MONEY IN THE UNITED STATES.
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
thousands.
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
interest.
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.