SUMMARY AND CONCLUSION
147. I have now examined protectionism impartially on its own grounds,
assuming them to be true, and adversely from ground taken against it,
and have reviewed a series of the commonest arguments put forward in
its favor. If now we return, with all the light we have obtained, to
test the assumptions which we found in protectionism, that the people
would not organize their industry wisely under liberty, and that
protective taxes are the correct device for bringing about a better
organization, we find that those two assumptions are totally false
and have no semblance of claim upon our confidence. At every step
the dogmas of protectionism, its claims, its apparatus, have proved
fallacious, absurd, and impracticable. We can now group together some
general criticisms of protectionism which our investigation suggests.
148. We have taken the protectionist’s own definition of a protective
duty, and have found that such a duty, instead of increasing national
wealth, must, at every step, and by every incident of its operation,
waste labor and capital, lower the efficiency of the national industry,
weaken the country in trade, and consequently lower the standard
of comfort of the whole population. We have found that protected
industries, according to the statement of the protectionists, do not
produce, but consume. If then these industries are _the_ ones which
make us rich, _consumption is production and destruction produces_.
The object of a protective duty is “to effect the diversion of a part
of the capital and labor of the people out of the channels in which it
would run otherwise, into channels favored or created by law” (§ 13).
We have seen that the channels _into_ which the labor and capital of
the people are to be diverted are offered by _the industries which do
not pay_. Hence protectionism is found to mean that national prosperity
is to be produced by forcing labor and capital into employments where
the capital cannot be reproduced with the same increase which could be
won by it elsewhere. If that is so, then capital in those employments
will be wasted, and the final outcome of our investigation, which must
be made the primary maxim of the art of national prosperity under
protectionism, is that _Waste makes Wealth_. Such is its outcome when
regarded as an economic philosophy.
149. As regards the social and jural relations which are established
between citizen and citizen, protectionism is proved by a half-dozen
independent analyses of it to be simply a device for forcing us to levy
tribute on each other. If the law brings a cent to A it must have taken
it from B, or else it must have produced it out of nothing, that is,
it must be magic. Every soul pays protective taxes. If, then, anybody
gets anything from them, he needs to remember what they cost him, and
_he should insist on casting up both sides of the account_. If anybody
gets nothing from them, then _he pays the taxes and gets no equivalent_.
150. During the anti-corn-law campaign in England, a writer in the
_Westminster Review_ illustrated protectionism by the story of the
monkeys in a cage, each of whom received for his dinner a piece of
bread. Each monkey dropped his own piece of bread and grabbed his
neighbor’s. The consequence was that soon the floor of the cage was
strewn with fragments, and each monkey had to make the best dinner he
could from these. It is a good and fair illustration. I saw a story
recently in a protectionist newspaper about the peasants in the Soudan.
Each owns pigeons, and at evening, when the pigeons come home, each
tries to entice as many of his neighbors’ pigeons as he can into his
own pigeon house. “All of them do the same thing, and therefore each
gets caught in his turn. They know this perfectly well, but no Egyptian
fellah could resist the temptation of cheating his neighbor.” They
ought to _tax_ each other’s pigeons all around. Then they would put
themselves at once on the level of free and enlightened Americans.
The protectionist assures me that it is for the good of the community
and for my good that he should tax me. I reply that, in his language,
“these are fine theories,” but that whether it is good for the
community or not, and whether it is good for me or not, that he should
tax me, I can see that it is for his good that he should tax me. Then
he says: “Now you are abusive.”
151. _If protectionism is anything else than mutual tribute, then it is
magic._ The whole philosophy of it comes down to questions like this:
How much can I afford to pay a man for hiring me? How much can I afford
to pay a man for trading with me? How much can I afford to pay a man
to cease to compete with me in my production? How much can I afford to
pay a man to go and compete with those who supply me my consumption?
It is only _an expensive way to get what we could get for nothing if
it was worth having_ (§ 89). It is admitted that one man cannot lift
himself by his boot straps. Suppose that a thousand men stand in a
ring and each takes hold of the other’s boot straps reciprocally and
they all lift, can the whole group lift itself as a group? That is
what protection comes to just as soon as we have drawn out into light
the other side, the _cost side_ of it. Whatever we win on one side, we
must pay for by at least equal cost on another. The losses will all be
distributed as net pure injury to the community. The harm of protection
lies here. It is not measured by the tax. _It is measured by the total
crippling of the national industry._ We might as well say that it would
be a good thing to put snags in the rivers, to fell trees across the
roads, to dull all our tools, as to say that unnecessary taxation could
work a blessing. Men have argued that to destroy machines was to do
a beneficial thing, and I have recently read an article in a Boston
paper, quoting a Massachusetts man who thinks that what we need is
another war in the United States. Such men may believe that protective
taxes work a blessing, but to those who will see the truth, it is plain
that, when the whole effect of the protective system is distributed, it
benefits nobody. It is a dead weight and loss upon everybody, and those
who think that they win by it would be far better off in a community
where no such system existed, but where each man earned what he could
and kept what he earned.
152. There is a school of political science in this country in whose
deed of foundation it is provided that the professors shall teach how
“by suitable tariff legislation, a nation may keep its productive
industry alive, cheapen the cost of commodities, and oblige foreigners
to sell to it at low prices, while contributing largely toward
defraying the expenses of the government.”[30] Is not that a fine
thing? Those professors ought to likewise provide us a panacea, the
philosopher’s stone, a formula for squaring the circle, and all the
other desiderata of universal happiness. It would be only a trifle for
them. The only fear is that they may write the secret which they are to
teach in books, and that other nations to whom we are “foreigners,” may
learn it. Then while Englishmen, Frenchmen, and Germans work for us at
low prices and pay our taxes, we shall be forced to work for them at
low prices and pay their taxes, and the old somber misery will settle
down upon the world again the same as ever.
153. Some years ago we were told that protection was necessary because
we had a big debt to pay. Well, we have paid the debt until we have
reduced it from $78.25 per head to $28.41 per head. We, the people,
have also raised our credit until the annual debt charge has been
reduced from $4.29 per head to 95 cents per head. Now it is necessary
to keep up the debt in order to keep up the taxes, and protectionism
is now most efficient in forcing wasteful and corrupting expenditures
to get rid of revenue, lest a surplus should furnish an argument for
reducing taxation. This is right on the doctrine that waste makes
wealth.
154. They tell us that protection has produced prosperity, and when we
ask them to account for hard times in spite of the tariff, they say
that hard times are caused by the free traders who will not keep still.
Therefore _the prosperity produced by protection is so precarious that
it can be overthrown by only talking about free trade_. They denounce
_laissez-faire_, or “let alone,” but the only question is _when_ to
let alone, _when_ to keep still. They do not let the tariff alone if
they want to revise it to suit them, or want to make it “equitable.”
When they get it “equitable” they will let it alone, but that insures
agitation, and makes sure that they will cause it, for an indefinite
time to come. On the other hand the victims of the tariff will not keep
still. Their time to “let alone” is when it is repealed. If the tariff
did not hurt somebody somewhere it would not do any good to anybody
anywhere, and the victims will resist.[31] Mr. Lincoln used to tell a
story about hearing a noise in the next room. He looked in and found
Bob and Tad scuffling. “What is the matter, boys?” said he. “It is
Tad,” replied Bob, “who is trying to get my knife.” “Oh, let him have
it, Bob,” said Mr. Lincoln, “just to keep him quiet.” “No!” said Bob,
“it is my knife and I need it to keep me quiet.” Mr. Lincoln used the
story to prove that there is no foundation for peace save truth and
justice. Now, in this case, _the man whose earnings are being taken
from him needs them to keep him quiet_. Our fathers fought for free
soil, and if we are worthy to be their sons we shall fight for free
trade, which is the necessary complement of free soil. If a man goes to
Kansas to-day and raises corn on “free soil,” how does he get the good
of it, unless he can exchange that corn for any product of the earth
that he chooses on the best terms that the arts and commerce of to-day
can give him?
155. The history of civil liberty is made up of campaigns against
abuses of taxation. Protectionism is the great modern abuse of
taxation; the abuse of taxation which is adapted to a republican
form of government. _Protectionism is now corrupting our political
institutions just as slavery used to do_, _viz._, it allies itself
with every other abuse which comes up. Most recently it has allied
itself with the silver coinage, and it is now responsible, in a
great measure, for that calamity. The silver coinage law would have
been repealed three years ago if the silver mining interest had not
served notice on the protectionists that that was their share of
protection, and the price of their coöperation. The silver coinage is
the chief cause of the “hard times” of the last two or three years. In
a well-ordered state it is the function of government to repress every
selfish interest which arises and endeavors to encroach upon the rights
of others. The state thus maintains justice. Under protectionism _the
government gives a license to certain interests to go out and encroach
on others_. It is an iniquity as to the victims of it, a delusion as to
its supposed beneficiaries, and a waste of the public wealth. There is
only one reasonable question now to be raised about it, and that is:
How can we most easily get rid of it?
TARIFF REFORM[32]
A year and a half ago a gentleman who had just been reëlected, by
Republicans, to the Senate of the United States, made a five-minute
speech acknowledging the honor. In respect to public affairs he uttered
but one opinion: that the people of the United States were confronted
by a most serious problem, _viz._, how to reduce taxation. On the face
of it, this was a most extraordinary statement, and the chronicler or
historian might well take note of it as a new event in the life of
the human race. Statesmen and historians are familiar enough with the
difficulty of raising more revenue, and laying more taxes, but the
solemn and calamitous position of a nation which is forced to reduce
its taxes, and finds itself confronted by industrial disaster if it
does it, is something new. Students of political economy are familiar
with the question: What harm to industry may be done by levying taxes
on it? But the problem of how to avert the economic disaster which may
follow taking them off is new. Of course the state of mind revealed
by the formulation of the above problem is the result of a long habit
of regarding taxation as an industrial force, or, at least, as an
effective condition of industrial success.
There is, however, a problem; in regard to that fact all concur. It is
also a rare problem, one for which the only precedent is to be found
in our own history, and when the case occurred before, it proved to be
fraught with calamity. We are confronted by the dangers of a surplus
revenue, and no proposal to do away with the surplus in extravagant
expenditures can stand before the common sense of the people.
If the taxes are collecting more than the public necessities require,
then the simple and obvious, and, in fact, the only solution, is not
to collect the taxes; let the people keep their own products and do
what they please with them. If we do not make a problem there will not
be any; if we simply do in the most straightforward manner what the
common sense of the situation demands, there will be no difficulty; the
consequences will all take care of themselves, and all the imaginary
calamities will fail to appear. If, however, we must have a grand
scheme of national prosperity established in advance, then the case is
different.
During the war a notion grew up here that, through some new
dispensation of fate, it was possible for the American people to make
war and prosper by it. After the war the notion grew up that the paper
money was a condition of success and that we should be ruined if we
resumed specie payments. Now we are met by the doctrine that we cannot
repeal the taxes which were laid during the war, partly in order to
carry it on, because our national prosperity is bound up in them. These
notions, in fact, are all consistent, and all hang together; they all
belong to a philosophy that men prosper by discord and war, not by
peace and harmony. According to that philosophy we touched unawares
the springs of prosperity when we engaged in a civil war, incurred an
immense debt, and laid crushing taxes. Now, therefore, when we ask
that the taxes which are no longer necessary may be taken off, the men
who have fallen under the dominion of these fallacies tell us that
it cannot be done; that our prosperity would be undermined by it.
They have been assuring us for years past that the protective system
was sure to produce a solid and stable prosperity; now, by their own
statement, it has produced a state of things so weak and unstable that
it must be maintained by heavy taxes. The industrial prosperity of the
United States proves to be as burdensome to it as the armaments of the
European nations are to them.
The notion seems to be that protective taxes, laid on imports, are
the particular kind of taxes which make national prosperity, and
which therefore ought not to be touched. It is proposed that internal
taxes shall be reduced. If local taxes on real estate, etc., are
reduced, every one rejoices; that is supposed to be a clear and simple
gain. I have known the same man to exert himself very actively to
scrutinize local expenditures, and reduce local taxes, and to boil
with rage against free traders who want to reduce protective taxes.
However, there is probably no tax of any kind whatsoever which does
not interfere with the conditions of supply and demand, or industrial
competition, in such a way as to give “protection” to somebody at
the expense of somebody else. There are persons who are now enjoying
great advantages in their business from the whisky and tobacco taxes
which they would lose if those taxes were repealed. This is one of
the incidental mischiefs of all taxation and one of the reasons for
insisting that taxation shall be as slight as possible, and, to that
end, that government functions shall be limited as much as possible.
We are, therefore, face to face with the question whether we are able
to reduce our own taxes, and whether we are free to do so. We may
fairly ask: if not, why not? It is plain that this is a question of
domestic policy and of our own interest altogether. All the attempts
to prejudice it by talking about “England” are impertinent, and all
allegations that those of us who want to reduce our own taxes are
trying “to give away our market,” etc., belong to the worst abuses of
political discussion. What is true is that we have built up a vast
combination of vested interests, which in a few cases have, and in
nearly all cases think they have, an interest in maintaining the
taxes. These are among ourselves; what they gain, they gain from us; it
is with them that we have to contend. They have thus far carried on the
fight by all the methods dear to vested interests; they have put forth
plausible fallacies, sought alliances, procured delays, appealed to
prejudices.
Behind these selfish and sordid interests, however, there is the strong
and sincere prejudice which still prevails among the civilized nations
of to-day, and which is dividing them into hostile parties, carrying
on tariff wars with each other. I call it “protectionism,” because it
is not a policy, but a philosophy of national welfare. In the United
States it takes the form of various fallacies about the home markets,
diversification of industry, wages, etc. As these are all questions
of political economy, and as all who talk on the subject at all are
talking political economy of some sort or other, it seems that a great
work of education is to be done here on the field of economic doctrine.
Hitherto the attempt of the politicians has been not to perform this
work of education but to thrust it aside.
As soon as the issue is formed, however, and the protectionists are
forced to formulate their doctrine, as a doctrine, its absurdity
becomes apparent. It is not capable of statement. If we are to have
temporary protection, in order to start infant industries, then it will
become imperatively necessary, so soon as public attention is occupied
by the subject, to say how, and how far, and how long, the system is to
be kept up, and the public will demand to know how it is getting on,
and at what rate it is approaching its goal. For this reason those who
have any logical directness of thinking, have already advanced to a
more intense position; they advocate protectionism as a permanent and
universal economic philosophy. In that form it flies in the face of
common sense and civilization; in some of the latest forms which it has
taken on in the hands of some professors of political economy, it is a
kind of economic mysticism.
If, however, the United States could be cut off from all the rest of
the world as regards trade and industry, then at least it should be
plain that whatever material prosperity they could gain would be just
what they, with their energy, enterprise, and capital, are able to
extract from such soil and climate as nature has given to us here. What
would be the difference if, then, there were no tax barriers? Certainly
none whatever. The wealth which the American people get they must
produce by applying their labor and capital to the natural advantages
which they possess. With foreign trade open to them, they will not make
use of it unless they find an advantage in it; that is, unless American
labor and capital can attain more wealth through exchange than without
it. The task of American producers will still be to attain the greatest
possible wealth by expending their labor and capital on American soil,
either directly, or with an intermediate step of exchange. Wages are
only a part of the product of the country; if then, trade increased
the amount of commodities at the disposition of the people, it would
increase the amount of each share in the distribution. This is the
simplest common sense of the matter, stripped of all technicalities,
and to this the whole discussion must again and again return.
If now we begin to reduce and abolish the taxes which were laid during
the war, we shall simply begin to free the American people from a clog
on their energies and a waste of their industrial strength. Every step
in this direction is an emancipation under which we may be sure that
the national energy which is set free will spring up with the quickest
response. The guarantee of this is in the character of the people, and
in the natural advantages which they possess. Whatever chances we have,
we have in the nature of the case; the tariff could not give us any; it
could only divert in one way or another those which nature has given
us. This diversion or perversion has now entered into the experience
and education of our generation. We have no idea of the welfare we
should enjoy if we were only free to use the chances which are within
our reach, and a great many of us have spun out a kind of political
economy to prove that the cords which bind us are the tools by which we
work.
WHAT IS FREE TRADE?[33]
There never would have been any such thing to fight for as free
speech, free press, free worship, or free soil, if nobody had ever
put restraints on men in those matters. We never should have heard of
free trade, if no restrictions had ever been put on trade. If there
had been any restrictions on the intercourse between the states of
this Union, we should have heard of ceaseless agitation to get those
restrictions removed. Since there are no restrictions allowed under
the Constitution, we do not realize the fact that we are enjoying
the blessings of complete liberty, where, if wise counsels had not
prevailed at a critical moment, we should now have had a great mass of
traditional and deep-rooted interferences to encounter.
Our intercourse with foreign nations, however, has been interfered
with, because it is a fact that, by such interference, some of us can
win advantages over others. The power of Congress to levy taxes is
employed to lay duties on imports, not in order to secure a revenue
from imports, but to prevent imports--in which case, of course, no
revenue will be obtained. The effect which is aimed at, and which is
attained by this device, is that the American consumer, when he wants
to satisfy his needs, has to go to an American producer of the thing
he wants, and has to give to him a price for the product which is
greater than that which some foreigner would have charged. The object
of this device, as stated on the best protectionist authority, is: “To
effect the diversion of a part of the labor and capital of the people
out of the channels in which it would run otherwise, into channels
favored or created by law.” This description is strictly correct, and
from it the reader will see that protection has nothing to do with any
foreigner whatever. It is purely a question of domestic policy. It
is only a question whether we shall, by taxing each other, drive the
industry of this country into an arbitrary and artificial development,
or whether we shall allow one another to employ each his capital and
labor in his own way. Note that there is for us all the same labor,
capital, soil, national character, climate, etc.,--that is, that all
the conditions of production remain unaltered. The only change which is
operated is a wrenching of labor and capital out of the lines on which
they would act under the impulse of individual enterprise, energy,
and interest, and their impulsion in another direction selected by
the legislator. Plainly, all the import duty can do is to close the
door, shutting the foreigner out and the Americans in. Then, when an
American needs iron, coal, copper, woolens, cottons, or anything else
in the shape of manufactured commodities, the operation begins. He has
to buy in a market which is either wholly or partially monopolized.
The whole object of shutting him in is to take advantage of this
situation to make him give more of his products for a given amount of
the protected articles, than he need have given for the same things
in the world’s market. Under this system a part of our product is
diverted from the satisfaction of our needs, and is spent to hire some
of our fellow-citizens to go out of an employment which would pay
under the world’s competition, into one which will not pay under the
world’s competition. We, therefore, do with less clothes, furniture,
tools, crockery, glassware, bed and table linen, books, etc., and the
satisfaction we have for this sacrifice is knowing that some of our
neighbors are carrying on business which according to their statement
does not pay, and that we are paying their losses and hiring them to
keep on.
Free trade is a revolt against this device. It is not a revolt against
import duties or indirect taxes as a means of raising revenue. It has
nothing to say about that, one way or the other. It begins to protest
and agitate just as soon as any tax begins to act protectively,
and it denounces any tax which one citizen levies on another. The
protectionists have a long string of notions and doctrines which they
put forward to try to prove that their device is not a contrivance by
which they can make their fellow-citizens contribute to their support,
but is a device for increasing the national wealth and power. These
allegations must be examined by economists, or other persons who are
properly trained to test their correctness, in fact and logic. It
is enough here to say, over a responsible signature, that no such
allegation has ever been made which would bear examination. On the
contrary, all such assertions have the character of apologies or
special pleas to divert attention from the one plain fact that the
advocates of a protective tariff have a direct pecuniary interest
in it, and that they have secured it, and now maintain it, for that
reason and no other. The rest is all afterthought and excuse. If any
gain could possibly come to the country through the gains of the
beneficiaries of the tariff, obviously the country must incur at least
an equal loss through the losses of that part of the people who pay
what the protected win. If a country could win anything that way, it
would be like a man lifting himself by his boot straps.
The protectionists, in advocating their system, always spend a
great deal of effort and eloquence on appeals to patriotism, and to
international jealousies. These are all entirely aside from the point.
The protective system is a domestic system, for domestic purposes,
and it is sought by domestic means. The one who pays, and the one who
gets, are both Americans. The victim and the beneficiary are amongst
ourselves. It is just as unpatriotic to oppress one American as it
is patriotic to favor another. If we make one American pay taxes to
another American, it will neither vex nor please any foreign nation.
The protectionists speak of trade with the contempt of feudal nobles,
but on examination it appears that they have something to sell, and
that they mean to denounce trade with their rivals. They denounce
cheapness, and it appears that they do so because they want to sell
dear. When they buy, they buy as cheaply as they can. They say that
they want to raise wages, but they never pay anything but the lowest
market rate. They denounce selfishness, while pursuing a scheme for
their own selfish aggrandizement, and they bewail the dominion of
self-interest over men who want to enjoy their own earnings, and object
to surrendering the same to them. They attribute to government, or to
“the state,” the power and right to decide what industrial enterprises
each of us shall subscribe to support.
Free trade means antagonism to this whole policy and theory at every
point. The free trader regards it as all false, meretricious, and
delusive. He considers it an invasion of private rights. In the best
case, if all that the protectionist claims were true, he would be
taking it upon himself to decide how his neighbor should spend his
earnings, and--more than that--that his neighbor shall spend his
earnings for the advantage of the men who make the decision. This is
plainly immoral and corrupting; nothing could be more so. The free
trader also denies that the government either can, or ought to regulate
the way in which a man shall employ his earnings. He sees that the
government is nothing but a clique of the parties in interest. It is
a few men who have control of the civic organization. If they were
called upon to regulate business, they would need a wisdom which
they have not. They do not do this. They only turn the “channels” to
the advantage of themselves and their friends. This corrupts the
institutions of government and continues under our system all the old
abuses by which the men who could get control of the governmental
machinery have used it to aggrandize themselves at the expense of
others. The free trader holds that the people will employ their labor
and capital to the best advantage when each man employs his own in his
own way, according to the maxim that “A fool is wiser in his own house
than a sage in another man’s house”;--how much more, then, shall he be
wiser than a politician? And he holds, further, that by the nature of
the case, if any governmental coercion is necessary to drive industry
in a direction in which it would not otherwise go, such coercion must
be mischievous.
The free trader further holds that protection is all a mistake
and delusion to those who think that they win by it, in that it
lessens their self-reliance and energy and exposes their business to
vicissitudes which, not being incident to a natural order of things,
cannot be foreseen and guarded against by business skill; also that it
throws the business into a condition in which it is exposed to a series
of heats and chills, and finally, unless a new stimulus is applied,
reduced to a state of dull decay. They therefore hold that even the
protected would be far better off without it.
PROTECTIONISM TWENTY YEARS AFTER[34]
I think it must be now nearly twenty years since I have made a
free-trade speech or been able to take share in a free-trade dinner.
When I was invited here this evening I thought I would try to come
for the pleasure of hearing the gentlemen, especially the members of
Congress, who were announced to speak here. I have been so out of
health that it has been impossible for me to sit up evenings or to
attempt public speaking in the evenings, but things are going a little
better and I will make an attempt to say a little--not very much, as
the hour is now late.
Thirty-five or forty years ago I became a free trader for two great
reasons, as far as I can now remember.
One was because, as a student of political economy, my whole mind
revolted against the notion of magic that is involved in the notion of
a protective tariff. That is, there are facts that are accounted for
by protectionism through assertions that are either plainly untrue or
are entirely irrational. The other reason was because it seemed to me
that the protective tariff system nourished erroneous ideas of success
in business and produced immoral results in the minds and hopes of the
people.
I cannot say that I have got any more light on the matter within the
last twenty years; it looks to me still as if the great objections
to protectionism were these two. No man who enjoys the benefit of a
protective tariff, as he believes, can ever tell whether he gets back
anything for the taxes which he pays or not. He never has any analysis
of the operation and never knows whether or not he really recovers from
the action of the tariff what he pays in.
I say now the taxes which he pays, because--let us not make any
mistake about this--the matter we are talking about is one entirely
of Americans and between Americans. If the protective tariff operates
so as to perform what is attributed to it, it prevents things from
being imported into this country. That may be a disadvantage to the
foreigner, it may disappoint him in his hopes, but we may leave him
out of account. Then the increase of the cost of these commodities for
the American consumer at home is the source from which the American
protected manufacturer must obtain his benefit, if he ever obtains any.
Therefore he has to pay also taxes to the other protected industries on
account of the operation of the system. Therefore he is both paying and
receiving, but whether or not he gets back the part that he hoped to
receive is a question which he never can sift and never can know.
I should myself suppose that possibly the Pennsylvanian on his coal and
iron might stand a good chance of winning something. The operation is
direct and simple in that case, and coal and iron are to-day the very
first conditions of industry. They must be obtained as raw material,
because they enter into everything, and it is possible that under those
circumstances the game might be sufficiently direct so that its effect
could be felt and perceived. But the Connecticut manufacturer has to
pay taxes on coal and iron and copper and the other metals, and he has
to pay also the taxes on wool and the other raw materials, and then
comes the question whether he ever gets it back again or not. He never
knows; he cannot know; he cannot feel it and he cannot possibly know
whether the operation of the system is to bring him back a return for
his outlay or not.
We hear a great deal about a rightly adjusted tariff. It is a constant
ideal that is presented, whenever the tariff subject comes up again for
discussion in Congress, that it ought to be rightly adjusted, and when
it is, it is going to perform its beneficial operation.
How can a tariff ever be rightly adjusted unless the industry will
stand still? The taxes stand still for years without change. The
industries never stand still. There are new inventions in machinery,
there are new raw materials brought into use, there are new processes
developed, and all that changes the character of the industry. These
inventions and improvements and processes are all ignored by the
protective system. It contains no allowance for them at all. But our
people are full of enterprise, they are fond of improvements, they like
novelties, and they adopt changes. The consequence is that the industry
changes, and then again the decisions that are made by somebody or
other as to the doubtful questions in the interpretation of the law
are also constantly changing, and then by and by we find a lot of
people who want the tariff changed. They say it needs to be adapted
to the time, it is out of date, it has fallen behind, it does not fit
the requirements of the moment, and they would like to have a tariff
revision; but they are told then that they ought to keep still and
not make a disturbance which will bring up a discussion of the entire
tariff system, and that they ought to allow it to go on for the sake of
the “system.”
What is the system then? The system means that the import duties that
we have in this country have raised the prices of all commodities
in our market, I may say thirty or forty per cent on a very low
calculation. Is not that a very extraordinary thing when you stand off
and try to realize it for a minute--that we have raised the prices in
the United States thirty or forty per cent--perhaps more nearly fifty
per cent--above the level of the prices for the same commodities in
the other civilized countries of our grade; and that we believe that we
have done a grand and noble thing by raising these prices, putting the
whole level of life in this country on an artificial plane that much
above the level of the world’s market? In fact, if you should listen
to a protectionist he would make you believe that this continent would
not be habitable if it was not for the protective tariff that is here
working this operation all the time on the American market.
I am of the opinion--I am not very confident about it--but it looks to
me as if it were true that a protective tariff wears out in a little
while--I mean, so far as its expected beneficial effect is concerned.
Its effects are distributed, they are taken up and they are allowed
for all around the market until the expected benefit to the protected
people is lost and there remains nothing but the dead weight of the
system itself as an interference with the industries. There is then
a call for a new tariff in order to get another impulse or another
fillip, as I have heard it called, to give things a new impulse, to
start them on again.
That has been the history of our tariff now for one hundred years, that
it has been restarted, reinvigorated from time to time in order to give
a new impulse. Then in the very nature of the case, therefore, it seems
to me that a new impulse is constantly required.
As I said at the outset, the tariff system seems to me to teach us to
believe that a man needs a “pull” of some kind or other to make any
industry a success. It is an idea that there must always be a provision
of easy profit in connection with the industry that shall demand no
labor or no expenditure of capital to get it. That is the pure doctrine
of graft. The tariff teaches us to look for a fee or a gratuity or a
rake-off which will be a pure and net profit. People are told that
tariff taxes are a rightful gift to the beneficiary. Those who do not
get that gain seek another one of the same kind somewhere, and when
they do that they have recourse to graft.
It is a shameful fact that this notion of graft, and this word, should
have come to us, as it has within the last four or five years, and
should have extended so far and become so familiar to us in connection
with a great many of the operations of business. It is customary,
as we have known for a long time, in some nations, for instance in
Russia, China, and Turkey; and with us it has seemed to spread and
win acceptance and currency in a most astonishing manner. I cannot
believe but what the tariff system has educated us in this direction
and prepared us to tolerate and accept the development of this idea. It
also seems to me that now, after one hundred years of this system, the
tariff is no longer properly an economic question. It is a practical
political question. The politics and the business are interwoven in
it inextricably. There is no economic discussion possible of the
propositions that are made, economic in form, in connection with the
tariff system. There is only a war of partial views and of superficial
inferences.
Our American protectionism has grown out of the peculiar circumstances
of this country. It is an old idea that has come down to us from
Europe, and, indeed, from the Middle Ages in Europe, and here it found
a chance for a new and very remarkable development. There were new
conditions here, and the chances were so big and grand that, as a
matter of fact, the protective system has never done more than exact a
certain tribute from us on these chances. It has never really touched
us in an acute and sensible way, and in spite of it we have enjoyed
marvelous prosperity which is due really to the circumstances of
advantage and favor which we have enjoyed here.
In the year 1892 we got an issue on this matter and went to the
electorate with it, with the result that we all know. But the mandate
of the people was neglected and disobeyed by the government and the
purpose that the people showed at that time was defied.
We have also had opportunity to notice the great power of the protected
interests in Congress. The fact is that we are being governed at the
present time by a combination of these protected interests which
have got control of the machinery of government, and have control of
the personnel of the government to such an extent that it is almost
impossible, practically, to make any breach in this system at all. That
is because the political combinations have been so thoroughly wrought
out and so ingeniously developed that they look at present as if they
were impregnable.
I look around to see if I can find some encouragement. I thought that
it was something of an encouragement when Mr. Dalzell made this speech
in Congress that Mr. Williams has referred to, in which he poured
such scorn on the idea of “incidental protection.” I have never said
anything so severe about any protectionist idea as that which he said
about incidental protection. But suppose that the people of 1850, the
middle of the nineteenth century, could come to life again, the old
protectionists of that time. What would they think to hear a man speak
with scorn of incidental protection? It was what they believed in; it
was the whole business to them. When an old protectionist like Mr.
Dalzell can turn around and pour scorn upon incidental protection I
feel as if we never could tell what they might throw overboard next
time, in some paroxysm of some kind or other, of fear or hope or
something else, and we might get a chance that we have not been able to
get in the past.
Then, as has been well said by other gentlemen to-night, there has
been within the last year or two a very great revolt in the public
mind against graft and political and business corruption. How far will
this go? We do not know, but it is, at any rate, an opening in the
public mind that is full of chances. It may go very far; it may have
very great effects; it is certainly something to be noticed and taken
advantage of.
Then, again, there are new conflicts of interests arising. We have
become very great people in the world’s commerce, with a billion
dollars’ worth of exports and imports in a year, and we are so
interwoven with the whole world that it will not be possible for us
to go on with our old policy of discouraging commerce and rejecting
it, and trying to stop it, and paying no attention at all to the
remonstrances of our neighbors. In future we shall be obliged to
pay some attention to these remonstrances. They are just, they are
reasonable, and they will command our attention; and then we shall
have to make concessions to them. In other words, we cannot any longer
afford to reject and neglect these remonstrances.
It may be, therefore, that in the time that is now before us we shall
have better chances for a practical war upon this system than we have
had hitherto. As long, however, as I can remember, and as long as I
have had any share in it, we have got along without any encouragement
in it at all. We have done what we could without that. We got so we
did not expect it. We knew that we should be neglected and treated as
persons whose opinions in these matters were not of any importance or
worthy of any attention, and so we went on and kept up our arguments,
as we considered them, to the best of our ability and without very much
result.
Now, it may be that we are on the eve of a different time, when the
circumstances will be more favorable, more hopeful, more full of
opportunities, and I certainly, for my part, most profoundly hope that
that is so.
I have noticed with some discouragement the efforts that Mr. Williams
has made on the floor of Congress to get some modifications of the
tariff made, or some argument even opened up there that might give
the matter activity and life in the legislative domain. They did not
seem any more encouraging than what we used to see in the old times.
But it is certainly in the nature of things that the difficulties and
absurdities of this system must come out in practice more and more
distinctly as we go on, and the need for reform will therefore force
itself in the shape of a play of interests that will bring new and
counteracting forces into operation to which we may look for help in
the overthrow of the system.
PROSPERITY STRANGLED BY GOLD[35]
Some of the silver fallacies were stated by Mr. St. John, in his
address before the silver convention, with such precision that his
speech offers a favorable opportunity for dealing with them.
He says that “it is amongst the first principles in finance that the
value of each dollar, expressed in prices, depends upon the total
number of dollars in circulation.” There is no such principle of
finance as the one here formulated. The “quantity doctrine” of currency
is gravely abused by all bimetallists, from the least to the greatest,
and it is at best open to great doubt. When the dollars in question
are dollars of some money of account which can circulate beyond the
territory of the State in which it is issued, the quantity doctrine
cannot be true within that territory. It may be noted, in passing, that
this is the reason why no scheme of the silver people for manipulating
prices in the United States can possibly succeed. Silver and gold will
be exported and imported until their values conform throughout the
world, and prices fixed in one or the other of them will conform to the
world’s prices, after all the trouble and waste and loss of translating
them two or three times over have been endured.
The quantity doctrine, however, means that the value of the currency
is a question of supply and demand, and everybody knows that to double
or halve the supply does not halve or double the value, or have any
other effect which is simple and direct. If it did have such effect
speculation would not be what it is.
Mr. St. John goes on to argue that our population increases two
millions every year, on account of which we need more dollars; that
the production of gold does not furnish enough to meet this need, and
that, therefore, prices fall. This argumentation is very simple and
very glib. Prosperity and adversity are put into a syllogism of three
lines. But, if we can avert the fall in prices and adversity by coining
silver, it must be by adding the silver to the gold which we now have.
“High” and “low” prices are only relative terms. They mean higher and
lower than at another time or place; higher and lower than we have been
used to. If misery depends on ten-cent corn we are advised to cut the
cents in two and we shall get twenty-cent corn and prosperity. Corn
will not be altered in value in gold, or outside of the United States,
and, as all other things will be marked up at the same time and in
the same way, its value in other things will not be altered by this
operation. When we get used to twenty-cent corn it will seem just as
low and just as “hard for the debtor” as ten-cent corn is now. Then
we can divide by ten and get two-dollar corn, by adding free coinage
of copper. When we get used to that we shall be no better satisfied
with it. We can then make paper dollars and coin them without limit.
Million-dollar corn will then become as bitter a subject for complaint
as ten-cent corn is now. The fact that people are discontented is no
argument for anything.
The fact that prices are low is made the subject of social complaint
and of political agitation in the United States. Prices have undergone
a wave since 1850. They arose until about 1872. They have fallen
again. They are lower than they were at the top of the wave all the
world over. This fact, the explanation of which would furnish a very
complicated task for trained statisticians and economists, is made a
topic of easy interpretation and solution in political conventions and
popular harangues, and it is proposed to adopt violent and portentous
measures upon the basis of the flippant notions which are current about
it. But what difference does it make whether the “plane” of prices is
high or low? If corn is at forty cents a bushel and calico at twenty
cents a yard, a bushel buys two yards. If corn is at ten cents a bushel
and calico at five cents a yard, a bushel will buy two yards. So of
everything else. If, then, there has been a _general_ fall, and that
is the alleged grievance, neither farmers nor any other one class has
suffered by it.
It is undoubtedly true that a period of advancing prices stimulates
energy and enterprise. It does so even when, if all the facts were well
known, it might be found that capital was really being consumed in
successive periods of production. Falling prices discourage enterprise,
although, if all facts were known to the bottom, it might be found that
capital was being accumulated in successive periods of production.
It is also true that a depreciation of the money of account, _while it
is going on_, stimulates exports and restrains imports.
But who can tell how we are to make prices always go up, unless by
constant and unlimited inflation? Who can tell how we are to avoid
fluctuations in prices or eliminate the element of contingency, risk,
foresight, and speculation?
It is also true that, although high prices and low prices are
immaterial at any one time, the change from one to the other, from
one period of time to another, affects the burden of outstanding time
contracts. Men make contracts for dollars, not for dollar’s-worths.
Selling long or short is one thing; lending is another. Borrowers and
lenders never guarantee each other the purchasing power of dollars at a
future time. If the contracts were thus complicated they would become
impossible. Between 1850 and 1872 the debtors made no complaint and
the creditors never thought of getting up an agitation to have debts
scaled up. The debtors now are demanding that they be allowed to play
heads I win, tails you lose, and Mr. St. John and others tell us that
they have the votes to carry it; as if that made any difference in the
forum of discussion.
Increase in population does not prove an increased need of money. It
may prove the contrary. If the population becomes more dense over a
given area, a higher organization may make less money necessary. If
railroads and other means of communication are extended, money is
economized. If banks and other credit institutions are multiplied,
and if credit operations are facilitated by public security, good
administration of law, etc., less money is needed. If these changes are
going on at the same time that population is increasing (and such is
undoubtedly the case in the United States), who can tell whether the
net result is to make more or less currency necessary? Nobody; and all
assertions about the matter are wild and irresponsible.
If it was true that an increase of two millions in the population
called for more dollars, how does anybody know whether the current
gold production is adequate to meet the new requirement or not? The
assertion is arithmetical. It says that two quantities are not equal to
each other. The first quantity is the increase in the currency called
for by two million more people. How much more is needed? Nobody knows,
and there is no way to find out. The silver men have put figures for
it from time to time, but the figures rested on nothing and were mere
bald assertions. The second quantity is the amount of new gold annually
available for coinage in the United States. How much is this? Nobody
knows, because if an attempt is made to define what is meant it is
found that there is no idea in the words. The people of the United
States buy and coin just as much gold as they want at any time. Hence
two things are said to be unequal to each other, when nobody knows how
big either one of them is. It may be added that it makes no difference
how big either one of them is. How much additional tin is needed
annually for the increase of our population? Do the mines produce it?
Nobody knows or asks. The mines produce, and the people buy, what they
want. The case is the same as to gold.
We find, then, that Mr. St. John begins with a doctrine which is
untenable; then he asserts a relation between population and the need
of money which does not exist; then he assumes that this need is
greater than the amount of new gold produced, although neither he nor
anybody else knows how big either one of these quantities is. This is
the argumentation by which he aims to show that prices are reduced and
misery produced by the single gold standard. It is the argumentation
which is current among the silver people. Not a step of it will bear
examination. The inference that we must restore the free coinage of
silver, to escape this strangulation of prosperity, falls to the
ground.
CAUSE AND CURE OF HARD TIMES[36]
It is an essential part of the case of the silver men that the country
is having “hard times.” The bolters from the Republican convention say,
in their manifesto: “Discontent and distress prevail to an extent never
before known in the history of the country.” This is an historical
assertion. It is distinctly untrue. There is no such discontent and
distress as there was in 1819, or in 1840, or in 1875, to say nothing
of other periods. The writers did not know the facts of the history,
and they made use of what is nowadays a mere figure of speech. People
who want to say that a social phenomenon is big, and who do not know
what has been before, say that it is unparalleled in history.
There has been an advancing paralysis of enterprise and arrest of
credit ever since the Sherman act of 1890 was passed. The bolters say
that “No reason can be found for such an unhappy condition of things
save in a vicious monetary system.” The reason for it has been that the
cumulative effect of the silver legislation was steadily advancing to a
crisis. The efforts by which the effects of that legislation had been
put off were no longer effective, and it was evident that the country
was on the verge of a cataclysm in which the standard of value would be
changed. What man can fail to see the effect of such a fear on credit
and enterprise? And with such a fear in the market, how idle it is to
try to represent the trouble as caused by the fact that the existing
standard was of gold, or of silver, or of anything else! Men will make
contracts and go on with business by the use of any medium, the terms
of which can be defined, understood, and maintained until the contract
is solved, but uncertainty as to the terms, or danger of change in
them, makes credit and enterprise impossible. In the whole history of
finance no crisis can be found which was so utterly unnecessary, and so
distinctly caused by the measures of policy which had gone before it,
as that of 1893.
So much being admitted as to “hard times,” it remains true, however,
that by far the greatest part of the current declamation about hard
times is false. Prosperity and adversity of society are not capable of
exact verification. At all times some people, classes, industries, are
less prosperous than others. The fashion has grown up among politicians
and stump orators of using assertions about prosperity and distress
as arguments for their purpose, and parties come before the public
with prosperity policies. They have programs for “making the country
prosperous.” If this country, with its population, its resources, and
its chances, is not prosperous by the intelligence, industry, and
thrift of its population, does any sane man suppose that politicians
and stump orators have any devices at their control for making it so?
The orators of the present day see prosperity where they need to see
it for the purposes of their argument. They say that all gold-standard
countries in Europe are in distress. Mr. St. John says that Mexico is
prosperous. As to Canada, we have seen no statement. According to some
discussions which are current, the bicycle rivals the gold standard
as a calamity-producer. As the bicycle has certainly gravely affected
the distribution of expenditure and the accumulation of capital, its
efficiency as a crisis-maker, in its degree, whatever that may be, can
be rationally discerned, but nobody has ever been able to show any
rational grounds of belief that the gold standard is a crisis-maker.
A crisis will also be produced whenever capital has been invested
on a large scale in any unproductive investment, whereby it is not
reproduced, but is lost. The enterprises are always made the basis of
engagements and contracts. When the enterprises fail, the engagements
cannot be met; other engagements based on these also fail, and so on
through the whole industrial organization. Such crises are inevitable
in a new country. Enterprises run in fashions. At any one time great
groups of producers tend to one line of industry. That industry is
sure to be overdone and to come to a crisis. In a free country, where
every man is at liberty to direct his enterprise as he sees fit, what
is the sense, when it turns out that he has made a mistake, of trying
to throw the losses on other people? No one would propose it as to an
individual or a number, but when there is a great interest it makes
itself a political power and produces a platform for the same purpose,
generally with inflated principles of humanity, justice, democracy, and
Americanism as wind-attachments to make it float.
Mr. St. John says that the farmers are spending ten dollars an acre to
get eight or nine dollars an acre. What farmer in the United States can
tell how many dollars he spends on an acre? What is the sense of these
pretendedly accurate figures? But, if they had sense, what would be the
gain of cutting the dollars in two? If the farmer spent twenty silver
dollars on an acre and got back sixteen or eighteen, how would he be
benefited? The dollars of outlay are of the same kind as the dollars
of return in any case. If it is true that the return does not equal
the outlay, it must be on account of some facts of production, and it
requires but a moment’s reflection to see that changing the currency in
which outlay and income are reckoned cannot change the relation between
the two.
A dispassionate view of facts will go to prove that the world is
reasonably and ordinarily prosperous at the present time, except
where particular classes and industries are affected by special
circumstances, as some classes and industries are being affected
at all times. The land-owners of western Europe are in distress
on account of the competition of new land, with cheapened means of
transportation, but now we are told that the holders of the other side
of the competition, the land-owners of the new soil, are victims of
distress. It must be, then, that too much labor and capital are being
expended on the soil the world over, and that, too, in spite of all the
protective tariffs drawing people to the textile and metal industries.
Our silver men say that this is not the correct inference. They say
that the people on the new land suffer because the prices are set in
coins of gold and the debits and credits are kept in terms of those
coins. The prices are fixed in the world’s market in gold. They will be
so fixed, whatever we may do with our coinage laws. If the proceeds, in
being brought home, are converted into silver value, a new opportunity
for brokerage and exchange gambling will be given to the hated bankers
and brokers of Wall Street. That is the only difference which will
be produced. It would be far more sensible to say that distress is
produced by doing the business on the English system of weights and
measures, in bushels and pecks, and that prosperity would be produced
by doing it on the metric system, in litres and hectolitres, for that
charge would at least be harmless. Our distress could all be dispelled
in a week by an act of Congress making all contracts, beyond political
peradventure, that which they are in law and fact, gold contracts.
There is, however, another cause of hard times for some people which
is far more important in our present case than any other. That is the
case of the boom which has collapsed. We hear a great deal about “Wall
Street gambling.” The gambling in Wall Street is insignificant compared
with the gambling in land, buildings, town sites, and crops which goes
on all over the country, and which is participated in chiefly by the
men who declaim about Wall Street. For three hundred years our history
has been marked by the alternations of “prosperity” and “distress”
which are produced by the booms and their collapses. When the collapse
comes the people who are left long of goods and land always make a
great outcry and start a political agitation. Their favorite device
always is to try to inflate the currency and raise prices again until
they can unload.
It is a very popular thing to tell men that they have a grievance. That
most of them find it hard to earn as much money as they need to spend
goes without saying. Now comes the wily orator and tells them that this
is somebody’s fault. In old times, if a man was sick, it was always
assumed that somebody had bewitched him. The witch was to be sought.
The medicine-man had to name somebody, and then woe to the one who was
named. Our medicine-men say that it is the gold-bugs, Wall Street,
England, who are to blame for hard times. Whether there is any rational
proof of connection is as immaterial as it always was in witchcraft. It
is a case of pain and passion. The “gold standard” has done it! There
is something to hate and denounce. All would be well if silver could
be coined at four hundred and twelve and a half grains to the dollar.
But the assumption is that while the farmers would sell their products
for twice as many “dollars” as now, in silver, all the prices of things
which they want to buy would remain at the same number of dollars
and cents as now, in gold; that is, it is believed that wheat would
be at, say, one dollar and fifty cents per bushel in silver, instead
of seventy-five cents in gold, but that cloth would remain at fifty
cents a yard in silver, if it is now fifty cents a yard in gold. When
this assumption is brought out into clear words, every one knows that
such can never be the result. The proposed cure is like a witch cure.
It lacks rational basis, and cannot command the confidence of men of
sense. If the times were ever so bad, such a cure could only make them
worse.
THE FREE-COINAGE SCHEME IS IMPRACTICABLE AT EVERY POINT[37]
THE PROGRAM.
In two former articles I have discussed some points which are presented
by the advocates of the free coinage of silver, on the assumption
that their project was feasible and their conception of its operation
correct. They have laid out a program; free coinage, silver standard,
great demand for silver, rise of prices, rise in the value of silver,
cancellation of debts, prosperity. They now admit that this program
would involve a panic, but it would come out, they say, at the desired
result in two or three years. They denounce the gold standard as having
caused hard times, but they plan a program with a panic as an incident
on the way to a silver standard as if it was a trifle.
_There is not a step in this program which could or would be carried
out as planned._
FREE SILVER MEANS FIAT PAPER MONEY.
The amount of circulating cash of all kinds in the hands of the
people at the present time is about nine hundred millions. If the
dollar was reduced to half its present value, and if allowance was
made for reserves, two thousand million silver dollars would be
the specie requirement of the country. We already have nearly five
hundred millions of such dollars. Hence the country could not use at
the utmost, if the new silver dollar was worth not more than half
the present gold dollar, and if the total circulation consisted of
silver without any paper, but three times as many more silver dollars
as we have now. But every one knows that such a state of the currency
never would exist. We should have paper “based on silver”; that is to
say, the silver inflation never will be carried out. It will turn to
paper inflation at the first step. Who can believe that, if the silver
standard was adopted, silver would be bought and piled up dollar for
dollar against the paper, and that the paper would be issued only as
fast as the silver could be coined? In fact, silver would no doubt be
dropped and forgotten, and we should have plain and straightforward
fiat money of paper. Such ought to be faced as the only real sense
and probable outcome of the present agitation for the free coinage of
silver.
LIMIT OF THE AMOUNT OF SILVER WHICH COULD BE ABSORBED.
Let us, however, proceed upon the assumption that the plan proposed is
sincere, and that the attempt would be made to carry it out in good
faith. The circulation in the hands of the people would be paper, for
they would become sick of silver and revolt against it. There would
then be two thousand million dollars in paper afloat, each “dollar”
being of silver and worth half a present gold one. We have now five
hundred million silver dollars. At the utmost not more than another
five hundred millions of silver could be absorbed into the system. That
would give reserves of fifty per cent of the total currency, and that
is the maximum of the demand for silver which could be created if the
United States went over to the silver standard. The supply would come
from all over the earth. Mr. St. John is sure that none would come from
Europe, because legal tender silver there is at a higher ratio than
sixteen to one. Not a nation in Europe which is now under the yoke of
silver would hesitate a moment to demonetize it and send it here if we
opened our mints to it at sixteen to one. He also assures us that none
would come here from the East because the course of silver has always
been from West to East. The course of silver has turned from East to
West more than once when there was a profit on bringing it back, and
that is the only condition necessary to bring it back again. Japan
would adopt a gold currency the moment that the United States adopted a
silver one.
IT IS IMPOSSIBLE INDEFINITELY TO INCREASE THE CIRCULATION.
The power of our currency to absorb silver is not unlimited. People
seem to believe that they can go on and increase the monetary
circulation indefinitely. This is possible with paper, which has no
commodity value and cannot be exported, always understanding that the
paper will depreciate as issued, but it is not possible with any money
which has commodity value. When silver has been put into circulation
here to such an amount that all the fictitious value given to it by the
coinage law has been eliminated--that is to say, when so many silver
dollars, or paper bearing the obligation of silver dollars, have been
issued as will equal in value the present circulation--then there
will be no profit in sending silver here from elsewhere, and no more
profit in minting silver here than in sending it elsewhere. As we have
seen, there is no reason to estimate the amount of silver which would
be absorbed in this operation at more than five hundred millions. The
miners are making all this agitation for the sake of that share which
they could get in furnishing this sum. That share would really not
exceed the silver they had on hand when the law was put in force.
ANTAGONISTIC INTERESTS OF MINERS AND POPULISTS.
What share, then, would the silver-miners get in the results of the
enterprise? They could get none unless the new silver was bought only
of them, and only bought gradually as they produced it, and bought
at a rising price as the demand of debtors acted upon it. Not one of
these conditions would be fulfilled. The debtors and the silver-miners
really have antagonistic interests at every point. It has been proposed
that only American silver should be accepted at the mint. That plan is
impracticable in any case, but, when the Populists had their victory
in hand, does anybody suppose that they would wait eight or ten years
for the realization of their hopes while the mines were producing new
silver, being certain that that delay would cause all they hoped for to
slip through their fingers? I repeat: The interests of the two factions
are all antagonistic to each other, and one of them is destined
inevitably to be the dupe of the other. That destiny is reserved for
the miners who, besides, are paying all the expenses.
Already, so far as the campaign has proceeded, this antagonism has
begun to manifest itself. Mr. Bryan says that his plan will make silver
worth one dollar and twenty-nine cents per ounce fine. He thus takes
his position with the miners’ faction. Thereupon the organs of the
repudiators’ faction have begun to remonstrate. That is not at all what
they are fighting for. They do not want their scheme to raise silver
at all. But if it does not, the miners gain nothing. If it does, then
again the repudiators take to paper money and the miners win nothing.
The mechanical difficulty of recoining the silver with the necessary
rapidity could probably be overcome. There are machine-shops enough
to do it if there was a party in power which had that reckless
determination to execute its will which these people show. We may,
therefore, go on to consider the rise of prices.
THE RISE OF PRICES.
The rise in prices would regularly occur only as the new silver or
paper was put out, but as the consequences would all be discounted it
would be sudden and rapid. It would not, however, affect all things
at the same time or to an equal degree. It is here that one of the
first disappointments would occur. It is not possible to put up prices
when and as one would like to do it, even when the rise is due to
inflation. The effect cannot all be distributed at once. An advance
in price reacts on business relations, that is, on the industrial
organization. Many people and many interests find that they cannot
push against others until long after they have been pushed against
themselves. The wages class and the farmers are the ones who are most
clearly in this position, at least as far as the latter do not produce
articles for export. It must be plain that in such a convulsion of the
market everybody will try to save himself at the expense of others. Who
will succeed? Those certainly who spend their lives in the market and
already possess the control of its machinery; not those whose time is
occupied in the details of production.
WHERE THE EXPECTED GAINS WOULD GO.
It is said that the farmer would sell his grain and cotton, as now, for
gold; that he would exchange the gold for silver; would get the silver
coined and would pay his debts with it. Would any individual farmer do
this? Would any one man go through the steps of this operation?--see
the buyer of his products, handle the gold and silver, go to the
mint? Certainly not. All these operations would go on through the
commercial and financial machinery. They would be executed by different
individuals, in the way of business, through the organization, and
every one of them would be lost to view. Every operation would have to
be paid for. Every operation would give a new chance for more middlemen
and more charges. Would, then, the gains of this grand scheme go to the
farmer? Not at all. They would go to the “brokers and speculators of
Wall Street.” They would be lost in commissions and charges. The type
of operator whom the Populist seems to think of when he talks about
“Wall Street sharks,” exists, although his importance in Wall Street is
not as great as that of the political farmer in agriculture; but this
type of man does not care what the currency legislation is, except that
he would like to have a great deal of it, and to have it very mixed.
Whatever it is, when it is made and he sees what it is, he will proceed
to operate upon it.
PLAYING INTO THE HANDS OF THE MONEY SHARKS.
We hear fierce denunciations of what is called the “money power.”
It is spoken of as mighty, demoniacal, dangerous, and schemes are
proposed for mastering it which are futile and ridiculous, if it is
what it is said to be. Every one of these schemes only opens chances
for money-jobbers and financial wreckers to operate upon brokerages and
differences while making legitimate finance hazardous and expensive,
thereby adding to the cost of commercial operations. The parasites on
the industrial system flourish whenever the system is complicated.
Confusion, disorder, irregularity, uncertainty are the conditions of
their growth. The surest means to kill them is to make the currency
absolutely simple and absolutely sound. Is it not childish for simple,
honest people to set up a currency system which is full of subtleties
and mysteries, and then to suppose that they, and not the men of craft
and guile, will get the profits of it?
THE DELUSION OF THE DEBTORS[38]
Fifty years ago a political agitation was started for the annexation
of Texas. As the enterprise appeared like a barefaced piece of
land-grabbing, it was necessary to invent some historical, political,
and moral theories which would give it another color. One such theory
was that Texas had properly belonged to us, but that it was given away
by Monroe and Adams in 1819. Therefore the project was presented as one
for the _re_-annexation of Texas.
THE RE-MONETIZATION OF SILVER.
An attempt is now made to impugn the coinage act of 1873 under various
points of view, in order to lay a foundation for the claim that it
is only sought now to re-monetize silver. Not a single imputation on
the act of 1873 has ever been presented which will stand examination,
but, if that were not so, that act was like any other act of Congress
which has become the law of the land, and under which we have all been
obliged to live for twenty-five years. We cannot go back and undo the
law and live the twenty-five years over again. All the mistakes and
follies of the past are gone into the past for all classes and all
persons amongst us. The men of the past must be assumed to have acted
according to their light, and we who inherit the consequences of what
they did must make the best of both the good and ill of it, as the case
may be, or as we think it is. If now we make a new coinage law it must
stand on its own merits, and on the responsibility of the men who make
it, now and for the future. All references back to 1873 are idle and
irrelevant.
The plain fact, therefore, to be faced without any disguise, is that
we are invited to debase the coinage and lower the standard of value,
_now_ and for the future, as a free act of political choice, to be
deliberately adopted in a time of profound peace, and that this is
to be done with the intention and hope that it will perpetrate a
bankruptcy at fifty cents on the dollar for all existing debtors. Can
this project be executed? It cannot. The scheme and plan of it for a
nation of seventy million people is silly and wicked at the same time,
and is both, beyond the power of words to express. The projectors of
it deal with the economic phenomena of a great nation as if they were
talking about a game at cards, and they plan to do this with prices
and that with debts, this with exports and that with banks, as if they
were planning a program for building a barn. If we try to realize the
operation proposed we shall see how childish and absurd it is.
We must distinguish between three classes of debtors: great financial
institutions, small mortgagors, and partners in collapsed booms.
FINANCIAL INSTITUTIONS AS DEBTORS.
The great financial institutions are intermediaries between debtors and
creditors. They have received capital from some people and lent it to
others. They have to recover it and pay it back. If they only recover
it at fifty cents on the dollar, they can only repay it in the same
way. What this would mean is that the creditors of those institutions
would be paid “dollars,” but that when they tried to re-invest them
they would find that prices had risen to a greater or less degree in
those dollars for the things which they wanted to buy. To this the
Populists answer, triumphantly, that now the debtors find that the
prices of their products have fallen, so that when they try to sell
them they cannot get enough to pay their debts; but the debtors are
those who made contracts and undertook enterprises five, ten, fifteen,
or twenty years ago, expecting to make gains which they certainly would
have kept. As things have turned out they have not made the gains, and
their plan is to escape the loss by throwing it on some one else. The
institutions in question, however, are bound to protect the interests
of either body of their clients, borrowers or depositors, when either
is unjustly threatened, and they are by no means destitute of means to
do it. A law to forbid specific coin contracts is but one step in the
desperate policy of prostituting law and corrupting the administration
of justice, which would be necessary in the attempt to force through
the plan under discussion. It would fail at last, because the advocates
of it would find that, as the popular saying is, it would “fly up and
hit them in the face.” It is not possible to throw society and all its
most important institutions into confusion without ruining all the
interests of everybody, and at last everybody but the tramp or pauper
has to ask himself whether it will pay. As for the institutions, many
of them would be ruined in the operation. It is not possible for them
simply to collect and repay in the debased dollars. The operation would
produce snarls and knots at every turn. Lawsuits would multiply on all
sides, and would so entangle the affairs of the institution as to ruin
it. The proof of this is presented by the difficulties of liquidation
in any case, even when there is no question of currency revolution,
and when general affairs are in a normal condition, unless there is
time and security for all the operations. In this case the demands on
the institution would be precipitated at once, so far as the form of
contract would allow.
SMALL MORTGAGORS.
The small mortgagors are either wages-men or farmers. As to the
wages-men, their wages would undoubtedly go up in time as prices went
up, but in the paralysis of industry which would be the first distinct
effect of the plan, as soon as it was known that the experiment was
to be made, immense numbers of wages-men would be thrown out of
employment, and all wages would fall on account of this condition of
the labor market. Later, when things began to adjust themselves to the
new basis, wages would be low with prices high, both in silver. Advance
of wages would come, but it would have to be won through strikes and
a prolonged industrial war. In the state of things supposed it would
be every man for himself. The wages class would be weakest of all
under the circumstances, as they are in every case of “hard times.”
How would mortgagors of this class traverse such a time and keep up
their interest? As to the principal, which is to be halved, it cannot
be halved unless it is paid, and the mortgagor has nothing to pay it
with except the _surplus_ which he can save from his wages over the
cost of living. The project promises woe and ruin to the wages class,
with industrial war and class hatred as moral consequences of the most
far-reaching importance.
FARMER-MORTGAGORS.
The farmers expect to double the price of their products, and so get
silver to pay off their mortgages. It has been shown elsewhere[39] how
illusory this expectation is as regards prices. Prices would rise,
indeed, in silver, but irregularly and unequally. They would rise for
all things which a farmer buys as well as for all that he sells. If, as
the silver theorists generally say, all prices were to rise uniformly,
the farmer would gain but little. For the only means he would win
toward paying off his mortgage would be the _surplus_ of his income
over his outgo, and this he could only apply year by year as he won it.
If, then, the whole scheme could be made to work smoothly provided the
victims of it would submit to it without resistance, does this afford
any probability of realizing the great hopes which are built upon the
scheme?
SOCIAL WAR THE CONSEQUENCE.
But victims would not submit without resistance, and once more we come
to the result that no effect can be expected from this undertaking
but social war, and a convulsion of the entire social system, whose
consequences defy analysis or prediction. If a man says that he “does
not see” what great difference going over to the silver standard will
make, it must be that he is little trained to understand the workings
of the industrial system in which he lives and on which he depends. It
is a monstrous thing that a free, self-governing people should join a
political battle, in this year of grace 1896, over the question whether
to debase their coinage or not.
THE EXPLODED BOOMS.
The third class of debtors is by far the most important in this
matter--those who are caught in exploded booms. The peaceful and honest
mortgagors of farms and homesteads are not the ones who have gotten up
this political agitation. The jobbers, speculators, and boom-promoters
have been one of the curses of this country from the earliest colonial
days. They are men of the “hustling” type, jobbing in politics with
one hand and in land or town lots with the other. It is they who, at
the worst periods of financial trouble in our history, have always
appeared in the lobby, eager for “relief,” declaiming about the
“people,” the “money power,” the “banks,” “England,” etc. They have
always favored schemes for fraudulent banks, or paper money, or state
subsidies, or other plans by which they could unload on the state or
on their creditors. Just now it is silver, because silver has fallen
within twenty-five years so much that it is what is called “cheap
money.” This type of men have always used a dialect, part of which is
quoted above, which is so well marked that it suffices to identify
them. The history of financial distress in this country is full of it.
No scheme which has ever been devised by them has ever made a collapsed
boom go up again. With very few exceptions, they have, on account of
such expedients, only floundered deeper in the mire. The exceptions
have been those who have succeeded in making the state provide them
with capital, although by no means all of these have been hard-headed
enough to use it to “get out.” Generally they believe in themselves and
their schemes, and use new capital only to plunge in again still deeper.
It is men of this class and the silver-miners who have brought the
present trouble upon us, who have invented and preached the notions
about the crime of ’73, the hard times, the magical influence of
silver, and all the rest. It is they who have filled and engineered
conventions. They will gain no more now than in any former crisis, but
they insist on involving us all in turmoil, risk, and ruin by their
schemes to save themselves.
THE CRIME OF 1873[40]
LEGISLATIVE HISTORY OF THE ACT OF 1873.
It is alleged that the law of 1873 was enacted surreptitiously. Mr.
Bryan is quoted as having said that the free-coinage men only ask for
a restoration of “that system that we had until it was stricken down
in the dark without discussion.” Within the last ten years the facts
of the legislative history of that law have been published over and
over again. They are to be found in the report of the Comptroller of
the Currency for 1876, page 170; in “Macpherson’s Political Manual”
for 1890, page 157, and in “Sound Currency,” Vol. III, No. 13. The
bill was before Congress three years, was explained and debated again
and again. The fact that the silver dollar was dropped was expressly
pointed out. It is not now justifiable for any man who claims to be
honest and responsible to assert that it was passed “in the dark and
without discussion.” The fact is that nobody cared about it. It is
noteworthy that the act is not in “Macpherson’s Manual” for 1874. It
was not thought to be of any importance. It was not until after the
panic of 1873 that attention began to be given to the currency. To
that, I who write can testify, since I tried in vain, before that time,
to excite any interest in the subject. I was once in the gallery of
the House of Representatives when a question of coinage was before
the House. I counted those members who, as far as I could judge, were
paying any attention. There were six. What is it necessary to do in
such a case in order to prevent the claim, twenty-five years later,
when countless interests have vested under the law, that the law is
open to “reversal” because it was passed “in the dark”?
WAS IT PASSED SURREPTITIOUSLY?
How can a law be passed through Congress surreptitiously? We have
indeed heard of bills being “smuggled through” in the confusion
attending the last hours of the session, or as an amendment, or under a
misleading title. There are the rules of order, however, by which all
legislation is enacted. All laws which get through the mill are equally
valid. There never has been and never can be any distinction drawn
between them according to their legislative history. In the present
case there was not the slightest manœuvre or trick, nor is there even
room to trump up an allegation of the kind.
THAT THE PEOPLE DID NOT KNOW OF IT.
It is said that “the people” did not know what was being done. How
do they ever know what is being done? There is all the machinery of
publicity, and it is all at work. If people do not heed (and of course
in nearly all cases they do not), whose fault is it? Who is responsible
to go to the ten million voters individually and make sure that they
heed, lest twenty-five years later somebody may say that the fact that
they did not heed lays down a justification for a new project which
certainly is “a crime” in the new sense which is given to that word
here?
MOTIVE OF THE LAW.
The act of 1873 did not affect any rights or interests. It took away an
option which had existed since 1834, but had never been used, and, for
ten years before this act was passed, had sunk entirely out of sight
under paper-money inflation. Secretary Boutwell, when he first brought
the matter to the attention of Congress in 1870, explained the proposed
legislation as a codification of existing coinage laws. Later it took
the shape of a complete simplification of existing law, history, and
fact, in order to put the coinage on the simplest and best system as a
basis for resumption. As we had then no coin, we had a free hand to put
the system on the best basis, there being no vested rights or interests
to be disturbed. That this was a wise and sound course to pursue under
the circumstances is unquestionable. Three years later, by the rise
in greenbacks and the fall in silver, it came about that four hundred
twelve and one-half grains of silver, nine-tenths fine, was worth a
little less than a greenback dollar. The old option would, therefore,
if still existent, have been an advantage to debtors. Complaint and
clamor for the restoration of the option then began, but to give such
an option, after the market had changed, would be playing with loaded
dice. The European countries which still retained the option abolished
it as soon as silver began to fall, and we, if we had retained it open
until that time, ought to have done the same.
ALTERNATE RUIN TO DEBTORS AND CREDITORS.
The inflation of the Civil War had a direful effect upon all creditors
on contracts outstanding in 1862. The resumption of specie payments
had a similar effect on debtors under contracts made between 1868 and
1878. Greenbackism and silver debasement were produced by resistance to
this operation. The debtors of to-day are not those of that period. The
debts of that period are paid off. The pain and strain have been borne.
The credit of the United States has been established, the currency
restored, and the whole business of the country for seventeen years
has been completely established on the gold dollar as the dollar of
account for all transactions whatsoever. The population of the country
is now two and a half times what it was in the war time, and its wealth
is probably a much greater multiple. The debts now outstanding have,
with unimportant exceptions, been contracted since the resumption of
specie payments. What is now proposed is to enter upon a new period of
these alternations of wrong and injustice, first to creditors, then to
debtors, and so on, and to do this in a time of peace, not from any
political necessity, but on the ground of some economic interpretations
of the facts of the market, which are incapable of verification and
proof, when they are not obviously erroneous and partisan. The effect
of the various compromises with silver is that the currency is once
more intricate and complicated, excessive and confused, so that few
can understand it, and it offers all sorts of chances for perverse and
mischievous interpretations.
DEMONETIZATION REMOVED NO MONEY FROM USE.
The law of 1873 never threw a dollar of silver or other currency out
of circulation. We hear it asserted that “demonetization” destroyed
half the people’s money. People say this who know nothing of the facts,
but infer that demonetization must mean that some silver dollars which
were money had that character taken from them. No one of the other
demonetizations, which took place in Europe at about the same time,
diminished the money in use. The result of changes in 1873–1874 was
that the amount of silver coin in use in Europe was greatly increased,
and has remained so since.
The resumption of specie payments after 1873 by a number of nations
which had issued paper money in the previous period, and the alternate
expenditure and re-collection of war-hoards of gold, had far greater
importance than the demonetizations.
There has been no diminution of the world’s coined money within
fifty years, but a steady and rapid increase of it. There have been
fluctuations in the production of gold and silver such as belong to the
production of all metals and are inevitable.
THE ALLEGED SCRAMBLE FOR GOLD.
There has been no “scramble for gold.” Those who do not put any
obstacle in the way of gold get more of it than they want. The Bank of
England has had lately the largest stock of gold that it ever had, and
complaints have begun to be heard of a glut. The gold-production in the
last five years is the greatest ever known and there is no fear of any
lack of it, whatever may be the sense in which any one chooses to speak
of a “lack.” There is not and has not been any “scarcity of gold.”
There is no such thing conceivable, except where paper has been issued
in excess, so that it is hard to keep enough gold to redeem it with.
PROOF THAT THERE HAS BEEN NO SCARCITY OF GOLD.
There is one proof that there has been no scarcity of money for
twenty-five years past which has not indeed passed unnoticed, but
which has not received the attention which it deserves; that is the
rate of interest. The rate of interest is normally due to the supply
and demand of loanable capital, and has nothing to do with money. The
value of money is registered by prices, not by the rate of interest.
But whenever there is a special demand for money of account--that
is, for the solvent of debts--the rate of interest on capital passes
over into a rate for the solvent of debts. Banks lend capital in its
most universal form, _i.e._, the currency or money of account, or
bank credits. If credit fails, as in a time of crisis and panic,
actual cash in the money of account is wanted. This now is loaned,
under a rate, by the same persons and institutions who formerly loaned
capital, and the one phenomenon passes into the other without any line
of demarcation. The transition, however, never takes place except in
time of crisis, and therefore at a _high_ rate. From this it follows
certainly that never when the market rate is _low_ can it be a rate
for the solvent of debts. Now, ever since 1873, with the exception of
periods of special stringency in 1884, 1890, and 1893, we have had
very low rates of interest; the rate for call loans (which in this
connection are the most important) has been about two per cent. This is
a demonstration that the country has not been suffering from a crisis
on account of a lack of currency for the normal needs of business.
Proofs could be presented, on the other hand, that the currency for the
last six years has been constantly in excess, excepting in 1893, when
the credit of the currency failed for a time.
HOW TO GET POOR AND RICH AT THE SAME TIME.
Mr. St. John tries his hand at the relation between prices and
interest in connection with our subject. He says: “If the dollar can
be cheapened by increasing the number of dollars, so that each dollar
will buy less wheat, the increasing price of wheat will increase the
demand for dollars to invest in its production.” Evidently he fails to
distinguish between the rise in price of wheat from one gold dollar
to two gold dollars per bushel, and the rise in wheat from one gold
dollar to two fifty-cent silver dollars per bushel. The former would
undoubtedly stimulate production. The latter would do so also, among
farmers who shared Mr. St. John’s confusion on this matter. There would
be many of them. They would imagine that they were getting rich by
raising wheat to sell at two silver dollars, or five, ten, fifteen,
or twenty paper dollars, as depreciation went on. Hence, as he says,
they would pay a banker eight, ten, twelve, or fifteen per cent, in
the depreciated dollars, in order to get “money,” as he calls it, with
which to raise wheat. Mr. St. John thinks that this would mean that
farmer and banker were both magnificently prosperous. It would mean
that the real value which came in was steadily growing less than that
which went out, so that the capital was being consumed. Hence the high
rates of inflation times, and the disaster which follows when the
truth is realized. They told a story in Revolutionary times of a man
who invested his capital in a hogshead of rum which he sold out at
an enormous advance--in Continental paper; but when he went to buy a
new supply, all his “money” would only buy a barrel. This he retailed
out at another enormous advance--in Continental--but when he went to
buy more he had only enough money to buy a gallon. If he had borrowed
his first capital he might have paid twenty per cent for it--in
Continental--but the banker would hardly have made a good affair.
MONOPOLY OF THE MONEY.
We hear it asserted that the gold standard gives the owners of gold
power to appropriate the money and make it scarce, and that they have
used this power. Why, then, under silver or paper, may not the holders
of silver or paper do the same? That the holders of gold have not done
it has been shown above. But nobody can do it with any kind of value
money. There are no “holders of gold.” He who holds gold wins no gains
on it. The bankers who are supposed to hold it, if peace and security
reign, put it all out at loan in order to get gain on it. When peace
and security do not reign it is not safe to put it out, and borrowers,
fearing to engage in new enterprises, do not present a demand for
it. Furthermore, the greatest gains can then be won by holding money
ready to buy property when the crash comes. That is what those who
own surpluses are doing now. Hence there are no “holders of gold”
until monetary threats and dangers call them into existence. Silver
legislation has made a great many. The law of 1873 never made any.
There is not, therefore, a fact or deduction about the law of 1873, or
the history of the market since, which the silver men have put forward,
which will stand examination.
A CONCURRENT CIRCULATION OF GOLD AND SILVER
[1878]
It seems as if the United States were destined to be the arena for
testing experimentally every fallacy in regard to money which has
ever been propounded. A few years ago only a very few people here
had ever heard of the “double standard” or knew what it meant. In
1873 we became simply and distinctly a “gold country” in law, as we
had been for forty years in fact. Immediately after that date silver
began to fall in value relatively to gold, so that, if we had been on
the “double standard,” and had not been deterred by considerations
of honor, morality, and public credit, which considerations kept the
double-standard countries from taking that course, we could have paid
our debts in silver at an advantage. Forthwith all those persons
who had before been racking their brains to devise some scheme for
resumption without pain or sacrifice, turned their attention to silver,
and began to devise plans for getting back to the position which, as
they thought, we had unwisely abandoned. The consequence has been that,
for the last year, the country has produced numberless editorials,
essays, lectures, and speeches, full of the most crude sophistry, and
the most astonishing errors as to all the elementary doctrines of
coinage and money. The favorite object of all these schemes is to find
some means of increasing the amount of money at the disposal of the
world, or of this nation, so as to raise prices and make it easier to
pay debts. These schemes have taken their point of departure in the
speculations of some European economists. In Europe the propositions
of the economists in question have never passed beyond the realm of
speculation and theoretical discussion amongst professional economists.
They have been regarded by some as probably sound, and capable of
being made the basis of advantageous legislation. By others, superior
in number and authority, they have been regarded as unsound. Inasmuch
as they involve an international coinage union between all civilized
countries and could be put to the experiment only on a scale involving
immeasurable risks, the overwhelming judgment has been that they were
out of the question. Here, however, our amateurs and empirics are in
hot haste to make the experiments, without any coinage convention, or
with the coöperation of only a few and the less important nations, that
is to say under circumstances which even the most extreme bimetallists
condemn as ruinous.
It must be observed then that there lies back of all this popular
discussion a scientific and technical question of great delicacy. I
might even say that it is a speculative question, or a question in
speculative economics, for we have no experience of an international
coinage union, or of a concurrent circulation, of the metals. We have
to imagine the state of things proposed and reason _a priori_ as to
what must be the result. There is a postulate to all these schemes
which has never been expressed and never been discussed, but which
is assumed to be true. It has two different forms: (1) A concurrent
circulation of gold and silver may be established in any country: (2)
A concurrent circulation of gold and silver may be established by a
coinage union of all civilized nations. These postulates, or we may
say this postulate, for the latter includes the former, I have now to
bring in question. If the science of money teaches that there cannot be
a concurrent circulation of the metals, then the schemes which I have
referred to are all condemned. The question, moreover, has won such
an immediate and practical significance in the country that it is no
longer a subject for academical discussion amongst economists, about
whom opinions may differ without importance.
The Senate of the United States has just passed a bill containing the
following provision:
“Sec. 2. That immediately after the passage of this act the President
shall invite the governments of the countries composing the Latin
Union, so called, and of such other European nations as he may deem
advisable, to join the United States in a conference to adopt a
common ratio between gold and silver for the purpose of establishing
internationally the use of bimetallic money and securing a fixity of
the relative value between those metals; such conference to be held at
such a place in Europe or in the United States at such a time within
six months as may be mutually agreed upon by the executives of the
governments joining in the same. Whenever the governments so invited,
or any three of them, shall have signified their willingness to unite
in the same, the President shall, by and with the advice and consent
of the Senate, appoint three commissioners who shall attend such
conference on behalf of the United States, and shall report the doings
thereof to the President, who shall transmit the same to Congress.”
The conception which governed this legislation is plain enough. It
proposes to secure a concurrent circulation of the two metals at a
fixed ratio by an international agreement. The proposition is to put
the experiment at work when only three nations besides ourselves
consent and in the meantime to remonetize silver here at sixteen to
one when the market ratio is seventeen and one-half to one. This
adds to the absurdity of the bill, but has no bearing on my present
controversy. I challenge the postulate which is assumed, which has
never been discussed, much less proved, that a concurrent circulation
is possible if an international union can be made. Anybody who concedes
this concedes, as I view it, the fundamental and controlling error in
the silver craze. If this premise is conceded, there can be no further
controversy on the arena of science. It remains only to try to overcome
practical difficulties. Such is the issue I raise with those who, under
any reservations whatsoever, concede that a concurrent circulation is
possible. In a body of scientific gentlemen I need only refer to the
mischief done in science by assuming the truth of postulates without
examination, and I need make no apology for bringing forward with all
possible force and vigor a controversy on a point so essential. It is
my duty to say that I may be in error, and I have the misfortune to
differ here with gentlemen from whom I dissent seldom and unwillingly,
but it will not be denied that, while there is controversy on a
point so essential, and at a moment when practical measures of high
importance to every person in this country are proposed, based on
certain views of the matter, I am right in promoting discussion. I wish
to be understood as paying full respect to everybody, but I address
myself, without compliments, to the question in hand. I shall be
satisfied if I make it appear that I have some strong grounds for the
position I take in a long, careful, and mature study of this question
in all its bearings.
It will economize time and space, if, before entering on my subject,
I try to clear up two points: (1) what is an economic force or an
economic law, and how ought we to go about the study of economic
phenomena? (2) What is a legal tender?
(1) What should be our conception of an economic force or an economic
law, and how ought we to study economic phenomena? Some people seem to
think that economic phenomena constitute a domain of arbitrary and
artificial action. They think that social phenomena of every kind are
subject to chance or to control. They see no sequence between incidents
of this kind. They have no conception of social forces. They think
economic laws are only formulae established by grouping a certain
number of facts together, like a rule in grammar, and they are prepared
for a list of exceptions to follow. This conception, in its grosser
forms, is now banished from the science, but it still has strong hold
on popular opinion. It also still colors a great many scientific
discussions, those, namely, who seek to carry forward the science by
following out the complicated cases produced by the combined action of
economic forces in our modern industrial life, and describing them in
detail. In my opinion such efforts are all mistaken.
I regard economic forces as simply parallel to physical forces, arising
just as spontaneously and naturally, following a sequence of cause and
effect just as inevitably as physical forces--neither more nor less.
The perturbations and complications which present themselves in social
phenomena are strictly analogous to those which appear in physical
phenomena. The social order is, to my mind, the product of social
forces tending always towards an equilibrium at some ideal point,
which point is continually changing under the ever-changing amount or
velocity of the forces or under their new combinations. Consequently,
I do not believe that the advance of economic science depends upon
fuller and more minute description of complicated social phenomena
as they present themselves in experience, but on a stricter analysis
of them in order to get a closer and clearer knowledge of the laws
by which the forces producing them operate. If this can be attained,
all the complications which arise from their combined action will be
easily solved. Of course we have peculiar difficulties to contend with,
inasmuch as we cannot constitute experiments, and it is necessary
to rely largely upon historical cases which present now one and now
another force or set of forces in peculiar prominence. The facts which
show the difficulty of the task, however, have nothing to do with its
nature.
According to this view of the matter there is no more reason to be
satisfied with generalities in economics than in physics. Some writers
on economic subjects, who pride themselves upon scientific reluctance,
remind me of Mr. Brooks, in “Middlemarch.” They believe in things up
to a certain point, and are always afraid of going too far. They would
be careful about the multiplication table, and not bear down too hard
on the rule of three. They do not discriminate between care in the
application of rules, and confidence in scientific results; or between
harshness in personal relations and firm convictions in science. The
more we come to understand economic science the more clear it is that
we are dealing with only another presentation of matter and force,
that is to say, with quantity and law, so that we have mathematical
relations, and have every encouragement to severity and exactitude in
our methods. When, therefore, it is said that the economists do not
pay sufficient heed to the power of legislation, that is no stopping
place for the argument any more than it would be in physics to say
that sufficient heed was not paid to friction. The question would then
arise: What is the force of legislation? Let us study it, just as we
would go on to study friction in mechanics. When it is loosely said
(as if that dismissed the subject) that men have passions and emotions
and do not act by rule, the objection is not pertinent at all. It is
connected with another wide and common, but very erroneous notion,
that economic laws involve some stress of obligation on men to do or
abstain from doing certain things. I suppose this notion arises from
the classification of political economy amongst the moral sciences.
Economic laws only declare relations of cause and effect which will
follow, if set in motion. Whether a man sets the sequence in motion at
all or not, and if he does so, whether he does it from passion or habit
or upon reflection, is immaterial. Such is the case, as I understand
it, with all sciences. They simply instruct men as to the laws of this
world in which we live that they may know what to expect if they take
one course or another, or they instruct men so that they may understand
the relations of phenomena of forces beyond our control so that we may
foresee and guard ourselves against harm. It follows from all this
that I demand and aim at just as close thinking in political economy
as in any other science. I think we must try to get as firm hold of
principles and fundamental laws as we can, and that, especially in the
face of speculative propositions, we ought to cling to and trust the
firmly established laws of the science.
(2) As to legal tender, it seems to me that the public mind has been
sadly confused under the régime of paper money. Money is any commodity
which is set apart by common consent to serve as a medium of exchange.
If it is a commodity, it will exchange by the laws of value, and will
therefore serve to measure value. It must therefore be a commodity, an
object of desire requiring onerous exertion to get it. In theory, it
may be any commodity. The question as to what commodity is a question
of convenience--that one which will answer the purpose best. Through a
long period of experiments we have come to use gold or silver, simply
because we found them the best. Convenience here gave rise to custom,
and money of gold or silver owes its existence to custom entirely, and
not to law at all. Law has only in very few instances even selected
that one of the two metals which should be used. Even that has come
about through custom. Law, therefore, here as elsewhere where it has
been beneficent and not arbitrary, has followed custom, recognized it,
ratified it, and given it sanctions. (1) A legal tender law, therefore,
where customary money is used, simply declares that the parties to a
contract shall not vex each other by arbitrarily departing from the
custom. The creditor shall not demand, and the debtor shall not offer,
out of spite or malice, anything but the customary money of the nation.
Such a legal tender law has no significance whatever. No one thinks of
it or speaks of it or takes it into account, unless he be one of those
whose idle malice it prevents.
(2) A legal tender law is used where a subsidiary token currency is
employed as a part of the system, to prevent debtors from using it in
payment, and to prevent the system from bringing about a depreciation
of the money. In this case it is part of the device for using a token
currency, and is open to no objection. It would check the debtor when
he meant to perpetrate a wrong. It would not enable him to do one.
(3) A legal tender law has been used very often, however, to give
forced circulation to a depreciated currency of little or no value
as a commodity. In that case the legal tender act enables the debtor
to discharge his obligations with less commodities than he and the
creditor understood and expected when the contract was made. If the
creditor appeals to the courts, they are obliged to rule that the
debtor has discharged his obligation, when he has not, and they give
the creditor no relief. Hence it appears that a legal tender act giving
forced circulation to depreciated currency amounts simply to this: it
withdraws the protection of the courts from one party to a contract,
and leaves him at the mercy of the other party to the extent of the
depreciation of the currency. Obviously no other act of legislation
more completely reverses the whole proper object of legislation,
or more thoroughly subverts civil order. The English passed two or
three acts of this nature, although they were not specifically
acts for making banknotes legal tender, during the bank suspension
at the beginning of this century. It would have been interesting to
see what English courts would have made of an act which reversed the
whole spirit of English law by diminishing the rights of one party
under a contract, and which made the courts an instrument for his
oppression instead of an institution to provide a remedy, but no
case came up. The twelve judges on appeal overturned the sentence of
a man convicted of buying and selling gold at a premium. Some few
persons demanded and obtained gold payments throughout the suspension
but the paper circulation was really sustained by public opinion and
consent, it being believed that the bank suspension was necessary.
This form of legal tender, therefore, is totally different from that
first described. I call it, for the sake of discrimination, a forced
circulation. When a legal tender act giving forced circulation to
a depreciated currency is first passed, if it applies to existing
contracts it transfers a percentage of all capital engaged in credit
operations from the creditor to the debtor. In its subsequent action it
subjects either party to the fluctuations which may occur in the forced
circulation, robbing first one and then another. Hence the debtor
interest is that the depreciation once begun shall go on steadily,
because any recovery would rob debtors as creditors were robbed in the
first place.
Having disposed of these two points I now take up the question I
proposed at the outset: Is a concurrent circulation of gold and silver
possible under an international coinage union?
Here we have to make a radical distinction between two different
propositions for an international coinage union. The first is that
of M. Wolowski. He pointed to the comparatively small fluctuations
of the precious metals and to the effect which France had exerted
by the double standard, and inferred that if all civilized nations
would join France in her system they might arrest the fall of either
metal before it became important. If the coinage union fixed upon a
ratio of one to fifteen and one-half, then, if silver fell all would
use silver, which would arrest its fall. If gold should fall, all
would use gold. As the metal in use would always be the one which was
cheaper than the legal ratio, the other would be above it, if I may so
express it. Hence neither would be permanently demonetized, because
neither could fall so low as to go out of use. Only one would be used
at a time but the other would be within reach, and if either should
rise relatively to commodities, debtors would not suffer but might
even be benefited by being enabled to turn to the falling metal. This
system would require of the law nothing except to prescribe that the
mint should coin either metal indifferently which people might bring,
silver coins being made fifteen and one-half times as heavy as gold
coins of the same denomination, both being of the same fineness. This
is Wolowski’s plan, and these are the advantages he expected from
it. He thought that it would hold the alternative open between the
two metals. He feared that silver, if universally demonetized, would
fall so low as to go out of use entirely for money. He thought that
France and, later, the Latin Union ought not to bear alone the cost
of keeping up the value of silver. He thought the debtor ought not to
be oppressed by being forced to rely on one metal alone which might
rise relatively to commodities. He did not propose to give the debtor
the use of the whole mass of both metals at the same time. Indeed that
arrangement would defeat Wolowski’s purpose, for if the whole mass of
both metals could be brought into use at once prices would rise. Those
who are indebted now would win, but when prices and credit had adjusted
themselves to the bimetallic money the effect would be exhausted. Debts
contracted after that would be relatively just as heavy to pay as they
are now, and if the precious metals taken together rose relatively
to commodities, debtors would have no recourse to anything else. Now
this chance of recourse, when the standard of value rose, was just
what Wolowski wanted. His language is very guarded and scientific. He
never went further than to say that his scheme would restrain and limit
the fluctuations of the metals--how far he did not know and did not
pretend to say. He thought the fluctuations would be so narrow that the
transition from one metal to the other would be a relief to debtors
without any appreciable injustice to creditors. All this is very clear
and very sensible. On theory it is open to no radical objection. The
discussion of it turns upon considerations of practicability and
expediency. It is much to be wished that this plan should be called
by its proper name: the alternative standard, or, better still, the
alternate standard. It counts among its adherents a number of strong
men, and many others have signified assent to it on theoretical grounds.
The term “bimetallism” ought to be restricted to another theory of
which Cernuschi is the advocate, which has for its purpose to unite
the two metals at once in the circulation and give debtors the whole
mass of both metals as a means of payment. Cernuschi believes that
the international coinage union could arrest the fluctuations of the
metals entirely; or that there is some narrow limit of fluctuation
within which both would remain in use, and that the coinage union
could hold the value-fluctuations of the metals within these limits.
The American schemes are numerous and so crude that it is difficult
to analyze or classify them. They are also of many different grades.
They all, however, seem to have this in common, that they want to
secure to the debtor the use of both metals at once, and that they
aim at a concurrent circulation. They must, therefore, be classed
under bimetallism. These schemes all involve not simply what Wolowski
said--that legislation and union could limit the fluctuations--but the
proposers know how much it would limit them, and they can control the
results. This view has very few adherents in Europe. It has not been
discussed there save by one or two writers. It is passed by in silence
for reasons which I shall soon show.
The opinion has been expressed that these two propositions differ only
in degree. From this opinion I must express my earnest dissent. It is
the very cardinal point of my present argument. Wolowski’s alternate
standard seems to me to rest upon the belief that legislation of
the kind proposed would restrict the fluctuations in value of the
metals. It affirms that legislation would have a certain tendency.
Any plan for a concurrent circulation giving debtors the use of
the whole mass of both metals pretends to say how far the tendency
would go and what its results would be. To my mind the difference
between those two propositions is that between a scientific and an
unscientific proposition. We have a parallel case before us. Some
say re-monetization would cause an advance in silver. Others say
re-monetization would make a four hundred and twelve and one-half grain
silver dollar equal in value to a gold one. Are those two propositions
the same save in degree? It seems to me that only a very superficial
consideration of them could so declare. Obviously they differ in
quality more than in degree. The former of these propositions is not
false in principle; the question in regard to it must be decided by
circumstances. The second is false and erroneous from beginning to end,
and would be false even if temporarily and by force of circumstances
the silver dollar should become equal to the gold dollar, because it
rests, like the old doctrine that nature abhors a vacuum, upon false
views of all the forces involved. Just so with regard to a concurrent
circulation or bimetallism as compared with the alternate standard.
The latter predicts tendencies to arise from the play of certain
forces. Those tendencies are the true effect of those forces. The
question may be raised whether the means proposed would bring those
forces into action, whether they would be as great as is expected,
whether they would be counteracted by others, but there is no error as
to the nature and operation of economic forces. Bimetallism predicts
results, not tendencies. It assumes to measure the consequences and
say what will result as a permanent state of things. It therefore
involves the doctrine that legislation can control natural forces for
definite results. If legislation cannot so control natural forces,
then we cannot secure a concurrent circulation, giving the debtor the
use of the whole mass of both metals with which to pay his debts. At
a time like this, when the silver craze seems to be asserting itself
as a mania, by sweeping away some who ought to be most staunch in
their adherence to economic laws and most clear in their perception of
economic truths, I may be pardoned for insisting most strenuously upon
this distinction and upon its importance. Many of the American writers
have been betrayed into error by not having examined these two plans
and discriminated between them with sufficient care. It is very common
to see arguments based upon the alternate standard and inferences drawn
as to bimetallism which are entirely fallacious because they cross the
gulf between the two theories without recognizing it. Bimetallism is so
plainly opposed to fundamental doctrines of political economy that few
European economists have felt called upon to discuss it. Here the case
is different, and the more ground it wins, and the more danger there is
that it will affect legislation, the more urgent is the necessity to
resist every form of it.
Now my proposition is that a concurrent circulation, that is a
permanent union of the two metals in the coinage, so that the debtor
can use both or either, is impossible. Permanent stability of the
metals in the coinage, whether with or without an international
coinage union, is just as impossible in economics as perpetual motion
is in physics. Against perpetual motion the physicist sets a broad
and complete negation, because action and reaction are equal. He
does not care what the principle may be on which any one may try to
construct perpetual motion. If any one brings to him a perpetual
motion perhaps he will spend time to examine and analyze it and show
how it contravenes the great law of motion. I claim that a concurrent
circulation is impossible on any scheme or under any circumstances
because it contravenes the law of value. Value fluctuates under supply
and demand at a limit fixed by what Cairnes calls cost of production,
or Jevons calls the final increment of utility, or Walras calls
scarcity, all of which on analysis will be found to be the same thing.
Bimetallism affirms that, under legislation, although supply and demand
may vary, value shall not. In order to test this let us next examine
the influence of legislation on value.
The cases in which legislation acts on value are all cases of monopoly.
Such is the case with token money; such is the case with irredeemable
paper. As with every other monopoly, the successful manipulation of
these monopolies consists in controlling supply, to fit the supply to
the demand at the price which the monopolist wants to get. The history
of every monopoly shows the great difficulty, I might say, in the
long run, the impossibility, of doing this. The bimetallists propose
not to act on the supply, and so create a monopoly, but to act upon
the demand. This is a new exercise of legislation, different from any
yet tried, and not guaranteed by any experience. Now to act upon the
demand is, in the phrase of the stock brokers, to make a corner, that
is to buy all that is offered at a price. Stock gamblers do this so
as to sell out again at an advance to those who are forced to buy. If
there are none who are forced to buy, then those who bought above the
market have lost their capital. The propositions of the advocates of
the alternate standard and of bimetallism are alike in proposing that
all civilized nations shall combine to make a corner on the falling
metal. Whether that is a worthy undertaking or not I will not stop to
inquire. It is evident that the nations of the coinage union would
have no one on whom to unload after they had bought, and that there
would be an inevitable loss and waste of capital in the transaction.
This, however, is not all. A corner is effective or not according to
its scope. It must embrace the whole object to be raised in price, and
above all it must act upon a limited amount which is not fed from any
new source of supply. A corner on the precious metals is not to be
made effective even by a combination of all civilized nations. In my
opinion there is a grand fallacy in the notion that a coinage union
would do what France did, only on a larger scale. Wolowski saw France,
lying between Germany, a silver nation, and England, a gold nation,
carry out the compensatory operation, and he inferred that all nations
could agree to do the same, more widely, more easily, and with wider
distribution of the loss. It seems to me that there was an action and
reaction here between members of the group of nations which one can
easily understand, but that if all nations joined in the system, the
alternation would not work at all for want of a point of reaction.
If all nations agreed to join the corner on the falling metal, they
could not all bring their new demand to bear on the new supply at the
same time. As the mines are limited and local, a new supply would
touch the market only at one point. Hence the coinage union implies
no aggregation of force at all. Make the union embrace the whole
world, and the effect is just the same as if there were none at all,
the matter standing simply on the natural laws for the distribution
of the precious metals. Control of demand by a corner or of supply by
a monopoly acts more efficiently the smaller and closer the market
is, and, conversely, the larger and wider the transaction, the less
the efficiency. Furthermore, a corner to succeed must make sure that
there is no source of supply, and that it has to deal only with an
amount which can be computed. The gold corner on Black Friday, 1869,
was ruined when the Secretary of the Treasury ordered sales of gold. A
monopoly in like manner, must be able to count on steady and uniform
demand. The coal combination failed when the hard times suddenly
contracted the demand for coal. Hence the movement towards a wider
market, embracing a larger quantity, is always a movement towards less,
and not towards greater control by artificial expedients.
Applying these observations to the matter before us, I have to say
(1) that I consider the inference that a coinage union would do what
France did under the double standard, only more surely and efficiently,
quite mistaken; (2) as to the alternate standard, I do not believe
that the alternation would work on a worldwide scale at all. I regard
its operation in France as fully accounted for by the relations of the
three countries, England, France, and Germany; (3) as to bimetallism,
the coinage union, instead of gaining more stringent control to
counteract and nullify the effect of changes in supply of either metal,
would have less effect in that direction the larger it was.
Having thus examined the nature of artificial interferences with value,
and their limitations, I return to my proposition that to establish a
concurrent circulation is just as impossible as to square the circle
or to invent perpetual motion. No doubt it is difficult, perhaps
impossible, to make a demonstration of a negative proposition like
this. The burden of proof lies upon those who bring forward attempts to
solve the problem, and I can justly be held only to examine and refute
such attempts. No proof has ever been offered by any of the persons
in question. No one of them has attempted as much of an analysis of
the effect of artificial expedients on value as the one I have just
offered. No one of them has attempted to analyze the operation of the
proposed coinage union, to show how or why they expect it to act as
they say. They pass over this assumption as lightly as our popular
advocates of silver assume that re-monetization would put an end to
the hard times. They content themselves with analogies, or with loose
and general guesses that such and such things would result from a
coinage union. We all know what dangers lurk in the argument from
analogy. The further you follow it the further you are from the point.
An analogy has no proper use save to set in clearer light an opinion
or a proposition which must rest for its merits on an appropriate
demonstration. Thus the attempt has been made to illustrate the power
of governments to control the fluctuations of the metals by the analogy
of a man driving two horses. It is said that this is “controlling
natural forces for definite results,” and it is asked, “if one man in
his sphere can do this, why may not the collective might of the nation
do this in its sphere?” My answer is that it is in the sphere of man to
tame horses, but it is not in the sphere of nations to control value,
and therefore the analogy is radically false. I cannot be held to argue
both sides of the question. I am not bound to put all the cases of the
adversaries into proper shape for discussion and then to refute them.
I plant myself squarely upon the fundamental principles of the science
of which I am a student and deny that any concurrent circulation is
possible except under temporary and accidental circumstances, because
it involves the proposition that legislation can control value to
bring about desired results. A concurrent circulation must mean one
which is concurrent, and if it is to offer debtors the whole mass of
both metals to pay their debts with, it must be permanent. If both
metals should be used for a time until prices and contracts were
adjusted to them, and then one should rise so much as to go out of use,
the consequences would be disastrous to debtors beyond anything now
apprehended.
I proceed then to criticize the notions of a concurrent circulation,
as to their common features. The error with them all is that they try
to corner commodities the supply of which is beyond their control or
knowledge. That is a fatal error in any corner, as I have already
shown. If it were proposed that each nation should have a certain
amount of circulation, composed of the two metals in equal parts, and
then that the circulation should be closed, then the corner might work
and there would be some sense in it. Suppose that a nation had two
hundred millions of fixed circulation, half gold and half silver, and
that this sum was not in excess of its requirement for money. Then I do
not see how either half of the coinage should fall relatively to the
other; but if silver did fall, every dollar of silver which was sought
would involve the relinquishment of a dollar in gold and this exchange
would act on equal and limited amounts of each metal. It would then
depress one metal and raise the other to an exactly equal degree. The
balance might, in that case, be retained. The hypothesis of a closed
circulation is, however, preposterous. No one thinks of it.
The plan of a concurrent circulation with a free mint strikes, upon
close examination, at every step, against difficulties of that sort
which warn a scientific man that he is dealing with an empirical and
impossible delusion. How is it to be brought about? The movement
towards a bimetallic circulation would never begin unless the ratio
of the coinage was the market ratio. It would not go on unless the
mint ratio followed every fluctuation of the market. It would not be
accomplished unless the mint ratio at last was that of the market. It
would not remain unless the market ratio remained fixed. But the mint
ratio cannot be changed from time to time. If it were, the result would
be inextricable confusion in the coins, driving us back to the use of
scales and weights with which to treat the coins as bullion.
If we pass over this difficulty, and suppose, for the sake of argument,
that the system had been brought into activity, the reasons why it
could not stand present themselves in numbers. They all come back to
this, that the supply is beyond our knowledge and control. If the
supply of either metal increased, it would overthrow the legal rating
at the point at which it was put into the market, and would destroy the
equality there. Its effects would spread according to the amount of the
new supply and the length of time it continued. The bimetallists seem
to forget that an increased demand counteracts an increased supply only
by absorbing it under a price fluctuation. The same error is familiar
in the plans for perpetual motion. Speculations to that end often
overlook the fact that we cannot employ a force in mechanics without
providing an escapement which is always exhausting the force at our
disposal. So the bimetallists seem to think of their enhanced demand
as acting on value without an actual action and reaction which consist
in absorbing supply under a price fluctuation. The new metal would
therefore pass into the circulation and would destroy the equilibrium
of the metals in the coinage. If this new addition were only a
mathematical increment it would suffice to establish the principle for
which I contend and to overthrow the bimetallic theory, for if I see
that any force has a certain effect I must infer that the same force
increased or continued would go on to greater effects; and if the
final effect is not reached it is because the force is not sufficient,
not because there is an act of the legislature in the way. If then,
silver entered the circulation, gold would leave it and be exported, if
the exchanges allowed of any export, or would be hoarded and melted.
The silver-producing countries would therefore gravitate towards a
silver circulation only, and other countries towards a gold circulation.
Here another assumption of the bimetallists is involved. They assume
that the metal to be exported would be the one which falls. Thus, if
all nations had a bimetallic circulation, and if the supply of silver
in the United States increased, it would be necessary that this silver
should be proportionately distributed among all the nations in order
to keep up the bimetallic system. No bimetallist has ever faced this
question. They assume that Americans would pay their foreign debts
with silver in that case, and they rely on the international legal
tender law to secure this. This is one of the fallacies of legal tender
referred to at the outset. Rates of exchange and prices would at once
vary to counteract any such operation, just as they always counteract
the injustice of a forced circulation and throw it back on those who
try to perpetrate it. It may suffice to put the case this way. If we
had both metals circulating together so that a merchant obtained both
in substantially equal proportions, and if silver should fall ever
so little in our markets, owing to increased production, and if a
foreigner were selling his products here, intending to carry home his
returns in metal, which metal would he retain to carry away? Obviously
that one which at the time and prospectively had the higher value.
Rates of exchange and prices would adjust themselves so as to bring
about the same result through the mechanism of finance. This is one
of the most subtle questions involved in the general issue, but it is
vital to the bimetallic theory.
Some writers have satisfied themselves with general opinions--guesses,
I am obliged to call them--that if the fluctuations were kept within
certain limits the concurrent circulation would stand. They probably
rely on an element analogous to friction which unquestionably acts
in economy and finance. This element consists of habit, prejudice,
passion, dislike of trouble. It acts with great force in retail
trade, and in individual cases, and in small transactions. Its force
diminishes as we go upwards towards the largest transactions, where
the smallest percentages give very appreciable sums. It seems to me
that the bimetallic system reduces this friction to a minimum. If a
man has to spend a dollar he does not go to a broker to buy a trade
dollar with a greenback dollar, and save a cent or two, but if he has
both a gold dollar and a silver dollar in his pocket (and, under the
bimetallic system, the chances are that when he has two dollars he
will have one of each), it needs only the lightest shade of difference
in value to determine him which to give and which to hold. A bank of
issue, holding equal amounts of the two metals with which to redeem its
notes, would find an appreciable profit in giving one and holding the
other, and it would require nothing but a word of command to the proper
officer, involving no risk at all. Hence I say this friction would be
reduced to its minimum under the bimetallic system. It is astonishing
what light margins of profit suffice to produce financial movements
nowadays; and the tendency is to make the movements turn on smaller and
smaller margins. Five in the thousand above par carries gold out of
this country. Four in the thousand carries it from England to France.
When the French suspended specie payments a depreciation of two in the
thousand on the paper sufficed to throw gold out of circulation. A
variation in the ratio of metals from 15.5:1 to 15.6:1 is a variation
of six and one-half in the thousand. I do not see how small a variation
must be in order to justify any one in saying that a bimetallic
circulation could exist in spite of it. Therefore it seems to me that
the more accurately the bimetallic system was established the more
delicate and more easily overthrown it would be, while if it was not
accurately established it would not come about at all. I submit that
such a result is one of the notes of an absurdity in any science.
An analogy has been suggested in illustration and support of the
bimetallic theory that two vessels of water connected by a tube
tend to preserve a level. I have already indicated my suspicion of
all analogies, but I will alter this one to make it fit my idea of
bimetallism. Suppose two vessels capable of expansion and contraction
to a considerable degree, under the operation of forces which act
entirely independently of each other, so that the variations in
shape and capacity of each may have all conceivable relations to the
corresponding variations of the other. Suppose further that each is fed
by a stream of water, each stream being variable in its flow and the
variations of each having all possible relations to the variations of
the other. The fluctuations in capacity may represent fluctuations of
demand, and the fluctuations of inflow, fluctuations of supply. Would
the water in the two vessels stand at the same level except temporarily
and accidentally, even though the two vessels were connected by a tube?
The analogy of the connecting tube could not be admitted even then,
because it brings into play the natural law of the equilibrium of
fluids, to which the legal tie between the metals is not analogous. If
we desire to make the analogy approximately just, in this respect, we
may suppose that each vessel has an outlet and that a man is stationed
to open the outlet of the vessel in which the water is at the higher
point so as to try to keep them both at a level. It is evident that his
utmost vigilance would be unavailing to secure the object proposed. I
do not borrow the analogy or adopt it. I only show how inadequate it
is, in the form proposed.
There is another group of propositions which have many advocates
amongst us, of which something ought to be said--propositions of those
who want to use silver as a legal tender at its value, under some
scheme or other. Some want a public declaration, by appointed persons,
from time to time, of the market value. Any such plan would throw on
the officers in question a responsibility which would be onerous in the
extreme, so much so that no one could or would discharge it; and it
would introduce a mischievous element of speculation into the payment
of all debts. It is, besides, open to the objections which may be
adduced against the other plan, which is to have either coins or bars
of silver, assayed and stamped, legal tender for debts at the market
quotation. Here we need to remember the definition of legal tender
given at the outset. If these silver coins and bars are convenient for
the purpose they will come into use by custom and consent at their
value. If they really pass at their market value, there will be no
advantage to the debtor. One who has silver and wants to pay a debt
can do so at its value by selling the silver. In this sense every man
who produces wheat, cotton, iron, or personal services, pays his debts
with them at their value. One who produced something else than silver
would have no object in selling it for silver, to pay his debt with at
the value of silver. He would have the trouble of another transaction,
he would have to buy silver at its selling price, and the creditor to
whom he paid it would have to sell it for money at the broker’s buying
price, with no advantage to either, but only to the broker. If silver
passes at its value, legal tender has no force for it; if it is to have
forced circulation in some way, it will help the debtor, as all forced
circulation does, by enabling him to keep part of what he borrowed. If
then these schemes really mean that silver shall pass at its value,
they are of no use. It does so now. If they mean that silver shall be
enabled to pay debts in some other way than iron, wheat, cotton, etc.,
then we know what we are dealing with. There is just as much reason why
the government should pay for elevators and issue certificates of the
amount and quality of grain, which should be legal tender, as there is
why it should assay and stamp silver for that purpose, and issue notes
for it. These cases only serve to bring out the distinction between
money and merchandise, and to show that the perfection of money does
not lie in the direction of a multiple legal tender, but of a single
standard, as sharp and definite as possible. Such a standard has the
same advantages in exchange as the most accurate measures of length and
weight have in surveying or in chemistry, and it is turning backward
the progress of monetary science to introduce fluctuations and doubt
into the standard of value, just as it would be to cultivate inaccuracy
in weights and measures.
Here I am forced to notice another hasty and mischievous analogy. Some
devices for composite measures of length have been adopted to avoid
contraction and expansion, and it is urged that bimetallic money is
a step in the same direction. I by no means assert that science can
do nothing to reach a better standard of value than gold is. What
progress in that direction may lie in the future no one can tell, and
he would be rash who should ever presume to deny that progress can be
made; but when any proposition is presented it will have to show what
composite measures of length show, _viz._, that its action is founded
on natural laws. Heat and cold act oppositely on the components of
the composite measures of length, or the arrangement is such that the
action of the natural forces neutralizes. No such scientific principle
underlies bimetallic money. The forces determining the value of gold
and silver act independently of each other and are not subject to
common influences. They are complex, moreover, and their effects are
not uniform in their different degrees. Therefore this analogy also
fails.