10 pounds of
cotton, all of specified grade in specified markets; that, further, the
importance of each of these commodities in the trade of this country
was in the approximate proportions of 5, 3, 2, and 1, respectively.

Then the final table would show:--

  5 ×   1.25 =   6.25 bushels of wheat = $5.00
  3 ×   3    =   9    bushels of corn  =  3.00
  2 × 100    = 200    lbs. of pig iron =  2.00
  1 ×  10    =  10    lbs. of cotton   =  1.00
                                Total,  $11.00

Considering these four commodities only, the dollar, as the unit
and standard of value of our system, would be defined by law as
one-eleventh of the sum of the values of 6.25 bushels of wheat, 9
bushels of corn, 200 pounds of pig iron, and 10 pounds of cotton. This
illustrates the method of arriving at, and the definition of, the
standard. Extended to all the commodities selected, the definition
would be the same with the substitution of the proper figures.

This would evidently provide a standard that would closely represent
the average purchasing power of one dollar for the time selected. As
to the length of time over which this average should extend, if there
were no such thing as existing debts, it would clearly be of little
importance what the value of the unit selected was, just as it would be
of no importance now whether the foot or the pound had been originally
fixed at greater or less than their present length and weight; but
because of the vast amount of existing indebtedness, the value of the
unit that is to be made permanent should be most carefully fixed at the
value it had when such indebtedness was created, so as to do as little
violence as possible to outstanding obligations. The fact that in the
past the debtors have been wronged to the advantage of creditors, by an
increasing value of money, furnishes no excuse for a reversal of this
injustice and a wronging of creditors by permanently fixing the value
of the dollar at what it was twenty or thirty years ago. The debtors
and creditors of to-day are not the same individuals who stood in those
relations at any time in the past, and two wrongs do not make a right.

The object should be, therefore, to determine as closely as possible
how many years, on the average, existing debts have run, and take twice
that period for the total length of time over which our prices should
be determined. The average of the prices would then correspond with
what it was when average debts were incurred.

This would doubtless work a slight injustice to those whose debts were
of longer standing,--though a less injustice than they are subject to
now,--and would be a slight injustice to the creditors of more recent
date; but as some time would be occupied in getting the system to
work, so that the actual value of the money would correspond with the
standard, the injustice would be more or less distributed, and would at
most be slight. It would be substituting only a gradual rise in prices
for the decline that has been going on, until prices were back to the
level of perhaps two or three years before, and then fixing the level
at that point.

_The Medium of Exchange._

After the statistical work outlined above had been completed, Congress
should repeal the present monetary laws, substituting for the
definition of the "dollar" the new definition agreed upon. It should
then provide a currency or money to take the place of that now used.
This currency should be a paper money similar to our "greenbacks." It
should be a legal tender for all debts public and private (except,
of course, such as by their terms are payable in gold). In fact, the
only difference between such notes and existing "promises to pay" of
the government would be that the new notes, as is evident from the new
definition of the dollar, would be promises to pay _a definite value_,
and not a definite quantity of one commodity of uncertain value.

The notes could be made redeemable _in any commodity at its current
market price_, and should contain a pledge, on the faith of the
government, that the amount of the currency in circulation would be at
all times so controlled by the government that its actual purchasing
power would conform to the standard on which it was based.

To carry out this pledge, it would be necessary to have a small corps
of statisticians who would receive and tabulate the current market
prices for each day; and who would calculate therefrom the aggregate
prices of the specified quantities of all the commodities constituting
the standard,--in similar form to the final table before mentioned,
and of which an example has been given. If this aggregate for any clay
were more or less than the total of the standard table, it would show
that prices in general had risen or fallen, and some money should
be withdrawn from circulation, or more issued until the daily total
corresponded with the standard total.

Doubtless several plans might be proposed for putting such a money into
circulation and controlling its volume. The following seems to commend
itself by its simplicity and effectiveness of control, for at least a
part, if not all, of the issues, viz.: The money to be loaned by the
government on approved securities, such as their own bonds; other bonds
of states, counties, cities, railroads, etc.; warehouse receipts, gold
and silver deposits, etc. First-class commercial paper, when guaranteed
by solvent banks, might also be taken, especially in case of threatened
panic. In short, such securities as would be considered the safest
for banks and trust companies to loan upon, all under such proper
restrictions and safeguards as would insure their safety as collateral.
The rate of interest charged for such loans to be a _variable one_,
decreasing as prices tended to fall, and increasing as they tended to
rise, and without other restriction. This would absolutely control the
volume of money, within narrow limits, since more would be borrowed at
a lower, and less at a higher rate, of interest, yet the control would
be elastic.

While the loans should be for short time, they could be renewed at
pleasure, and as often as desired, at the current rate of interest,
the security remaining good.

Such a plan would not interfere with general banking business to any
considerable extent. In order to prevent monopoly, the loans should
be open to all on equal terms, and the list of approved securities
acceptable as collateral should be made as wide as possible, consistent
with safety. It would probably be found by experience, however, that
the principal borrowers direct from the government would be the banks,
who would re-loan the money (at a sufficiently higher rate to pay them
for their trouble) to their customers, on local securities, commercial
paper, etc., as they now do.

In fact, the present system of national banks could be made, with few
changes in the regulations governing them, a most valuable adjunct
to the plan as a distributing agency, and the plan is one that it
would seem ought to meet with approval. They would, it is true, lose
their present note circulation, but that, under existing laws and
conditions, is of little or no profit to them. They would gain by its
being unnecessary for them to keep so large a reserve of cash on hand
as they are often obliged to do now; for not only would the whole
financial system be more stable than now, but they might safely be
allowed to carry a part of the present 15 to 25 per cent. reserve,
required by law, in such securities as they could at all times use
as collateral with the government. They would gain even more by the
security such a system presents against panics and senseless runs,
which so often compel solvent banks to close their doors. In short,
the government would act toward the banks, not as a competitor, but
rather in the relation that the New York clearing-house has several
times acted toward its members in times of panic, by the issue of
clearing-house certificates,--a quasi-money that helped them in time
of need. The government would not be subject to the limitations of
the clearing-house, however. The money it loaned would be, unlike
clearing-house certificates, a legal tender everywhere; and the
protection would extend to all the banks of the country. The government
would act toward the banks in somewhat the same way as they act toward
individuals, or as the Bank of England acts towards the other English
banks, as a sort of reserve agent. In this case, however, the resources
as to money would be unlimited. In the manner of regulating the volume
of money, also, this plan would resemble that of the Bank of England,
since that institution attempts in a feeble way, and prompted doubtless
by self-interest, to regulate the volume of money, to some extent, by
raising the discount rate when the volume is decreasing, as evidenced
by exports of gold, and lowering the rate when gold is being imported.

If it were impossible or inexpedient to loan in the above manner all
the money the country required, a sufficient amount could be so loaned
as to give an absolute control of the volume, and to regulate its value
at all times, and the balance could be issued in exchange for the
present greenbacks, and for interest-bearing bonds of the government,
thus converting a part of the interest-bearing debt into a permanent
non-interest-bearing one.

It is evident that the control of such a system should rest with
the government, and not be left to any banking institution; for a
bank would be more influenced by considerations of profit than of
proper control in the interests of all. The interest received by the
government would be a minor consideration, the control of the volume
being the main object, and the rate of interest a means merely to that
end. The people, besides, would have at all times a greater confidence
in notes issued directly by the government than they could have in
notes issued by any bank, however strong.

The department of the government to be charged with this issuing
function should, of course, be entirely distinct and separate from
the other departments. Its sole business should be the maintenance
of an honest money. It should have no connection with the general
expenditures of the government, further than to pay into the Treasury
such profits, in the way of interest, as might be received. The
government expenses should be met, as they now are, by the receipts
from taxes and duties, or, if these were insufficient at any time, by
borrowing money on its bonds. Under no circumstances should money from
the issuing department ever be taken for the expenses of government,
except in the same way that banks or individuals might receive it, and
never then to an extent that would raise average prices.

The legal tender provision of the notes would be necessary only as
specifying the medium in which payment of debts should be made,
to prevent misunderstanding, and for the protection of debtor and
creditor alike. The new dollar being a quantity of value, and not of a
specified commodity, a loan might be returned in any commodity of that
value but for some such provision.

The provision could in no case wrong a creditor, for what he would
receive in payment of the debt would be a positive guarantee to deliver
him the _value_ specified in any commodity he chose. Making the money
redeemable in any of the commodities on which it is based would be
only a form, and might be omitted; it is suggested merely as obviating
any objections to an irredeemable money. Of course the government
would never be called upon to so redeem money, since the holder of
it could exchange it for the commodity wanted in the open market to
equal advantage. No reserve of commodities of any kind need be kept,
therefore, for redemption purposes. One great difference between this
plan and existing systems will, of course, be seen at once: the present
system promises a definite amount of gold, and must, therefore, keep a
gold reserve; but as no one really wants the gold, except to exchange
for commodities, this plan proposes to do away with the necessity for a
gold reserve by guaranteeing that the money can be directly exchanged
for such commodities at the current market price,--which is all that
can be done with the gold,--and that the average purchasing power of
such money shall not vary as gold does.

It must not be supposed that this plan contemplates any control of
individual prices. Such will be free to fluctuate in accordance with
the law of supply and demand, as they now and ever must do, regardless
of the monetary system used. It would not be desirable, even if it were
possible, to make individual prices constant; but what is desirable
and possible, and what it is believed this system would accomplish, is
to relieve the prices of all commodities from the fluctuations due to
changes in value of the one commodity by which all others are measured;
to make the money--the one commodity which no one wants except for
measuring the value of and exchanging for other commodities--of
constant value. The prices and values of gold and silver would then
depend on their use for other than money purposes, or for money
purposes in other countries, and if the value of either metal should
fall, or fail to continue to rise, there would be no room for complaint
that it was being discriminated against by the laws, since all
commodities would be treated alike, and the demand for none increased
over what it would otherwise be by its selection for monetary uses.

It is evident that gold could still be used as a hoard of value, if
desired, but such use would in no way interfere with the volume of
money, as it now does. Neither would the hoarding of money itself
affect prices and cause business stagnation as is the case now. The
reasons for such hoarding would be mostly done away with, but if any
should remain and the money be hoarded, the government would at once
issue as much more as was needed to supply the deficiency so created,
thus maintaining its value constant, and when the money hoarded was
again put in circulation the government would withdraw a portion of it
if it were excessive in amount.

The exchange of the new money for the existing kinds would be a matter
of practical financiering, presenting no unusual difficulties. This
need not be enlarged upon.

The gold certificates should be redeemed with the gold now held for
that purpose. This gold, as well as that now in private hands, would
thereafter take care of itself.

The silver dollars, and all forms of paper money, should be redeemed in
the new money, dollar for dollar; the paper money should be cancelled,
and the bullion--both gold and silver--sold gradually, with due
regard to the effect of such sales on the prices of gold and silver,
especially the latter. The proceeds of such sales in the new money
should also be retired from circulation.

As a final result, the new money issued would all be in the form of
loans to banks or individuals, except to the amount used in redeeming
the uncovered paper now outstanding, less the reserve fund (and some
loss that would result from the sale of silver below the price paid for
it). This net balance of the new money issued, above what was issued as
a loan, could be left as an uncovered paper issue, as it now is; but
for the sake of uniformity it would be better to make all the money a
loan issue, in which case it would be necessary to issue bonds to take
up such amount. It represents now, of course, a remnant of our war
debt, not refunded. No increase of interest charges would result from
funding it in bonds, for the interest on the bonds would be offset by
the interest on the equal amount of extra money that would be loaned
in that case. It would make no difference as regards this general plan
which of the two methods were adopted.

This plan should not be confounded with any "fiat money" or unlimited
"greenback" proposals. Its main point is directly the opposite of
these, to secure a more complete control of money volume. It is not
an attempt to make something out of nothing, or to create value by
government fiat or authority where none existed before, or to coin the
government's credit,--although there is no valid objection to doing the
latter when properly limited.

It is simply an exchange of credit, analogous to the operation of
every bank. The government would loan a command over immediate goods
(represented by its promise to deliver such goods on demand) in
exchange for a promise to return such command over goods at a future
time, and secured by a deposit of collateral; and in payment for the
difference between the value of present and future goods it would
charge interest. This is precisely what the loan department of every
bank does. Every man who accepted the money in payment for goods would
deposit, for the time being, with the government the command over
commodities in general which he owns; the money being his certificate
of deposit. This would constitute the fund from which the loans were
made, just as the deposits in a bank constitute, in the main, its
loan fund. When the money was used to purchase goods, it would be
redeemed, so far as the purchaser was concerned, and the claim would
be transferred to the seller of the goods, who in turn would become a

Like every bank, the government would rely on the probability that all
claims against it would not be presented for payment at once, but this
probability would amount to a certainty in the case of the government,
for there would be no probability of _any_ of the claims being
presented for direct redemption, as every one who had goods to sell
would redeem the notes, so far as the holder was concerned.

The honesty of the government as an agent for all the people is, of
course, assumed in this plan; but the credit of the government, in any
other than a trust capacity, is neither assumed nor involved, since
it would hold secured claims against others for every dollar issued
(unless, of course, a portion of the money was left as an unsecured
issue, which, as above stated, is no necessary part of the plan).

Money, in its ultimate analysis, is simply a claim which the holder has
against society for goods in general. It is the faith that such claim
will be recognized, and its value be stable, that gives currency to all

This faith, in the case of coin, is based wholly on long custom and
usage; in the case of paper money, it rests on such custom joined to
the pledge--express or implied--of the issuer of the paper.

Selling is simply the exchange of a particular thing for a command over
things in general, and the reverse--buying--is the exchange of the
general command over goods for some particular good.

In all existing moneys, this claim is one only of usage, and its value
is variable. In the plan proposed it becomes a definite promise of such
goods in general, and to a definite value, the government being the

The plan closely resembles the present national banking system, but
broadened and improved, and with the objectionable features of that
system removed.



The foregoing chapter is only an outline, but is believed to be a
sufficiently definite one to show the feasibility of the plan.

_Merits of Plan._

The merits of the plan are believed to be:--

(1) It furnishes a standard of value as nearly invariable as it is
possible to obtain in practice.

(2) It gives a medium of exchange conforming in value closely to the
standard, one which is cheap, convenient, elastic, and to be had in any
amount needed.

(3) It would prevent panics. This may seem an extravagant assertion,
but further consideration will show that it is well founded. A
panic, whatever the cause, manifests itself as an unreasoning fear
and distrust, which prevents credit from doing its usual work, and
creates an excessive demand for money; not only because the money is
then needed by each individual who demands it, but because each is
afraid if he does not get it then he will not be able to get it when
he does need it. It means a hoarding of money, a great rise in its
value, or, as generally expressed, a great fall in prices. All this
is enhanced by the knowledge of the limited amount of money; in fact,
the fear is not so much of the ultimate solvency of banks and business
institutions as of the fact that there may not be money enough to go
round, and that those who are not first will be at a disadvantage. The
plan proposed will, in the first place, prevent the growth of any such
fear up to the panic point, by the knowledge that the government stands
ready to furnish any amount of money that may be needed to maintain
prices; and, in the second place, if by any chance such a fear should
arise, its first manifestation would be falling prices, which would
at once bring an increase of money volume to meet the demand. It is
well known that nothing will so effectively prevent a panic that is
impending, or check one that has already begun, as the assurance that
the institutions involved stand ready to meet any demands that may be
made upon them. A run could hardly originate on a bank, believed to
be solvent, were it known that it could obtain at any moment all the
money needed for the emergency. An element of certainty and stability
would, by this protection, be given to all banks, and through them to
all solvent and legitimate business institutions, which is now sadly
lacking; and business men would be relieved of much of the anxiety and
worry that at times harass them under present conditions.

(4) The proposed plan would tend to prevent those alternating periods
of stimulation and depression of business known as "good times" and
"bad times." It is not to be expected that any money system, however
perfect, can wholly prevent excessive speculation, or development
beyond the needs of the people, of particular industries; nor can it
prevent such action from being followed by its natural consequences
of disaster and loss. Wasted labour, like wasted force of any kind,
can never be regained. Alternations of prosperity and adversity, of
confidence and distrust, will probably always continue, as they always
have; but much can be done to lessen the extent of the fluctuations.
A money volume adjusted to keep prices constant, as a whole, will
evidently operate to prevent prosperity from developing into a "boom"
(sure to be followed by a more intense reaction), and will prevent the
ensuing depression from reaching its extreme in panic.

(5) The adoption of the scheme would do no violence to existing
business. It would act rather as a mild stimulant by a slight raising
of prices, and as a greater stimulant, through the confidence it would
give. It would do no violence to the habits and customs of the people.
Accustomed, as they already are, to a half dozen different kinds of
paper money, the issue of a new one by the same authority to take the
place of the others would hardly be noticed, especially as the change
could be and ought to be made gradually.

If any change were necessary at a future time in the list of
commodities constituting the standard, it could be made in the same
manner that the standard was first fixed upon, with no disturbance of
business, or perceptible change in money value.

(6) The interest received for such money would probably more than pay
the interest on the outstanding government bonds, and would be as fair
and equitable a form of taxation for that, or any other purpose, as
could be devised.

(7) The coin and bullion we now use could be mostly shipped abroad in
payment of our private debts,--represented by American securities held
there,--and much interest money be saved to this country.

(8) Last, but not least, the plan would be a measure wholly American.
This country would stand alone, free from the disturbing effects of
foreign monetary legislation. Not that our foreign commerce would be
lessened, or would be free from the effects of commercial disturbances
in other countries: commerce is such a world-wide and intricate network
that it would be impossible, even if it were desirable, for one country
not to be affected by changes in others; but our money, the prices of
commodities, as a whole, in that money, and the relations of debtor and
creditor in this country would be free from foreign influences.

There are many minor merits in the plan, such as its tendency to
equalize interest rates on the same, or on equally good, security all
over the country; the facility with which money would flow from the
central source to the point where it was needed, and return when not
needed, instead of having to filter through many banks with much loss
of time and expense, as it now does; the saving of what is now lost by
abrasion of coin, etc.; but these points need not be enlarged upon.

_Objections Answered._

It is to be expected that many objections would be raised to a plan,
seemingly so radical as a whole, although it is in reality composed of
old and tried methods in most of its parts. It may be well, therefore,
to anticipate some of the objections likely to be brought forward and
to endeavour to answer them.

Probably one of the first points to be raised against the plan, and
one that, judging from recent discussion in magazine articles, would
be strongly urged, is that it would have a bad effect on our foreign
trade, and would divorce our prices from those of foreign countries.

It has already been shown, in the chapter on foreign commerce, that
such fears are wholly unfounded, and that it makes no difference what
the money is based on; if it is reasonably stable in value, foreign
trade will not be disturbed.

In any event, ceasing to use gold in our domestic commerce would
only leave a larger amount available for foreign commerce if it
were needed. Gold would continue to be a commodity produced by this
country, and dealt in as all commodities are, and if it were a
necessity or convenience for the transaction of foreign business, the
bankers engaged in such business would keep a sufficient amount on
hand for their requirements. It is not believed, however, that any
such necessity would be felt, either by the bankers doing a foreign
business, or by the government in providing for the payment of interest
on its bonded debt. The latter would probably have to be calculated in
gold, in accordance with the terms of the contract, but could be paid
as well in the current money. All such bonds would in a few years be
redeemed, and any inconvenience from this source would be short-lived
and slight at most.

As to divorcing our prices from those of other countries, the objection
would have no weight. The _values_ of any of our commodities, compared
with those in other countries, would in no way be affected. No
legislation can affect or determine the amount of one commodity that
will exchange for another, either at home or abroad, except as it may
alter the relations of supply and demand affecting them, by tariffs or
taxes, or by the selection of some special one for a particular use, as
is now done in the case of gold for money uses.

The values of gold, and of silver (to a less degree), would be the only
things affected by the proposed change. All others would remain the
same: the money of our own or any other country would continue to be
used as a measure of such values, and if our prices rose as measured
in such money, so also would foreign prices by the same measure. The
exchange rates would vary as they now do, and between wider limits; but
the variations would, probably, not be rapid enough to affect foreign
trade injuriously. Our money would be constant in value, and if the
gold varied, the slight inconvenience it might be to the few directly
engaged in foreign trade would be a small matter compared with doing
violence to our immense domestic commerce, by using such a variable

In regard to all obligations that are made payable specifically in
gold, they should, of course, be paid on that basis; but as the value
of gold would be lessened by the shipment of it abroad, if we abandoned
it as a money basis, the makers of such obligations would suffer
less than they now do, or are likely to do in the future, because
of the appreciation of gold value. Gold could always be had to meet
such obligations by paying its current price, and that price would
represent less of commodities in general than it now does.

It does not seem as if there could be any objection raised to the plan
on the ground of unconstitutionality, since the greenbacks were, and
are, held to be constitutional, and the new notes would be promises
to pay gold and silver, as well as other commodities, if they were
included in the list on which the money was based, not, to be sure, in
a definite quantity, but in a definite value.

A more valid objection might be urged, in the danger of entrusting to
public officials so great a power as the control of money value would
seem to be.

In reply to this it may be said, that an inefficient, or to some
extent even dishonest, control would be far preferable to no control
at all,--which is the present condition. The greater concentration of
capital in our modern industrial system, and the increasing values
handled, necessitates the entrusting of greater responsibilities to
individuals, in both public and private business, and it has not been
found that the men selected for the higher positions of trust in public
life were often recreant to the trust reposed in them, or inadequate
to its responsibilities, even where much was left to their discretion.
In the plan proposed, however, almost nothing would be left to the
discretion of the officials in charge.

The act of Congress putting the plan in force could provide for any
contingencies likely to arise, and the duties of the officials would
be mandatory, so far as the adjustment of the volume of money was
concerned and the method of accomplishing it. Beyond that, errors of
judgment, or even of intention, could do little harm. Surely it is not
expecting too much of a public official, that he shall carry out his
mandatory instructions, especially as any variation therefrom would be
liable to immediate detection, and could be corrected before harm was

It might be objected that the government should not go into the
banking business, that it is not one of its legitimate functions.

Avoiding the question of what the legitimate functions of government
are,--about which there is room for a large difference of opinion,--it
may be said that the plan does not contemplate the government entering
the banking business as a competitor of existing banks, but rather
as a regulator of them. This function it already exercises, and the
popular demand is rather for an increase of such control. Furthermore,
the Treasury, under the present system, is the largest holder of cash
in the country, and its action is at any time of vital interest to the
banks. It has more than once come to their aid in perilous times, to
the extent of its ability, and had its ability been greater it could,
and doubtless would, have done so more frequently. At times, moreover,
the actual money held in the Treasury has been excessive, and by
diminishing the volume of money in circulation this has badly affected

The proposed plan would prevent this, and while not materially
enlarging the functions now exercised by the government, would make
its control of the banking system more direct and effective, to the
benefit alike of the banks and the public. Our present banking system,
admittedly, shows much weakness in times of panic. Each bank expands
its credits to the full limit in times of prosperity, for its own
profit, and in time of distress contracts them for its own safety, thus
increasing the distress at such times. Under this plan its safety, if
solvent, would be assured without the need of contracting its credits.

As to controlling the volume of money, this either is, or is not, a
proper governmental function. If it is, then justice demands that the
control be efficient, and in the interests of an honest money. If it
is not,--if the sole duty of government is to certify to the weight
and fineness of pieces of metal by coining them,--then it has no right
to refuse to coin any amount that may be presented of any metal the
people or any section of them desire to use as money; no right to
issue, or authorize others to issue, on government credit, any paper
money; and no right to forbid, or prevent in any way, banks, firms, or
individuals from issuing, on their own credit, any money they chose.
All of these acts are a control of money volume. The mere statement of
such an alternative is a sufficient refutation of the claim. It would
simply be financial anarchy. The government must control money volume,
and the control should be real, effective and honest.

Other objections might be raised to this plan, but none are foreseen of
sufficient weight or gravity to offset in any considerable degree the
merits it seems to present.



A universal money for the whole world has been the dream of some
writers. This in many respects would be a convenience, as would a
general uniformity of weights and measures; but its benefits would be
confined mainly to a saving of clerical work, and even this would not
be as great an advantage as might be supposed, since differences in
value of bills of exchange would continue to exist, even as they now
exist between countries using the same money, or even between different
cities of the same country.

Unless the universal money were stable in value, it would be as
dishonest as the existing systems, and to make it stable would involve
its absolute control in volume by some central power to which the
various nations would delegate their authority. Such a thing is most
unlikely to happen. The obstacles of national prejudice and habit are
too strong to be overcome,--as will be evident from a perusal of Mr.
Walter Bagehot's work, "Universal Money,"--and the advantage to be
gained by it is not worth the trouble. A universal money, then, must
be considered as a Utopian dream; and a plan that provides for our own
country an honest money seems to be the highest success to which we can
at present aspire in the settlement of this vital and all-important

Whether future legislation be based on some such plan as the one here
outlined, or whether another can be devised that will more closely meet
the requirements, the fundamental principles we have considered should
be kept in mind in any change that is made.

It should also be clearly understood that no monetary legislation, by
this or any other country, can alter the relative values of all, or
any, of the commodities, including gold and silver, which enter into
human use and consumption, except in so far as such legislation shall
affect their relative supply and demand. All that legislation can
really beneficially do, is to provide a stable standard of value, as it
now provides stable standards of length and weight, and to provide a
medium of exchange that shall always conform in value to that standard,
and shall be at once convenient and economical.

Opinions may honestly differ as to the best means of providing such
a money, but, when fully understood, no difference of opinion can
exist as to the benefit it would be to all classes of society, without

The labourer gains by employment being more certain and constant; by
the knowledge that open competition with capital will determine the
shares of the joint product which each shall receive,--that he will
not be the victim of an insidious change in money value or, while
receiving nominally higher wages, be perhaps getting lower real wages.
With an honest money, real and nominal wages coincide, and a rise or
fall of wages is known at once as a benefit or an injury. The effect
on wages would be toward an increase, by stimulating production and
enhancing the demand for labour; while the labourer's ability to
purchase more would absorb such increased production and improve his

The employer of labour would gain by the certainty that his success
will depend more largely on his own ability and endeavour, and less on
causes which are not only beyond his control, but on which he cannot
even calculate with certainty; while the greatest risks to which he is
now subject will be removed.

This applies not only to manufacturers, but to industrial enterprises
of all kinds.

Railroad stockholders would be especially benefited. No other business,
perhaps, carries so large a fixed indebtedness, in proportion to its
value, as railroads, and the stockholders suffer more from an advance
in the value of money than most other owners. The fact that they are
to some extent monopolies and can keep their rates the same, or even
increase them, with money value rising, does not alter the case; for
the amount of traffic will, under such conditions, be lessened, and it
is impossible for most railroads to reduce expenses in anything like a
proportion to the reduction of income from diminished business, because
of the large fixed charges.

Merchants would be benefited by the greater general stability of
prices, and would be relieved of many of the risks of business. They
would, if solvent, have assurance that they could get money when
needed, and the failures would be fewer.

Money loaners would also be benefited. It might seem, at first sight,
as if they would not, since they profit directly by an increase of
money value; but this is a narrow view. While the money loaner, as
before shown, gets an undue and unjust share of the products of labour
and capital when prices are falling, yet the secondary effects of such
a fall,--the increased competition for loans, and diminished demand for
capital for business enterprises,--by lowering interest rates, tends
to offset this gain; and the doubt and uncertainty as to security keep
capital idle as well as labour. The lender gets a larger share of the
total product than he is entitled to, under such conditions; but the
total product is so much lessened as a whole, that his larger share is
less in actual amount than a just share of the larger product would
be, were money honest and prices constant. Moreover, one of the most
important considerations to a lender is security, and this is much
lessened with falling prices, and the loaner is frequently obliged to
take the property which is security for his loan. He does not want the
care and management of it, as it is generally far less valuable in his
hands than in those of the original owner; the latter thereby loses
something which he could use, and the former gains something he has
no use for, and no one is really benefited. It cannot be considered,
therefore, that loaners, as a class, either profit by or desire such a
condition of business depression and panic as is largely produced by
dishonest money.

A few individuals there may be--the leeches or wreckers of society--who
rejoice at and profit by the general misfortune of all; but they are
not, it is believed, sufficiently numerous to make their desires
important or consideration for them a matter of anxiety.

In view of these considerations, the attempt--so often made in
discussing the question of money--to set class against class, to lead
labour to consider capital as its enemy, to embitter the relations
between borrower and lender, and between the banks and the public, is
greatly to be deplored. Competitors in a sense these different classes
doubtless are, but so far as an honest money is concerned all are
partners; all would be gainers by it and none losers. Past experience
does not lead us to expect that men will generally become unselfish and
altruistic in their motives in the near future. Business will continue
to be, as it always has been, a struggle for the greatest amount of
commodities with the least labour; and the plea for an honest money
rests not upon altruism, but upon the enlightened selfishness which
teaches that honesty is the best policy, in a money system as in other
things, and that it is not profitable to kill the goose that lays the
golden eggs.


  Aldrich Report, the, 83.

  Bagehot, Walter, quoted, 54, 122, 197.

  Bank-notes, national, proposal for increasing issue of, 146.

  Bi-metallism, 46, 67.

  Böhm-Bawerk, von, quoted, 4, 7.

  Capital and money, distinction between, 104.

  Coin. _See_ Money.

  Coin and paper money, 22.

  Cost of production, 10.

  Credit, money forms of, 92.

  Currency, an elastic. _See_ Money.

  Decline in prices, 90, 101.

  Definition of money, 21.

  Definition of value, 1.

  Demand and supply. _See_ Supply and Demand.

  Dollar, gold and silver, 125.

  _Economist_, London, on foreign prices, 83, 84, 86.

  Ely, Prof. R. T., quoted, 32, 47.

  Employers of labour, 102, 199.

  _Encyclopædia Britannica_ on money, 35.

  Exchange, money as a medium of. _See_ Money.

  Existing monetary systems, 51.

  Foreign commerce, 112-124;
    balance of trade, from an economic standpoint, a misnomer, 114;
    international trade, _ib._

  France, monetary system of, changed to a gold basis, 70.

  Functions and requirements of money, 25.

  Germany, monetary system of, changed to a gold basis, 70.

  Gold. _See_ Money and Monetary Systems.

  Gold production between the years 1850-57 in Australia and
        California, 90.

  Gold-standard arguments criticised, 98;
    Mr. D. A. Wells' fallacy of deeming labour a test of value, 100;
    threefold division of the community into labourers, employers of
        labour, and money loaners, 102;
    distinction between capital and money, 107.
    _See_ Stability of Gold and Silver Values.

  Gold standard, the, 54.

  Greenbacks, 126, 129, 146.

  Gresham's law, 57, 59, 65, 67, 149.

  Inconvertible paper, 22, 76.

  India, English commission on the depression of trade in, 119;
    silver currency in, 96.

  Invariable money value, necessity for, 28, 40.

  Jevons, Professor, quoted, 25, 27, 154.

  Labour, productive and unproductive, 14;
    three kinds of, as factors in making for the value of a
         commodity, 15;
    labour not a standard of value, 18.

  Laughlin, Prof. J. L., quoted, 46.

  Medium of exchange, the, 164.

  Mexican exchange, 120.

  Mill, John Stuart, quoted, 6, 14, 18, 31, 36, 76.

  Money loaners, 103, 200.

  Money, definition of, 21;
    F. A. Walker's comprehensive definition, _ib._;
    paper money and coin, 22 _sqq._;
    functions and requirements of, 25;
    money as 'a medium of exchange,' 'a measure of value,' and 'a
        standard of deferred payments,' _ib._;
    Professor Walker's substitution for the term 'measure of value,'
        'common denominator of value,' 26;
    money as 'a store of value,' _ib._;
    qualities necessary to a money material, 27;
    invariable value, 28;
    fluctuations in money value, 30;
    J. S. Mill on the purchasing power of money, 32;
    the _Encyclopædia Britannica_ quoted, 35;
    money demand and supply, 36;
    money actual and money in forms of credit, 38;
    an invariable money value, 40;
    a change of money value, a robbery, 42;
    F. A. Walker, on decreasing money value, 44;
    a flexible or elastic currency, need of, 45;
    money in all countries a creature of the law, 53.

  Money in the United States, 125;
    greenbacks, national bank-notes, silver and gold certificates,
        treasury notes, currency certificates, 126;
    gold coin, silver coin, 128;
    national bank-notes wrong in principle, 129;
    no means to-day of meeting either the increasing demand for money
        expanding population and commerce bring, or the sudden demand
         that a failure of credit may bring, 133;
    results, _ib._;
    some proposed changes in our monetary system, 137;
    free coinage of silver, 138;
    erroneous views confuted, 139;
    'greenback' or fiat money proposals, 146;
    increase of the issue of national bank-notes a mere makeshift, 147;
    divorce of our money from that of other countries only mode of
        controlling it and making it honest, 150;
    a new monetary system, 151;
    standard of value, 158;
    medium of exchange, 164;
    the national banks as a distributing agency, 167;
    complete control of the money volume, 177;
    merits of plan considered, 181;
    an invariable standard of value, _ib._;
    a cheap, convenient, and elastic medium of exchange, _ib._;
    prevention of panics, _ib._;
    repression of excessive speculation and its reaction, 183, 184;
    plan wholly American, 186;
    objections answered, 187;
    conclusion, 196.

  Money system, our, some proposed changes in, 137.

  Money value, 29.

  Monetary systems, existing, 51;
    the gold standard, 54;
    Gresham's law, 57;
    the silver standard, 65;
    bi-metallism, 67;
    paper money, 71;
    J. S. Mill on inconvertible paper, 76.

  New monetary system, a, 151-180.

  Panics and hard times, causes of, 45;
    panic of 1857, collapse of credit in, 90;
    panic of 1873, 91.

  Paper money, 71, 78;
    Prof. F. A. Walker on, 77.
    _See_ Money.

  Patten, Prof. Simon N., quoted, 7.

  Prices, declining, evils of, 101;
    Professor Sherwood on stability of, 48.

  Production, cost of, 10.

  Purchasing power, 5.

  Ricardo, David, quoted, 14, 17, 34, 46.

  Sauerbeck, Mr., quoted, 83, 84, 87.

  Sherwood, Sidney, quoted, 48.

  Silver, _see_ Money;
    the silver standard, _see_ Monetary system.

  Silver, free coinage of, 138, 139.

  Silver famine of the Middle Ages, 82.

  Silver production in Nevada, 91.

  Silver standard, the, 65.

  Silver-standard prices, 94.

  Smith, Adam, referred to, 14.

  Soetbeer, Dr. quoted, 83, 84, 87.

  Stability of gold and silver values, 81-97;
    gold standard prices, 81;
    European economists on prices, 83;
    decline in prices, 90;
    silver-standard prices, 94.

  Standard of value, the, 12, 158.

  Supply and demand, 8;
    the immediate determiner of value the relation between supply and
        demand, _ib._;
    the demand for a commodity determined by its subjective or exchange
        value, 9, 10;
    close connection between value and the ratio between demand and
        supply, 10.

  Tauschkraft, 5.

  United States, the, stops free coinage of silver, 70.

  United States Senate Finance Committee Report on 'Wholesale Prices,
        Wages, and Transportations,' 83.

  Value and the standard of value, 1-20;
    definition of value, 1;
    the two classifications--'Value in use,' and 'Value in exchange,' 3;
    Böhm-Bawerk on 'Value in the subjective sense,' 4;
    John Stuart Mill's aphorism--'every rise of value supposes a fall,
        and every fall a rise,' 7;
    Simon N. Patten on 'objective values,' _ib._;
    standard of exchange value, 12;
    exchange value, what determines its constancy or variability, 19;
    only one real standard of value, 20.

  Walker, Prof. F. A., quoted, 21, 24, 25, 77, 78, 82, 156.

  Wells, David A., quoted, 50 _sqq._, 94, 95, 98, 100, 101, 105-111,
        119, 120.


  ---- Value or Purchasing Power of Gold
  ....   "   "       "       "   "  Silver

in per-centages on Values of 1860; assuming that the list of 223
commodities in report of Finance Com. U. S. Senate No. 1394, weighted
according to importance, fairly represents all commodities, and that
their average is therefore of constant value.]

[Illustration: Diagram of Price Variations

Showing average per-centage of change, from prices of 1860, of each of
four lists of commodities, Gold prices.

Platted from tables in Senate Report No. 1394 Finance Com. 2nd Session,
52nd Con.

  === U. S. Senate Finance Com. List 223 Commodities
  --- Mr Sauerbeck's List. English prices. 56  "
  ... Economist List.         "      "     22  "
  ,,, Mr Soetbeer's List. Hamburg and Eng. prices
      114 Commodities.

Transcribers' Notes:

Punctuation, hyphenation, and spelling were made consistent when a
predominant preference was found in this book; otherwise they were not

Simple typographical errors were corrected; occasional unbalanced
quotation marks retained.

Ambiguous hyphens at the ends of lines were retained.

Index not checked for proper alphabetization or correct page references.

Page 205: Page number for "distinction between capital and money" was
missing from the original text, but has been added by the Transcriber
based on where the subject appears in the book.

Pages 208, 209: The illustrations are graphs, and the symbols in the
Legends represent the data series plotted in those graphs.

Page 209: "Platted" appears to be a misprint for "Plotted."

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Established in 1988, ISYS Search Software is a global supplier of enterprise
search solutions for business and government.  The company's award-winning
software suite offers a broad range of search, navigation and discovery
solutions for desktop search, intranet search, SharePoint search and embedded
search applications.  ISYS has been deployed by thousands of organizations
operating in a variety of industries, including government, legal, law
enforcement, financial services, healthcare and recruitment.