MERITS AND OBJECTIONS CONSIDERED.
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
standard.
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
done.
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
business.
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.