MoNCY. Silver AND Iinanci' ' ' '■;■. '■;■!(; .iWAlT Cornell Univers HG 529.C87 Money, silver, and financ^^^ 3 1924 013 984 947 l^m fork n^tt QJollBgc of llgticuUurc At QlnrneU IniuerBttH atlfara, ». 1. ffiihratg Cornell University Library The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013984947 MONEY SILVER, AND FINANCE J. HOWARD COWPERTHWAIT ^ G. P. PUTNAM'S SONS NEW YORK LONDON V] West Twenty-third St. 24 Bedford St., Straad 1892 COPYKIGHT, 1892 BY J. HOWARD COWPERTHWAIT Electrotyped, Printed, and Bound by Ubc TRnicfeerbocfeer ptcss, mew l^orft G. P. Putnam's Sons PKEFACE. The author presumes that a business man may be pardoned for writing upon a business question, when that question is paramount in public importance. He has tried to answer The Silver Ques- tion by arguments based both upon the truths of financial science and upon the principles which underlie the operation of what is called business. And, admitting shortcomings, he ventures to hope that a student in finance may find in this volume a sought-for portrayal of business ways ; that a busy man of affairs may find herein some scientific points which may have hitherto escaped his attention ; or, that a few of the readers of this book will be compensated for their trouble by the fast- ening more firmly together of the links in their own chain of evidence against silver fallacies. The author's position may be that iv Preface. of a distributer of ideas, rather than that of a producer ; and he will make no complaint if he be called a mere retailer, who simply does his best to display the product of others in that manner which his judgment tells him, truly or not, may suit the general public. The first chapter herein appeared origi- nally in Lippincott''s Magazine: and the subject-matter of an essay, written for The Engineering and Mining Journal, has been divided for using now a second time. Many newspapers kindly reproduced these arti- cles wholly or in part. Sufficient excuse for the publication of a book of this character is thought to lie in these facts : The Senate of the United States, Fifty-first Congress, passed a free- coinage measure; the House came near agreeing to this measure ; the Fifty-second Congress was elected at the time when the "silver craze" was said to be in posses- sion of the wits of the people ; and now prominent men in and out of Congress, and influential journals, are advocating ener- getically, the policy of free silver coinage, or unlimited silver purchase. Preface. v And to beat free coinage is but to win one great battle. The Silver Question will not down ; for, under no worse law than the present one, the $400,000,000 hoard of white metal must go on increasing at the rate of 4,500,000 ounces every month. Sound finance demands a repeal of the law, and can be satisfied with nothing less. Whether it be possible or not to frame a banking and currency act which shall be acceptable where money is scarce and not too objec- tionable elsewhere, the war against silver theories must be continued until there shall be effectively presented to the strong common-sense of the American people the ludicrous spectacle of thousands of men devoting their time and labor to the taking of silver out of the mines, where it could do no harm, for the purpose of placing it in the Treasury's vaults, whence its monstrous bulk menaces the industries and the general prosperity of the country. Brooklyn, N. Y., January, 1892. CONTENTS. PAGE Preface ..... iii CHAPTER I. — The Evolution of Money, Trade, AND Finance ..... i II.^^The Movements of Prices . . 23 III. — India and Her Silver Rupee . . 49 IV. — Prices and Wages . . . .62 V. — Prices, Wages, and Labor-Saving Machinery 80 VI. — " The Debtor Class " . . . loi VII. — " The Balance of Trade " — Foreign Exchange . . . . 114 VIII. — Foreign Exchange under Normal and under Abnormal Conditions, 132 IX. — Discussion with Representative Advocates of Silver . . 144 X. — The Discussion Concluded . . 158 XL — " Ultimate Redemption " . .175 XII. — The Old Volume-of-Money Theory, 183 XIII. — The Present Silver and Currency Law — ■ International Confer- ences Bl-METALLISM CONCLUSION, 202 Index 235 MONEY, SILVER, AND FINANCE. CHAPTEE I. THE EVOLUTION OP MONEY, TBADE, AND FINANCE. In the dawn of trade and civilization — and I speak first of trade because civiliza- tion has been supported by trade, although sometimes affecting to despise it — there arose a necessity for money, and different communities groped about until each found its most available substance. Adam Smith tells us that in the rude ages of society cattle were the common instrument of com- merce, the armor of Diomede, according to Homer, costing nine oxen, while that of Glaucus cost a hundred. Salt has been used as money in Abyssinia ; a species of shells (cowries) in some parts of the coast of 2 Money, Silver, and Finance. India ; dried cod at Newfoundland ; to- bacco in Virginia ; sugar in the West In- dies ; hides, leather, furs, etc., elsewhere. Circumstances too have forced the use of inferior money upon people who had grown accustomed to better ; for instance, our colonists adopted the money of the Indians along the coasts of Long Island Sound and made wampum (polished beads made of parts of the periwinkle and the clam-shell) a legal tender for sums up to twelvepence, and, by custom, made it the prevailing currency. The superiority of the white man was shown, however, by his ability to counterfeit this wampum, as Professor Sumner dryly mentions in his History of American Currency. It is a long way from the many articles named, and from the irregular pieces of metal which almost everywhere superseded them, to a five-dollar gold piece, a twenty- five-cent silver piece, a nickel five-cent piece, and a bronze or copper cent, or to a Bank-of-England five-pound note, and the car of progress has frequently tumbled into a paper-concealed ditch ; but com- Evolution of Money, Trade, and Finance. 3 paratively perfect forms of money and its substitutes have at length been evolved, and the whole process by which copper, bronze, nickel, silver, gold, and paper have taken relative positions has been strictly evolutionary, the actions of governments having been forced upon them by irresist- ible natural law. Copper, bronze, and nickel have proved their suitability for small change and their unsuitability for large coinage. Silver has proved its suit- ability for dimes, quarters, and half-dollars and its unsuitability for dollars or cer- tainly for any larger coin. Gold has proved its unsuitability for smaller coins than quarter- or half -eagles ; and for the ordinary use of money, from hand to hand, gold has been proved inferior to paper. But gold has taken the position of a base for paper money and for national and international exchange of commodities. The displacement of silver by gold, as a standard measure of value among the great commercial nations, has been as truly evolutionary as has been the displacement, as money, of unsuitable articles : the im- 4 Money, Silver, and Finance. portant cause was the cheapening of sil- ver through over-production and through a natural decline in the cost of production. Supply exceeded demand, at or near cur- rent prices. About the year 1873, silver became so plentiful in the United States that it began to circulate side by side with paper money, although gold was then at a premium of say ten per cent. In Europe, the cheapening of silver was helped on by the belief of individual governments that silver would displace gold in that country which should continue to largely coin sil- ver, — Gresham's Law, the economic law under which an inferior kind of money tends to drive from a country a superior kind of money, being well understood over there. It was seen that if a large quantity of silver were coined, after its bullion value had declined, gold coins might be melted down and then sold by weight. It is said that Germany thought it a good time to put its money upon a safe gold basis and to force France to drift upon the silver basis. Then too, a government which should be the quickest to reduce Evolution of Money, Trade, and Finance. 5 the quantity of its silver coin in circula- tion, therefore the quickest to make room for gold to circulate, might succeed in attracting gold from other countries. Eng- land, of course, could not afford to be behindhand, for bills of exchange are drawn upon London in all quarters of the globe, and every one of these bills is pay- able in gold, the commercial supremacy of England, indeed, depending upon the world's belief that she has sufficient gold to meet all possible demands, and upon the world's knowledge that the note of the Bank of England has commanded gold for seventy consecutive years. The pa- thetic view of the actions of European governments in stopping the coining of silver, prompted by fear that a continuance of silver-coining might lead to the actual demonetization of gold may be found in the minority report of the Committee on Coinage, Weights, and Measures, on the Senate Silver Bill, second session, Fifty- first Congress. Silver might have main- tained its parity with gold if nobody had given silver a kick, thinking it would go 6 Money, Silver, and Finance. down anyway ; just as a failed bank might not have succumbed if nobody had started a rumor as to its solvency and no depositoi' had been mean enough to start " a run." The fluctuating and declining value of silver during the past twenty years, and the fear that an unlimited quantity might or may be produced, coupled with the stability of gold during the period since the discovery of the Californian supply, and the belief that all gold-mines, together, cannot be sufficiently prolific to affect the value of gold, have made gold the standard of value for great commercial nations, and have served to fasten silver upon the weaker commercial nations as their standard of value. If a country trading with England or the United States would take silver it would be sure to get it, for everybody pays debts with as cheap money as creditors will take. If a country persisted in coining gold, and in refusing to coin silver, that country could not have any other country's surplus of silver dumped upon it. Pos- sessing inexhaustible mines of silver, we favor the use of this metal as a standard of Evolution of Money, Trade, and Finance. 7 value ; but it cannot be to our interest to lose sight of the fact that silver is already discredited by the commercial world, — not merely by governments, some of which might be induced to change, but by com- merce itself, which selects for itself the best standard of value. As well sg.y to the world, We have plenty of wood in this country, we will build a wooden navy, and then you will discard iron-clads; or, We will give up using electricity, and then you will go back to steam and to candles and oil ; as well take such a position, as to say that the world would follow our example if we should abandon gold and fully adopt silver for our standard of value. Evolu- tion is as irresistible in the financial and commercial world as everywhere else; evolution has selected gold, and has re- jected silver ; and all we can do in the matter is to decide whether we shall take as our standard the selected metal or the rejected metal, — that is, stand with the great nations or with the weak nations. Wampum was perfect money for the In- dians, and was a fair sort for the colonists, 8 Money, Silver, and Finance. but was of no use in foreign commerce. Wampum cost time and labor to produce, but Europe did not want it ; and arguments to prove to Europeans their own perversity fall about equally flat whether in favor of wampum or of silver, excepting, of course, that Europe wants some silver, whereas it never wanted any wampum. Two facts overcome all arguments ; the production of silver has too largely increased, and the price of silver has too greatly declined. Statistics show how naturally silver has lost caste as a standard of value. Up to 1870 the world's annual production was less than half so great as the annual pro- duction of gold (coinage value), and there- fore the price of silver was above one dol- lar and thirty cents per ounce, the parity of the two metals being close to fifteen and one half ounces of silver to one ounce of gold.^ But while the average production of gold has not materially changed, that of silver has so largely increased that it is now ' It is unimportant to consider the relative production of the two metals for early periods. Many circumstances were then different. Evolution of Money, Trade, and Finance. 9 about one third greater than the produc- tion of gold. There are grounds for be- lieving, too, that gold will be still furthei- distanced. Under the circumstances, the supply of silver far outrunning the de- mand, it is not unnatural that silver should be worth, to-day, less than one dollar per ounce, and that the ratio of value should be about twenty-one or twenty-two to one. Sixteen to one is the United States coinage parity, corresponding with $1.2929 per ounce for silver, — say thirty per cent, above the world's price. Trade and civilization could hardly have developed beyond a primitive state before the business of banking must have come into existence, crude, but essentially similar to modern banking, the intricacies of to- day's financial operations corresponding to the intricacies of to-day's trade. And as a large portion of the inhabitants of the' globe would have frozen or have starved, or would never have come into being, if the world had not learned to use money, simple barter being Avholly inadequate to perform the smallest fraction of the ex- lo Money, Silver, and Finance. change of products, so financial systems are absolutely necessary to the business of the present time, and the world's population now largely depends for the continuance of its existence upon the success of the schemes of dead and living financiers. In other words, the needs of the world out- stripped the greatest volume of exchanges possible by barter, next the greatest vol- ume possible by both barter and the use of money, and now, apparently, the volume of exchanges is limited by the degree of perfection attained in financial science, ti'ansportation problems being often only financial problems. The ancient planters of rice and wheat must have been short of money while their crops were growing, for then the planters would have been obliged to support their hands while receiving nothing ; at and be- fore harvest-time a money-lender must have been as useful as a banker of our day, who annually sends money westward, " to move the crops " ; and immediately after the sell- ing of a crop the ancient producers would have been in position to lend their surplus Evolution of Money, Trade, and Finance. 1 1 of money, for the sake of interest. The dealers in rice, wheat, or other produce would need to borrow money when pur- chasing a crop, and would have money to lend after the crop had been marketed. Raiders or traders, when starting upon an expedition, would need plenty of ready money, and upon their return might find it more profitable to borrow against a heavy stock of ivory than to* sell it at once. The weak or timid persons in a primitive com- munity would like to deposit a portion of their savings in the hands of a strong and trustworthy man, especially if such a man would pay something for the use of the money. A rich, strong, trustworthy man, either old or willing to lead a quiet life, would drift into the banking business for power, profit, honor, or simply to oblige his friends and neighbors. Indeed, so naturally does the banking business come up that, without offering further proof, we may assume that this business has been neces- sary in all the steps of trade and civiliza- tion. Certainly it is so necessary in our modern world that wherever we find a 1 2 Money, Silver, and Finance. large village which has no bank or banker, nor one in proximity, we are pretty sure to find a community that is both poor and ignorant. Of tremendous importance for good and evil has been and is the financial con- trivance which we know as paper money ; properly, a receipt for real money and a promise to pay it back on demand. When one person saw fit to trust another with money or other valuable thing, either foi- safe-keeping or both safe-keeping and inter- est, the first person would be glad to have a receipt. And if the banker were well known, his receipt might be passed by the first person to a second, in exchange for merchandise. But the first person would probably want a number of things, belong- ing to a number of people, and not want all the things at once ; and he would there- fore ask the banker for a number of re- ceipts, each for a convenient portion of the whole deposit. And, as business grew, the banker, for his own convenience, would keep in readiness a gi-eat number of re- ceipts, for small and large amounts — that Evolution of Money, Trade, and Finance. 1 3 is to say, he would be ready to issue to the public paper money, in small and large de- nominations. People like paper money be- cause of its lack of weight ; but the benefit to the issuer comes only in issuing an amount which exceeds the sum of real money that is supposed to be represented. If a banker issue one hundred thousand dollars in paper money in receipt for one hundred thousand dollars in real money, and keep the real money in his vault, no profit can result. But if he lend seventy- five thousand dollars of the real money on interest, trusting that the public will not demand payment for more than twenty-five thousand dollars of his paper, his profit be- comes quite clear ; and it is equally clear that the community has the use of a circu- lating medium seventy-five thousand dollars greater than before. Given the good faith of the issuer, the question whether paper money be a blessing or a curse must always have been mainly a question of quantity, not of exact but of relative quantity, — rela- tive to the real money in the vaults of the issuer, relative to the customs of the jiublic 1 4 Money, Silver, and Finance. in the matter of carrying money, relative to the public's belief in the wealth back of the issuer, relative to the state of trade, present and prospective and foreign and domestic, relative to the probability or im- probability of happenings which, in a mo- ment, would change confidence into panic and bring to the doors of the issuer the holders of most of his paper, crying loudly for gold. In truth, the line between safety and danger in a volume of paper money moves forward and backward with chan- ging circumstances, and holders have always been willing to hold when they thought they were not obliged to hold, and have always demanded payment when they thought that payment might be refused. When governments took to themselves the right to issue paper money, the drawing of a danger line became still more difficult, because of a prevailing notion that the value of money rests in the governmental stamp upon it, and governments have put forth excessive volumes without knowing that there was any danger, and with an ease which has been equalled only by Evolution of Money, Trade, and Finance. 1 5 the difficulty of subsequent withdrawals. Whether given a legal-tender character or not, paper money paid to troops, for cloth- ing, weapons, ammunition, or for other things, readily finds its way into circula- tion. And with a large quantity flowing from the national treasury, people appear to be prosperous, demagogues applaud, and safety is already well behind before any exportation or any hoarding of gold acts as a danger signal. The test of relative quan- tity applies to government notes as well as to bank-notes ; but the former have the advantage of being known by the whole instead of by sections of a community. It is important that A, in the East, trading with B, in the West, should agree to give or take the kind of money that B has in mind ; or, for example, that C, in the South, trading with D, in the North, should not be compelled to receive bank- notes which are bankable only in the North, or be permitted to settle a debt with the bank-notes which are bankable only in his own section. Governmental safeguard, guaranty, or responsibility is 1 6 Money, Silver, and Finance. better than the individual responsibility of widely separated banks and bankers ; but whether our present paper money is better than would be paper money which might, under proper supervision, be issued, as proposed by Edward Atkinson, by the New York Cleai-ing-House Association and by other aggregations of banks and bankers, is another question. Such paper money might be changed in volume from time to time, to conform to the natural changes in the state of trade and com- merce ; and if the issuers were given the right to I'aise and lower the rate of interest, somewhat as the Bank of England moves its rate, they would possibly be able to give us better paper money, because elastic in volume, than we now possess. I do not think, however, that any new kind of paper money need be recommended in this volume. Vastly more important to the commercial world than paper money ai-e the other finan- cial contrivances called checks, drafts, notes, bills of exchange, etc. ; for, besides having no appreciable weight, they can be made Evolution of Money, Trade, and Finance, i 7 safe in transmission. So used to these sub- stitutes for money has trade grown that millions of people, every day, agree to re- ceive or pay money without thinking of any money more real than one of these substitutes, and without stopping to con- sider that should one tenth of the traders carry out their contracts literally the other nine tenths would necessarily fail to carry out theirs. But this is far from being an unfortunate thing : it is but a fact in evi- dence that the volume of exchanges of the world's commodities is so great that money does not suffice for a tenth of the move- ment ; while, of course, it is true that the greater the facilities for moving the world's commodities, the better for everybody. Banks and individuals depend for their solvency upon the willingness, practically, of everybody to forego his rights ; but to find fault with this is equivalent to finding fault with the growth of trade. If con- sumers of American oil, cottons, and hard- ware in remote parts of the world should send us money to pay for our goods ; if British purchasers of American stocks, 1 8 Money, Silver, and Finance. bonds, wheat, cotton, meat, should pay us actual money ; if American buyers of silk should send money to France, or American buyers of coffee and rubber should send money to Brazil ; if New York buyers of provisions should send money to Western producers, and Western consumers of manu- factured articles send money to Eastern manufacturers, — the bulk of the world's money would always be in transit. And this is equivalent to saying that the ex- changes of the world's commodities would not take place, — that we should be in that state of barbarism in which each country uses only its own productions. In one breath we may fairly speak of the evolution of money, of trade, of finance, and of civilization ; for evolution in each has been dependent upon the other three ; and to-day fair tests of the state of civili- zation in any country are the kind of money which it uses, the development of its trade, and the condition and extent of its banking or credit system. Silver is the money of India and China, and we find in those countries that the people are poor and ig- Evolution of Money, Trade, and Finance. 1 9 norant — so poor that famines recur, that the average weekly wage is not an inconven- iently heavy weight of this metal, and that the average amount in people's pockets is not likely to burst them ; so ignorant that pieces of paper could hardly be expected to pass from hand to hand like real money ; so ignorant that the foreign trade of these countries is mostly conducted by foreigners on the coasts, foreigners alone iinderstand- ing how to use banking facilities. Exactly opposite is the development reached in the United States : paper money, whether, on its face, redeemable in "gold," in "coin," or in "silver," is preferred to the intrinsi- cally valuable metals, and the paper money, which is redeemable in " dollars," circulates alongside those " dollars " that have been given a legal-tender character ; our people are so well off that pocket-money would be burdensome if it were all in silver; the average weekly wage-rate is too great to be paid in silver, if the convenience of either employers or employees is to be considered ; and we have in this country such a highlj' developed system of banking and credit 20 Money, Silver, and Finance. that nearly all of the exchange of com- modities among ourselves, and between us and foreigners, is done without more than a nominal use of money. England forces gold and silver to circulate in England by not permitting the people to have paper J, money in denominations below five pounds — say twenty-five dollars, — and France forces Frenchmen to use gold and silver by not giving Frenchmen denominations of paper money below fifty francs — say ten dollars; Germany similarly treats her people ; but Americans are used to the convenience of paper money down to single dollars, and this convenience certainly will never be given up, what money English- men, Frenchmen, Germans, Indians, or Chinamen carry in their pockets being un- important to us, at least as an argument. No party will ever be sufficiently powerful to force Americans to carry silver instead of paper. But if silver cannot be made to circulate, may we not use it as a base for paper money ? Why should we ? We have now the gold base in common with the great Evolution of Money , Trade, and Finance. 21 European nations, and we trade mostly with them, or when trading with others, we necessarily, as a rule, agree to pay or to accept payment in London exchange — that is, we trade on the gold base. Gold has proved itself a more stable base than silver; and what can be more important to our stupendous superstructure of credit than an immovable foundation? Do we prefer to build upon quicksand? Or, in broadening the foundation of a structure, is it well to use rock for one portion of the foundation and sand for another portion ? No stronger proofs of the height of civili- zation in this country can be offered than that we use financial contrivances so exten- sively, and that gold itself is not used to the extent, possibly, of even one per cent, of our volume of business, although in every transaction the buyer and the seller, when stopping to think at all, think of the gold value of the money rnentioned. Is it the duty of Congress, then, to say to the people : All this is wrong ; you must carry more paper and silver in your pockets; you must use checks and drafts less, and 2 2 Money, Silver, and Finance. you must use silver more ; you must con- sider the condition of our silver miners, and favor our being upon a wabbling base — part gold, part silver ? ' Rather, is it not the duty of Congress to recognize that nearly all the business of this country is, and necessarily must be, carried on by means of some form of credit, and therefore it must be of the greatest importance to everybody to be able to feel that the firm foundation of gold-measured or gold-valued wealth is beneath it all ? Congress cannot cause us to be born again, and into the Hindu, Chinese, Japanese, or even into the Mexican or South American silver- handling type; but, through the operation of laws which favor silver, so much of the kind of money which is in every way unsuited to us may be forced into the foundations of our banking and credit system, that there may be shaken or overthrown this marvellous structure, which now so well serves our vast and intricate exchange of commodities, ' The Nottingham (N. H.) Gtiardian calls attention to the inelegance of wabbling base, but in this case expressiveness must be allowed to hold its own against elegance. CHAPTER II. THE MOVEMENTS OF PEICES. The upward and downward courses of trade and prices, recurring not with regu- larity but with sufficient certainty to form a basis for shrewd guessing, are yet consid- ered inexplicable, at least by one of our greatest political economists. According to Mr. David A. Wells,' if I draw a correct inference, everybody is cognizant of the undulatory character of trade and price movements, but nobody can account for it. The what-has-been-must-be theory is the sum of the general knowledge that buoy- ancy follows depression, or vice versa, and that a panic is apt to come after a period of over-confidence. "Neither can it be conceived how periodical changes in prices can result from any possible law of nature, unless it can be shown that such laws exist ' Recent Economic Changes. 23 24 Money, Silver, and Finance. and operate with uniformity on the human mind and on the development of the hu- man intellect, which has not yet been done." I feel reluctance in stating that I do not agree with Mr. Wells, but I think it im- portant to show, if I can, that such a " law of nature " is exactly what Mr. Herbert Spencer discovered and fully explained.' The great philosopher pointed out the un- dulatory character of all motion, with nu- merous illustrations from the fluttering of a vessel's pennant to the course of a planet or to the rises and falls of activities in the human body. Mr. Spencer says : " Passing from external to internal changes, we meet with this backward and forward movement under many forms. In the currents of commerce it is especially conspicuous. Exchange during early times is almost wholly carried on at fairs, held at long intervals in the chief centres of population. The flux and reflux of people and com- modities which each of these exhibits be- comes more frequent as national develop- ' First Principles y chapter on The Rhythm of Motion. The Movement of Prices. 2 5 ment leads to greater social activity. The more rapid rhythm of weekly markets be- gins to supersede the slow rhythm of fairs. And eventually the process of exchange becomes at certain places so active as to bring about daily meetings of buyers and sellers — a daily wave of accumulation and distribution of cotton, or corn/ or capital. If from exchange we turn to production and consumption, we see undulations, much longer indeed in their periods, but almost equally obvious. Supply and demand are never completely adapted to each other, but each of them from time to time in excess, leads presently to an excess of the other. Farmers who have one season produced wheat very abundantly, are disgusted with the consequent low price ; and next season, sowing a much smaller quantity, bring to market a deficient crop, whence follows a converse effect. Consumption undergoes parallel undulations that need not be specified. The balancing of sup- plies between different districts, too, entails analogous oscillations. A place at which ' In England corn means wheat, rye, barley, and corn (maize). 26 Money, Silver, and Finance. some necessary of life is scarce becomes a place to wliich currents of it are set up from other places where it is relatively abundant, and these currents from all sides lead to a wave of accumulation where they meet — a glut : whence follows a recoil- — a partial return of the currents. But the undulatory character of these actions is perhaps best seen in the rises and falls of prices. These, given in numerical measures which may be tabulated and reduced to diagrams, show us in the clearest manner how commercial movements are com- pounded of oscillations of various magni- tudes. The price of consols, or the price of wheat, as thus represented, is seen to undergo vast ascents and descents whose highest and lowest points are reached only in the course of years. These largest waves of variation are broken by others extending over periods of perhaps many months. On these again come others having a week or two's duration. And were the changes marked in greater detail, we should have the smaller undulations that take place each day, and the still The Movement of Prices. 2 7 smaller ones whicli brokers telegraph from hour to hour. The whole outline would show a complication like that of a vast ocean-swell, on whose surface there rise large billows, which themselves bear waves of moderate size, covered by wavelets that are roughened by a minute ripple. " Thus, then, rhythm is a necessary char- acteristic of all motion. Given the co- existence everywhere of antagonistic forces — a postulate which, as we have seen, is necessitated by the form of our experience — and rhythm is an inevitable corollary from the persistence of force." The expressions which are commonly heard among traders and speculators : " The market is tired," " It can't go one way all the time," "What goes up must come down," " Look out for a reaction," " The tide must be nearly ready to turn," and hun- dreds of others of a similar nature are acknowledgments of the force of a funda- mental law, and it is safe to say that any business-man who goes along without rec- ognizing, consciously or unconsciously, this 28 Money, Silver, and Finance. all-goveniing law is likely to come to grief. He it is who "goes clamming at high tide," who buys vacant lots at the " top of a boom," who " gets left " with a big stock when buyers become scarce and who has nothing to sell when everybody wants to buy. Theoretically there is no difficulty what- ever in accounting for the fact that prices and activities I'ise and fall. The undula- tory character of trade movements corre- sponds with all known motion, and it is no more the duty of the political economist to inquire further into the why and where- fore of the phenomenon than it is his business to ask why over-exertion makes him tired, why a current makes eddies, why exaltation leads to depression, why scarcity leads to glut and low prices, and glut and low prices to scarcity and high prices, or why force and resistance have any place in nature. Recognizing that rhythm in motion is all- prevading, although perhaps never think- ing of it as rhythmical, the shrewd man of business Avill attempt to measure the forces The Movement of Prices. 29 and resistances which, at a given time, result in carrying prices upward or downward or in holding them nearly stationary. And much of his success must depend upon his ability to measure correctly. But there has been a downward move- ment in prices which has been going on ever since the year 1872, and while the undula- tory character of the movement has not been wanting, yet the result of it has been to put the average of general prices upon a very low plane, although not lower for many staples than was ever known before. Mr. Edward Atkinson points out ' that the necessaries of life were lower in 1845-1 850 than they are now, but, nevertheless, quite a revolution has taken place, and there are many individuals who attribute this fall in prices to the " outlawry " or the " demoneti- zation " of silver, in spite of the fact that there has been neither outlawry nor de- monetization properly so-called. Criticising the subject-matter of the first chapter in this volume, when about to be ' Testimony before House Committee on Coinage, Weights, and Measures. 30 Money, Silver, and Finance. published in Lippincotts Magazine, Mr. John A. Grier, having, with my consent, my manuscript before him, wrote an article for the same number of Lippincott'' s in which he said : " In 1873, when the United States outlawed silver as full legal-tender money, we blindly committed an absurd national mistake that has cost the mass of our people the loss of untold millions of dollars annually.' " Only a small part of this has legally, but unfairly, enriched a few thousands of our own people, while many millions have been uselessly thrust upon our ci'editors on the other side of the Atlantic. The late Mr. Manning, Secretary of the Treasury, in his annual report of December 6, 1886, distinctly expressed this view of the case. Mr. Manning was a believer iu the efficacy and necessity of international treaties in the use of silver as full legal-tender money. Thus, in advocating such treaties he urged ' The United States merely stopped the coinage of silver dollars, the country then transacting business on a paper basis. No effect of this stoppage was noticed for a long while ; peo- ple do not agree on the reasons for the stoppage ; and nobody can prove that prices are lower in consequc7ii:i; it/" the stoppage. The Movement of Prices. 3 1 us to discontinue the silver coinage, so as to bring a more direct financial pressure on all other nations for the gold of the world. He thought if we should abandon the coin- age of silver and more earnestly enter the greedy, grasping contest for gold then going on, we should be the gainers. With our immense natural resources in the produc- tion of so many of the articles Europe must have, we could procure the gold, while we could deny ourselves of part of our import- ed luxuries. In regard to the cost to us of the demonetization of silver, he said : ' The monetary dislocation has already cost our farming population, Avho number nearly one half the population of the United States, an almost incomputable sum, a loss of millions upon millions of dollars every year, a loss which they will continue to suffer so long as Congress delays to stop the silver purchase and by that act to compel an international redress of the mon- etary dislocation.' " To give some estimate of these losses I have made the following investigations. If we assume that it requii'ed, approxi- 32 Money, Silver, and Finance. mately, tte same amount of labor to farm an acre of cereals during tlie three years, 1871; 1872, and 1873, that it did during the three years 1886, 1887, and 1888, then by an examination of the farm price of cereals as given by the U. S. Statistical Bureau, it will be seen that, on a gold valuation at each period, the annual shrink- age in the price received by the farmers for cereals during the latter period was about $600,000,000. It can be seen by an examination of the United States statistics that for the five years 1885-1889, as com- pared with the five years 1880-1884, our exportation of wheat and wheat-flour fell off in value to the enormous extent of $334,- 000,000. In bushels the decrease amounted to about 159,000,000. . . . Although Mr. Manning was opposed to our continu- ing the silver-dollar coinage, we agree with him that the ' monetary dislocation ' was one of the main causes in the loss of a part of our foreign trade and the value of our products. While this loss in the price of cereals is so great, perhaps the loss on the other products of the farm was equally The Movement of Prices. T^Ty large. The farmers of the United States, who have felt this financial grip so heavily for so many years, are carefully studying the question. They have apparently reached some unwise conclusions as to the proper remedies, but, if we can judge aright, they, as a class, have determined that silver shall be restored. As to the statistical facts cited above, all have ready access to our government statistics, and if you see fit you can collate them, and then the facts will depend upon the reliability of these reports. There are a few eminent statisti- cal and financial authorities who deny that the disuse of silver as a money-measuring metal has had any effect in causing the world-wide fall in prices or on our loss of certain foreign exports ! They admit the changes, but attribute them to other causes. This is one of those inductive questions that each one must settle for himself. Per- haps Mr. Cowperthwait has not the least suspicion that the disuse of silver has played any part in this world-wide depression in prices. However, the British Royal Com- mission, appointed a few years ago to 34 Money, Silver, and Finance. examine exhaustively this question, unani- mously admitted this important conclusion. Six of the twelve called for the prompt restoration of silver, while the other six hesitated for further observation. Thus, by the novel attempt to get down to a gold basis, which Mr. Cowperthwait calls ' an immovable foundation,' we found ourselves measuring prices by a commodity for which the legal demand had suddenly and largely increased. We also found that its value, either as a commodity or as money, has largely appreciated. There is no other way to ascertain the exchangeable value of money than to see what it will exchange for or buy in the markets of the world. Tested by this inexorable economic rule, it will be found that the average prices of commodities used in common life have fallen approximately one third since the demonetization- of silver in 1873. This simply means that the purchasing power of gold has increased about one half, or fifty per cent. If the greatest possible stability in the purchasing power of coined money is desirable, then by all means let The Movement of Prices. 35 us maintaiu the concurrent use of both metals, in order to maintain their mutual automatic action on each other's value. To measure by silver alone would be as unwise as to measure by gold alone. We might as wisely abandon the use of two metals in the construction of the pendulum of our most perfect clocks or of the balance-wheel of our chronometers. The pendulum and balance-wheel were an evolution in practi- cal mechanics, and, with all our scientific advances, we do not abandon this use of the two metals. There is abundant evi- dence on all sides that the civilized world will not abandon the use of either silver or gold as money-measuring metals. The ap- prehensions entertained by Mr. Cowper- thwait that we, like China, India, or Mexico, may joerchance I'each a silver basis, are groundless, although we may decide to in- crease very largely our use of silver. There is a wide and safe margin between this in- creased use of silver and fi'ee coinage. Silver mono-metallism is repudiated even by the free-coinage advocates. The nation will hardly maintain a policy which no one wants. 36 Money, Silver, and Finance. " Up to 1^73 the burden o£ measuring- debts throughout the civilized world rested substantially on the two metals, gold and silver. The demonetization of silver in 1873 was an attempt to change this basis to gold alone. Then such was the enor- mous legal demand for gold that its value as a commodity was advanced, and hence its value as money. Prices then began to fall, as they were regulated by this appre- ciated gold. This is the simple explana- tion of the injurious part of the fall in prices. Measuring the value of wheat and cotton bought here at gold prices, which could be bought in India at silver prices, accounts for much of the loss of profit in our foreign trade in such commodities. The outlawry of silver produced a great part of this change, but not all of it. This portion we can change by national legisla- tion. A fall in prices is not an unmixed evil, but a fall in prices when the cost of production has not been equally reduced to the producer is an evil that the producer will do his best to remove." This sounds well, but before the Messrs. The Movement of Prices. 3 7 Lippincott were able to print (October, 1891) for the November number of the magazine Mr. Grier's article and mine, the farmers of the United States were in the midst of jubilation over their enormous ci-ops, and I fear that some callous farmers were rejoicing too ovei- the partial failure of crops abroad. Let us hope that our farmers continued their careful study of the silver question after the financial grip had been relaxed, and that some of them used dif- ferent spectacles in the fall of 1891 from the ones used in the spring of 1891. In a time of adversity silver-tongued orators, who charge all woes to "demonetization," would naturally receive more attention than they would receive in a time of pros- perity, the ups and downs of life and the periods of high and of low prices affecting the farmer as the merchant and the manu- facturer. As a rule, taking years together, the farmer sells at low prices when he is com- pensated for this by being able to buy at low prices, or he pays largely when he re- ceives largely. But at this writing he is 38 Money, Silver, and Finance. selling great crops at liigTi prices while he is still buying at low prices any articles that he may need. Few farmers get rich ; so do few other strivers after wealth ; and it is no less im- portant for the farmer than for anybody else to notice that improvements every- where are revolutionizing farming, trade, commerce, transportation, and all business. Events move very fast nowadays, and he who would succeed must "keep up with the procession." I think that the late Mr. Manning's sa- gacity in seeing that the government ought to stop the purchasing of silver entitles him to forgiveness for mistaking hullion-value dislocation ior monetary dislocation, and to forgiveness for not seeing why the prices of commodities had declined. Indeed, un- til Recent Economic Changes appeared few people could have understood the reasons for this decline. The Royal Commission made its final report in 1888, and the mem- bers of it were not much better informed regarding the direct action of economic changes upon prices than was the late Mr, The Movement of Prices. 39 Manning, but the commission itself did not advise England to purchase silver ; and if the commission had been considering the silver question from our point of view we should not have been advised to purchase silver either. The commission was quite as sensible as Mr. Manning when it re- ported, as it did report, " No settlement of the difficulty is, however, in our opinion, possible without international action." ^ In order to show how much the farmers liave lost by " dislocation " or " demonetiza- tion " or " outlawry," Mr. Grier makes the violent assumption that it required in 1886, 1887, and 1888 the same amount of labor to farm an acre of cereals as it did in 1871, 1872, and 1873, and I note that Mr. Grier overlooks an important truth : a monetary change could not affect the farmer in the prices of the things which he sells differently from the way such mone- tary change must affect him in the prices of the things which he buys — a monetary change which makes him sell lower neces- sarily enabling him to buy lower. But ' Silver in Europe, p. 272, S. Dana Horton. 40 Money, Silver, and Finance. on the avei'age it did not require, in 1886, 1887, and 1888, anything like so much la- bor to farm an acre of cereals as was re- quired in 1871, 1872, and 1873, the inter- vening fifteen years being wonderfully prolific in labor-saving inventions. Small farmers could not obtain a profit in the la- ter period as easily as in the earlier period, because much of the agricultural machin- ery of our time is unsuited to small farms, and because the development of vast farms has been accompanied by a fall in the prices of farm products, cheaper processes and augmented production bringing about their inevitable results. By similar means iu the same period of fifteen or twenty years great businesses have swept small businesses out of existence ; but however much we may dislike the results we cannot fairly charge them to any monetary change, either real or imaginary. Imaginary indeed is the " dislocation," the " outlawry," and the " demonetization " about which, because of "damnable itera- tion," we have grown so tired of hearing. A great decline has taken place in the The Movement of Prices. 4 1 price of silver bullion, but nobody sells merchandise for silver bullion, and its price movements concern very few people. What people generally are concerned about is the prices at which they buy and sell merchandise, stocks, bonds, or any valua- ble thing. Intrinsically, silver coins are worth, in gold, say thirty per cent, less than their face value, and we may add that paper money is intrinsically worth nearly one hundred per cent, less than its face value, but the face value itself is all that concerns you, whenever you use the paper or the silver coins in buying or selling anything. If silver coins were not receivable in settlement of debts, if you could not buy goods with them, or if you could not exchange them for gold coins, at the face value of each, then " dislocation," or " outlawry," or " demonetization " might be fairly charged, but the untruth of the charge is demonstrated thousands of times every day, on each side of the Atlantic, ten silver dollars buying as much as a golden eagle will buy, twenty shillings being as valuable as is a sovereign, twenty 42 Money, Silver, and Finance. francs as a napoleon, and twenty marks as a doppelkrone. If an act of demonetiza- tion or outlawry had been passed by the American Congress, or by the legislatures of England, France, or Germany, the equality in the purchasing power of gold and silver coins would have been over- thrown. Instead of complaining of the so-called results of an imaginary demone- tization of silver, we should be thankful that our legislation, in favor of silver, has not yet resulted in the demonetization of gold. But if we deny that silver has been either demonetized or outlawed, and deny also that the fall in the price of silver bul- lion has caused the fall in the prices of commodities, how shall we account for the latter ? Fortunately this part of the silver question has been gone over in great de- tail and been treated in a masterly way by Mr. Wells, in his Recent Economic Changes, the volume already quoted ; and nobody can be better informed upon such changes than he, in spite of the appearance that in his general reading there did not The Movement of Prices. 43 happen to be included a certain chapter in Herbert Spencer's works. A stock argument of the silver advocate is this : Because silver and commodities have declined together — cause and effect in his mind — therefore, if you advance the price of silver you will advance the prices of commodities. A careful study of the general decline in prices, however, will show that silver and commodities have felt the force of great economic changes these changes being the cause of the down fall in almost all prices, that of silver included. Any man of business familiar with one or more articles of trade or commerce which have fallen in price, or familiar with the decline in freight and transportation rates during the period since the very high i-ange of 1872, can see that invention and discovery have, one or the other or both, put down prices and rates at least in particular instances ; and we have yet to hear of a case of decline which can be attributed to the decline in silver, excepting, of course, in goods manufactured from this metal. 44 , Money, Silver, and Finance. Invention and discovery have played a great part in tlie decline of silver itself, new mines and new processes yielding greatly increased production ; and if we take any of the staple articles, iron, steel, petroleum, cottons, woollens, paper, quinine, tea, coffee, sugar, beef, wheat, etc., etc., a similar story is told of a revolution accom- plished or now progressing, everything being put upon the market at much lower cost than ever before. Nothing is easier than to say that prices in general have fallen, because silver has fallen : nothing can be more difficult than to prove the connection. The appearance- at the same time of two or more phenomena suggests cause and effect ; and so when " demoneti- zation " is pointed out as the cause of the decline in the price of silver, and this " demonetization " and this decline are pointed out as the cause of the decline in general commodities, these statements naturally find believers, although there is no better reason for attributing the fall in general prices to the fall in the price of silver, than there would be for attributinsj the fall in the price of silver to the fall in The Movement of Prices. 45 general prices. Certainly no fair-minded person can read Mr. Wells' book without becoming fully convinced that the fall in the prices of commodities and the fall in the rates for tij-ansportation are directly due to the force of irresistible economic changes, silver itself being forced down with other things, anti-silver legislation as a force, in comparison, having little appreciable effect. Not content with proving the natural- ness, so to speak, of the fall in prices, Mr. Wells shows, too, that the fall is far from being such an unfortunate thing as the " silverites " claim it to be. Instances of both the naturalness of the decline in price and the benefit of that decline are afforded by a great number of articles of which, for ex- ample, quinine is notable. Formerly the medicinal preparation sold at over one dollar per ounce, and, in a time of civil war in New Granada, it advanced to over four dollars per ounce, but in those times quinine was manufactured solely from that cinchona-bark which could be obtained from trees in the forests of the northern states of South America. Now the trees are cultivated in the East Indies ; these 46 Money, Silver, and Finance. trees yield more than the indigenous trees of South America, and by " new and more economical processes more quinine can now be made at less cost in from three to five days tjian could have been effected by old methods in twenty days." The fall in the price of quinine is hard upon those South Americans Avho used to get high prices for their bark, but the benefit to multitudes of human beings cannot be questioned. We may accentuate the bearing of the experi- ence of quinine upon the silver question by remarking that both the South Americans who have lost and the East Indians who have gained are handlers of silver money ; therefore, adopting the views of the " silvei*- ites," excluding natural causes, the decline of silver has been the cause of a transfer of business from one silver-using community to another silver-using community ! What the " silverites " would say regarding the benefit derived by all other communities from the cheapening of quinine, no matter what moneys they use, we can not guess.' ' X. V. market price of quinine, 1891, about twenty cents an ounce. The Movement of Prices. 47 In the most natui'al manner, too, the busi- ness of tea cultivation and tea exportation seems to be in process of transfer from China to India, India having adopted im- portant improvements. The world is bene- fited by obtaining tea at very low cost, although Chinamen have never raised a hand against silver, and although the peo- ple of India use silver now as they always have used it. Then the beet-sugar industry has been built up largely at the expense of the cane-sugar industry, and this without re- gard to the circumstance that the Europeans engaged in raising beets and in making beet-sugar have to work upon the gold basis, while some of the countries, whose people are interested in cane-sugar, are upon a silver basis, and at least one, Cuba, upon a paper basis. But the world now gets very low-priced sugar. A single day's observation of the indus- tries about him will yield to anybody sufficient evidence of overwhelming indus- trial changes, all toward a lower cost of production. A little study will show that 48 Money, Silver, and Finance. in the past quai'ter of a century more im- portant results have been attained by in- dustrial development than in fifty previous years. If anything else has forced prices downward, that other thing must have had a comparatively insignificant effect. There is left no part of the decline in prices to be so accounted for ; industrial develop- ment not monetary change accounts for the whole decline ; the action of industrial de- velopment is direct and is apparent to all ; the monetary change, as charged, is itself denied, and if it could have caused any part of the decline in prices, its action is obscure and the measurement of the effect of the action must be left to guessing. Price movements used to be charged to currency movements but the theory was exploded long before Mr. Spencer penned the lines herein quoted, and he had no occasion to attribute price movements to changes either in the volume of money or the snxn. per ca]?ita. Due attention is given to this old currency theory in another chapter of this book. CHAPTER III. INDIA AND HER SILVER RUPEE.* Much has been said of the advantages which India has enjoyed through the cheapening of silver, the farmer and planter of India receiving now, it is claimed, as many rupees for their crops as formerly, while the American farmer and planter receive fewer dollars than formerly. And the fact of the rupee retaining only its old purchasing power while the dollar has a higher purchasing power, is offered as evidence that instead of the supposed ' The rupee is the standard unit of value of India and also a silver coin of India, nominally worth forty-eight cents or two English shillings. The market value of ra/^rfj- changes hourly with the market value of silver bullion. At this writing r«/^^j- are worth in London only the equivalent of thirty-four cents each, silver bullion being down to ninety-five cents per ounce. $1.2929 per ounce must be the price of silver whenever the quantity of silver contained in our dollar shall be worth a dollar, and the quantity contained in the rupee shall be worth forty- eight cents. <- 49 50 Money, Silver, and Finance. depreciation of silver, what has occurred is an appreciation of gold. When arguing in this manner the " silverite " loses sight of the circumstance that silver dollars will buy in America, just as much as gold dollars will buy, and that silver coins are equal in jDurchasing power to gold coins in most European countries, provided you wish to buy goods in the country which has issued the coins. Whether we speak of appre- ciation or depreciation, the question there- fore must lie between the rupee and money generally, not between the rupee and gold. In many parts of this book, proof is given of the truth of the theory that prices liave declined and reasons are given for be- lieving that money has not appreciated. Simply stating here, that if money had ap- preciated real-estate and rents and wages would have gone down, which they have not, and interest rates would have gone up, Avhich they have not, we may well confine our present attention to India and to her silver rupee. It has been pointed out that the wheat and cotton of India are sold in Liverpool India and Her Silver Rupee. 5 1 in competition witli American wheat and cotton, and that the Oriental, because of willingness to receive silver, Avhile we ex- act gold, has an advantage of twenty or thirty per cent, over American compet- itors. The Oriental producer and ex- porter have been gi'owing rich at our expense, it is said, and the really great industrial progress which India has made in the past decade or so is triumphantly referred to as the natural result of India's holding to the silver basis.^ Strange as it may seem, the silver advocate does not call attention to the Oriental importers and to the Oriental consumeis of foreign goods. Are these people growing rich, too, or do they find that foreign goods have to be paid for with gold ? And if the producer and exporter gain twenty or thirty per cent., because exhortations are paid for in silver, must not the importer and consumer lose twenty or thirty per cent, because importations have to Ise jjaid for in gold ? In other words, through the medium of ' India has made great strides in railway development, and vast new areas are now reached hy trade and commerce. 52 Money, Silver, and Finance. foreign trade, must not some people in India be rapidly obtaining possession of the wealth of other people in India? And at a twenty-or-thirty-per-cent. rate the traasfer of the total wealth of India from some pockets to others will not take very long ; indeed, it ought to have been accom- plished some years ago ! In truth, however, India carries on for- eign trade in the manner pursued by other countries — she both buys and sells com- modities on the gold basis of value, and the contrivance of foreign exchange is the means of purchase and sale, silver not being received in direct payment for ex- portations of merchandise, and gold not being sent away in direct payment for importations of merchandise, as a general thing. The producer receives money in the form of silver rupees from the exporter, but the exporter draws a commercial bill of exchange on London, and this bill of exchange is for gold. Conversely, the Indian importer of merchandise pays for that merchandise in gold in London, pro- viding money or credit there to meet a India and Her Silver Rupee. 53 bill of exchange drawn against him, although this same importer sells the mer- chandise in India, and for silver rupees. The rupee is suitable for the interior business of India, but when Indian products reach the seaports, and when foreign products come to these seaports, the bullion value of the rupee has to be taken into the calculation, and the changes in that bullion value must necessarily be reflected throughout India, whether the result be to hold such prices up as would otherwise go down, or to put such prices up as would otherwise remain stationary. The competition among Indian importers forces them to pay as high gold prices as possible and to sell for as low silver prices as possible. The competition among Indian exporters forces them to pay as high silver prices as possible and to sell for as low gold prices as possible. This double competition adjusts the prices of exportable and importable goods, in India, as elsewhere ; and there, as throughout the commercial world, the competition helps to adjust, also, the prices of domestic goods when sold for domestic consump- 54 Money, Silver, and Finance. tion. This fact should not be lost sight of : the unit of value of India, the rupee, constantly changes in price, the price moving upward and downward with the price of Mexican dollars or of other silver moneys of the Orient, all of them following closely the fluctuations in the price of silver bullion. If you use the money of the United States or Canada, or of most of Europe, you can buy commodities, on the average, at prices say thirty per cent, below the average of 1872, and there are many reasons for this decline in prices. If you cannot buy at low prices, with Indian rupees, Mexican dollars, or Eastern silver money, still you ca'n first change your money into these moneys and obtain, say thirty per cent, more of these moneys than you could have obtained in 1872. You can buy at low prices with good money, or you can buy at high pi'ices with depreciated money, and not make any better bargain in either case. And you may be very sure that the great merchants of India, China, and the East generally watch closely the price of the fupee, the jNIexican dollar, and of silver India and Her Silver Rupee. 5 5 bullion on the London market, and regu- late their own prices of commodities in accordance therewith. The declining value of silver has given a slight advantage to Oriental producers and exporters of merchandise over Oriental im- porters and consumers, and the flow of silver to the East has been accelerated by the willingness of Europe to get rid of silver or, let us say, a willingness to give more silver for Oriental products than formerly. When silver declines a fraction, foreign exchange in the East is affected at once ; exporters of merchandise must find it easier to transact business, and importers must find difiiculty, until prices adjust themselves to the new conditions. Or, looking on silver as a commodity, we can see that for many years, because of a low price, the East has been able to obtain easily large quantities of silver. Apparently, silver being the money of the East, this accumulation of silver has been advanta- geous. Is the advantage real or nominal ? There is now such an abundance of silver in the East as to make what has been called a 56 Money, Silver, and Finance. state of congestion, and there is no outlet for the metal. Other countries have willingly given silver for Oriental products, but these countries vnll not give their ovt^n products in exchange for the same silver. The Secretary of the United States Treasury, Mr. Foster, in a letter to the banker's convention, November, 1891, speaking of the decline in the price of silver, goes on to say : " Other causes, vs^hich I cannot enlarge upon, have operated to produce this result, prominent among which is the large falling off in the shipments of silver to India and China. The shipments of silver from Lon- don to India during the first nine months of the present calendar year show a reduc- tion of over $17,000,000 as compared with the same period of the prior year, while the shipments of silver to China show even a greater decrease." India and China have a plethora of that kind of money which great commercial countries do not want, and India and China seem to have discovered, just when the value of silver is very low, that they cannot take India and Her Silver Rupee. 5 7 any more of such money. Of course, if the United States should adopt free coinage of silver, then it might appear tha.t the heathens were longer-headed than now seems evi- dent. They could sell us silver then at a good profit over the cost. But at this mo- ment it is too soon to contend that Oriental countries have been benefited by the decline in the value of silver. In the early years of our war, both in the North and in the South, it was not difficult to sell goods for paper money, and it was comparatively easy to accumulate paper money and paper- money obligations ; but a little later the positions of the money accumulators in the two sections drifted farther and farther apart, as it became clear in the North that the paper money of the United States would appreciate, and as it became clear in the South that the paper money of the Confederacy would depreciate. So the question whether India and China and other silver-money countries have actually been benefited by the opportunity to ac- cumulate silver must depend largely upon the future price of silver. 58 Money, Silver, and Finance. Corroborative of such a view, although doubtless not intended to be so, I think, is the testimony of Mr. F., a New York exporter, before the House Committee on Coinage, Weights, and Measures, February, 1891. Speaking of our ability to compete with Russia in the shipping of oil to the East, Mr. F. said : " It is a matter of exchange. It is rela- tive to the gold value of silver. It is what we call the fall or rise in exchange. All our exchanges in silver-using countries are regulated by the gold value of silver in London. The banker makes his quotations in exchange in China or India, on London, by the telegraphic price of silver on the London market on that day, and therefore the price of silver governs the exchanges of the silver-using countries all over the world. As a singular confirmation of what I say with regard to Russian oil during the last year, some of the refiners asked me about this question of exchange, why it was they were having such a demand for their oil. I explained the whole matter to them. I drew up a schedule showing India and Her Silver Rupee. 59 tlie quotations of oil in sterling, and as silver rose in gold value oil rose in sterling." From which it appears that every ad- vance in the mai'ket price of silver helps us in exporting merchandise to silver-using countries. Doubtless every decline in the market price of silver helps us in our im- porting of merchandise from silver-using countries. In one case we are more ready to sell merchandise, because we receive appreciated money in payment. In the other case we are more ready to buy mer- chandise, because we are allowed to pay for it with depreciated money. The fact that we both buy and sell in London exchange is offset by the rate of exchange being con- trolled by the market price for silver bul- lion at the time of each transaction. It has been shown that the East more easily sells goods and more easily accupiulates silver when silver is down in price than when silver is up ; and, necessarily, the East more easily buys goods and has more difficulty in accumulating silver when silver is up than when silver is down. 6o Money, Silver, and Finance. The accumulation of silver in the East brings to mind the accumulation of silver in the United States Treasury. In so far as a decline in silver helps the exportation of merchandise from a country, that decline helps the accumulation of silver in that country ; not that silver need be used in direct payment for merchandise, but be- cause silver bullion is a commodity, and be- cause important sums of silver coins vary in price with this commodity. Comparing to-day's market price of silver bullion with the much higher average of the past ten or fifteen years, it is fair to say that if India had frequently offset favorable trade bal- ances by purchases of British consols or of United States bonds, and so had avoided importing so large a quantity of silver, a portion of India's loss from the depreciation of silver would have been saved ; and it is fair also to say that if the United States had collected less money in the form of taxes and had accumulated a correspond- ingly smaller sum of silver, the govern- ment issuing or permitting to be issued other paper money than silver notes, our India and Her Silver Rupee, 6 1 people would be better off than they ai'e now. If the exportation of merchandise could be facilitated by the Treasury's buy- ing an increased amount of silver per month, still, in the absence of any assur- ance that the Treasury can ever sell its silver, such buying, for such a purpose, would be foolhardy. I am told that " Some of the large Indian native bankers have been so disturbed by the late violent fluctuations in silver that they have begun to carry part of their reserve in gold." I do not know how far this custom extends, but I should think it likely to grow. CHAPTER IV. PRICES AND WAGES. The silver advocate may not be convinced that the cause of the fall in prices is an industrial progress hitherto unparalleled, although, if he would look in the direction of the facts, they would stare at him from every vast farm, every great factory, every fast or cheaply run steamship or railway train, and from every modernly managed industry. If he be obstinate on the subject of the cause of the decline in prices, then, what will he say to this bold statement ? — the decline itself has been a good thing for the world. Evidently, whatever may be said regarding the cause of the fall in prices, it will be folly to continue to com- plain, provided we can show that the fall has been, on the whole, beneficial. A fall in the price of an article is, gen- erally speaking, a benefit to the buyers and 62 Prices and Wages. 63 an injury to the sellers of that article. A fall in the prices of many articles is a bene- fit to many buyers and an injury to many sellers. In this limited view of the case one man's loss is another man's gain, and if the number of buyers and the number of sellers were equal, the whole community could neither gain nor lose by either a rise or a fall in prices, for the quantity of things bought necessarily equals the quantity of things sold. But it is not true that there are in any community as many sellers as there are buyers ; on the contrary, the buy- ers far outnumber the sellers, always and everywhere. Everybody is a buyer, but that great proportion of the people who (themselves and their families) have fixed incomes, who live by fees for professional services, who earn salaries, and who earn wages, are not sellers. And if a vast pro- portion of the population obtain money without selling anything but their time or labor, and if they pay out their money for all kinds of merchandise, then it follows that a fall in the prices of merchandise must benefit the vast majority. Now, this bene- 64 Money, Silver, and Finance. fit would not be so clear if it could be shown that incomes, fees, salaries, and wages had gone down with the prices of commodities. To the best of my knowledge, however, while incomes from investments have de- clined and rich people have had to be con- tent with smaller incomes, yet there is no proof that fees, salaries, and wages have de- clined at all. There is proof, indeed, that wages have advanced. Wage-earners and their families alone make up a majority of the people, and if wage-earners now receive more money than formerly, while everything the wage-earner buys can be bought for less money than formerly, how shall we escape from the conclusion that the wage-earners have been benefited by the decline in the prices of commodities ? And if the majority have been benefited, then how can it be contended that the fall in prices has been a bad thing ? Certainly many individuals and many communities have been hurt when other individuals and other communities have captured the form- er's industries, but the law of the survival of the fittest holds absolute sway, and it is Prices and Wages. 65 worse than useless to quarrel with it. We may offer sympathy to the unfortunate ones, but cannot help thinking that their misfortune is due to their inability to keep up with the lightning speed of the time. The world has not stepped backward, and the times cannot be far out of joint, when employers of laborers can afford to pay more for labor than ever before. The em- ployers of to-day do better for the com- munity than the employers of yesterday, both in selling goods at lower prices and in paying out more money to each of their employees, and while we should not under- value the sympathy which is due to those employers who have been beaten, yet we ought not to withhold congratulation from those employers who have succeeded. They, and the inventors and discoverers allied with them, have given the world its necessary articles and its luxuries at lower prices than ever before, and without redu- cing the sum annually paid to the work- men employed. The vital point in the silver question lies in the rate of earnings of laborers and of 66 Money, Silver, and Finance. all workmen, and it is strange that the House Committee on Coinage, Weights, and Measures, when reporting on the Sen- ate Silver Bill, should have touched so lightly upon this wage question. Even if we admit, for the sake of argument, what is plainly absurd, that prices have fallen because of " demonetization," yet if the fall in prices has not been accompanied by a fall in wages to at least so great an extent, then the fall in prices must in itself be accounted a good thing. That is to say, " demonetization," from the " silverite's " point of view, has been the means of enabling wage-earners to either live better or to save more than they could when they had to pay higher prices for eveiything — a major- ity of the community are better off than they used to be. And if wage-earners are well off, then also must be well off a large portion of the minority, for money paid in wages is at once returned through retail trade. However, the majority of the committee reporting against free coinage say nothing in their report about wages, while the mi- Prices and Wages. 67 nority, in favor of free coinage, content themselves with an if or two, and with some unwarranted assumptions, one of which is that labor organizations have been able to keep up the rates of wages for the past seventeen or eighteen years, and another that the number of unemployed persons is sufficiently large to offset the rate, it being, of course, true, as the minority say, that "the effect of an appreciating stand- ard of value can never be determined by considering merely the quantity of commodities which the laboring man who happens to ha/ve world can buy with his dollar when he gets itP Now, we may differ in opinion as to the power of labor organizations, but this point is not impor- tant, for no matter how the rate of wages has been maintained, if the rate has been maintained, then wage-earners have been benefited by the fall in prices. The ques- tion of the power of labor organizations does not enter into the subject. If wages have not fallen during the past seventeen or eighteen years, while prices of every- thing which the wage-earner buys have 68 Money, Silver, and Finance. fallen, then the wage-earner's gain is proved beyond question. Those who think that workmen have held up wages through the power of organization, may agree with others that the fact of wage-rates being high, while prices are low, is evidence that wage-earners have uo right to complain of " demonetization." So far as I know, the " silverites " have not yet claimed that labor could have been organized more effectively but for " demonetization " ! Without offering any proof, the minority of the committee assert : " We do know that during the last seventeen or eighteen years an unusually large number of men have been out of emj)loyment, both in Europe and America, and that the cry of hard times has been heard almost con- tinuously throughout the whole civilized world." And the minority say too : " It will be admitted by everybody that the laboring classes, as a whole, cannot be permanently prosperous in the face of general business depression. It will also be admitted, we presume, that the period extending from 1873 down to the present Prices and Wages. 69 time, has been one of very unusual depression all over the commercial world." I fear that the minority took advantage of the feeling of depression which actually existed at the time the report was made. This period extended from November, 1890, the date of the panic, to the fall of 1891, when our great crops were assured. If the minority were to use their language now, some people would be ready to say : "No. Times have been both bad and good since 1873; they were quite good from 1877 to the date of the shooting of Garfield in 1881, and to the occurrence of general drouth in that year, and were so good in 1879, that ' the boom of '79 ' was long talked about; 1886, 1887, 1889, and 1890 up to November were fairly good years, or not below the average ; and then in the fall of '91 plenty of people made lots of money." The minority should have proved their assertion, and probably would have done so, if possible, by showing that pauperism had increased, or that savings- bank deposits had decreased, for such evi- dence is necessary to bear out the bald 70 Money, Silver, and Finance. statement that tlie number of the unem- ployed has been unusually large. In another place the minority contradict themselves : " We may concede that since 1873 there has been a large increase in the production of the great staples of commerce ; but whatever tlie increase may have been the commodities have all been consumed. There is no accumulated surplus of wheat, or cotton or any other leading staple." What ! Depression with a large increase in production and no accumulation ? Who consumed the increased product ? Neces- sarily the working population. And how could the workmen have obtained the money to pay for the increased product except by being well employed ? The minority should have compared the statis- tics of the seventeen or eighteen years with the statistics of some other period of sev- enteen or eighteen years, or rather the minority should have compared the dozen years following January 1, 1879, the date of specie resumption, with another period of a dozen years, for between 1873 and 1879 the cheapening of silver caused silver Prices and Wages. 7 1 coins to circulate, to some extent, alongside of our paper money, and up to 1879, there- fore, the declining price of silver operated to augment our total circulation. The panics of '37, '57, and '73 are wholly un- connected with the silver question, and so are the years of depression which naturally followed each of these panics, except- ing that amelioration may have come from cheap silver after 1873. Were not '37, and '57 and '73 as severe as anything since experienced ? Since the time when " demonetization " was first noticed (years after 1873), what years have been mypre- cedentedly prolific of disaster ? The minority have lengthened the string of unsupported assertions which make a basis for the silver theory : " Demonetiza- tion " caused the decline in silver ; the decline in all prices necessarily followed; the fall in prices has been accompanied by business depression ; business depression keeps an unusually large number of men out of employment, although, strange to say, those who do find it are paid good rates ; and a large increase in the product of the 72 Money, Silver, and Finance. staple articles Has, somehow or other, been consumed without anybody's being able to see how in the world the consumers have been able to pay for this product. The truth is, that since 1872 the population of the world has been better fed, better clothed, and better sheltered than in any previous time. One of this same minority has lately been showing how particularly well off now are the miners in a commu- nity with which he is familiar. I take this illustration, because the " silverites " cannot question the authority, and be- cause the illustration shows in a most admirable manner that the price of a product may decline thirty per cent. %oith- out affecting the prosperity of the worhmen engaged in producing the article. If the decline in the market price of silver has not worked harm to silver miners, how can this decline have worked harm to laborers in any industry ? Here is the charming picture of a happy community, drawn by the Hon. Horace F. Bartine of Nevada, the famous silver advocate. I quote from his letter to the Engineering Prices and Wages. 73 and Mining Journal, issue of October 24, 1891: " Every miner in the employ of John P. Jones, or any other mine owner, either in Virginia City or Gold Hill, is paid |4 a day for eight hours' work. Men working above ground receive from $3.50 to $4. There is no departure from these rates. "With one day's wages the miner can buy 100 lbs. of the best flour in the world ; or 7 bushels of the finest potatoes ever grown ; or 32 lbs. of choice beef ; or 32 lbs. of prime butter, and almost everything else in proportion. With the product of a month's labor he can pay his board at a first-class restaurant and have $94 left. " I ask you in all candor how that com- pares with the condition of the miner or the factory hand in New York or Pennsyl- vania, where the employers generally ex- press so much horror and indignation at the thought of the laboring man being paid in ' 80-cent dollars ' ? " The Comstock miner thinks nothing of spending $50 for a day's amusement at a picnic. This may not be suggestive of 74 Money, Silver, and Finance. rigid economy, but it certainly does not show that he is being shamefully wronged by his employer. There are, no doubt, some poor people there — sickness and mis- fortune invade every community. " Attracted by the high wage-rate, more men go there than can find employment ; but that is not the fault of the mine owners. They employ as many as they need, and those who obtain work are the best paid, best fed, best clothed, and most thoroughly independent class of workingmen to be found on the American continent, or on the surface of the globe." And yet, Mr. Bartine, you and your friends would change all this ! The low prices (excepting for picnics), which enable' workmen to obtain all they need for less money than they can easily earn, you would change to high prices, so that, for instance, the miner shall be unable to save the " $94," or be unable ever to go on picnics at all. And Mr. Jones and other mine owners, whose business is so prosperous that they can afford to pay $3.50 to $4 for eight hours' work, want the United States Prices and Wages. 75 to pay thirty per cent, more for silver than any other government 'will give for it, so that the prosperity of Mr. Jones and other mine owners shall be further enhanced ! Yes, Mr. Bartine and Mr. Jones, silver- mine owners do pay better wages than other employers can afford to pay ; but don't you think that mine owners and their miners already have a fair share of the country's good things I What ground have you for asking the government to continue piling up silver in its vaults at the expense of the whole tax-paying public ? And, Mr. Bartine, Avere you thinking of a section of the country with which you are less famil- iar, when, eight months before you wrote the lines above quoted, you helped to make out the minority report and agreed to these words ? — " Any argument based upon the assumed fact that the present condition is favorable to the wage-worker, because he can buy more commodities with his daily wage, is utterly fallacious, and fails to reach the heart of the question." It is ti'ue you fol- low with the irrelevant remark about labor 76 Money, Silver, and Finance. organizations ; but have you drawn a cor- rect picture of the prosperity of Virginia City and Gold Hill, or is it merely an "assumed fact that the present condition is favorable to the wage-worker " ? Can wage-workers there obtain such a quantity of the necessaries of life " with one day's wages," or can they not ? Can a miner save " $94 " in a month, or is this "utterly fallacious " ? Or will Mr. Bartine and his friends produce a new picture of real pros- perity, according to their own ideas ; not a picture of what is commonly known as prosperity — say, high wages, low cost of living, and all that — but something unique and suitable to the silver question ? Corroborative of Mr. Bartine's ideas, when he was writing about the miners, is the following portion of an editorial in the Engineering and Minvng Jmirnal of Octo- ber 10, 1891 : " From all indications the production of silver in this country will be considerably greater this year than in 1890. Never before has there been so much activity in all the silver-mining caraps of the West as Prices and Wages. jy at present, and this is beginning to show in the greater output of ore. The lead- smelters of Denver and Pueblo are pressed to the limit of their capacity to reduce the ore of this class which is offered, and there has even been some talk of the erection of new works at the latter place. The pro- duction of lead ore has not, apparentl)-, increased, but the smelters are running their furnaces on low lead charges, and are thus handling the greater volume of dry ores. "The general prosperity in the silver- mining industry throughout the West is particularly noticeable, in view of the general business depression which has made itself felt throughout the past year in almost all branches of industry in the East." It appears from this that the mining industry was in so good a position that the panic of 1890 had little or no effect upon it. That panic affected many other indus- tries, but it is too early yet to tell whether the injury has been wholly overcome by the great crops of 1891. I do not know, 78 Money, Silver, and Finance. however, that among the injured industries there has been any important reduction in the average rate of wages, or that there has been anywhere an important increase in the number of unemploj'^ed workmen. The silver-mining industry is in an exceptionally good position, but if industries generally had been suffering from "seventeen or eighteen years" of depression, as "silverites" charge, then these industries would have had no strength left to withstand the panic of 1890 , our daily papers would have been filled with accounts of wholesale reductions in wages, and wholesale discharges of work- men, and accounts of numerous failures everywhere. From whatever cause, or in spite of any cause, the industries of this country are certainly in a fairly sound con- dition. The decline in prices is the only evidence that we have had " seventeen or eighteen years" of depression, but the de- cline has been caused by natural industrial development, and the decline in prices has been accompanied by an enormous increase in consumption, an increase impossible whenever there is real depression. During Prices and Wages. 79 these years of so-called depression the wage- earner generally has been well employed, as proved by his ability to purchase and con- sume, and to-day he appears to be best employed in what should be our most de- pressed industry, the silver industry itself. CHAPTER y. PRICES, WAGES, AND LABOE-SAVING JIACHINEEY. Keeping our attention upon the silver industry a moment longer, let us see how it is that the price of silver could have gone down without the decline's putting down the wages of silver miners. Mr. William H. Beck, a gentleman connected with the mining interests of Montana, tes- tified before the committee as follows : "In my observation in the far West, I see causes there that I think are tending very much to depreciate the value of silver. When I went to Montana, in 1886, it cost us to transport our ores from Dillon to Omaha $24 per ton. That transportation now costs $10 a ton. It cost us then to treat the ores $17 a ton. Now it costs $8 and $10. Mining powder cost us 50 and 60 cents a pound. We can buy it now for 8o Labor- Saving Machinery. 8i 20 and 22 cents a pound. It cost us then to board a man $1 a day and more. We can do it now for a less sum. Machinery is better, and improvements in mining ma- chinery are being continually made. Con- centration of ores is extending very largely. Many of our ores that were considered of no value a few years ago are now quite profitable. "When I first went to Colorado, in 1878, the superintendent of a silver mill at Georgetown told me that he could not afford to treat ores that assayed less than $20 to the ton. By concentration, ores can now be profitably handled that yield as low as $5 a ton. By using scientific processes of treatment, low-grade ores, running 2 or 3 ounces of silver and 3 or 4 or 5 per cent, in lead, will yield a good profit. In 1889 I went to Patricroft, about 15 miles from Manchester, England, and spoke with the owner of a large smelter located at that place. He showed me a lot of ores, and finally some slag, which he stated worried him, as he would have to melt it over again. He said that it carried 1 ounce 8 2 Money, Silver, and Finance. of silver to the ton. I said, ' Can you de- rive any profit from melting that down for 1 ounce of silver ? ' and he said, ' Yes, there is a small profit.' What an immense field there is when you can handle cheaply low- grade ores," It should be noticed that Mr. Beck says nothing about any reduction in the rate of wages paid to silver miners. Apparently there has been no reduction, and certainly, there was no necessity for a reduction in wages. The decline in the cost of mining silver is accounted for in the same way that we have to account for the decline in the cost of producing other articles — gen- eral improvement in processes. The lower cost means neither lower profits nor lower wages, nor is there in the lower cost anv evidence of hard times. If the minority of the committee could have shown that silver- mining has become unprofitable, that wages have been reduced, or that miners are unable to find employment, the minority would have done so. In the absence of further evidence it is fair to say that the silver- mining industry itself denies the statement Labor- Saving Machinery. 83 that we have passed through " seventeen or eighteen years " of business depression. Hon. Joseph H. Walker, of Massachu- setts, a member of the majority of the com- mittee, in cross-examining Mr. Francis G. Newlands, of Nevada, said : " I hand you this table of prices, in bushels of grain, as an answer to your as- sertion that the farmers are suffering from a depression of prices. This shows that their products, bushel for bushel, will buy more than ever before " : Prices agreed upon by Messrs. Kingsland &> Douglas, successors of Kingsland, Fergeson, &' Co., Sim- mons Hardware Co77ipany, and Mansur &' Tibbetts Implement Company, all of St. Louis, Mo. Money in— 1889, in bushels of— 1873, in bushels of— 1889. 1873. Wheat. Corn. Oats. Wheat. Corn. Oats. One-horse steel plow (wood beam) Two -horse steel plow (wood beam) One - horse iron plow (wood beam) Two -horse iron plow (wood beam) Two -horse side hill or reversible plow One potato digger. Old-fashioned tooth harrow . One-horse culti- vator Two - horse corn cultivator . . . $2.75 12.00 2.00 8.00 10.00 7-50 6.5c 3-5° 1 5. CO $650 20. cc 5-00 13.00 18.00 20.00 15.00 7.00 28.00 3.8 16.4 2.7 10. g 13 7 10,2 8,9 4-7 50.5 8.S 37-S 6.2 23.0 31.2 23.4 20.3 10.9 46.8 II. 5 50.0 8.3 33.3 41-7 31.2 27.0 14.5 62.5 6.4 19.6 4-9 12,7 17.6 19.0 14.7 6.8 27.4 19.1 S8.8 14.7 38.2 52.9 S8.8 44.1 20.5 82.4 27.0 83.3 20.8 54-1 75.0 83.3 62.5 29.1 116.6 84 Money, Silver, and Finance. Money in- 1889, in bushels of— 1873, in bushels of— Implements. 1889. 1873. Wheat. Corn. Oats Wheat. Corn. Oats. One-horse mowing machine. . . , 45-'^o 85.00 616 140.6 187.5 83-3 250.0 354- r Two-horse mow- ing machine . . 50.00 90.00 68.5 156.2 20B.3 S8.2 264.7 37S-0 Horse rake (sulky) 20.00 30.00 27.4 6^,5 83.3 29.4 88.2 ^25.0 Common Hunt rake (horse) . . 3-50 6.50 4.8 10.9 M-S 6.3 19.1 27.0 Common iron gar- den rake (lo-tooth steel) (dozen) . , One-horse horse- 3-75 12.00 5-1 11.7 15.6 11.7 35-2 500 power . . . . 25.00 45.00 34-2 78.1 104. I 44.1 132.3 187.5 Two-horse horse- power. . . . 35-00 65.00 (*) (•) (*) (*) (*) (*) Reaper . . . . 75.00 95.00 (*) (*) (*) (•) Binder. . . . 135.00 184.9 421.8 562.5 '277.7 I769.2 •S57-I Cornsheller (one hole) 6.00 11.5c 8.2 18.7 25.0 II. 2 33-8 47-9 Fanning mill . . 15.00 25.C0 20.5 46.8 62.5 24-5 73-5 IC4.1 Common hose (cast steel socket), per dozen 3-50 6.50 4-7 10.9 14.S 6.3 19.1 27.0 Common rakes (wood), per dozen 2.00 3.00 2.4 6.2 8.3 2.9 8.8 12.5 Scythes (Ames's grass), per dozen. 7-50 16.00 10.2 23.4 31.2 15-7 47.0 66.6 Scythes (Ames's grass), per dozen. 9-50 21.00 (*) (*) (•) (*) (*) (*) Scythe snaths (pa- tent), per dozen . 4-50 11.00 6.1 J4.0 18.7 10.8 32.3 45.8 Shovel (Ames), per dozen .... 9-50 18.00 13-0 29,6 39-5 17.6 52.9 75.0 Spades (Ames), per dozen . . . 10.00 18.50 13-7 31.2 41.6 18.1 54.4 27.0 Crowbars (steel) .06 — (*) C») (•) t*) C*) (*) Crowbars (iron) ■05 .10 .06 ..5 .2 .09 .29 .46 It will be observed that there is not in these figures any ground for asserting that farmers cannot afford to pay as much money to their workmen as in 1873. The following tables also were sub- mitted by Mr. Walker : • For 1880. Labor- Saving Machinery, 85 Wages in i860 and in 1885 in dollars and in weight of gold and in grains. Wag esin WaK=s in Grains dollars. grains of gold. of gold i860. .885. 1S60. 1883. age of increase Factory hands : Dyers .... S0.62 $1.00 16.0 25.7 61 Giggers .... .62 .82 16.0 21. 1 32 Shearers .6q 1. 00 17.8 2,.8 45 Plain weavers .6=^ M 16.7 21.8 3> Spinners l.IO 1.26 28.3 32.5 IS Miscellaneous : Leather factory beam an d yard hands 1. 10 1.67 31.0 43.0 39 Leather factory whitene rs and skivers 1.8, 2.7s 47.2 70.8 50 Common laborers . 1. 00 1.50 2,.b 38.7 5° Blacksmiths . 1.50 2.00 38.7 ,1.6 33 Blacksmiths' strikers . 1. 00 1.50 2S.S 27.0 50 Carpenters 1.67 2.00 43.0 ,1.0 20 Machinists "•75 2.2s 45 I 57-7 28 Locomotive engineers . 2.40 3.20 62.0 82.4 33 Locomotive firemen 1.20 I-7S 31.0 45-2 46 Average percentage of inc rease in weight of gold 38 Wages in i860 and 1885 in current money and in grains of fine silver. Wages in Percent- grains of fine age of in- Wages in i860. Wages in 1885. silver in— crease of wages in grains of fine silver i860. 1883. since iS6o Dyers $0.62 $1.00 255-7 515-6 101.6 Giegers .62 .82 2S5-7 422.8 65.3 Shearers .bp 1. 00 284.6 515.6 82.0 Plain weavers .6s .8, 268.1 4382 63.4 Spinners 1. 10 1.26 453-7 649.6 43-1 Leather factory beam and yard hands 1.20 1.67 4950 861. 1 74-9 Leather factory, whiteners and skivers . , . . 1.83 2.75 754-9 1,418.2 87.8 Common laborers . . . . 1. 00 J. 50 412-5 7724 87.4 Blacksmiths 1.50 2 00 618.7 1,031.2 66.6 Blacksmiths' strikers 1. 00 1.50 412 5 773 4 874 Carpenters 1.67 2.00 688.9 1,031.2 52-5 Machinists .... ■•75 2.25 721.9 1,1600 r.i Locomotive engineers 2.40 320 990.0 1,650.0 66.6 Locomotive firemen. r.2o 1-75 495-0 902.4 82.3 Average increase of wages received in ounces of fine silver over ounces receivt-d in i860 is 63 per cent. 86 Money, Silver, and Finance. It should be remembered that general business was not more active in 1885 than in 1860, allowing for the fact that the in- dustries of the country ^^^ere upon a far more advanced plane in 1885 than in 1860. Mr. Edward Atkinson, of Boston, the eminent writer and statistician, testified : "Prices have gone down, it is true; but if they had not, consumers would not have shared the benefit of the vast im- provements and inventions which have been applied in the last twenty-five years — greater during the last twenty-five years, especially in the processes of agriculture, than ever before. The wage of labor is now higher than at the highest period of inflation in 1865, and the workman can. buy a great deal more food, fuel, clothing, and shelter for each dollar." I take pleasure in recommending, here, to the reader' who is interested in the phenomenon ■ — decline in prices^ advance in wages, — Mr. Atkinson's The Industrial Progress of the Nation. In the chapter, Progress from Poverty, Mr. Atkinson backs up with sta- tistics this remark : Labor- Saving Machinery. 87 " It may be apparent from the data that I have submitted, that this period of steady- reduction in prices since the end of the Civil War has been in fact a period of the greatest progress in material welfare ever witnessed in this or in any other country. The temporary difficulties, local distress, and congestion of labor, limited mainly to some of our great cities, have been mere incidents in the adjustment of society to new conditions of an assured abundance, such as were never before achieved. It has happened that there has been tempor- aiy want in the midst of general plenty and welfare ; but this want has been lim- ited to a very few conspicuous points, where it has perhaps attracted more atten- tion than its proportion called for." I might continue to offer authorities and evidence concerning the advance in wages and the decline in prices which have marked the past quarter of a century. I do not think, however, that further argu- ment on the question of fact can be needed. It may be asked, though : If prices have been put down by the use, largely, of labor- 88 Money, Silver, and Finance. saving machines, how is it that the rates of labor have not gone down ; how is it that a machine which enables the employer to accomplish as much with ten men, for instance, as he formerly could with twenty men, does not neces- sarily cause ten men to be thrown out of employment, and so help to reduce the average rate of wages ? The assumption that a machine which saves labor necessarily throws laborei's out of employment has been the cause of the destruction of machines by mob- violence, at different times, in most parts of the world, the extent of destruc- tion being in proportion to the prevalence of ignorance. It is an unquestionable fact, however, that the average rate of wages is highest to-day in those countries which most generally use labor-saving machines. Of course a high wage-rate stimulates the invention of labor-saving machinery, but as a matter of fact, not mere theory, labor- saving machinery does not reduce wage- rates. Let us look more closely into this subject, first considering the value of a Labor-Saving Machinery. 89 mau's time when using a machine, compared to the value when not using a machine. The difference will show that an employer who has machinery can afford to pay more money to each one of his workmen than an employer who has not the machinery can afford to pay, other things being equal. In 1888 I had an opportunity to observe the harvesting of grain in many parts of France and Germany, and I am sure that next to picturesqueness the most striking feature of the long lines of blue-bloused peasants working with scythes and sickles is the enormous Avaste of time or labor. What a hundred men and women were accomplishing in a day could have been ac- complished by about ten men, assisted by mowing and reaping machines. Actually, in America, ten men were harvesting as much grain in a day as one hundred men and women were harvesting in France or Germany. Or to put the case more in ex- act accord with the facts, the harvesting of the grain on one thousand acres of land in our far West requires no greater number of hands than the harvesting of the grain on go Money, Silver, and Finance. one hundred acres of land in France or Germany. Making due allowance for the cost of machinery, there can be no question that the American farmer can afEord to pay more money to each one of his workmen than the foreigner can afford to pay to each one of his workmen. These different- ly situated farmers obtain similar sums of money for their crops per acre, and each farmer can afford to pay out from his re- ceipts a similar portion for labor, but in one case that portion, less the cost of using machinery, is divided among ten per- sons, while in the other case that portion must be divided among one hundred per- sons.' The invention and use of agricult- ural machinery, then, enables farmers in America to pay high rates to individual workmen because more work can be done in a given time with machines than without them. In other words a labor-saving machine multiplies the value of the indi- vidual laborer. And the fact that a farmer ' The proportion of ten to one hundred is not supposed to be perfectly accurate, the intention being to show merely that a few Americans do as much work, in a given time, as is done by many Frenchmen or Germans. Labor- Saving Machinery. 91 cau afford to pay high wage-rates (compared with European, rates) makes it necessary that he shall actually pay high rates, for the value of a man's labor is not wholly unknown to himself, and the farm-owning class is being continually recruited from the farm-labor- ing class. There is competition among farmers for laborers, and there is a desire on the part of the laborers to better their condition. An upward step is more easily taken here than abroad, and to keep labor- ers in the laboring class the American farmer must offer inducements. The upward step is not so easily taken where the laborer must step into the ownership of a very large farm, instead of into the ownership of a small farm. But large farms need many men who have both judgment and muscle, and the most capable become farm-owners. Certainly the extensive use of agricultural machinery enables American farmers to pay — and forces them to pay — higher wages than European farmers are able to pay, or are obliged to pay. The words can and must are nearly interchangeable in this re- gard. 92 Money, Silver, and Finance. In Italy, I saw people treading on the grapes in order to press out the juice. Could you pay as much money to each one of twenty men, employed in this way, as you could pay to each, of two or three men using a modern press? In the factories everywhere on the Con- tinent you see a similar lack of facilities for obtaining good results from the use of labor; and everywhere labor is poorly paid, because the results do not enable em- 2)loyers to pay high I'ates. You cannot pay money for wages except you receive money from the sale of your product, and you can receive money from the sale of your product only, as a rule, in competition with other producers. You can use for labor as much of your receipts as your competitors can use, but they can afford to pay to each workman more than you can pay to each workman, if their workmen accomplish more, individually, than your workmen accomplish. We must not Jump to the conclusion that the rate of wages should be, for in- stance, five times as high in the place where Labor- Saving Machinery. 93 ten men work as in the place where fifty men work, to accomplish similar results. A portion of the difference goes to capital, in the way of higher interest ; a portion goes for higher rent, a portion for higher profits, a portion for higher salaries, and a portion may go to the inventor of a machine. Then the apparent difference is partly wiped out by a reduction in the price of the product, but the workman can and does obtain a fair share of the benefit derived from using labor-saving ma- chinery. Let me try to illustrate. A labor-saving machine — one which promises to enable ten men to do what fifty men are in the habit of doing — is brought to the attention of the proprietors of a large manufactory. Careful investigation leads to the purchase, the managers of the works being fully convinced that this particular machine will prove valuable, although somewhat similar machines have proved "expensive luxu- ries." " Now, whom shall we trust to run the thing?" 94 Money, Silver, and Finance. " Well, Bill Smith is a bright young fellow, and I think John can fill Bill's place." "AH right. John will have to have an advance to Bill's rate of wages, and we shall have to advance Bill too." "Yes. Call Bill in." " Bill, do you think you can work that new machine we have been setting up ? " " Gruess I can, sir ; can try, anyhow." " Oh, of course, but while you are only trying you may be spoiling the goods." " Well, I '11 make her go after a bit." "All right, Bill, you won't be any longer learning than anybody else. Look the thing over and get all the points from the inventor. He '11 be in, himself in the morning." "Yes, sir." " And say, Bill, your wages will be just the same for the present, because we have to run the risk of spoiling the goods, but if you can make her go in style, we '11 give you an advance." The machine proves to be all that was expected. Bill Smith receives a higher Labor- Saving Machinery. 95 rate of wages. John, ditto, and nine men, taken from other parts of the works to help Bill, are advanced a little also. But if ten men are now to do as much as fifty men did, what becomes of the forty men who were discharged ? "Well, the assump- tion that they were discharged is merely an assumption based, perhaps, upon an- other assumption that this manufactory is to produce a certain quantity of goods and no more. On the contrary, however, a few additional men may be employed. The new position of this manufactory, in the struggle with competing manufac- tories, cannot be described as one where less money is given to individual workmen or to the whole working force : the posi- tion attained by progressive management means more money to workmen, but still greater results from the expenditure, these overbalancing the enhanced wage-rate; the new position means the ability to put more goods on the market, and at a reduced cost ; and generally, it means a reduction in the selling price of the goods, in order to broaden the market for them. I think 96 Money, Silver, and Finance. this a fair illustration of the way labor- saving machines augment production and necessitate reductions in prices, in order to make possible the sale of the increased product, and both of these without causing wages to be lowered. Reductions in the force of help in a factory because of the introduction of a labor-saving machine are not unknown, but I believe such cases are exceptional. Reductions in the force of help in a factory because competing factories have introduced labor-saving machinery are more common ; and, in the factories which are forced into a secondary place, there may be both a reduction in the number of hands and a reduction in the rate of wages, but an important distinction should be noticed. The progressive factory has taken steps which lead toward the absorp- tion of the non-progressive factory's busi- ness, and in time the progressive factory, assisted by other labor-saving machines, may Veach the point where it will employ most of the skilful workmen in its line, pay higher wages than other factories, turn Labor- Saving Machinery. 97 out more goods, turn out goods of better quality, and be able to sell goods at a profit while other factories are getting no profit or, perhaps, are making a loss. Both in farming and in manufacturing success is achieved by the use of high- priced laborers, such as are able to work with machinery, and in this way the mar- ket prices of almost everything are reduced. Scarcely ever does an employer reduce his wage-rate in order to lower the prices of his product. That would be working backward. If obliged by competition to reduce his wage-rate it M^ould be as a last resort, for he knows that dissatisfaction among his men may result in cutting down his product of goods and in losing his best men. If beaten by competitors, he must adopt their ways, or find out still better ways for himself. He may increase his product, and by so doing make just as much money, but with a lower percentage of profit ; he may buy materials to better advantage ; he may stop waste ; he may be satisfied with a lower rate of dividend or interest or profit ; he may twist and turn 98 Money, Silver, and Finance. about in every conceivable way to put himself on the level of his competitors, but, generally speaking, if he reduce his vpage-rate or the number of his workmen he will jump from the frying-pan into the fire. The natural road to low cost, and, therefore, the ability to sell at low prices, is through machinery and high wages. In some countries the traditional j)enny a day is still the rate of wages, and in those countries, doubtless, this little sum may be as much as employers can afford to pay, for employers who have the benefit of this nominally cheap labor are not beating employers elsewhere, except as helped by climatic peculiarities. The rate of wages per day is of no importance to employers ; the rate of wages, or the sum paid in wages, in proportion to results, is all- important. But even if successful employers do pay high wages, still, do not labor-saving machines take the place of some laborers, considering the country as a whole ? A small number of men accomplish as much as formerly was accomplished by a lai-ge Labor- Saving Machinery. 99 nuijiber. "Where are these now useless men ? Again we have an assumption to deal with. Instead of a small number of men now doing what a large number used to do, a larger number of men are doing much more than the increase in number would indicate. The cheapening of goods by the use of machinery has brought more and more goods, in greater variety, within the reach of a constantly growing number of buyers, extending over vast territories, and continually advancing in power to buy and in desire to consume. Who now is satis- fled with only so much as satisfied his father ? Who cannot see that the luxuries of yesterday are the necessities of to-day ? Progress means an ever increasing demand for new goods and more goods and an ever increasing ability to obtain them. And no class in the community is so sure to be benefited by a progressive industrial movement as is the wage-earning class, for not only is it natural that prices should go down, but it is natural that wages should go up. And this is merely showing that the theory of progress agrees v/ith the facts I oo Money, Silver, and Finance. as we know them. How absurd, then, it is to charge that " demonetization " has put prices down, and what folly it is to talk of the community's having been injured by adverse silver legislation ! CHAPTER VI. All popular movements for cheap money or to make money more plentiful are strengthened by a good-natured desire to help along the debtors, — and it is commonly supposed that a large proportion of the community belong to this class. Therefore, if it were made clear to the people that debtors, properly so-called, are not com- paratively numerous, and also that a pro- cess of money-cheapening would not be likely to help them, we should have little cause to fear the enacting of bad financial measures. These would be too unpopular to obtain the sanction of law. The greater number of people in this coun- try, as in every country, are wage- or salary- earners, and all of them are creditors, for the simple reason that they are not paid in advance. You give your time and labor I02 Money, Silver, and Finance. to your employer, and only after the debt to you lias accrued for a specified time are you paid off. Your interest lies in receiv- ing the more valuable kind of money, ■where two kinds circulate. If you have been thrifty and have a credit at the sav- ings-bank, this sum too you want payable in the better money ; you cannot be bene- fited by a law which would compel savings- banks to receive depreciated money in settlement of mortgages, and therefore necessarily permit the payment of depre- ciated money, by savings-banks, to you. If you have no money saved up, but are in the habit of living from hand to mouth, still it cannot help you to receive your wages in inferior money just for the pur- pose of handing over this kind to the butcher and the grocer. Indeed, may not the talk of cheap money lead these men into trying to charge you more for the necessaries of life, even if a financial dis- turbance should prevent the wholesale butchers and grocers from advancing their prices ? If prices should advance because of free coinage, as "silverites" expect, most " The Debtor Class." 103 assuredly wages will be a long way behind in the upward movement. The crisis in financial affairs would have the effect of injuring the industries of the nation ; and at the same moment of time you might possibly witness an attempt to advance the average of prices, particularly retail prices, and an attempt to reduce the average rate of wages. Of course there would come about an approximate adjustment of the relation between prices and wages, but if prices should go up they would move much faster than wages would move. Prices could go up a little without any accom- panying or following advance in wages. Most certainly, therefore, clerks and labor- ers cannot be classed with those debtors who are supposed to be in need of cheaper money, and if we leave wage- or salary- earners and their families out of account, we are compelled to search among the minority of the population for the future beneficiaries of cheap money. Of course the greatest borrowers, and therefore the greatest debtors, are the na- tional, state, and municipal governments, I04 Money, Silver, and Finance. but we need waste no time on them, for nobody wants them to pay debts in silver and to collect taxes in gold. And sympathy is not asked foi- the banking, railway, and industrial corpora- tions which stagger under millions and millions of debt, the managing financiers having made no sign that relief is sought in cheaper money. On the contrary, these officers dread as their most dangerous foes any disturbers of confidence in the stability of the general financial situation. Many merchants are chronic borrowers, but the smallest possible percentage of them are insolvent. Nearly all have in merchandise and in credits a sum larger than the total of their debts. There can be no advantage in selling the stock on hand for silver only instead of for good money, nor in collecting the outstanding claims in the inferior metal. Particularly sensitive also are debtor merchants to monetary derangements. Some farmers and planters, however, have been loud in their demands for un- limited coinage of silver. Possibly it is " The Debtor Class." 105 thought that the difficulties which from time immemorial have beset the paying of interest on mortgages and the making of both ends to meet, would be lessened if more money were in circulation, and that it would be easy to pay off mortgages if government should supply a plenty of sil- ver. But excepting the proposition to lend directly to needy land-owners, a prop- osition to be defeated by the vote of every- body else, no one has found a channel through which silver can be made to flow from the national treasury into the pockets of the men who most loudly demand it. Bankruptcy laws are provided for the benefit of insolvent debtors, enabling them to make new starts in life. Free coinage is advocated for the benefit of debtors gener- ally, but where is there a solvent debtor who would not insist that he should be classed among creditors or among property- owners, rather than among debtors ? A owns a farm and stock worth $15,000, and mortgaged for $10,000 ; B has a business, the balance-sheet of which, on one side, shows merchandise on hand worth $15,000, io6 Money, Silver, and Finance. and on the other, debts amounting to $10,000; C has credits for $15,000, and debts for $10,000. In a short space of time, and in the ordinary course of events, each one of these individuals may so change his position as to have $5,000 in the bank, and be free of all debt. Before the change is made, will you insist that A belongs to " the debtor class," and that B or C does not ? Alter the figures as you like, keeping the balance on the right side so that you do not bring in the insolvent debtors, and you will find that every debtor is more properly a creditor or a property-owner than a debtor. Search where you will, and yet you cannot find a "Debtor Class." Gold bullion, gold money, silver money, and paper money, ai'e each of them worth about thirty per cent, more than silver hullion is worth ; but it is not proposed that A, B, and C shall be permitted to collect in, or to sell for, gold bullion, gold money, silver money, and paper money, and be permitted at the same time to pay off debts in silver hullion. If sales or col- " The Debtor Class." 107 lections could be made for or in one of the four more valuable things, and at the same time debts be paid otf with the less valu- able thing, then debtors would be benefited, excepting that most debtors would be obliged first to collect in the less valuable thing in order to obtain the means of making their own payments. Carrying this absurdity a little farther, and referring to the A, B, and C already introduced, we may see that a law which should permit the payment of debts in silver htdlion might possibly enable A to pay off $10,000 of debt with only about $7,700 of real money ; enable B to do as well ; but compel C to lose about $1,150, for C, instead of having a balance of $5,000 in money, would have a balance of $5,000 in silver hullion, worth only $3,850. Absurd as would be a proposition to benefit some debtors in this way, it becomes more ridiculous if you stop to consider that neither A nor B would be likely to be really benefited, for each one, in order to obtain the means for pay- ing his debts, would be obliged to sell his farm or his merchandise for silver hulUooi, io8 Money, Silver, and Finance. for if people could pay debts with silver hullion, most people would use it when buying farms or merchandise. A, B, and C, of course, would all suffer from the financial disturbance, due to the passage of such a foolish law. This is not the proposed law, but the idea is to benefit debtors by making silver bullion worth about thirty per cent, more than it is now worth, or by bringing the purchasing power of money down to the purchasing power of silver bullion, or, what is the same thing, advancing prices about thirty per cent. It is claimed, for instance, that A's farm, which is now worth $15,000, ■can be made to be worth, say $19,000 to $20,000, and that the mortgage of $10,000 will then represent about one half instead of, as at present, two thirds of the value of the farm. B, it is claimed, would be able to sell his merchandise for $19,000 to $20,000, instead of for $15,000, and be able to realize a balance of $9,000 to $10,000, instead of $5,000. C, being so unfortunate as to have all his assets in credits, would be obliged to lose something like $1,150 " The Debtor Class." 109 in tlie purchasing power of his $5,000 balance. B is the merchant or store-keeper, and if free coinage should advance prices he would obtain more for his stock of goods, but the money which he would accumulate would be worth less than money is now worth. In all probability, however, the financial disturbance would interfere with the free selling of merchandise. Banks would not so willingly lend money, because of the necessity to take depreciated, or further depreciated money, in settlement of loans, and if we reflect upon the enormous power of banking facilities in the making of prices, we shall see that our merchants and store-keepers are not in the way to be benefited by any cheapening of money, and this is true, whether our friend B or our friend C be considered typical "debtors." And certainly any benefit derived by either A or B would disappear if he should be in a similar situation when the United States should endeavor to return to the gold basis. Any good results possible to A or B from reducing the value of money would be 1 1 o Money, Silver, and Finance. matched by bad results to the A or B of the future, for the United States would as surely try to get back to the gold basis, as it did try to get back to that basis from the paper basis of 1862-1879. Farmer A is the only " debtor " who is at all likely to be benefited by money- cheapening, and even he is not likely to be benefited unless his mortgage have some years to run. Promptness in the monetary change and avoidance of financial disturb- ance are requisite to enable most debtors to reap any benefit, but farmer A could hope that during the years which his mort- gage has to run, the country would over- come the financial shock ; and that his farm would be salable for $19,000 or $20,000, when his mortgage of $10,000 should fall due. If it should become clear before the mortgage falls due, that we are drifting upon a sih^er basis, then in re- newing the mortgage farmer A would be obliged to agree to a " gold clause " in the contract, forcing him to pay gold or its equivalent in settlement of the mortgage. When we shall arrive at the time for the " The Debtor Class." 1 1 1 enacting of a free-coinage law, the number of farmer A's that could possibly reap a benefit from the law will be very small. Mortgagees may be trusted to take care of themselves, if given a reasonable time to do so. Failure to notice that debtors and credi- tors are generally the same people, has led nations into adopting measures for the benefit of the former at the expense of the latter. Trade has been checked, borrowers have been prevented from obtaining new loans, and the uniform result of such un- wise measures has been injury to nearly everybody. And to-day, in so far as the danger of our slipping off the gold basis is thought to be real, both European and American capitalists are avoiding long- time American loans or are insisting upon the "gold-clause" in long-time contracts. The industries of the country have already suffered enormously, because investors fear financial disturbance and because money- lenders and capitalists do not feel sure that borrowers will be able to return as good money as they wish to borrow ; and, I 1 1 2 Money, Silver, and Finance. have no doubt that farmer A's farm is worth, to-day, somewhat less than it would be worth if farm-buyers were fully assured that the valuable kind of money, which must now be used in purchasing a farm, could be obtained, when selling a farm, some years hence. Undoubtedly there are individuals who stand ready to profit by the unlimited issue of silver money or paper money, but of these individuals few are debtors and the total number is small. The mass of the people are always in position to be injured by any governmental folly, and have al- ready been greatly injured by the mere talk or prospect of free coinage. I do not consider it necessary to say that only dishonest people would favor the benefiting of debtors at the expense of creditors. Those people may have never considered the real composition of the so- called " debtor class,'' and may never think of debtors excepting as down-trodden indi- viduals, although naturally debtors must be, as a rule, persons who are so fortunate so to possess standing or credit in the com- " The Debtor Class." 1 13 munity. Then there are people who be- lieve that " demonetization " took place ; that the government thereby put prices down ; that the fall in prices was more harmful than beneficial ; and therefore that the government' is able and ought to put prices up again. Lack of familiarity with the facts and with the actual work- ings and actual conditions of trade and finance does not imply lack of honesty. CHAPTER VII. " THE BALANCE OF TRADE." FOREIGN EXCHANGE. Trade is said to be " favorable " wben the country's exports of merchandise ex- ceed the imports. Trade is said to be " unfavorable " when the country's imports of merchandise exceed the exports. In the former case the balance of trade, so- called, is " favorable," and in the latter " unfavorable " ; and so strongly is specula- tion affected either way by the knowledge of a " favorable " or " unfavorable " bal- ance, that the- market value of stocks often moves in obedience to this knowledge, so far that millions and millions of dollars are transferred from some pockets to others. We shall see, however, that this great power of " the balance of trade " is unAvar- ranted, — is due, in fact, to a misunderstand- ing of the subject. It appears to be com- 114 " The Balance of Trade." 115 monly supposed that a favorable balance of trade must be offset by importations of gold, and that for an unfavorable balance we must necessarily send gold out of the country. But the gold-movement itself, whether governed by trade conditions or not, generally attracts more attention than it deserves ; at least so the writer hopes to prove. The par of exchange ' between America and England, therefore between America and the world, because of the world's cus- tom of settling in London accounts be- tween the traders of different countries, is 4.867, which means that &\ sterling is equivalent to $4,867 in gold ; and when- ever the market rate of exchange is at or close to this figure, no important quantity of gold can move between England and America either way, for the simple reason that it costs something to move the metal, say for freight, insurance, and to cover the ' The reader who would like to acquaint himself fully with the theory and practice of foreign exchanges should obtain 'J'he Theory of the Foreign Exchanges, by the Right Hon. George J. Goschen, M.P., although the book was written be- fore the present par of exchange was established. 1 1 6 Money, Silver, and Finance. loss of interest while the gold is on the ocean. At this moment there are weekly arrivals of gold from Europe, and the mar- ket quotation for sterling exchange is about one per cent, below par. Perhaps a clipping from a daily paper ' will serve to explain the situation : " The par of sterling exchange is 4.867. The rate of demand sterling bills at which gold can be exported to London without loss is 4.88| for bars, and 4.89|- for coin, and the rate at which it can be imported without loss is 4.83f . " The market for sterling was firmer in tone in the forenoon, and 60 day rate ad- vanced \ cent at 12:11 p.m. Posted rates now 4.80^ and 4.84. The rates for actual business were as follows, viz. : Sixty days, 4.79f ; demand, 4.83|- ; cables, 4.83| to 4.84. Commercial bills were 4.78^ to 4.78f . The supply of cotton bills was fair." Let us go over this in detail, considering the balance of trade when "favorable." The New York bankers whose business it is to carry on the financial part of foreign • The New York Evening Post, October 13, i8gi. " The Balance of Trade!' 1 1 7 trade have such a strong desire for gold that for every pound sterling deliverable by their correspondents in London, on cable order, they are willing to accept, here, $4.83f to |4.84; for every pound sterling deliverable there, on demand, they would accept, here, $4.83-^; and for every one delivei'able there, after the lapse of sixty days, these bankers would accept, here and now, $4.79f, the bankers making interest in the meantime. Or we may say that the London correspondents of the New York bankei's feel an unusually heavy demand for London bills of exchange drawn against New York, and have in- structed the New York bankers to provide themselves with the money necessary to meet these bills. In the same newspaper paragraph we learn that thei-e was a fair supply of cotton bills (a portion of the mass of commercial bills) and that com- mercial bills were worth only |4.78-|^ to $4.78| for each £1 sterling, which means that whoever, in America, at that moment, was in the act of making a sale of cotton, wheat, petroleum, or other product, to a 1 1 8 Money, Silver, and Finance. buyer in any foreign country, would have to lose tlie difference between $4.78f and $4,867 upon eacli £1 sterling, the banker's profit included, less the interest from the date of selling his bill of exchange to the date of maturity of the bill. This is the state of affairs when it is said that the balance of trade is " favorable." In reality, when gold comes this way under these favor- able conditions, the cost of bringing it must be borne, largely, by our exporters of mer- chandise, for when they ship goods they draw commercial bills of exchange against the foreign receivers of those goods and these bills of exchange must be sold to bankers who are already heavily loaded with similar bills of exchange. If, when the balance of trade is " favor- able," you should go to a banker and ask him for money to cover the value of mer- chandise which you were then exporting, he could rightly say : " So many exporters want to obtain money, just now, that I cannot supply them without fetching the money from England, and each exporter must pay his share of the necessary expense. " The Balance of Trade." 1 19 Your commercial bill of exchange must be cashed in London, at maturity, and the money must be shipped to New York, for that is the way at present to reimburse me." When, therefore, tte balance of trade is " favorable " to tbis country our exporters, finding it difficult or expensive to obtain cash for their bills of exchange, contract their buying of exportable mer- chandise and force down the price of it, thus passing along to the farmer and the manufacturer a portion of the burden of expense entailed by the fetching of gold from Europe to America. Even if in ad- justing the prices of goods to the point where exportation is possible, the expense of transporting gold be fastened partly upon the foreign buyers of the merchan- dise, still this expense is a tax upon our export business. In regard, now, to our import business when the balance of trade is "favorable." At such a time European bankers will pay high rates for commercial bills of exchange drawn against New York, for by buying these bills and sending them to the bank- 1 20 Money, Silver, and Finance. ers' New York correspondents these latter will be put in position to obtain here the money wbicb we have seen to be in so great demand. Shippers of goods to America will find that, in addition to receiving the agreed-upon price for their goods, they possibly may receive a premium upon the bill of exchange drawn against the consignees of those goods, or, at least, receive the par value of their bills. When trade is " favorable " to this country, for- eign shippers to America will be encour- aged by this advantage, and may lower their prices to American buyers to induce them to buy more largely. We thus see that when the balance of trade is " favorable " there are forces at work which both check the exportation of merchandise and encourage the importa- tion of merchandise ; and, on the other hand, we might as easily show that when- ever the balance of trade is "unfavorable" there must be forces at work which check the importation of merchandise and en- courage the exportation of merchandise. There are forces always at work which. " The Balance of Trade." 121 sooner or later, bring about an equilibrium, only, however, to be overturned in due course, the processes of change going on indefinitely. When gold comes to us, or goes from us, we can hai'dly say that trade is "favorable" or "unfavorable," but, rather that trade has been favorable or unfavorable, and that powerful influences are at work in re-establishing the equilib- rium. But we may use the proper tense and still be far from understanding the broad subject of foreign exchange. The bal- ance of trade is only one of many factors, for our exports of merchandise may exceed our imports of merchandise during a long period and yet no gold be sent to us. Evidently other things come into the cal- culation, and first let us note that it is not the balance of trade which should attract attention, but the balance of indebtedness. Europe can contract debts to America by the purchase of stocks, bonds, or other securities as readily as by the purchase of wheat, cotton, or petroleum, the rate of foreign exchange being similarly affected, 12 2 Money, Silver, and Finance. DO matter what Europe buys. Conversely, European owners of American securities when sending them to America obtain the right to draw against the American receivers of those secui'ities. By the mediation of the bankers, one hundred shares of stock, worth $10,000, sent by a London firm to a New York firm, will make as much ex- change against New York as ten thousand bushels of wheat, worth $10,000, shipped by a New York firm to a Liverpool firm, will make against London for Liverpool account. If the wheat and the stock transactions take place at the same time, and are represented by bills of exchange, maturing at the same time, one must offset the other ; and it follows that a country's exports of merchandise may exceed its imports of merchandise, its balance of trade being called " favorable," and yet no balance of indebtedness appear, indebted- ness for merchandise possibly balancing indebtedness for both stocks and merchan- dise. Important distinctions between secu- rities and merchandise should be noted, however. As a rule, any kind of mer- " The Balance of Trade!' 123 chandise moves either to or from America, no kind, generally speaking, moving both •ways ; we exporting wheat, for instance, never importing it, and importing coffee, not exporting it; while, on the contrary, an identical bond or certificate of stock may cross the ocean many times. Then, the movement of merchandise is recorded, while the movement of securities is not recorded. Here is a tremendous force, this movement of securities, always at work but never measurable, sometimes offsetting the balance of trade and some- times running with it, sometimes prevent- ing importations or exportations of gold, and sometimes making necessary a larger volume of importation or exportation of the metal. Indeed, the activity of arbi- trage brokers, buying and selling in the London and New York stock markets at the same moment, gives a mastering energy to this force. The close connection between gold movements and security movements may be more clear if we bear in mind that when a London banker wishes to pay gold to a New Yoi'k banker he can order the 124 Money, Silver, and Finance. latter to sell stock in New York, and bor- row the stock for delivery there in oi-der to bridge over the time taken by the Lon- don stock to reach New York. Speaking now of a balance of indebted- ness instead of a balance of trade, the indebtedness arising both from trade move- ments and security movements, a further complication shows itself : given the fact of indebtedness, the influx or efflux of gold will depend upon the character of that in- debtedness, exactly as in every debtor's case the note which is due must be pro- vided for, while the note which has some months to run may be put out of mind, the former requiring the use of ready money, the latter requiring only that busi- ness shall run along in the usual manner ; or as a demand note must be provided for when jDayment is wanted, not when pav- ment is not wanted. And between nations, as between individuals, the question of wanting or not wanting payment is deter- mined by the rate of interest and the estimate placed upon the value of the security, and also upon the creditor's own " The Balance of Trade." 125 financial position. As a matter of fact, we should remark here that because of the comparative newness of our countiy and the enterprising spirit of our people, we are a debtor as distinguished from a cred- itor nation, and corresponding with the usually high rate of interest prevailing in America, as judged by European standards, is the circumstance that this country is a great producer of securities. Those stocks and bonds which cross and recross the ocean are always American stocks and bonds, nobody here wanting any other. The sum total of them in European hands is un- known, but it probably exceeds our national debt. The rate of foreign exchange, afEected by trade movements and by the movements of securities, is also affected by interest and dividend payments and by remittances for freight on importations of merchan- dise, the owners of vessels usually being foreigners. Interest, dividend, and freight remittances make exchange as readily as movements of securities or merchandise make exchange. But for the necessity to 126 Money, Silver, and Finance. continually buy bankers' bills of exchange against London, in order to pay, there, interest, dividend, and freight money, the rate of exchange would oftener fall to the gold-importing point, or would be more generally below the gold-exporting point, unless this effect were counteracted. It seems best to put in this proviso as a tribute to the vastness and complexity of the subject. American securities owned abroad are of various kinds — bonds principal and interest payable in gold or payable in currency; bonds of defunct companies and bankrupt States, principal and interest doubtful or worse ; income bonds, the principal payable in gold or payable in currency, the payment of interest doubt- ful ; stocks of railroads, of other trans- portation companies, and of many industrial corporations, dividends doubtful or not, as each case may be, but the principal not payable at all, at least not by the issuer of such stocks. A bond is evidence of debt, specifying the interest, stating when the principal shall be paid, and naming either " The Balance of Traded 127 gold or legal money ; a certificate of stock is evidence that the owner is a part-owner in the corporation, not a creditor of the corporation ; and, having no right to regain his money except by sale of the stock, or the winding up of the corporation, such owner of stock, whether living in America or in Europe, necessarily takes the chance of finally receiving gold or currency, or more or less of either. Important to each party interested, as is the difference be- tween bonds and stocks, the distinction is unimportant from our present point of view, so long as we consider the bonds and stocks which have a quotable value on both sides of the ocean. A corporation may pay no attention to its bonds which are to fall due twenty years hence, and may care not at all whether its stock sells on the market at a high price or a low price, and the officers of such corporation may not even know whether most of the bondholders and stockholders are Americans or Europeans ; but every sale in London for American account, and every sale in New York for European account, aflEects directly the rate 128 Money, Silver, and Finance. of foreign exchange between New York and the rest of the world. Foreign exchange is affected too by the difference which exists, at any time, be- tween the American and the European mar- ket rate of interest. If money can be loaned at ten per cent, in New York while only four per cent, can be obtained in London, there is an advantage in keeping money here, and London owners of loanable funds will instruct their New York correspond- ents to that effect ; and, at such difference in rate, if continuing long enough, it would be well for London owners of loanable funds to send them to New York, the bene- fit of high interest more than offsetting the expense of transportation. The fact of ours being a gold-producing country is quite important, for it indicates that a small annual exportation of gold should be expected. The American habit of travelling abroad also has to do with the rate of exchange, many more Americans travelling there, than foreigners travelling here, and the means of supporting these Americans being " The Balance of Traded 129 drawn from here. Those of our country- men who live abroad and draw their living from America, we may class with the great number of Europeans who own American securities. We have now considered the factors in foreign exchange, but only under normal conditions and not in an exhaus- tive manner. Taking a limited view, we may say that whenever the market rate of demand, or cable, sterling bills (bankers') is much above 4.867, there is evidence of the existence of one or more of the following circumstances ; foreign goods have been imported too freely, American goods are not wanted abroad, American securities find a better market here than in Europe, our rate of interest is too low to attract or keep foreign money, foreigners are short of money, much money is wanted abroad by American travellers, we have produced a surplus of gold, freight remittances are large, or interest and dividend payments on securities owned abroad are unusually heavy. And we may say that whenever the market rate of demand sterling bills is 1 30 Money, Silver, and Finance. below 4.867, the reverse is true. Conse- quently wlien the rate has advanced to 4.88|-, or has fallen to 4.83|, the forces named must have been acting together in one or the other direction, or one or more of the forces must have been acting with overmastering energy. But whatever the force, or however great its energy, the op- posing force always stops it, sooner or later, and the expense of moving gold across the ocean generally operates as a check upon the too powerful force. Ordinarily gold importations or gold exportations mean little more than that a tax has been laid upon those individuals who persist in do- ing business in one direction, after too much business has already been done in that direction. Almost every transatlantic shipment of gold indicates a derangement of our foreign business, but so nearly in- variably of a temporary nature that the general public need pay little attention to it. As a matter of fact, I believe that since the resumption of specie payments in 1879, this country has neither gained nor lost, as the net result of importation and " The Balance of Trade." 131 exportation, in any year, a sum of gold great enougli to warrant half the variation in speculative prices which has been sup- posed to have resulted from such gain or loss of the metal. I am referring only to actual gain or loss of gold not to, for in- stance, a downward movement in prices when brought about by fear that great quantities of gold will he exported to pay for American securities, this fear being based upon a belief that foreigners want to get rid of such securities. CHAPTER VIII. FOREIGN EXCHANGE UNDER NORMAL AND UNDER ABNORMAL CONDITIONS. This country does much of its business upon borrowed capital, but unfortunate as is tlie situation, it is not nearly so bad as would be the situation if we were unable to borrow or if our power of borrowing were curtailed. The merchant who, from large profits, pays a small portion for in- terest may well look upon his good credit as a very good thing ; and Americans who bewail the sending of interest and dividend moneys to foreigners should console them- selves with the thought that these pay- ments are only a small portion of the total earnings on the capital which has been invested by foreigners in America. No- body has any right to object to the benefit derived by us from our high credit abroad. When an American security is taken by a 132 Foreign Exchange. 133 foreigner, the fact indicates that Americao capital can be employed to better advan- tage, and the fact of there being held abroad an enormous mass of American securities, indicates the release of an enor- mous sum of American capital for more profitable uses. Eastern capital is exten- sively used in the Western and Southern States, both because it cannot be so profit- ably used at home, and because the West- erners and Southerners can make a profit by its use in excess of the interest and dividends sent to Eastern capitalists. European capital is extensively used in the United States, both because it cannot be so profitably used at home, and because the people of the United States can make a profit by its use in excess of the interest and dividends sent to European capi- talists. Turning now to our lack of ownership in the steamers and sailing-vessels engaged in foreign trade, we may say that under exi-^ting laics and circuumtanees American capital is better employed. Without ad- mitting that our merchant m^'ine could 1 34 Money, Silver, and Finance. not be restored, we may class freight raoney with interest and dividend money — all evi- dences that this country has not yet accu- mulated sufficient capital for all its business wants. The newness of America, her immense resources, and the honesty, inventive gen- ius, and enterprising chai-acter of the people have drawn hither foreign capital, and should continue to draw it. Therefore we may class as a normal factor in foreign exchange the flow of foreign capital this way for investment ; and, consequently, we may also class among the normal factors in foreign exchange the flow toward Europe of interest and dividend disbursements, leaving questionable the classification of fi'eight remittances, but bearing in mind that such remittances are continually being made. Intimately connected, we may note here, are capital and its earnings, and there can be no doubt that the greater the inter- est and dividend payments to foreigners the larger will be the total of foreign capi- tal invested ; and, naturally, the greater the earnings of vessels engaged iu Ameri- Foreign Exchange. 135 can foreign trade, the larger will be the sum of such investments. Looking upon the purchasing of Ameri- can securities by foreigners as the natural condition of our present attainment in growth, so to speak, we may consider the selling of American securities by foreigners to Americans as quite abnormal. The home-coming of our stocks and bonds should resemble an eddy in a stream, and should not resemble the stream itself. When those stocks and bonds move this way in large volume, something, certainly, is the matter ; and, of course, several forces may have worked together to reverse the natural movement of the stream. We may do well to note some of these forces. The expectation of the failure of a great house, and the actual failure of the Barings in London, in 1890, by creating a tremendous demand for money, induced many sales of American securities to Americans, and these sales were like a creditor's demands for money. But a flow of American secu- rities this way, brought about by a short- age of money in London, should be dis- 136 Money, Silver, and Finance. tinguished from a similar flow of American securities when it is caused, not by any trouble among our creditors, but by their fear that we intend to commit an act detri- mental to their interests. In 1890 and in 1891 many sales of securities for shipment to America were made because the owners needed money, and many, doubtless, were made because the owners expected that pro-silver legislation here would be " dis- counted " by a fall in our stock market and by a decline in the activity of most of our industries. In European eyes, free silver coinage would be supreme folly ; therefore the wisdom of selling American securities long before such an act could be passed,— in common parlance, the wisdom of " discounting " the future. And at the same time that foreign holders of American securities are frightened into selling, ^rould- be foreign investors in American securities are deterred from buying, for if a European wish to sell stock now because he can obtain $10,000 in gold, and because he thinks he may be able to obtain in the future only $10,000 in silver, gold money Foreign Exchange. 137 theu to be worth thirty per cent, raore than silver money ; so, in the same manner, a would-be investor in American stock could reason that by holding $10,000 in gold until the American gold money shall be worth thirty per cent, more than the American silver money, he will be able first to give $10,000 in gold for $13,000 in silver, theu use $10,000 of the silver in purchasing the stock, and be able to retain $3,000 as a profit for waiting. In the first half of the year 1891 we exported about $73,000,000 in gold, coin and bars, and in the second half of the same year we im- ported only about $38,000,000, in spite of the fact that in the second half of the year the natural return movement was assisted by a phenomenal circumstance, viz. : crops were very short abroad and were very abundant here. The general expectation in the summer of 1891 that most of the $73,000,000 would come back, I believe, was disappointed, because European own- ers of American securities and European would-be investors had imbibed a fear of American pro-silver legislation. Lack of 138 Money, Silver, and Finance. accurate knowledge in Europe of our affairs results in great weight being given to the speeches of American Senators and Representatives. Without doubt, I think we may say that in the year 1891 abnor- mal conditions kept foreign exchange up to the gold-exporting point for a much longer time than it otherwise would have remained there ; and I think the principal abnormal condition was the absence of de- sire in Europe to hold or to buy American securities. If we are bent upon free coin- age, Europe would best await the result, and most assuredly it would be best for Europe to allow us to carry our own stocks, for stocks are representative of legal money only, whatever that may be. Many Euro- pean capitalists fully believe that, do what we will, we have now gone so far in the direction of the silver basis that we cannot avoid arriving there ; and naturally these capitalists, at least, can see no advantage in holding American stocks. I confess to some sympathy with my countrymen who in answer to all this would say: Let Americans hold their own stocks and bonds Foreign Exchange. 139 and we shall be free from this troublesome indebtedness to foreigners. It certainly would be better if we could hold them, but unfortunately Ave cannot. Our posi- tion is like that of a man who has a special partner. The special partner draws a share of the profits, but does no work, and the man who does the work feels a desire to keep all the profits. If, however, he be a sensible fellow, he will not act in a way that shall lead to the special partner's re- fusing to remain in the business, the only sensible course to pursue being to accumu- late so much money that the special part- ner shall not be needed. As a nation, our sensible course is to use whatever sum of foreign capital we need and can get in the development of our industries, and to treat the owners of this capital as we should treat assistants, not as we should treat enemies. We can hope for the good time when we shall have accumulated a suffi- ciency of capital of our own for all of our wants, but until we do obtain this owner- ship, braggadocio is unwarranted. Our true interest lies in so acting that foreigners 1 40 Money, Silver, and Finance. will buy American securities and will keep them until we want them. No true Ameri- can interest can be served by teaching foreigners that our securities are not good securities, that the appearance of gold value may turn into the reality of silver value. The abnormal factor in foreign ex- change, the home-coming of American securities, is connected with another abnor- mal factor, the forcible holding of the rate of interest below the proper rate. Profits and wages in this country are higher, on the average, than they are in Europe, and, as naturally, interest should be higher too. When, therefore. Congress tries to make money plentiful it is apt to create an abnormal factor in foreign exchange, and when Congress succeeds in its efforts this abnormal factor in foreign exchange operates to send gold out of the country. In our present state of development, the use of money here ought to be valued more highly than the use of money abroad, and we have seen that the rate of foreign exchange is forced down toward the gold- importing point and away from the gold- Foreign Exchange. 141 exporting point by our comparatively higli rate of interest. Make money too plenti- ful, then, and you take away one of the inducements for foreigners to leave money here ; and the only money which they will take away is gold money. Issue too much silver or silver notes and you both make money too cheap and create a fear of the proximity of the silver basis. It is true that no governmental issues of money can hold down permanently the rate of interest, but the first effect is to make money plen- tiful, and therefore to cause exportation of the kind of money that foreigners want. If the issue of new money should have the effect of putting prices up, or of hold- ing them above the normal level, there would necessarily be a still stronger tend- ency in gold to leave the country. Foreign exchange would be kept at the gold- exporting point, because Americans were buying or holding too large quantities of stocks, bonds,, or merchandise. When new issues of money are absoi'bed by the people, the absorption can have a very bad effect in fostering speculation, and if it 142 Money, Silver, and Finance. have this effect the inevitable collapse is sure to be disastrous, in a degree propor- tionate to the height of the speculation fever. But it must not be assumed that new issues of money iiecessarily affect prices. Indeed, when prices are affected, the circumstances are peculiar, as we shall see in Chapter XII., on The Old Volume of Money Theory. Gresham's law, under which " a cheaper or dejDreciated currency always tends to displace a more valuable one,"' should be studied carefully, because, in our case, gold slips away so easily. If we put the rate of interest below the level which suits the conditions of trade, if we create or foster a feeling among foreign buyers or holders of American securities that a foolish financial policy is likely to be adopted, we inevit- ably move the rate of foreign exchange up to the gold-exporting point, or we keep the rate above the normal rate, that rate ^vhich would prevail if these abnormal factors 'were not affecting it. Gold may ^ The Principles of Political Economy, Simon Newcomb, Ph.D., LL.D. Foreign Exchange. 143 be actually exported, or the importations of gold whicli otherwise would take place may be prevented, but, as iu the course of a year gold generally moves both ways across the ocean, the net loss in a year, from bad financial laws, must be felt. At some future time, perhaps, we may do very well without foreign financial assistance, but at present it certainly would be wise for legislators to fully acquaint themselves with the actual workings of foreign exchange. I do not think it requires any argument to prove that foreign exchange cannot be held at the gold-exporting point for a very long time without Americans seeing the inevitable consequence, and seeing the propriety of securing for themselves the coming premium on gold. CHAPTER IX. DISCUSSION WITH BEPRESENTATIVE ADVO- CATES OF SILVER.' Me. H finds no difficulty in using up Senator Stewart, so long as the latter can be lield to argument ; but the differ- ence between the two gentlemen appears to be only in degree, and I think it fair to call it lucky for them that they are not proposing to run their own affairs in the manner suggested by them for the United States. Apologizing to these gentlemen for being personal, the importance of the subject leads me to ask : Would not Senator Stewart's friends clap him into an asylum, ' In the summer of i8gi, the New York Evening Tele- gram opened its columns to a general discussion of the silver question. The author's part in that discussion is re- produced here, after careful revision, and with many additions. He has not been so anxious to avoid repeating himself as he would have been if the silver question were less important, and he believes that reiteration is sometimes in order. 144 Discussion with Advocates of Silver. 145 and would not Mr. H sooner or later be placed out of harm's way ? The Senator suggests the free coinage of all silver, and this means that the United States should buy, at $1.29 an ounce, the world's stock or surplus of what it values at less than $1 an ounce. As a rule, sane people do not pay more than the market price of anything and do not try to change the world's market price at the expense of their own pockets. Let us see what would happen if the Senator should have his way. The fact that there is an immense surplus of silver in the world is proved by there having been a great increase in production and a great decline in market price ; and if there is not enough silver for the United States , to draw upon there are surely plenty of mines which at higher market prices could produce any lacking quantity. If now we pay $1.29 per ounce that price would be- come the market price, but only at the point of delivery to the United States Mint. At all other points the bullion dealers would necessarily fix the price at $1.29 per 146 Money, Silver, and Finance. ounce, less the cost of carriage to the United States Mint, and less a fair profit for the risk that the United States might see its own folly and stop buying silver before delivery could be made. The world's dealers in bullion know the amount of gold in the Treasury of the United States and know that European govern- ments are anxious to obtain gold and to get rid of silver. The problem for the bullion dealers would be : How long can or will the United States take silver and pay out gold? The questions in the United States would be : How quickly can we stop taking the world's silver and giving the world our gold, and what ade- quate punishment can be inflicted upon Senator Stewart and his friends ? And, reading of the Senator's being hanged in effigy all over the United States by patri- otic small boys, the world's bullion dealers would hurry on their silver and would reduce their purchases of it. The market price of silver, therefore, would never quite reach the Treasury price of $1.29 per ounce. Disctissiofi with Advocates of Silver. 147 All this is clear to Mr. H and so he wants us to buy American silver only, still at $1.29 per ounce, although American silver is worth no more in the world's mar- kets than any other silver. If this idea should prevail, the question with American, miners would be : How much can we in- crease our production and how much silver can we deliver at the Mint before the gov- ernment shall see the need to stop buying? I may be pardoned for saying just here that it was hardly necessary for Mr. H to state that he is engaged in silver-mining. And I would ask if he would guarantee that Mexican silver shall not be carried to American mines and thence to the United States Mint? Does he propose that Treasury officials shall keep watch over every hole in American ground to prevent it being stocked with Mexican silver and then developed into an Ameri- can-silver mine? Will he furnish to the Treasury, experts who are capable of telling the difference between American and foreign silver ? Is there a distinguishable difference ? 1 48 Money, Silver, and Finance. If, to stop importations, Mr. H would tax importations of silver, how would he avoid taxing such silver as had been previously exported, and, would not his law violate the constitution which pro- hibits the taxing of any article exported from any State ? Importers of silver, in order to avoid the paying of duty upon it, would claim that their particular lots of silver were American silver and therefore exempt from taxation. Surely common sense has a place in this discussion, and the silver men should be willing to allow the United States to buy as cheaply as possible, for in this way the United States can buy about one third more in quantity, to say nothing of the fact that this way would be more fair to all taxpayers . who must pay for the pur- chases. It has been shown by years of trying to make silver circulate, that Ameri- cans will not carry much silver in their pockets and cannot be induced to do so ; and it can be assumed that the silver which the government takes, it will be obliged to pile up on top of its already en or- Discussion with Advocates of Silver. 1 49 mous stock, and will be obliged to hold until sucli time as it sees fit to sell to the world and at the world's price. The higher the price, too, which the govern- ment pays for silver, the greater will be the stimulation to silver-mining all over the world, unless the government should quickly obtain all it could pay for, or quickly abandon its position of buyer. Free coinage, or what is the same thing, the paying of $1.2929 an ounce for a metal worth less than $1, would make us the world's laughing-stock, and European governments would vie with each other in the struggle to get our gold before we should be able to comprehend the point of the joke. Somewhat farther away from lunacy is the present law, by the operation of which the United States was changed from a sil- ver exporting to a silver-importing or non- exporting country. Even paying only the market price the Treasury has shown itself to be the world's best buyer of silver, and according to the report of the Secretary of the Treasury, 1890, the natural flow of silver 1 50 Money, Silver, and Finance. from the American mines to Oriental coun- tries had been stopped. The Orientals who use silver for money, and exclusively, can get along vv^ith a diminished supply to accommodate the vaults of the United States Treasury, and is it to be supposed that the Orient can spare none of its stock if we offer to pay an advance of thirty per cent. ? But the Orient does not want gold money and Europe does, and the question is, How much silver could Europe and the Orient and the rest of the world spare to fill our Treasury vaults ? If I understand Mr. Wm. P. St. John (New York Evening Telegram, August 15, 1891), he relies upon the fact that the European coinage parity of silver to gold is 15|^ to 1, whereas our coinage parity is 16 to 1, this difference making silver money abroad worth, nominally, about $1.33 per ounce, while here it is worth, nominally, $1.2929 per ounce. Mr. St. John argues that the silver money of Europe would not come here, under free coinage in this country, because we should then be offering to pay only $1.2929 per ounce Discussion with Advocates of Silver. 1 5 1 for that which is worth at home $1.33 per ounce. The Bank of France now holds the equivalent of about $260,000,000 in gold and of about $245,000,000 in silver.' The market value of the gold as bullion is $260,000,000, but the market value of the silver is less than $171,500,000— say thirty per cent, lower than the nominal value. Suppose, now, that the United States government should say to the Bank of France: Give us $100,000,000 in silver and we will give you $97,000,000 in gold, or reduce your nominal valuation by three per cent., and we will give you gold which possesses actual value more than thirty per cent, greater. If Mr. St. John were a director in the Bank of France, he would vote Nay, and would contend that marhet value is of no consequence, nominal value being all that need be considered. But he would be outvoted, for some bright French- man would say : " Let us take the Ameri- can gold, and after we get it we can, if we ' In one year the Bank has added about $40,000,000 to its stock of gold, but only $1,500,000 to its stock of silver. 152 Money, Silver, and Finance. like, purchase silver at the market price. I think we should find ourselves in posses- sion of much more silver than we have now, the increase in quantity being the profit on the transaction. Lose sight of coinage parity for a while and consider only market value. Sell silver at about thirty per cent, above the present market value, coin the incoming gold into napoleons and ten- and five-franc pieces, take any chances that the market value of silver will go up to $1.29 or $1.33 per ounce, and remain there ; and when we get ready to do so and think it advisable to do so, we can begin to buy silver in such small quantities as absolutely needed, so as to get back in time an equivalent sum of silver at lowest market prices." When Mr. St. John lends the money of his own bank upon securities, I presume that he takes into consideration the sal- able value of those securities, rather than the nominal value ; and if he were a di- rector in the Bank of Prance, I believe that he could be shown the advisability of losing three per cent, in the nominal value Discussion with Advocates of Silver. 1 53 of the assets of the Bank, if by so doing the Bank could gain thirty per cent, in its real assets. If it should be argued that free coinage here or unlimited purchase would put up the price of silver bullion, and the Bank of France thus would never be able to get back its silver, and would be obliged to lose the three per cent., still it must be admitted that a permanent advance in the price of silver bullion is at least doubtful, and even if the advance should prove to be perma- nent, the loss is only three per cent., while in the view of non-permanency of the ad- vance the gain is thirty per cent. ,Who, as a director in the Bank of France, would not gladly vote to give in silver $100,000,- 000 or $200,000,000, nominal value, for $97,000,000 or $194,000,000 in gold, both real and Thominal value? If the reader will drop from his mind parity of coinage, as a good merchant some- times dismisses a mere book-keeping ques- tion, in order to obtain a perfectly clear view of a subject, there need be no diffi- culty in seeing that should the Bank of 1 54 Money, Silver, and Finance. France sell 100,000,000 ounces of silver for $129,290,000, and later on, years later perhaps, should buy 100,000^000 ounces of silver for $100,000,000, the Bank will make a profit of $29,290,000. Or, on 200,- 000,000 ounces the profit would be $58,580,- 000. It might well be reasoned that our buying of silver would so stimulate pro- duction that silver would in time go to a price lower than any yet recorded, or it might be considered good financiering to never buy back the silver at all, for so the Bank of France would be put in a position similar to that held by the Bank of Eng- land. In any case, the selling of 100,000,- 000 or 200,000,000 ounces of silver for 29 to 30 per cent, more than the market value, would be a wise thing to do ; and 1 cannot think that it requires a strong imagination to picture even now a wily Gaul, quietly chuckling over the utterances of our St. Johns, our Stewarts, our Pughs, our Blands, and our Bartines, and hoping and praying that these men will succeed in giving him the one opportunity of his life for a brilliant couj) de finance. Discussion with Advocates of Silver. 1 5 5 If, instead of free coinage or unlimited purchase, a measure were pi'oposed to try free coincbge for one year, scarcely anybody could fail to see that the world and the world's miners would send a fabulous quan- tity of silver to the Treasury in order to obtain $1.29 per ounce for a metal the value of which would be sure to fall to less than $1 per ounce as soon as the year had expired. And what reason is there to suppose that under a free-coinage law un- limited in time the financial men of the world, noticing the piling up of silver in the United States Treasury, would be unable to foresee that the law must in time be repealed ? The present price of silver is upheld by the Treasury's monthly purchase of an amount about as great as the whole prod- uct of the American mines ; and upheld, also, by the j)urchase of large quantities of silver for use in the arts, because of the comparatively low price of the metal. But if you drive manufacturers into the habit of using less silver, and if you fill the treasuiy so full that necessity or a 156 Money, Silver, and Finance. revulsion in public sentiment shall shut up this dumping-hole, what then would be the market price of silver in the face of a phenomenally large production? No law can be passed which could not be repealed, and therefore the question for those en- gaged in the silver industiy appears to be this : Would the profit of an advance in the price of silver for a short time cover the later loss of a heavy decline to last a very long time ? What would be the mar- ket price of silver if, to get back to the gold basis, the United States Treasury, instead of buying $4,500,000 ounces of silver per month, should become a seller of silver? The quantity of silver which could be supplied to the Treasury by the world, assisted by the world's mines, at $1.29 per ounce, is unlimited ; not so the amount which the world could be induced to take back at $1, or even 75 cents per ounce, if I may be allowed to guess at a figure. Whoever has been interested in trying to corner a commodity, or has read of such attempts, like that, for instance, of the Discussion with Advocates of Silver. 1 5 7 Societe ties Metaux, in its trying to control the price of copper, must know that even the Treasury of the United States is not sufficiently powerful to hold up the price of silver. The visible supply is said to be a small amount, but the visible supply is nothing compared to the invisible supply, and if the United States should adopt free coinage or unlimited purchase, this question would inevitably present itself: Which can hold out the longer, the United States Treasury in receiving silver, or the bowels of the earth in delivering silver ? Note — The term free coinage is used in this volume in the American popular sense, indicating coining freely or to an unlimited extent. Seigniorage (minting charge) is not con- sidered. CHAPTER X. THE DISCUSSIOlSr CONCLUDED. I GLADLY apologize to Senator Stewart for seriously offending him (indicated in a news- paper letter by the Senator), and, in order to be sure of suiting the gentleman, I will now, so far as possible, use his own language. If he be involved in errors and inconsist- encies he may charge the trouble to his being on the wrong side of the question. He need not consider the affair wholly personal. In this chapter quotation marks will be used only to designate the words of the distinguished Senator, extracts being made from the 'Evening Telegram of July 30, August 5, and August 18, 1891. He claims to have " proved that the people of the United States could not be injured by free coinage," and alludes to " the impossibility of a flood of silver." The basis for this may be his statement as follows : 158 The Discussion Concluded. 159 "The supply of gold and silver from the mines \\d& more nearly equal at the time, and since silver was demonetized, than at any other period of which the record has been preserved. There ^vas, in 1873, a little more gold produced in the world than silver. There has been since that time a little more silver produced than gold. But during the twenty-three years from 1850 to 1873 there was about three times as much gold produced as silver." Here we have on Mr. Stewart's own authority proof of the iiaturaVness of the decline in the value of silver, as distinct from the " demonetization " charge, which he is so fond of making. Up to 1873, on a very large production of gold and a very small production of silver, the ratio of 15^ to 1 was easily maintained; that is to say, on this parity of value, the production of each metal corresponded somewhat closely to the demand for each, the pro- duction of gold being " three times " as great as the production of silver. But the production of silver has far ex- ceeded the demand for it, and therefore the i6o Money, Silver, and Finance. price has necessarily fallen. Note how the ratio of the world's production of the two metals has changed, as shown in the follow- ing table takeo from the Engineering and Mining Journal of July 25, 1891, the fig- ures being the United States coining value : ^ Gold, Silver. 185s 132,000,000 40,000,000 i860 127,000,000 40,000,000 1865 126,000,000 52,000,000 1870 123,000,000 64,000,000 187s 111,000,000 82,000,000 1880 108,000,000 101,000,000 1S81 104,000,000 106,000,000 1882 100,000,000 111,000,000 1883 97,000,000 115,000,000 1884 100,000,000 120,000,000 1885 106,000,000 125,000,000 1886 106,000,000 130,000,000 1887 106,000,000 136,000,000 1888 110,000,000 146,000,000 1889 120,000,000 159,000,000 If the annual production of silver were now equal only to one third the produc- tion of gold, or, say, perhaps, not over half as great as the production of gold, pos- ' The production for the year i8go is estimated at $116,000,000 gold and $166,000,000 silver, coinage value. The Discussion Concluded. i6i sibly, indeed, if tbe production of silver had not overtaken the production of gold, the old ratio of 15^ or 16 to 1 would be maintainable. In other words, if 15^ or 16 to 1 was the proper ratio when "three times as much gold" was produced as silver, then 15^ or 16 to 1 cannot possibly be the proper ratio to-day. The world's markets say that to-day's ratio is about 21 to 1, and, in view of the figures above given, I do not see how Mr. Stewart can rea- sonably find fault with the world's opinion. If we say that the growth of business demands an ever increasing supply of money, losing sight of the fact that bank- ing facilities keep pace with business and largely supply its needs, making a dollar more and more important as a measure of value and less and less important as a means of exchange ; or, if ^^-e say that an annually increasing crop of money is needed just as much as we need an annu- ally increasing crop of wheat, losing sight of the fact that wheat is consumed while money is largely preserved, still we have no ground for assuming that there is any 1 62 Money, Silver, and Finmice. need for the disproportionately great pro- duction of silvei*. On the contrary, the fall in the price of silver, from $1.29 per ounce to ninety-seven cents '^er ounce, shows that no matter how badly the world needs money, it prefers all the evils of the shortage rather than the use of more silver. The worthy advocate of silver may insist that the world is mistaken in this choice, but certain it is that the world has made such a choice, else the parity of 15^ or 16 to 1 would never have changed to that of 21 to 1. Let me here make again the distinction between money and wealth, terms too fre- quently used as synonymous. There is always an insatiable demand for wealth, but the demand for money is limited, like the demand for a commodity. More closely limited, of course, is the demand for a kind of money upon which suspicion has been cast. The whole world, however, does not take the same view of silver. It is good enough money yet for some countries, and there is left open to Senator Stewart the The Discussion Concluded. 163 course of educating tie people of Europe and the United States up to the standard of China, Japan, India, and Mexico ! After all, a mere free-coinage or unlimited-purchase bill could have little effect upon the price of silver compared to such an effect as would come from teaching civilized people that they ought to carry the white metal and overlook its depreciation. Education strikes at the root of the evil ; any act of Congress may be undone by a subsequent Congress ! In the column next to the one contain- ing the Senator's assurance of an " impossi- bility of a, flood of silver," August 18th, the newspaper said : Silver is top-heavy.^ (It was.) There is much talk of a flood of silver from over the water. Holland has 149,000,000 florins in the treasury for which there is no call in circulation. The Dutch and German ministers think they will take no more chances, but will sell their silver this year; and more news, or rumors, of this tenor. It is, of course, a matter of conjecture Avhat European gov- ^ The market price of silver declined subsequently. 1 64 Money, Silver, and Finance. ernments will do, but it cannot be ques- tioned that their actions for eighteen years indicate a strong desire to obtain gold and to give silver in exchange. What European ministers say, is a ques- tion of policy, and if a government wish to give silver for gold that government's financial minister cannot be expected to say anything which would weaken the cause of free coinage or unlimited purchase in America. To get rid of silver he must have a market; to obtain gold he must have a source of supply. Under free coinage or unlimited purchase we should furnish both. Perhaps, however, Senator Stewart will be more easily convinced that there is a European demand for gold if I use his own words : "I called attention to the fact that all the great monetary institutions in Europe and America, where the gold standard is maintained, were deficient in reserves to meet their obligations, and they were struggling for more gold and reducing credits to save themselves from bank- ruptcy." The Discussion Concluded. 165 Possibly Mr. Stewart may have been posing as a world's philanthropist, for in another place he said : "We have already shown that gold would be cheaper in Europe if they had more of it, as they would have if they had all the gold in this country, and in that case he ( the debtor ) could get more gold for the same property than he now can, and could pay his debts with less sacrifice, no matter whether his debt was a gold obligation or an obligation to pay in the currency of the United States." The benefit to Europe from having our gold is perfectly clear ; not so the benefit to us from losing our gold, one third of our circulating medium, even if we could be summarily educated up to the belief that silver is just as good as gold. The Senator says that if I " had taken the trouble to read " one of his articles I " would have been saved the trouble of many mistakes and erroneous statements with regard to paying $1.29 for a dollar's worth of silver." According to the Sena- tor there is, then, an important, and not 1 66 Money, Silver, and Finance. merely a technical, difference between free coinage and a policy of purchasing silver at $1.29 per ounce. But if he will admit that 480 grains make one ounce and also that the silver dollar contains 37l-|- grains, then I do not see how he can escape from the truth of a simple equation : 480 times 1 equals 371-^ times 1.2929. He says : " Under the Bland act the government bought a large amount of silver bullion from the miners at the market price, coined it into silver dollars and paid it out for current expenses. By this transaction the director of the Mint informs us that the government made a clean profit of $70,- 000,000 between the market price of the bullion so purchased and the coin value of the silver dollar." And he also says : "Under the law of 1890, now in force, the government does not buy silver with money raised by taxation, but issues Treas- ury notes for silver bullion at the market price, dollar for dollar. The silver bullion as received is deposited in the Treasury, and the Secretary is authorized by law to coin it into standard dollars. By doing The Discussion Concluded. 167 so the government will make the differ- ence between the market price of silver and the coin value, which is now about twenty-five per cent." From the equation above given, from the fact that silver is worth about ninety- seven cents per ounce, and from the Sena- tor's own words, is it not perfectly clear that the profit which the government makes is due wholly to our not having free coinage ? Is it not certain that this profit, now owned by the whole people, represented by the government, would, under free coinage, have gone into the pockets of miners, bullion dealers, and speculators ? Under free coinage the government would take an unlimited amount of sil- ver, and would give in exchange one dol- lar for every unit of 371^ grains. Under a law which should provide for the pur- chase of an unlimited amount of silver at $1.2929 per ounce, the government would pay out a similar sum of money for a simi- lar quantity of silver. Some free-coinage advocates themselves speak of free coinage 1 68 Mo-,iey, Silver, and Finance. as sure to raise the world's price of silver to $1.29 per ounce, but a technical differ- ence is immensely important to Senator Stewart. And he is quite right, for if, instead of favoring freq coinage he should favor the same thing, under a different name, say a bill to compel the United States Treasury to purchase the world's surplus stock of silver and the world's future surplus product of silver, at $1.29 per ounce, he would have no chance of success. The nervousness of the silver advocates whenever free coinage is spoken of as equivalent to an unlimited purchase of silver at $1.2929 per ounce was instanced when Mr. Leech, the Director of the Mint, was examined by the House Committee on Coinage, Weights, and Measures, Fifty- first Congress : " Mr. Taylor : Would free coinage make silver any more valuable provided thei'e were no provision to compel the govern- ment to purchase the coin ? " Mr. Leech : Free coinage in this bill is in itself a purchase. The Discussion Concluded. 169 "Mr. Taylor: Not on the part of the government ? " Mr. Leech : Why, certainly. This is a bill for the free purchase of silver. Un- der the present lavr if we had free coinage it would be the same thing, because they would simply deposit their silver and get silver certificates. " Mr. Taylor : Suppose they did not have that provision ; they did not for- merly have it ; suppose that was stricken out ? " Mr. Leech : That would necessarily limit the output of silver dollars to the capacity of the mints to coin. " Mr. Taylor : Would that increase the value of silver ? " Mr. Leech : 1 think it would. " Mr. Walker : I should like to ask the Director whether he means by that, if this country alone granted free coinage that would of itself make the silver dollar and the gold dollar interchangeable in this country; simply granting free coinage at the j)resent ratio of weights ? " Mr. Leech : It would make it inter- I 70 Money, Silver, and Finance. changeable as long as we had gold dollars to interchange. " Mr. Walker : How long do you think that would be ? " Mr. Leech : That depends on how much silver came here, and how many legal-tender notes were paid out in the pui'chase of it, and to what extent gold was hoarded or left the country. I do not think it would be very long. " Mr. Vaux : Would it appreciate it or depreciate it ? " Mr. Leech : I think the effects of this bill would be to attract to our mints large quantities of silver. I believe the current product of the world would naturally move here. In addition to that, I believe that European countries would avail them- selves of this opportunity, which they be- lieve cannot last, to get rid of their embar- rassing stocks of silver and adopt the gold standard. I believe Austria-Hungary would resume specie payments on the gold basis. She cannot resume on the silver basis. I think they would avail them- selves of this opportunity to convert their The Discussion Cotuluded. 171 silver coins into our full legal-tender money and get our gold for them even at a slight loss. I think other European coun- tries would do the same. I think that is proven by the fact that European countries are doing that now, or, at least, seriously considering it. ***** " Mr. Vaux : Does this bill provide that the government shall buy silver at a cer- tain price ? " Mr. Leech : At a fixed price, $1.2929 per fine ounce. " Mr. Bland : Do you believe that under •free coinage the government buys any- thing at all ? "Mr. Leech : Under this bill they would. I understand Mr. Bland's bill makes all the certificates full legal tender. " Mr. Bland : I simply mean free coinage stripped of any certificates. I mean the naked question of free coinage stripped of any certificates. Do you believe that un- der free coinage the government buys any- thing at all ? 1 72 Money, Silver, and Finance. " Mr. Vaux : The people do not give it to the government. " Mr. Williams : How much does it cost the government every year? " Mr. Bartine : Just vs^hat it costs to coin it. "Mr. Bland: The government has no responsibilities after it is coined. " Mr. Leech : Yes, sir ; it requires that it shall be taken as full legal tender in the payment of all debts. The government does not simply coin it and stamjD it. " Mr. Bland : The government does not buy it and it is not responsible for it. " Mr. Leech : The government is re- sponsible for it. " Mr. Bland : If it vs^ere it w^ould keep it at par with gold. " Mr. Leech : Why so ? " Mr. Bland : Because gold is the stand- ard of value in the United States. Has not the Congress as much right to make silver the standard ? " Mi-. Leech : Certainly. " Mr. Bland : Is not Congress the repre- sentative of the people ? " Mr. Leech : Yes, sir. The Discussion Concluded. 173 " Mr. Bland : When you talk about the purchase of silver, where is the purchase on the part of the government any more than the purchase of gold ? " Mr Leech : We purchase gold now. We do not take gold and coin it for the people. That is the theory of the law. We give a man a check as soon as it is assayed. We would do the same with sil- ver under your bill. I do not see any practical difference between free coinage and unlimited purchase of silver except one is a shorter method. " Mr. Bland : That is discretionary with the depositor. The depositor has the right to wait until he gets his coin. " Mr. Leech : He does not want to wait. " Mr. Bartine : It is merely to obviate the necessity of M'^aiting ? " Mr. Leech : Yes, sir. " Mr. Walker : If I understand your statement, the government does purchase it. It amounts practically to a purchase. " Mr. Bland : I was ashing as to laws and not as to opinions, or as to policies, or discretionary powersP 174 Money, Silver, and Finance. It would never do for Mr. Bland or Sen- ator Stewart to admit that free-coinage of silver is equivalent to unlimited purchase of silver at $1.2929 per ounce, for Ameri- can common-sense would oppose the pur- chasing of anything at thirty per cent, above its market value, but nevertheless the true meaning of free coinage will eventually be well understood. CHAPTER XI. Senator Stewart's argument is as fol- lows : " My reason for asserting that there is not gold enough for use as money I will again repeat. Statisticians inform us that in 1 873 there were nearly $8,000,000,000 of real money of ultimate redemption, certainly over $7,000,000,000. The real money at that time which required no promise of redemp- tion consisted of gold and silver coin. On the gold theory there is now less than one half as much money of ultimate redemp- tion as there was eighteen ^years ago. The Director of the Mint informs us that there is only $3,727,000,000 of gold coin in the world, which, according to the gold advo- cates, is all the real money which now exists. If it required about $8,000,000,000 of coin as a basis of paper circulation and 175 I 76 Money, Silver, and Finance. commercial credits eighteen years ago, I contended that less than one half of that amount was not enough to sustain the pres- ent fabric of business and credit." ' Redemption how, when, where, and by whom? Is the real money in the world to be collected, piled up, and counted, and then doled out in exchange for the paper substi- tutes of all kinds which now pass fi'om hand to hand and from country to country ? Do people who now freely give valuable things for the bits of paper called Treas- ury-notes, bank-notes, checks, drafts, bills of exchange, etc., etc., do so with the mental reservation : This is all right for the pres- ent, but 8ome day all these bits of paper must be redeemed in gold, or at least in equal parts of gold and silver? Is the time of "ultimate redemption" fixed for this year or next, or for some other year ? Is the place of redemption London, New York, Hong Kong, or is this point not yet agreed upon ? Is the duty of seeing that every owner of paper shall be given the * New York Evening Telegram, " Ultimate Redemption" 177 sum of money named on the face of the paper, a duty for our government or for some other government to perform, or shall redemption be performed by a congress of the world's financiers, representing the vari- ous nations in proportion to the sum of paper held by the traders of each country ? And if the manner, the time, the place, the manager of " ultimate redemption " can not be named, then what folly it is to talk of " ultimate redemption " ! Actual redemption, however, there is all the time and everywhere and by everybody who continues solvent. Continuous re- demption is familiar to all business men ; " ultimate redemption " is a mere theory. A gives a check to B for $1,000, and he deposits it in bank ; B gives a check to C for $1,000 and this check is deposited in another bank ; C gives a similar check to D and this goes into still another bank; D gives two checks for $500 each to E and F, who deposit, respectively, in two more banks ; E draws checks aggregating only $400 — say $300 in A's favor and $100 in B's favor; F draws checks for I 78 Money, Silver, and Finance. $100 in C's favor, and $100 in D's favor. The next day all of tlie checks come to- gether at the Clearing House, and all of the transactions which gave rise to the drawing and depositing of all of the checks are settled by the payment into the Clearing House of $700 by A's bank, and by the receipt from the Clearing House of $100 by B's bank, $100 by C's bank, $100 by D's bank, $100 by E's bank, and $300 by F's bank. All of the transactions are not completely settled, of course, until each bank debits and credits its own cus- tomer, in accordance with the checks drawn and deposited. Now this is a fair illustra- tion of customary redemption. If a timid receiver of a check should draw the money instead of depositing the check, he would take a step toward " ultimate redemption," but if ■ after that he should deposit the money in another bank, he would step back again. If he should receive paper money from his bank, have this money exchanged for gold, and then hide the gold, there would be a case of "ultimate redemption." "Ultimate redemption," if " Ultimate Redemption." 179 it mean anything, means that people gen- erally are going to behave in this manner. In time of panic they do behave somewhat in this way, but for many years no panic, in any great and civilized commercial country, has been sufficiently severe to lead people into going farther than one step toward " ultimate redemption " — -that is to say, every demand for money has been satisfied with paper money, not a fraction-of-one-per-cent. preference being shown for gold. The illustration of Clearing-House work, above given, shows how an aggregate of $4,600 in transactions may be settled by the use of $700 in money, but the real state of affairs is far more significant, the New York Clearing-House, during the year ending October 1, 1891, having settled transactions amounting to $34,053,698,770 by a transfer of balances of $1,584,635,- 499, this being less than one-twentieth part of the greater total. Suppose "ultimate redemption " to seize the inhabitants of New York City, the average bank clearings amounting to $111,651,471 per day, and 1 80 Money, Silver, and Finance. you have all the gold, silver, and paper in the country in their hands in about a fort- night ! True, gold and silver together vrould last more days than would gold alone, but the difference is not important. If from the transactions of a city we turn to the transactions of the world, this moon- shine of "ultimate redemption" becomes still more clear. Theoretically we pay, in gold, for whatever we buy in foreign countries : practically, we send out of the country gold to the extent of less than one tenth of the sum of our merchandise im- ports. Theoretically, we receive gold for all the merchandise that goes out of the country : practically, we receive gold to the extent of about one thirtieth of the sum of our exports of merchandise. And if there were a record of the movements of securities, much smaller fractions would have to be used to show the relation of gold movements to the sum of merchandise and security movements. In London, the Clearing House of the world, our exports are set off against our imports, and every day there is an adjustment of differences, a " Ultimate Redemption!' i8i settlement of balances. Other commercial countries are always, too, adjusting balances at the same place. Imagine the magnitude of the world's volume of trade, and you will see that $8,000,000,000 of "real money" for such a purpose as "ultimate redemp- tion " would go but little farther than $3,727,000,000 of gold. Neither sum would do, and certainly that portion of either sum which the power of all trading nations, using all their forces, could collect for the 2:)urpose of " ultimate redemption " at any place or at any time would be insignificant when compared to the volume of business to be settled. We must look upon redemption in prac- tice not as it may be in dreams. Every day in the year, paper promises are being redeemed and new paper promises are being issued, and continuous redemption and con- tinuous issue will go on, keeping pace with each other, eveiybody taking part as he can or as he sees fit. The sum of money in use in the world fairly well suits the business needs of the world, in the j^ractical conduct of such business, the redemption that goes 1 82 Money, Silver, and Finance. on all the time being the only possible kind of redemption. And if the world use less silver for the purpose than it should use, in order to comply with the Senator's views, that is the fault of silver or the fault of the Senator's views, not the fault of the world. The world's trade and commerce have gone on increasing and expanding, and on the whole the world is doing fairly well, and nobody need be long troubled by the theory of " ultimate redemption." CHAPTER XII. THE OLD VOLUME-OF-MONET THEOKT. The theory that variations in prices and in industrial activities are due often or generally to variations in the volume of money, is so persistent that the hourly, daily, weekly, and yearly denial of this theory by the movements of prices, on the floor of every commercial oi- stock exchange in the world, does not suflace for a complete overthrow. In early life, we notice that the more money we have the more things we can buy, and the higher the prices which we can afford to pay. We place money and things in two opposing posi- tions, money struggling to advance every- thing, while everything naturally tries to sink to a low level ; and so when prices move upward or business is active we think that the supply of money is plentiful, and when prices move downward or business is 183 1 84 Money, Silver, and Finance. dull we say that money is scarce. It does not appear to be important that hardly ever are movements in prices or changes in industrial activity accompanied by changes in the volume of money, nor does it affect the life of this old theory to show that a downfall in prices has occurred while the volume of money has been increasing ! The theory is bred in our bones and will live on ! During the past twenty years or so the prices of commodities in this country have fallen to the extent of an average of about thirty per cent., and business has been alter- nately slow and brisk, and brisk and slow, but, concurrent with this decline in prices and this undulatory movement of trade, there has been an increase in the volume of money, in circulation, to the extent of about ninety-four per cent., being an in- crease, per capita of population, of about twenty per cent., as shown by the follow- ing tables furnished by the Director of the Mint, Mr. H. O. Leech, to the Committee of the House on Coinage, Weights, and Measures, 1891. The Old Volume-of- Money Theory. 185 " The following tables [page 186] exhibit the comparative amounts of the various kinds of money in actual circulation at dif- ferent periods. The various sums stated in the tables are all exclusive of money in the Treasury. They represent, as nearly as is possible, the exact amounts of the several kinds of money in actual circulation among the people at the periods named." Accompanying the increase in volume of money and in sum per capita, and empha- sizing the truth that money has not been really scarce, there have been a fall in the average rate of interest, an advance in the average rate of wages, an advance in rents, and an advance in the price of real estate. But in spite of all this the silver advocate points to the fall in the price of silver bul- lion, talks of the "demonetization " of 1873, and reiterates the exploded volume-of- money theory, without stopping to con- sider that we now have a greater* volume of money and more money, per capita, than ever before in the history of this country. The erroneous notions of our day are similar to those which prevailed in the first 1 86 Money, Silver, and Finance. 1^ M m m n o 5 O "1 fo « o^ M O M oi M m m (Ti M ■*■ « m -^ CO O C 0\N M ■^w'O "lO rorOMONOOm QOVO lO lO o -d- 1^ f*i H en m M ■3S „^SB . fc. « « " uf c s Si: M Sj 2 J.J! 2-23^ S 2 » o o* tig ZO tt 8888888 8 00 ?g;g'?;~2 8S' m VO 6 00 m rovo, q. in m . Ov oo'oo' rn ■♦oo'ms 00 t»> ■-• M ij- n M o 00 u »0 N 0>»0 M M -^ c in C? 1^ o' ct tC h" * o> •^ Mm loch M m ^ H H n VO «© O 1 ... .g 8 ^ a ... . • "^ qv k od CO «i 2 p* r^ ; N m t^ in cT C? N m' 4 M'vd" lO o' ■2 f^rOHOWOOm r. "»^ ii U O M_ (^ t '^ "^ "^ "_ o -S 5| \o Nvo 00 ef t^ o rC oo' Id oovo in in o ■«- 1^^ o\ ro M fn en M ^s .K ", 88888 -88 8 &i II 8K?8"3v ?K »n 00 « ^ rt " o; o '^ -, ^. - ^ t VO m IS 1- O *0O O en t^ 0\ N 11 \0 CO •- ■Vl oo t^ H M t& '*• H 1 t 1. N S^-2 S ^ g-a g d < o 3 23^- " = « Ou3«30mHDZ H .is c o bccS "-0 Ovn The Old Volume -of -Money Theory. 187 half of the century, and which Thomas Tooke refuted by a life-long record of price- variations. He proved that prices obey natural laws and only follow monetary changes in exceptional cases, prices often moving, indeed, in the direction contrary to that which known monetary changes would indicate. Mr. Tooke's work is now so rare that I think it not out of place to quote from him, in order to show how closely the logic of a half-century ago, in England, fits the circumstances of the present time, in America. Mr. Tooke's History of Prices covers the period from 1793 to 1856. I quote from vol. ii., p 267 : ' " But whenever a fall of prices since 1819 has taken place, if there happens to have been coincidentally any actual or supposed reduction of the amount of the circulation, such is the prevalence of the currency theory, that the proceedings of the Bank (Bank of England) are usually referred to as the moving cause of the alteration of prices. Thus the money crisis, as it is called, of the latter part of 1836' is, in ' Foreshadowing our panic of 1837. 1 88 Money, Silver, and Finance. most of the circulars of that period, as- sumed to have been the cause of the fall of prices in those instances in which a fall did occur, while in the instances of the large classes of articles which experienced either no fall, or none worth mentioning, and some indeed of the most important of which had coincidentally risen in price, the more peculiar circumstances affecting them are held to be sufficient to account for their not coming under the influence of the currency. " There was, in fact, nothing like an ex- treme general depression of prices during the severest pressure of the money market, before the end of November, 1836. The greatest fall that occurred in that year was in the article of tea. But it is well known that the importation was on a scale of un- precedented magnitude. . . . "The following articles, embracing the largest amount of value, experienced no fall, and the greater proportion actually rose, in price coincidentally with the pressure on the money market till the close of 1836. " Corn, meat, butter, Irish provisions and The Old Volume-of- Money Theory. 189 bacon, oil, tallow, hemp, iron, copper, dye- woods, rum, besides many minor articles, were as higli in November, 1836, as in the spring of that year, and the greater part of them higher. And, inasmuch as those that had fallen were in no degree more depressed than the difference of actual or approaching fresh supplies warranted, the inference that such fall was directly caused by the state of the money market in the summer and autumn of 1836 is not legitimately drawn. " So prevalent is the theory of the para- mount influence of the currency, that most of the writers of commercial price-currents and circulars are infected by it." Mr. Tooke copies one of the price-currents, pub- lished at the close of 1836, reviewing the commercial transactions of the year, and showing the writer to be fully imbued with the currency, or volume-of-money, theory. Then, says Mr. Tooke: "The whimsical part is that, in giving a succinct account of the variations of each of the articles, the decline of those which fell in price after the spring and summer of 1836 is rationally explained by circumstances quite indepen- 1 90 Money, Silver, and Finance. dent of the state of the money marlcetr Concluding his remarks upon this fair specimen of price-currents of those days, Mr. Tooke adds : " The reasoning here is exactly that of the currency doctrine ; the articles that fell in price are supposed to have been exclusively under the influence of the contraction of the Bank issues, which, by the way, had not then been contracted in any degree worth mentioning ; while those articles that had not fallen, or were rising, are stated to have been under the influence of local or peculiar circumstances." In Mr. Tooke's time a contraction of the Bank issues, whether the contraction had actually hajjpened or not, was charged with putting down the prices of some commodi- ties, such commodities, for instance, as had declined in price because of over-supply; and the supposed contraction was supposed to have had no effect upon the prices of those articles which had not declined in price. In our time " Demonetization," al- though there has been no demonetization, and contraction of the volume of money, although there has been no contraction, are The Old Volume -of -Money Theory, igi charged with putting down the prices of commodities, and no importance is attached to the circumstances that interest has de- clined, that real estate has advanced, and that wages have gone up — no importance whatever to the most important of all con- siderations ; the reduction in the prices of most commodities and the advance in wages, together, have placed the major portion of our population in a better posi- tion than ever before attained. No more consistent are these volurae-of- money theoi'ists when they cite France as an example of a country Avhich has a proper volume of money. Did the having of forty- four dollars fer capita lead the people of France into the attemjit to control the cop- per output of the world, or into the attempt to dig the Panama Canal, and is the loss of hundreds of millions in these ways the proof that it is better to have forty-four dollars per capita than to have, as we do, only twenty-four dollars p>er capita ? ' And ' The report of the Secretary of the Treasury, Mr. Foster, 1 891, shows a further augmentation in the circulation in this country to December ist ; the volume being now $1,577,262,- 070, and the sum, /«- capita o{ population, $24.38. 192 Money, Silver, and Finance. if we are able to go into " wild-cat " specu- lations upon a capital of only twenty-four dollars a head, our ventures being often " wilder " than French ventures, what right have we to envy the French ? At least it is incumbent upon these theorists to show that business is more brisk in France than it is in America, that farmers over there find it easier to get along, that wages are higher, etc., etc., for if all this cannot be shown — and everybody knows that it can- not, — then it naturally follows that, in this respect, the currency theory fails. As a matter of fact, does it not appear that the people of France use forty-four dollars each without deriving any benefit from so excessive use of money ? By the ordinary standards, I should say that the people of France are worse off than the people of America, and in spite of the truth that Frenchmen have, individually, say about twice as much moniey as we have. There is here no paradox though, unless we forget that wealth and money are not sy- nonymous. Different nations use different volumes of money and different sums per The Old Volume- of -Money Theory. 193 capita, somewhat in proportion to wealtti possessed, but more in inverse ratio to the development of banking facilities and large- ly in accordance with the habits of the peo- ple. The amount of money in France J96r capita is very much larger than it is in the United States, but no person would say that the wealth in France is greater per capita than in the United States, that wages are higher, or workmen better employed, or that business over there is more active than it is here. Frenchmen keep money in old stockings ; we put it in banks. The banking system of France is in a compara- tively simple state,' ours is highly devel- oped. The " silverites' " just cause for complaint, therefore, if they have any just cause for complaint, is against the Ameri- can people for their habit of parting witli money as soon as they get it. If we could be taught to carry always a few pounds of silver in our pockets the silver in use in this country would be largely increased. Or, if we could be shown the advantage of • The Theory and History of Banking, by Charles F. Dun- bar. Chapter on the Bank of France. 13 194 Money, Silver, and Finance. hiding either silver or its paper representa- tive under the floor or putting it anywhere but in bank, vphere it immediately be- gins to do about ten times the amount of work naturally expected of it, the circulat- ing medium would have to be much lai'ger than it is. The " silverites " should find fault also with the people of Great Britain, as their habit of banking their money in- stead of hoarding or handling it, is quite as objectionable (?) as our own ; Englishmen leaving to take care of itself to a great ex- tent the need of an increased supply of money to match the increase in wealth, in business, or even in population.' A great deal of money may circulate in a country without producing any of the results which theorists of the currency type would expect — good business, low interest, high prices, high wages, etc. Business may be unsatisfactory or the reverse, the rates of interest at financial centres may vary between one per cent, a day and one ]ier cent, a year, prices and Avages or either of them may be high or low, and we can. ' The circulation of money in the United Kingdom, notwith- standing the immeasurable greatness of the volume of business transactions, is equivalent only to about %\%.bo per cap. The Old Volunie-of -Money Theory. 195 assert that within reasonable limits auy state of affairs may exist coinciden tally with a large or a small volume of money. In truth, this country has experienced many conditions of trade during the past decade or two, while the volume of money has been advancing. It is argued that money is the base of credit, and therefore the more money we have in circulation the greater can be the expansion of credit ; on the contrary, how- ever, wealth in general is the actual base of credit, and money is only a small portion of the total sum of wealth. Excepting in time of panic no one thinks of handling money in a large way. No prices are higher for cash than for check. Nobody refuses credit to a customer because that customer has stocks, bonds, merchandise, real estate, instead of money in his pockets. Nearly all the time prices move up and down for causes which directly affect commodities, individually or in groups. In time of panic there is always an ap- pearance of a scarcity of money, due to the circumstance that for a short time money is compelled to do a great deal of the work ig6 Money, Silver, a7id Finance. which ordinarily is done by credit. Money is unsuitable for about nine tenths of the work of modern business, and if there were twice as much money in circulation the character of money would not be changed. The work must be done by credit or the volume of exchanges be enormously re- duced. Usually, therefore, the remedy for a panic is not the issuing of new money but the doing of something to restore confi- dence, which remedy may be, or may not be, the issuing of new money. In the panic of 1890, the banks of New York set- tled many of their daily claims upon each, other by using Clearing-House certificates, instead of money, and thus bridged over the time when money appeared to be scarce, or the time when money was forced to do more work than it ought to do. A tempo- rary form of credit was adopted ; and this served also as an example to business men, the restoration of the use of credit among them being the proper way to bring busi- ness back into the only channel which can hold it. No student of human nature and of the history of finance will think that The Old Volume- of- Money Theory. 197 panics or periods of business depression can be prevented ; or tbat panics and peri- ods of depression cannot occur or have not occurred under any monetary system, or in any country using any volume of money. A panic may be the natural culmination of a trade movement, and generally a panic does not mean that more money is needed in circulation, for, after a panic, money usually becomes apparently over-plentiful. A temporary expedient is, I think, the proper remedy for a panic, although when- ever a panic occurs there is sure to be heard the money-scarcity complaint. Temporary substitutes for money (such as Clearing-House certificates) have this advantage over real money : When money becomes over-plentiful, after a panic, these substitutes may be quickly cancelled, whereas real money would remain in circu- lation and would tend to make gold leave the country. Abandoning the volume-of -money theory, we necessarily give up using the rate of wages, the average of prices, the rate of interest, and the state of trade as perfect tests 1 98 Money, Silver, and Finance. of the volume of money in circulation, as to whether the volume, be at any particu- lar time too large or too small ; but, how- ever erratic have been the movements of trade, of prices, and of the rate of interest during the past twenty years, while the volume of money has been advancing, still the average of prices, the rate of interest, the rate of wages, and the state of trade must be taken into consideration, with all facts and circumstances, if we are to ascer- tain what volume of money is best suited to us. A good step in the right direction, I think, is the striking out, as irrelevant, the fact that Frenchmen use the equivalent of $44 dollars each; and with this fact, another, that the East can get along with about $4 per capita, for we have to do with American conditions only. Now, what tests have we ? One coun- try uses the equivalent of $44 ^er capita, another say $4 per capita, others any sum between ; but no country is a proper example for us. And if we take our own experience only, we find that within ten or twenty years, judging by all the The Old Volume -of -Money Theory. 199 tests I have named, -we must have used at times twice or thrice as much money as we ought to use, and at other times only a small fraction of the sum which we ought to have used ; but, of course, we are forced to these absurd conclusions by our failure to constantly bear in mind the naturalness of the undulatory character of trade, price, wage, and interest movements. If, however, we look upon these move- ments as necessarily undulatory (see ex- planation iu Chapter II.), and then bring another element into consideration, the rate of foreign exchange, we shall have a fair chance to ascertain, approximately, what vol- ume of money is best suited to the interests of this country. Fortunately, there is no need for trying to construct a pure theory. We can as- sume that our habits and our business methods are correct, and that the volume of money which we actually use is some- where near the proper volume ; but this means nothing iu regard to the quality of the money and to the proportion of each kind to the other kinds, for arbitrary laws, 200 Money, Silver, and Finance. rather thaa natural development, have de- termined quality and proportion. And while, therefore, it is hard to say vrhether all the interests of this country could be better served by a smaller or by a larger volume of money, it need not be at all dif- ficult to show that the interests of this country would be better served by a bet- ter quality of money. I think it perfectly clear indeed, that if we had had diflEerent currency or coinage laws, we might easily have accumulated gold instead of a large portion of the silver which we have ac- cumulated. In other words, if our legisla- tors had paid less attention to the demands of " silverites," of cheap-money demagogues, and of volume-of-money theorists, and had given due study to the subject of foreign excliange, these legislators might have been able to see the wisdom of allowing our production of gold to do its share toward augmenting our total circulation. The vol- ume of money in circulation might now be as great as it is, and the composition of the circulation might be much better if there had been in our currency and our silver The Old Volume-of- Money Theory. 201 laAvs provisions for the suspension of silver jiurcliasea and the suspension of the issue of paper money, whenever gold was being exported. If it be the duty of Congress to provide a suitable volume of money, it is no less a duty to provide as good money as possible ; but, on the contrary, it vi^ould seem that the majority had conceived their duties to be : first, take care of our silver- mining industry ; secondly, provide plenty of paper money; thirdly, supply Ameri- can gold to the rest of the world. The author has no space here for show- ing the desirability of elasticity in the vol- ume of money ; and, he has not wished to belittle the importance of the country's having a properly large volume of money. He has tried to show the importance of the proportion of our kinds of money, and to bring out the truth, that demands for new issues of money are generally ill-found- ed ; and, certainly, ought to go unheeded whenever compliance with such demands must result, not in augmenting the volume of money, but in displacing the best money by inferior money. CHAPTER XIII. THE PEESENT SILVER AND CUEEENCT LAW. — INTEENATIONAL CONFEEENCES. BI- META LLISM. CONCLUSION. Theee has been mucli controversy over the wording and the operation of the act under which silver bullion is now being purchased and paper money is now being issued. I believe that this law, possibly excusable as a compromise, is one of the worst financial laws of recent years, and that a popular understanding of it should bring about a repeal. The important parts of the text are offered in evidence : "An Act directing the purchase of silver bullion and the issue of Treasury notes thereon, and for other purposes. " Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assemMed, That the Present Silver and Curj'ency Law. 203 Secretary of the Treasury is hereby dii'ect- ed to purchase, from time to time, silver bullion to the aggregate amount of four million five hundred thousand ounces, or so much thereof as may be offered in each month, at the market price thereof, not ex- ceeding one dollar for three hundred and seventy-one and twenty-five hundredths grains of pure silver,' and to issue in pay- ment for such purchases of silver bullion Treasury notes of the United States to be prepared by the Secretary of the Treasury, in such form and of such denominations, not less than one dollar nor more than one thousand dollars, as he may prescribe, and a sum sufficient to carry into effect the provisions of this act is hereby appropri- ated out of any money in the Treasury not otherwise appropriated. " Sec. 2. That the Treasury notes issued in accordance with the provisions of this act shall be redeemable on demand, in coin, at the Treasury of the United States, or at the office of any assistant treasurer of the United States, and when so redeemed ' Equivalent to i|pi.2g29 per ounce of silver. 204 Money, Silver, and Finance. may be reissued ; but no greater or less amount of such notes shall be outstanding at any time than the cost of the silver bul- lion and the standard silver dollars coined therefrom, then held in the Treasury pur- chased by such notes ; and such Treasury notes shall be a legal tender in payment of all debts, public and private, except where otherwise expressly stipulated in the con- tract, and shall be receivable for customs, taxes, and all public dues, and when so received may be reissued ; and such notes, when held by any national banking as- sociation, may be counted as a part of its lawful reserve. That upon demand of the holder of any of the Treasury notes herein provided for the Secretary of the Treasury shall, under such regulations as he may prescribe, redeem such notes in gold or silver coin, at his discretion, it being the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio, or such ratio as may be provided by law. " Sec. 3. That the Secretary of the Ti-eas- ury shall each month coin two million Present Silver and Currency Law. 205 ounces of the silver bullion purchased under the provisions of this act into stand- ard silver dollars until the first day of July, eighteen hundred and ninety-one, and after that time he shall coin of the silver bullion purchased under the provisions of this act as much as may be necessary to provide for the redemption of the Treasury notes herein provided for, and any gain or seign- iorage arising from such coinage shall be accounted fqr and paid intp the Treasury. " Sec. 4. (Mint regulations.) "Sec. 5. (Repealing the law of 1878.) "Sec. 6. (Redemption of national bank notes.) "Sec. 7. That this act shall take effect thirty days from" and after its passage." Approved, July 14, 1890. Speaking of this act, in his Annual Mes- sage, 1891, President Harrison made an unfortunate blunder when he said : " nor should it be forgotten that for every dol- lar of these notes issued a full dollar's worth of silver bullion is at the time de- posited in the Treasury as a security for its redemption." Of course he was imme- 2o6 Money, Silver, and Finance. diately corrected by the able and watch- ful Commercial and Financial Chronicle, the law containing no provision for the redemption of the notes in silver bullion at market value. Silver is purchased at the market value, but the intention of the law is to " redeem " the " notes in gold or silver coin." In view of President Harri- son's timely utterances in favor of main- taining the equality of all American dol- lars, I am glad to call the above mistake a mere slip of the pen, but I am sure that a clear understanding of the law is suf- ficiently important to warrant the correc- tion of any word which clouds the general understanding. The Treasury notes, issued under this law, bear on their face the proof that they are redeemable " in coin " ; the law itself is not ambiguous, and there is no silver bullion set apart for redemption, at either the market value or the original purchase-price of the bullion. As a restorative, the law is a wretched failure. The price of silver bullion is now very near to the lowest point which ever has been reached, although the government, Present Silver and Currency Law. 207 for about a year and a half, has been tak- ing out of the market that quantity of sil- ver which approximates the whole produc- tion of the American mines, and although the government will continue to purchase silver bullion for an indefinite period. And this buyer is not like an ordinary buyer : this buyer buys the metal, buries it, and agrees to buy and bury and, practically, agrees to give ample notice of any intention to stop ; while besides, the idea which an ordinary buyer would have, that of selling, is far from entering this buyer's head. Price, too, is of little consequence to this buyer, for up to a limit in price of full thirty per cent, above the present market price of silver bullion, this buyer will cer- tainly take the regular monthly allowance. Still, the white metal droops, and forgetful of the promise that this act would surely " restore the position of silver," the silver advocate, with unabashed effrontery, asks the government to do yet more for his sick- ly client ! More than $400,000,000 worth of silver now lies dormant in the Treasilry's vaults ; 4,500,000 ounces of silver are pur- 2o8 Money, Silver, and Finance. chased every month ; and still droops the market value of this favored metal ! The policy of sustaining or of trying to sustain the market price of silver bullion is vs^holly indefensible. Our government has no right to tax the whole people for the benefit of a single industry, nor has the government a right to place in Jeopardy the business interests of the people. The producers of wheat or cotton have as good claims for governmental favor as have the producers of silver ; and the whole people may justly demand that all produ- cers shall be left to find their own markets and, certainly, that no producers shall use the United States Treasury as a market for their productions. The silver bullion in the Treasury is worth mucli less than the metal has cost, and if the Treasury should sell silver a very great loss would result, but the policy of purchasing 4,500,000 ounces every month must continue to be our gov- ernment's policy until the people shall con- demn it. If the government had not taken the ),000,000 worth of silver much of it Present Silver and Currency Law. 209 would have been exported, and in conse- quence the stock of gold in this country to- day would be larger than it is. In discus- sion with well-informed men I have found a wide difference of opinion regarding the quantity of gold, in excess of present stock, that we should have if the govern- ment had not purchased silver bullion. The question takes you over the whole field of foreign exchange, and ought to be inter- esting to everybody, but lack of space pre- vents consideration here, and for my pur- pose it is sufficient to say that the operation of the law has resulted in our having to- day less gold than we ougbt to have. This law provides for the issue of paper money without providing properly for re- demption. No holder of the government's obligations wants silver dollars, nor ig any holder likely to want them, for paper dol- lars redeemable "in coin" have a chance, apparently, of redemption in gold coin, and the time may come when gold coins shall be worth much more than silver coins. If a gold panic should take place, the holder of notes, redeemable in coin, might more 2 1 o Money, Silver, and Finance. quickly obtain gold than could the holder of silver dollars, and I am unable to con- ceive a situation in which the holders of our government's obligations v^^ould ask redemption in silver dollars. The stock of silver in the Treasury is useless for the purpose of redemption, and is a standing menace to the holders of govern- ment paper, for the greatness of the silver stock and the smallness of the gold stock can be taken as a notice : Beware of our promises, for, any day, we may be obliged* to say, you must keep them or take silver in redemption. The holding of bullion or coin for the redemption of paper money, dollar for dol- lar, is wasteful finance. The power and good faith of the government should count ; and, if we could get rid of the silver idea, the power and good faith of the government might well count for a great deal. If the people of this country were firmly wedded to the gold standard, then one hundred and twenty millions, or one hundred and sixty millions of gold in the vaults of the United States Treasury Present Silver and Currency Law. 211 would be better as a reserve for the re- demption of four hundred millions of j)aper money than the whole four hundred mil- lions of silver which now lie dead in those vaults. A thirty-per-cent. reserve of what everybody wants is better than a hundred- per-cent. reserve of what nobody wants; and if we could be sure to hold down a silver party, or a flat-money party, then a thirty- or forty-per-cent. reserve in gold would be adequate security for the re- demption of paper money. Paper money is the only money, excepting subsidiary coins, which the American people generally will carry ; and no redemption would ever be asked if a forty-per-cent. gold reserve were in sight, and back of this a determina- tion to sell bonds or levy taxes to any ex- tent that might be necessary to preserve the good name of the government. I do not say that government paper money is the best kind of paper money, — and I be- lieve that the want of elasticity is a serious objection; but paper money secured by forty per cent, of gold is better than paper money secured (?) by one hundred per 2 1 2 Money, Silver, and Finance. cent, of silver coins, and the indicated re- serve of gold would have cost about half as much as the silver actually has cost. The place in our circulation now- occupied by silver certificates and treasury notes might have been taken by other government paper ; and during the years in which silver has been accumulated, any necessary quantity of gold might easily have been accumulated instead. All that we needed to do was to avoid driving gold away ; for it must not be forgotten that this country produces gold, nor that Europe wants to buy and to keep American secu- rities, when Europe is not frightened by pro-silver legislation. No country in the world can so easily accumulate gold as can this country. The law is at fault, too, in that it con- tains no provision for a cessation of its operation under certain circumstances. ISTo matter how rapidly gold may be leaving the country, or how fearful the business community may be of the proximity of the silver base, the purchasing of silver bullion and the issuing of paper money must go Present Silver and Currency Law. 2 1 3 steadily on. Take, if you please, the year 1891, as illustrative of a period when the law should have become inoperative. Ac- cording to the Commercial and Financial Chronicle^ in the first seven months, $73,- 816,814 worth of gold was exported; in the succeeding five months, only $38,435,- 993 worth was imported. The year's American product was about $33,000,000, and the year's American consumption in the arts about $13,000,000, — making a net loss for the year of over $15,000,000. I contend that this loss of gold from our vol- ume of circulation might as well have been prevented, and would have been prevented, if the law contained a provision for stop- ping the purchase of silver and the issue of paper money when abnormally large ex- portations of gold are being made. Such a provision could be explicit ; and frequent interference with the natural course of for- eign exchange would be avoided if the pro- vision were worded somewhat in this way : Whenever it shall come to the knowl- edge of the Secretary of the Treasury that gold coin and bullion to so gi'eat a A'alue as 214 Money, Silver, and Finance. ),000,000 shall have been exported from the United States between the first day of January in any current year and the date when he shall obtain such knowledge, the said Secretary of the Treasury shall order that no purchases of silver bullion there- after, and until further notice, shall be made. And it shall be the duty of the Secretary of the Treasury to observe the course of foreign exchange, and whenever, in his Judgment, exportations of gold shall have ceased and shall appear to be im- probable, he shall order a recommencement of the purchasing of silver bullion and the issuing of Treasury notes under the pro- visions of this act. And if, after such ]'ecommencement and before the expiration of the same calendar year, so gi-eat a sum of gold coin and bullion as $10,000,000 shall be exported, then no purchases of sil- ver bullion shall thereafter be made until the first day of January of the year next succeeding. The intention of the law should be, I think, to provide paper money if needed, not to j^rovide paper money when the total Present Silver and Currency Law. 2 1 5 circulation of money is so great that our Vjest kind is seeking foreign countries. We may look with complacency upon small exportations of gold, but when large sums go we ought at least to stop crowding gold out. It is believed that our exporting of gold, in the year 1891, would have con- tinued longer, or that no gold would have come back if our crops of that year had been light and the foreign crops heavy ; and there is some ground for thinking that under such reversed conditions we might have slipped off the gold base, for light crops would have meant not only light exportations of merchandise, but light earnings for our railroads, and therefore a strengthening of the foreign holders' de- sire to sell our securities.' It cannot be known how near we came to the silver base in 1891, but there is no good reason for tolerating a law the inexorable operation of which carries us perilously near that base. At fault in allowing no stoppage of sil- ' The exportations of merchandise for the last four months of 1891 exceeded the importations for the same time by about $147,000,000 worth — an extraordinary circumstance. 2 1 6 Money, Silver, and Finance. ver bullion purchasing and paper-money issuing when prudence would demand a stoppage, the law is objectionable because it does not provide proper ways and means to maintain the parity of the moneys, the maintaining of which parity the law says is the established policy of the United States. If gold be demanded, at any time, how shall the Secretary of the Treasury obtain it ? I think the law should have contained this provision : Whenever the stock of gold in the Treasury of the United States shall fall below the sum of $100,000,000 (exclusive of the sum held for the redemption of gold certificates), the Secretary of the Treasury shall order the selling of silver bullion, at the market price, in such quantity and in such manner as in his judgment shall most quickly and most certainly result in aug- menting the stock of gold in the Treasury to the sum of $100,000,000 as above men- tioned. And whenever the said stock shall be less than $125,000,000 the Secretary of the Treasury shall not purchase any silver bullion. Present Silver and Currency Law. 217 Of course it is not the intention of the writer to carefully word provisions of law, an expression of ideas being all that is thought of. And he does not say that either of the provisions could have been incorporated in the act. But if its advo- cates had cared as much for the interests of the whole people as for the silver-min- ing industry, either the act would not have been passed or provisions similar to those here given would have been inserted. When the New York Chamber of Com- merce demanded a repeal of the law, ob- jection was made that such a demand ought to be accompanied by suggestions for an act to take this law's place. I think this objection ill-founded. The present Con- gress is not expected to do anything in tke matter. A new Congress will not meet un- til 1893, and there is plenty of time, there- fore, for suggestions. But the best time to impress upon the people an understanding of the present law is very short, for this new Congress will be chosen in November, 1892. Years must probably elapse before action on the law will be taken ; the hoard 2 1 8 Money, Silver, and Finance. of silver iu the Treasury will then amount to $500,000,000 worth or more ; and only by using well all the time there is, can the friends of sound finance hope that the un- answerable argument of fact eventually will be driven home by overwhelming pop- ular demands. And the situation, in 1893 or later, may not require the immediate passage of any financial law to take the place of the present one, or it may not be advisable to do more than to permit gold to be accumulated in the Treasury and in the hands of the people. There is ample time for the development of banking and currency measures, but the need of the present hour is to vigorously attack the law which now stands upon the statute-book. Always on the defensive, the friends of sound finance have yielded point after point to the " silverites." Now we can do more than repel attacks ; we can gain the advantage of that enthusiasm which belongs only to an attacking party, and we can force our adversaries into a weak defensive position. The law is vul- nerable and the attacking of it is like the International Conferences. 219 making of a flank movement whick may be counted upon to double up an enemy's lines. If tke present law shall be repealed, in obedience to popular demands — and repeal is not otherwise possible, — then no free- coinage or unlimited-purchase or fiat-money "craze" can again take possession of the American people until another generation of voters shall have come upon the field. Kill tke present law by fact and argument and a lasting victory will be won. It can hardly be said that international monetary conferences are useless. They are important educators; and whoever is willing that our government should adopt the best possible policy, ought to be glad to welcome a consideration of the silver ques- tion by the great financiers of the world. If they could be induced to meet in this country, their deliberations would be fol- lowed with intense interest, and the best way out of our bad financial position would be sure to appear. More light is asked, and it need not be said in advance that a conference could not give it. The laws of nature cannot be overturned, but govern- 220 Money, Silver, and Finance. mental errors may be pointed out. I should like, for instance, to have painted out an im- portant eiTor of European governments, — the forcing of people to carry gold in their pockets. The use of gold in this country is economical, our people carrying paper money and allowing gold to rest in bank and treasury vaults. In Europe the de- nominations of paper money are only so large that gold has to be used in retail trade, where paper money would do as well — our experience shows, does better. I think it proper for us to say to the representa- tives of foreign governments, — If gold be scarce, use it only as we use it. Issue pa- per money in denominations equivalent to one dollar, and two dollars, and five dollars, and so release the gold coins that now pass from hand to hand. Possibly this advice would not be well received unless we add an intimation that we intend to change our laws so that our own gold shall be likely to remain in this country. We could show, too, that our government has done far more for silver than it ought to have done, and that European governments have done Bi- Metallisvi. 221 little ; and, therefore, if European govern- ments will not now take hold, we may let go — the bui'den of silver being too great for one government. We are tired of try- ing to sustain the price of silver and tired of furnishing gold for an unnecessary use, and Europe ought to assist either in carry- ing the load of silver or in making plentiful the supply of gold for proper uses. Still no conference could diminish the flow of silver into the Treasury's vaults, and noth- ing should be allowed to divert attention from the present silver and cui-rency law. Bi-metallism has been stricken down by nature's oAvn hand ; and the miracle of res- toration cannot be worked by the power of government. The name is not now used intelligently, or else is used as a cloak for silver mono-metallism. Agree upon a ratio of 21 to 1, or 22 to 1, based upon the idea that yesterday's price, to-day's price, or to-morrow's price of silver bullion is the proper price, forgetting that any mai'ket price is higher than it would be but for our government's sustaining (?) policy, and within a twelvemonth, ridicul- 2 2 2 Money, Silver, and Finance. ing human endeavor, nature may strike another blow that would carry the market price of silver bullion down to that point which indicates 25 to 1 as the natural ratio of silver to gold. The cost of producing silver bullion varies widely. I have lately received the circular of a mining com- pany, which says : " Our silver is costing us to-day about forty cents an ounce. We shall reduce this very materially as we increase the production and diminish the expenses. A majority of the silver coming into the markets of the world to-day is produced at a cost of more than seventy cents an ounce." Let our government stop buying silver, and sell most of its stock, and then, after silver has found its natural position, its rightful price, not a price due in any degree to irrational legislation, let the bi-metallist venture forth once more. Silver dollars are now too large to circulate. Would they circulate if one third larger ? And if, later, we should be compelled to further increase their size, would their bulk then facilitate their locomotion ? If held as reserve, how would they better Bi-Metallism. 223 answer for such a purpose than the smaller dollars, unless the ratio of coinage parity were frequently changed, so as to always have a dollar's worth of silver in every silver dollar. And if you make silver dollars as good as bullion, for the purpose of reserve, still the government would not be. so near to having the best reserve as it would be if, instead of having only silver, it had a various stock of metals, for the chance of selling a variety of metals with- out loss would be greater, and a reserve should consist of that which is in demand. The good faith of the government is better as a reserve than standard silver dollars, or the silver, dollars which, in advancing sizes, bi-metallism might, from time to time, suggest. To hold unsalable or im- movable silver as a reserve is, in reality, to use the good faith of the government as a reserve; and, therefore, we would better consider our convenience as to size of our dollars, and not make them any bigger. In fact, if standard dollars were reduced in size, more of them would circulate, and surely we ought not to make them bigger 2 24 Money, Silver, and Finance. in order to conform to a bi-metallic theory, dead past all chance of resurrection. Bi-metallism and free-coinage are impossi- ble anywhere ; and in no country do both gold coins and silver coins circulate, except by virtue of limitations placed upon the coinage of silver. Wherever the govern- ment will give you silver coins for your silver bullion, at any ratio fixed by bi-met- allism, there the silver coins have fallen to their bullion value, and there no gold cir- culates. Let us not delude ourselves with bi-metallism, thinking that we can do what no other nation finds it possible to do, make gold and silver circulate together without a limit on the coinage of the latter. Mexi- can dollars and Indian rtipees are worth only their bullion value ; and every nation of the world has been obliged, by nature's own orders, to choose gold as primary and silver as secondary money, or else to take silver as the only standard of value. There is not, and there cannot be, a middle course. The command is simple and plain : Restrict your coining of silver or you shall use sil- ver only. Conclusion. 225 It would be impossible in one volume to recite all the arguments of silver the- orists, and to take space for refutation. Some of the fallacies, too, carry their own answers, and therefore need no attention. It is said that free coinage would be harm- less, because the capacity of our mints is equal to coining only 4,500,000 ounces per month, but this argument carries the absurd supposition that Congress would adopt a policy without pi'oviding means for carrying it out ; or the argument im- plies that the present mode of issuing paper money directly for silver bullion would be abandoned ; or that Congress would provoke a premium on gold, the transformation of one third of our cir- culating medium into merchandise, with- out arranging, at the same time, for the issue of other money to take the place of the gold. It is argued that because we are not yet hurt, therefore more silver will not hurt us, exactly as it might be argued that because you can stand a goblet of whiskey, therefore you can stand a gallon, the fact being, however, that the business 2 26 Money, Silver, and Finance. interests of this country have been greatly injured by the " silverites," and are likely to be injured to a far greater extent. And the most powerful reasoning may avail nothing against the hypnotism which has induced in the American people heart-felt sympathy for the pale "sister," the "de- throned goddess," — the hypnotic spell must first pass off. Then, too, no answer is needed, I think, for the assertion that free coinage means simply the taking of silver bullion and the issuing of silver coins for it ; for this, in truth, is all that free coin- age would mean after our inahility to 'maintain the equality of all dollars was demonstrated. Mexico, India, Japan, and some South American states have free coinage, and these countries are not, all of them, in consequence, flooded with silver ; and the United States would receive sil- ver from other countries only so long as the government should try to maintaiu the equality of its gold, silver, and paper dol- lars. Adopt free coinage, pure and simple, allowing silver dollars to find their bullion level, exactly as silver coins find their bul- Conclusion. 227 lion level in all countries where free coinage is the rule, and there would be no better reason for silver to come here, than there now is for silver to go to those countries. But, then, what would simple free coinage mean but the giving up of the use of gold for the use of silver ? How shall we, this way, get inflation and booms, etc., etc.? And if a " silverite " demand free coinage, and demand also that the government shall not attempt to maintain the equality of its dollars, then, of course, all argument is useless; for that man is lacking in the sense of shame for a dishonorable act on the part of his government. The Ameri- can people, I am convinced, vnll in time tell such a person that our government's promises are, and must always be, as good as gold. The campaign against the present silver and currency law and against the proposed free-coinage measure is an educational campaign, for there are not, in this whole land, excepting in the silver States, any important numbers of people who can possibly be benefited either by keeping 2 28 Money, Silver, and Finance. the present law in force or by enacting into law a new and worse measure. Money is scarce in the West and in the South, but money is more plentiful in the financial centres of the East than ever before/ The problem is not simply how to make money more plentiful, but how to make money more plentiful in some places and less plentiful in others. Under the operation of the present law, money has become too plentiful at financial centres and gold has been driven out of the country. Under this law more money is likely to leave the country, but there is nothing whatever in. the law that can possibly be expected to assist the desirable flow of money to tlie places where it seems to be wanted. This law is a failure, in other respects, as pointed out, and it is a failure also in promoting a general circulation of money. The law adds to the circulating medium, but only at the points where the addition is not wanted. A free-coinage or unlimited-purchase-of- silver act could do no more for the West ' In January, 1892, the sum o£ money in the banks of New York was the greatest ever known. Conclusion. 229 and the South than this law does or can do, which is practically nothing : the money issued under such an act would seek finan- cial centres, just as money does now. That money would be government money, as this money is government money. If there be a remedy for the scarcity of money in the West and in the South, that remedy must be found in new banking and currency measures, which shall provide for the issuing of money where and when money is wanted. The government cannot do this well ; and it seems that banks or aggre- gations of banks, under proper government- al supervision, will have to issue the money. A better way may be found, or no way may be found, to make money plentiful in sparsely settled regions ; but those persons in the West and in the South who think that more government money means more money for circulation in their own sections are certainly mistaken, the natural results of such issue being a larger accumulation only at financial centres, and greater ex- portatious of gold. The mere knowledge, indeed, that more government money will 230 Money, Silver, and Finance. be issued has led Eastern capitalists into keeping money, close at hand, ready for the emergency which seems imminent. The prosperity of the West and the South, as well as the prosperity of the East and the North, can be promoted by a repeal of the present law, by the annihilation of all silver fallacies, and then by the enactment of a new banking and currency measure, to be developed as the need for it approaches. And no sections of our land can be so badly hurt by pro-silver legislation as those where the " silverite " — outside of the silver States — finds the most listeners, for else- where accumulations of capital are bulwarks against financial shock. The South and the West use large amounts of Northern and Eastern capital, but many of the statesmen (?) of the South and the West are doing all they can to make capital more and more timid. Since the days when the economists of the South insisted that slavery was necessary to the industrial growth of the South, the great New South being far out of sight, no statesmen in this whole country have gone so far astray Conclusion. 231 upon financial or economic questions as have the advocates of silver. The friends of the white metal would be able to make out a better case, if the acts of governments could properly be called " demonetization " acts ; if the fall in the price of silver bullion were due to those acts ; if the fall in the prices of com- modities were properly chargeable to " demonetization " ; if the fall in the prices of commodities were a bad thing ; if the years, since 1873, had not been years of unparalleled industrial growth and devel- opment ; if the average rate of wages had not advanced, or had fallen at all, or to a greater extent than prices have fallen ; if the number of unemployed persons were unusually large ; if the rate of interest had advanced ; if money had not accumu- lated at financial centres ; if the sums of money which people want in business and want to have in their pockets were change- able by act of Congress ; if Gresham's economic law had never been discovered ; if no disposition to export gold had been shown ; if any country in the world were to- 232 Money, Silver, and Finance. day proving that gold and silver can be made to circulate together under a free-coinage policy ; if bi-metallism M^ere practicable ; if the cost of producing silver were not lower even than the present market price ; if the silver industry were not in a flour- ishing condition, and the production of sil- ver were not continually increasing ; if all Americans were engaged in silver mining ; if evolution had not selected gold as the better and the more stable measure of value ; or if by following the lead of any other if we should be able to find a sound and invulnerable argument to support the silver theory. There is no such argument, and even the seemingly plausible one, that we ought to help an American industry, may be answered by showing how unwise has been the manner of helping. If, instead of buying silver, we had favored silver mining by paying a bounty upon all ex- portations of American silver, supposing such policy to be practicable, the loss would have been comparatively light ; our vol- ume of total exports would have been greater, and our present stock of gold Conclusion. 233 would be heavier; and, more important than all else, the embarrassing stock of silver would not have been accumulated in the Treasury, and the country would not now be confronted by the vexatious silver question. Even if our government for several years, last past, had paid regular wages to silver miners, on condition that they mine no silver, the country's loss would have been far less than it now must be. Protectionists, tariif reformers, free- traders, civil-service reformers, single- tax men, and all persons who favor sound finance, whatever else they may favor, ought now to sink their differences and join in the struggle against one common enemy. Any cause but that of sound finance can wait ; for the total sum of good to come from the triumph of any such other cause can be swept away in a single day when it shall be known that sound finance must fail — the cyclonic fury of a gold panic would not respect any of the structures, the building up of which now absorbs our attention. Sound finance has 234 Money, Silver, and Finance. the light of way and ought to push aside all minor questions until the time when the people shall plainly say to their repre- sentatives : Reverse the silver policy ; STOP BUXCNG AND COMMENCE SELLING. INDEX. Act of July 14 1890, text, 202-205, see Law. American, business ways, igg ; business expressions, 27, 28 ; borrowing, 132-134 ; common-sense, 174 ; conditions, only, ig8 ; dollars, equality of, 204, 206 ; economy in use of gold, 220 ; preference for paper money, 3, 19, 20, 211 ; securi- ties, 126, 127, 131, 135, 212, 215 ; silver, 147, 148 ; travel- lers, 128 Atkinson, Mr. Edward, 16, 29, 86, 87 Austria-Hungary, 170 Balance of trade, 114, 115 Bank clearings, 179, 180 Banking and currency measures, 2l8, 229, 230 Banking, evolution of, 9-11 ; English, 5, 194 ; facilities, 161 ; French, 193 Bank, of England, 5, 16, 187 ; of France, 151-154, 193, note. Bartine, Hon. Horace F., 72-76, 154, 172, 173 Beck, Mr. William H., 80-83 Bi-metallism, 221-224, 232 Bland, Hon. Richard P., 154, 166, 171-174 British Royal Commission, 33, 38 Bullion-value dislocation, 38 Business, assumptions, 95, 99 ; growth, 161, 181, 182 ; say- ings, 27, 28, 38, 93 ; ways, 177-182 ; American, 199 Buyer, a very good, 148, 149, 155, 156, 207 Buyers and sellers, 62-66 Campaign against silver theories, educational, 227-230 ; need for vigorous prosecution, v., 233 Capital, timidity of, iii, 138, 230 ; foreign, 132, 135, 143 Chamber of Commerce, New York, demand of, 217, 218 China, 18, 20, 22, 35, 47, 56, 58, 163 Circulation, general, 228, 229 ; reduction from pro-silver legis- lation, 165 ; table, 186 Circulation, per capita, 184-186, igi, note ; in France, 191-193 ; in the East, 198 ; in the United Kingdom, 194, note. 235 236 Index. Civilization, financial tests of, 18-21 Civil-service reformers, 233 Clearing House, 16 ; certificates, Ig6, 197 ; v^ork, 177-180, ig6, ig7 ; New York, transactions, 179, 180 ; the world's, 5, 180, 181 Coinage-parity or ratio of silver to gold, 150-154, 159-162, 204, 221-224 Colorado, 81 Commercial and Financial Chronicle , N. Y., 206, 213 Committee of House on Coinage, Weights, and Measures, Fifty-first Congress, 5, 58, 66-72, 75, 168-173, 184 Commodities, cost of production, 40, 44 Common enemy, a, 233 Comstock miners, 73, 74 Congress, duty of, 21, 22 Copper, 3, 157 Corn, English meaning of word, 25, note. Coup de Finance, 154 Credit, base of, 195 Creditors or debtors ? 101-113 Cuba, 47 Currency law, text, 202-205 ; see Law. Currency theories, 48 Debtors, corporations, 104 ; farmers and planters, 105 ; gov- ernments, 103 ; merchants, 104 ; no " debtor class," 106 ; individual, injured by laws intended to benefit, 109-113 ; dishonest (?), 112 ; debtors or creditors? 101-113 Denver, 77 Depression, 68, 78 Dishonorable act, 227 " Dislocation," 40, 41 Dollar, standard silver, 203-205 Dollars, American, equality of all, 206, 226 ; policy of main- taining same, 204 ; Mexican, 54, 224 Dunbar, Prof. Charles F., 193, note. Education, 227 Employers, 65 Engineering and Mining Journal, New York, iv., 72, 73, 76, 77. 160 English habit, 194 Europe, 163, 221 ; misuse of gold in, 220 Evening Post, New York, 116, note. Evening Telegram, New York, 144, note, 150, 158 Excess of exportations of merchandise, 215, note. Index. 237 Farmers, 31, 33, 37, 38, 49, 83, 84, table, 89-91, 104, 192 Finance, need for sound finance, v., 230, 233, 234 ; waste- ful, 210 Financial contrivances, 16-18 Financiers, 10, 219 First Principles, 24 Foreign Exchange, 52, 55, 115, 116 ; balance of indebtedness, 121-124 ; " favorable " trade, Ii5-I2t ; guide to legislators, 143 : inferences to be drawn from rate of, 129-131 ; move- ments of securities, 121-124 ; par of exchange, 115 ; rate of, a test of the circulating medium, 199-201 ; rate of in- terest, 128 Foster, Rec. of Treas. , 56 France, 4, 89; Bank of, 151-154, 193, note ; circulation per capita, 191-193 Free-coinage, 157, note ; see Silver ; trying it for a year, 155 Free-traders, 233 Freight remittances, 125 Gaul, a wily, 154 Germany, 4, 89 Gold, accumulating, 201, 212 ; American consumption, 213 ; American production, 213 ; carrying and using in retail trade, 220; circulation, 186; certificates, 186 ; demand for, 164, ifis ; demonetization, 5, 42 ; English need for, 5 ; ex- portation, 121, 128, 130, 131, 137, 149, 151-155, 201, 212, 213, 231 ; how to supply Europe, 165 ; importation, 121, 130, 131, 137, 213 ; little used in business, 21 ; misuse in Europe, 20, 220; movements of , 115-119, 180, 181 ; neces- sary stock in Treasury, 216 ; panic, 209, 233 ; premium, 143, 225 ; primary money, 224 ; production, 128, 160, 200 ; proper base of value, 3 ; reserve, 209-212 ; stability of, 6, 8, 21, 22, 232 ; supplying foreigners with, 201 ; supply of, 209, 221 ; unsuitable for small coinage, 3 ; unsuitable for hand-to-hand use, 3 Gold Hill, 73, 76 Goschen, Right Hon. George J., M.P., 115, note. Governmental safeguards, 15, 16 Gresham's Law, 4, 142, 231 Grier, Mr. John A., 30, 39 H., Mr., 144, 145, 147, 148 Harrison, President, 205, 206 History of American Currency, 2 History of Prices , 187-191 2 ^8 Index. Holland, 163 Hortoii, Mr. S. Dana, 39, note. Hypnotism, 226 Increase in circulating medium, 184-186, igi, note. Indebtedness, balance of, 121 ; character of, 124 ; to foreign- ers, 121-124 India, 18, 20, 22, 35, 36, 46, 47, 49-61, 163, 226 Industrial Progress of the Nation, 86 Industries, American, 89-100 ; European, 89-92 ; develop- ment of, 44-48 Interest and dividends, 125, 128, 231 International, conferences and agreements, 31, 39, 219, 221 ; movements of securities, 121-124 Inventions and discoveries, 44 Italy, 92 Japan, 22, 163, 226 Joke, a, at our expense, 149 Jones, Mr. John P., 73-75 Labor-saving inventions and machinery, 40, 44, 88-100 Labor organizations, 67, 68 Law, the. Silver and Currency Law, 202-205 ; better currency could be provided, 212 ; danger, 212-216 ; demand of New York Chamber of Commerce, 217 ; failure to recognize whole country's interests, 217 ; general understanding, need for, 202, 217-219 ; jeopardizing business interests, 208 ; ludicrous spectacle, v. ; notes, legal tender, 204 ; omitted provisions, 213, 214, 216 ; operation, 149 ; operation, no cessation, 212-215 » redeinption of notes, 206, 209 ; repeal necessary, 202, 217-219; reserve, uselessness of silver, 209, 210; reserve, little gold better than much silver, 209-212; restorative (?) of silver, 205, 206 ; result in loss, 208 ; text of, 202-205 ; wasteful finance, 210 Leech, Hon. E. O., Director of the Mint, 168-173, 184 Lippincoit^s Magazine, iv. , 30, 37 London, World's Clearing-House, 5, 180, 181 Ludicrous spectacle, v. Manning, late Secretary, 30, 32, 38, 39 Mexican dollars, 54, 224 ; silver, 147 Mexico, 22, 35, 163, 226 Mint, capacity, 225 ; operation, 173 Monetary changes, 39 44, 48 ; dislocation, 32, 38, 40 Index. 239 Money, accumulation at financial centres, 227-230, 228, note, 231 ; and prices, 183, 184 ; cheap, 101-113 ; Confederate, 57 ; demandsfor more, 201 ; displacement of best, 201-215 ; erroneous notions, 185-187 ; evolution of, 1-3, 7, 12 ; how used in trade, 177-182 ; kinds in circulation, 186, table ; limited demand for, 162 ; not appreciated in value, 50 ; or Wealth? 162, 195; Oriental, 54; paper, 12-16, 57, 201- 205, 209, 220 ; better than silver, 209 ; more if needed, 214 ; plentiful, 140, 141 ; possible need for another kind, 22g ; proportion of kinds, 199-201 ; quantity of gold and silver in the world, 175 ; relative positions of the metals, 3 ; table of circulation, 186 ; temporary substitutes, 196, .197 ; volume increasing, prices falling, 184, 185 Mono-metallism, 35, 221 Montana, 80 National bank notes, 186, table. Nature's command, 224 JVotiingham Guardian^ 22, note. Newlands, Hon. Francis G., 83 New processes, 44-48 Oriental, bankers, 61 ; consumers, 51-55 ; exporters, 51-55 ; ignorance, 19 ; importers, 51-55 ; moneys, 19, 54 ; people, 19 ; producers, 51-55 ; use of money, 19 ; wages, 19 Our special partners, 139 Panics, 71, 77, 187, note, 195-197 Present law, 202-205 ; see Law. Present problem, 228-230 Price-currents, 187-190 Prices of commodities, decline in, 29-36, 43, 56, 65, 78, 83, 84, 231 ; benefit of the decline, 45-48, 62, 79, 86, 87 ; decline not affecting wages, 72 ; naturalness of the decline, 38, 40, 42-48, 93, 95-99 ; undulatory movement of prices, 23-29, 199 Producers, equal rights of all, 208 Production of gold and silver, 160, table. Promises, 227 Prosperity, 69-79, 86-88, 99, 100, 231 Protectionists, 233 Pueblo, 77 Pugh, Senator, 154 Quinine, 45, 46, note. 240 Index. Recent Economic Changes, 23, 38, 42 Redemption, 206 ; customary, 177-182 ; discretionary in gold or silver coin, 204 ; " ultimate," 175-177 Reserve, 164, 2og, 210, 223 Restoring (?) silver, 206, 207 Rupee, 4g-6l, 224 ; actual value, 49, note ; nominal value, 49, note. Savings-banks, 102 Secretary of the Treasury, 214, 216 Securities, description of, 126, 127 ; fear of influx, 131 ; movements of, 121-124, 135-140, 212, 215 Seignorage, 157, note, 205 Silver, Act of July 14, i8go, 149, 202-205, text, see Law ; advocates, 62, 185 ; American, 147, 148 ; American view, 6, 220, 221 ; bounty on exportation, 232 ; certificates, 186 ; circulation, 186 ; coinage, 30, 204, 205 ; necessity to limit, 224 ; profit on, 166, 167, 205 ; coins, 3, 41, 50, 223, 224, 226 ; cost of producing, 80-82, 222, 232 ; currency, 202-205, see Law; "demonetization," 29, 31, 36, 40-42, 68, 100, 159, 185, 231 ; dollars, non-circulating, 222 ; edu- cating up to silver standard, 163 ; enforced circulation, 20 ; European policy, 4, 20, 163, 164, 170, 171 ; evolution, 2-5 ; exportation, 149, 208 ; fear of pro-silver legislation, 135-140, 230 ; no benefit to come from, 109-112, 227-231 ; free- coinage, iv., 145-149, 150-155, 163-167, 219, 224-228, 232 ; the equivalent of unlimited purchase, 165-174 ; gov- ernmental action, 4, 31, 45, 100, 102, 113, 157, 163, 201, 217, 218, 222, 225, 229, 231, 232 ; hoarding, v., 60, 61, 74, 75, 208, 218, 221, 225, 232, 233 ; hypnotism, 226 ; impor- tation, 145-154, 226 ; improvements in mining, 80-82 ; in Bank of France, 151-154 ; instability, 2i, 22 ; in 1873, 70 ; lost caste, 8 ; Mexican,. 147 ; mining industry, iv., 73-83, 147-149, 155-157, 201, 208, 217, 222, 232, 233 ; wages of miners, 73, 74 ; mono-metallism, 35, 221 ; Oriental demand, 55-57. 59 ; "outlawry," 29, 40, 41, 42 ; pathetic view, 5 ; present law, 149, 202-205, 225, 227-231 ; price or value, 6, 8, 41, 43, 60, 106, 145, 146, 150-157, 162-174, 206, 222, 231 ; sustaining (?), 208, 220 ; production, 4, 6, 8, g, 76, 157, 160 ; cost of, 80-82, 222, 232 ; purchase, iv., 145-149, 163- 167, 171-173, 200-206, 213, 2i6, 2ig, 234; question might have been avoided, 233 ; reserve, 223 ; restoring (?), 33 ; reverse the policy, 234 ; secondary money, 3, 8, 224 , selling, 207, 216, 222, 234 ; subsidiary, 186, table ; suitable for poor countries, 18-20, 22 ; supply, 4, 145, 146, 151-154, 157, 163, Index. 241 164, 170 ; taxing importations, 148 ; theories, no sound argu- ment for, 232 ; Treasury, the, as a market for, v., 164, 170, 208, 218, 221 ; Treasury notes, 186, table, 202-206 ; vital point in silver question, 65, 66 ; world's view, 161 Single-tax men, 233 Smith, Adam, i Societe des Metaux, 157 Sound finance, need for action, 218, 2ig ; right of way, 233, 234 South America, 22, 46, 226 Southern borrowing, 133 Southern demands, 227-230 Spencer, Mr. Herbert, 24, 43, 48 Statesmen (?), 230 Stewart, Senator, 144-146, 154, 158, 159, 161-168, 174, 175, 182 ; possible punishment, 146 St. John, Mr. Wm. P., 150-154 Sugar, 47 Sumner, Prof. Wm. G. , 2 Supply and demand, not equal, 25 Tariff-reformers, 233 Taylor, Hon. Abner, 168, 169 Tea, 47 Theory and History of Banking, 193 Theory, an exploded, 185-iqi, 194 Theory of the Foreign Exchanges, 115, note Tooke, Thomas, 187-191 Trade, evolution, 1-12; expressions, 27, 28 ; payments, 177— 182 ; undulatory movement, 24-29, 184 Treasury notes, 186, table ; see Law Treasury, Secretary of, 203, 204 United States notes, 186, table Unwise statesmen, 230 Vaux, Hon. Richard, 170, 171 Victory, how to win a lasting, 218, 219 Virginia City, 73, 76 Vital point in silver question, 65, 66 Volume of money, 14-16, 48, 141, 142, 186, table, 191, note, 228-230; increasing while prices decline, 184, 185 ; indiffer- ent countries, 192-194 ; persistent theory, 183-184 ; tests of, 197-199 242 Index. Wage-earners, 63-79, 85, table, 97, 99-103 Wages, 19, 50, 64-79, 82, 84-103, 231 ; advance in, 64, 65, 85 ; how advanced, 90-100 ; rate in proportion to results, 97, 98 Walker, Hon. Joseph H., 83-85, 169, 170, 173 Wampum, 2, 7, 8 Wealth or Money (?), 162, 195 ; base of credit, 195 Wells, Hon. David A., 23, 24, 42, 45 Western borrowing, 133 Western demands, 227-230 Williams, Hon. James R., 172 World's philanthropist, a, 165 QUESTIONS OF THE DAY. 42 — Bodyke : A Chapter in the History of Irish Landlordism. By Henry Norman. Octavo, cloth, illustrated ... 75 43 — Slav or Saxon : A Study of the Growth and Tendencies of Russian Civilization. By Wm. D. Foulke, A.M. Octavo, cloth . I oo 44 — The Present Condition of Economic Science, and the Demand for a Radical Chang^e in its Methods and Aims. By Edward C. Lunt. Octavo, cloth 75 46 — Property in Land. An essay on the New Crusade. By Henry Winn. Octavo, paper ....... 25 47— The Tariff History of the United States. By F. W. Taussig. 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