There is nothing upon which the prosperity and happiness of a people so
much depend as on the integrity of their measure of values.
It is universally admitted that after the making of a contract requiring
future delivery of a specified number of pounds, bushels, or yards of
any commodity, it would be subversive of all equity and justice to
change the capacity of the measure constituting the foundation of the
contract. These measures, to be just, must remain unchanged. But how
infinitely more important is it that money, which is the measurer of all
other measures, should itself be unchanged? Of what avail is it that the
subordinate measures remain intact while this, the supreme measure, into
which all others are finally resolved, is constantly changing? Its
"value" is but another name for its purchasing or measuring power. In
the case of all time contracts, therefore, any change in the value of
money works a destruction of equity, and one of the first objects of
society should be to maintain and enforce equities at all times and in
all places. This, so far as money can effect it, can only be done by an
intelligent regulation of the volume in circulation.
In a note to his edition of Adam Smith's "Wealth of Nations," (page 502)
Mr. J. R. McCulloch says:
Money is not a mere commodity, it is also the standard or the
measure by which to estimate and compare the value of everything
else that is bought and sold, and if it be, as it undoubtedly is,
the duty of Government to adopt every practicable means for
rendering all foot-rules of the same length, and all bushels of
the same capacity, it is still more incumbent upon it to omit
nothing that may serve to render money, or the measure of value--a
measure which is undoubtedly of the greatest importance--uniform
or steady in its value.
Though a measure of value, money is a much more complicated instrument
than a yard-stick, pound weight, or bushel. Were it not so, a child
could fix value with the same precision as an adult.
As value resides in human estimation, it will frequently vary as to the
same object. An intending purchaser may have one notion of the value of
an article, an intending seller another. Money, therefore, is a measure
of value in the sense that it is a measure of the average human
judgment--from which results price. As Mr. McCulloch says, no means
known to science or art should be left untried to keep the value of
money unchanging.
When a man promises to deliver money or makes any time contract, he
makes a mental calculation as to what amount of property, or of the
product of his labor, will enable him to meet his engagement. If he be a
farmer, raising wheat, there passes through his mind the sacrifice and
toil necessary to raise it, and the quantity he can raise; if a cotton
manufacturer the cost of spindles, of looms, and steam-engines; the
wages of labor and interest on plant.
I knew a cotton manufacturer who wanted $10,000. His business was good.
He was sober, honest, and industrious; had a thorough knowledge of his
trade; managed his employes himself, and took the greatest pains to
conduct his business on the strictest business principles. He wanted the
money to make some improvements in his factory. He knew how many
spindles and looms he had; how much could be done with a pound of
cotton, how much it cost, and how much each spindle and loom would do.
He said to a capitalist, "I know all about cotton spinning and weaving,
and do not know anything about this thing called money, but I want
$10,000 of it." Said he, "My cloth is worth 10 cents a yard; it sells at
that rate in unlimited quantities by wholesale; nobody can make it any
cheaper; but I am not working a gold mine; I am not manufacturing
legal-tender paper money, and the only way I can get money is to swap my
cotton cloth for it. I will give you my note for 100,000 yards of cotton
cloth, which will be equal to $10,000, and will pay 2 inches a yard each
year as interest."
This was satisfactory to the capitalist, and the note was made, signed,
and delivered accordingly, and the improvements were made in the
factory.
During the year everything went smoothly; the spindles and looms worked
well, repairs to machinery were light; cotton had been bought at proper
rates; and no improved processes had been discovered or applied in the
production of cotton-cloth. There was no hitch in any direction.
At the appointed time, the creditor called for his cloth. "I am ready,"
said the debtor, "to pay the hundred thousand yards of cotton cloth,
with interest." When he came to measure it off, however, he was
astounded to find he was short. Some painful suspicions crossed his
mind. It seemed as though somebody had either robbed him of cloth, or
else he had not manufactured as much of it as he had supposed. There did
not seem to be so many yards of the cloth as there ought to be. He knew
he had used the same number of pounds of cotton that it had been his
custom to use for 100,000 yards of cloth and for 200,000 inches of cloth
in addition; still, there was no denying the fact of the shortage.
He measured it again and again, and had finally to admit that he was
unable to keep his engagement. This was a source of great distress to
him. He could not sleep that night. But, the creditor being importunate,
the cotton manufacturer next morning borrowed enough cloth from the
proprietor of a neighboring factory and paid his obligation. But, not
understanding how his carefully made plans had failed, and in order to
avoid similar mistakes in the future, he had an examination made of the
yard-stick and found that instead of being 36 inches long the yard-stick
he had used was 40 inches.
In talking the matter over with his neighbor, the cotton manufacturer
said: "I have been swindled; they 'rung in' on me a lengthened
yard-stick, by the measurement of which I have paid my debt, and I have
therefore paid in reality more than I contracted to pay."
"Well," said the friend, "I do not see that you are any worse off than I
am. I borrowed as much as you did, and at the same time; but I agreed to
pay my debt in money, and gave my note for $10,000 with interest. The
increased command over cloth acquired by the dollars I have had to pay,
caused by the demonetization of silver, has juggled me out of as much
cloth as you have been juggled out of by the lengthened yard-stick. But
you have one recourse; you can put into the penitentiary the man who
'rung in' the lengthened yard-stick on you, while the increase in the
value of the dollar which I have paid has been effected in the name of
the gold standard and honest money, and leaves me without recourse."
In its ultimate analysis, money is the yard-stick, the bushel and the
pound weight of commerce.
When you shrink the volume of money, and so increase the measuring power
of the dollar, you lengthen the yard-stick, enlarge the specific gravity
of the pound and the cubical content of the bushel, in violation of all
equities.
It is utterly impossible to secure a proper regulation of the money
volume with gold alone, the yield of which has declined from an average
of $130,000,000 a year between 1851 and 1873 to $105,000,000 a year
between 1873 and 1889.