Some thirteen years ago, as Chairman of the Monetary Commission
appointed by Congress to investigate the causes of the changes in the
relative values of the precious metals, I submitted to this body a
report, in which I took occasion to refer to the motives which evidently
influenced the creditor classes of the western world in destroying the
automatic system of money. From that Report I quote as follows:
The world has generally favored, theoretically if not
practically, the automatic metallic system, and adjusted its
business to it. Some nations adopted one metal as their standard,
and some the other, and some adopted both. Those that adopted
both metals served as a balance-wheel to steady with exactness
their relative value. The practical effect of all of this was the
same as if all nations had adopted both, because it secured the
entire stock of both at a fixed equivalency for the transaction
of the business of the world. While some nations have changed
their money metal, or, having had paper money, have resumed
specie payments in one metal, the policy of a general
demonetization of one of the metals was first broached only about
twenty years ago. About ten years later a formidable propaganda
was organized to fasten that policy upon the commercial world.
This new school of financial theorists advocate the retention of
metal as the material of money, but favor its subjection to
governmental interference in every respect. Whenever new mines
are discovered, or old ones yield or promise to yield more
abundantly, instead of freely accepting their product in
accordance with the automatic theory, they advocate its rejection
through the restriction or the absolute prohibition of the
coinage of either or both metals, or through the limitation or
the abolition of the legal-tender function of one of them.
Whenever the interests of the creditor and income classes seem to
be in danger of being impaired by an increase in the volume and
decrease in the value of money, or in other words, by a general
rise in prices, these modern theorists are clamorous in
double-standard countries for the demonetization of one of the
money metals, and in single-standard countries for the shifting
of the money function from the metal which promises the most to
the one that promises the least abundant supply. They are
extremely anxious for the retention of the _material_ of which
the money-standard is composed when such material is rising in
value and prices are falling, and exceedingly apprehensive of the
evil and inconvenience which they predict as sure to result from
changing it.
Whenever a fall in prices occurs, through either a natural or
artificial contraction in the volume of money, they maintain that
it is due to antecedent inflation and extravagance, or to
overproduction through persistent and reckless industry; if the
contraction be natural, that it can not be helped, and if
artificial, that though it may inflict great temporary losses on
the masses of the people, it will be sure to result in their
ultimate benefit, and they console the sufferers with the
comforting assurance that such contraction is necessary in order
to reach the lowest depths of that "_hard pan_" whose foundations
they have previously undermined by demonetizing one of the
metals, and upon which alone they claim that money, capital, and
labor can securely and harmoniously rest. But when the material
composing the standard is falling in value and prices are rising,
they immediately discover that the maintenance of the value of
the standard is the all-important consideration, and that its
material is of no importance whatever and should be at once
changed to "_redress the situation_." After having reduced one of
the metals to a commodity by depriving it of the money function,
these theorists complacently point to the resulting fluctuations
in the value as a justification of the act producing them, and as
a conclusive proof of the unfitness for money of the demonetized
metal. * * *
Metallic money, on this theory, is no longer automatic, but is as
completely subjected to governmental control for all injurious
purposes as paper money. But, unlike paper money, the control
over this kind of metallic money can only be exercised in the
baneful direction of decreasing its volume, and thereby making
property cheaper and money scarcer and dearer.
This is a one-sided system, which can operate only in the
interest of the security creditor, the usurer, and pawnbroker,
whom it enables, through the falling prices which itself
occasions, to swallow up the shrunken resources of the debtor,
but is impotent to protect the interests of the unsecured
business creditor, the debtor, or society, when, from any cause,
the supply of the money metals becomes deficient.
The world has expended a vast amount of labor in the production
of the precious metals, and has made great sacrifices in
upholding the automatic metallic system of money, and has a right
to insist that it shall be consistently let alone to work out its
own conclusions, or that it be abandoned.
The history of the subsequent struggle to remonetize silver only serves
to illustrate and emphasize the correctness of that statement of the
case.
Between 1810 and 1849, according to Tooke and Newmarch (recognized
authorities on the subject), gold increased in value 145 per cent. which
is equivalent to a fall in the general range of prices of 59 per cent.
No movement was then made or suggestion offered by the debtors, or by
any class of the community, to add any new money-metal to the metals
already in use, with the view of increasing the volume of money, so that
the equity of time contracts might be maintained, and the value of the
unit of money kept at a steady and unchanging level.
But as soon as the discoveries of gold were made in the alluvial
deposits of California and Australia, or rather as soon as it was
suspected that money would thereby become considerably increased in
volume, the annuitants and income classes, the creditors everywhere,
took steps to avert what they characterized as a great calamity. They
openly declared their purpose, by every means in their power, to prevent
a decline in the value of money, so that the purchasing power of their
incomes might not be reduced. They determined to go to any length in
order to prevent the rise of prices which their aggressive instincts led
them to fear would follow the additions to the money volume of the world
by the natural and much needed yield of the mines.
The fiat therefore went forth that one of the metals must be discarded.