As to the benumbing consequences following a shrinkage in the volume of
money, the testimony of history is briefly reviewed in the report of the
Monetary Commission to which I have already referred, and from which I
read the following:
At the Christian era the metallic money of the Roman Empire
amounted to $1,800,000,000. By the end of the fifteenth century
it had shrunk to less than $200,000,000. During this period a
most extraordinary and baleful change took place in the condition
of the world. Population dwindled and commerce, arts, wealth, and
freedom all disappeared. The people were reduced by poverty and
misery to the most degraded conditions of serfdom and slavery.
The disintegration of society was almost complete. The conditions
of life were so hard that individual selfishness was the only
thing consistent with the instinct of self-preservation. All
public spirit, all generous emotions, all the noble aspirations
of man shriveled and disappeared as the volume of money shrunk
and as prices fell.
History records no such disastrous transition as that from the
Roman Empire to the Dark Ages. Various explanations have been
given of this entire breaking down of the frame-work of society,
but it was certainly coincident with a shrinkage in the volume of
money, which was also without historical parallel. The crumbling
of institutions kept even step and pace with the shrinkage in the
stock of money and the falling of prices. All other attendant
circumstances than these last have occurred in other historical
periods unaccompanied and unfollowed by any such mighty
disasters. It is a suggestive coincidence that the first glimmer
of light only came with the invention of bills of exchange and
paper substitutes, through which the scanty stock of the precious
metals was increased in efficiency. But not less than the
energizing influence of Potosi and all the argosies of treasure
from the New World were needed to arouse the Old World from its
comatose sleep, to quicken the torpid limbs of industry, and to
plume the leaden wings of commerce. It needed the heroic
treatment of rising prices to enable society to reunite its
shattered links, to shake off the shackles of feudalism, to
relight and uplift the almost extinguished torch of civilization.
That the disasters of the Dark Ages were caused by decreasing
money and falling prices, and that the recovery therefrom and the
comparative prosperity which followed the discovery of America
were due to an increasing supply of the precious metals and
rising prices, will not seem surprising or unreasonable when the
noble functions of money are considered. Money is the great
instrument of association, the very fiber of social organism, the
vitalizing force of industry, the protoplasm of civilization, and
as essential to its existence as oxygen is to animal life.
Without money civilization could not have had a beginning; with a
diminishing supply it must languish, and, unless relieved,
finally perish.
Symptoms of disasters similar to those which befell society
during the Dark Ages were observable on every hand during the
first half of this century. In 1809 the revolutionary troubles
between Spain and her American colonies broke out. These troubles
resulted in a great diminution in the production of the precious
metals, which was quickly indicated by a fall in general prices.
As already stated in this report, it is estimated that the
purchasing power of the precious metals increased between 1809
and 1848 fully 145 per cent., or, in other words, that the
general range of prices was 60 per cent. lower in 1848 than it
was in 1809. During this period there was no general
demonetization of either metal and no important fluctuation in
the relative value of the metals, and the supply was sufficient
to keep their stock good against losses by accident and abrasion.
But it was insufficient to keep the stock up to the proper
correspondence with the increasing demand of advancing
populations.
The world has rarely passed through a more gloomy period than
this one. Again do we find falling prices and misery and
destitution inseparable companions. The poverty and distress of
the industrial masses were intense and universal, and, since the
discovery of the mines of America, without a parallel. In England
the suffering of the people found expression in demands upon
Parliament for relief, in bread riots, and in immense Chartist
demonstrations. The military arm of the nation had to be
strengthened to prevent the all-pervading discontent from
ripening into open revolt. On the Continent the fires of
revolution smoldered everywhere, and blazed out at many points,
threatening the overthrow of states and the subversion of social
institutions.
Whenever and wherever the mutterings of discontent were hushed by
the fear of increased standing armies, the foundations of society
were honey-combed by powerful secret political associations. The
cause at work to produce this state of things was so subtle, and
its advance so silent, that the masses were entirely ignorant of
its nature. They had come to regard money as an institution fixed
and immovable in value, and when the price of property and the
wages of labor fell, they charged the fault, not to the money,
but to the property and the employer. They were taught that the
mischief was the result of overproduction. Never having observed
that overproduction was complained of only when the money stock
was decreasing, their prejudices were aroused against
labor-saving machinery. They were angered at capital, because it
either declined altogether to embark in industrial enterprises or
would only embark in them upon the condition of employing labor
at the most scanty remuneration. They forgot that falling prices
compelled capital to avoid such enterprises on any other
condition, and for the most part to avoid them entirely. They did
not comprehend that money in shrinking volume was the prolific
parent of enforced idleness and poverty, and that falling prices
divorced money capital, from labor, but they none the less felt
the paralyzing pressure of the shrinking metallic shroud that was
closing around industry.
The increased yield of the Russian gold fields in 1846 gave some
relief and served as a parachute to the fall in prices, which
might otherwise have resulted in a great catastrophe. But the
enormous metallic supplies of California and Australia were all
needed to give substantial and adequate relief. Great as these
supplies were, their influence in raising prices was moderate and
soon entirely arrested by the increasing populations and commerce
which followed them. In the twenty-five years between 1850 and
1876 the money stock of the world was more than doubled, and yet
at no time during this period was the general level of prices
raised more than 18 per cent. above the general level of 1848.
A comparison of this effect of an increasing volume of money
after 1848 with the effect of a decreasing volume between 1809
and 1848 strikingly illustrates how largely different in degree
is the influence upon prices of an increasing or decreasing
volume of money. The decrease of the yield of the mines since
about 1865, while population and commerce have been advancing,
has already produced unmistakable symptoms of the same general
distrust, non-employment of labor, and political and social
disquiet, which have characterized all former periods of
shrinking money.
The time that has elapsed since that report was written has but served
to verify and emphasize its statements.