Part 13

The forced construction into which their position drives the advocates of the gold standard is well illustrated in a recent number of a magazine of high standing in this country, in which I find the following:

But if it be demurred, does not a debt incurred, say, ten years ago require to-day more wheat or iron for its satisfaction than the sum could have bought when first borrowed? Certainly, but the wheat or iron represents no more labor now then it did ten years ago, and its increase in quantity stands for the new efficiency which applied science has bestowed on toil.

Observe how deftly the writer places iron, in the manufacture of which there have admittedly been some improvements, in the same category with wheat, in the production of which the improvements within any recent period have been of the most trifling character. It will be exceedingly difficult to convince the farmers of this country, whose mortgages are eating up the proceeds of their labor, that the enormous decrease in the debt-paying power of their products is made up to them in "the new efficiency which applied science has bestowed on toil."

As well might it be maintained that the rise of prices and the concurrent wave of universal prosperity, experienced after 1849, was not due to the increase of the world's money stock from the mines of California and Australia, but to some sudden, unaccountable, and complete loss of all improvements theretofore attained in the arts and industries of the world.

EFFECT OF CHECKS AND CLEARING-HOUSES.

But it is said that checks, notes, drafts, bills of exchange, and the facilities afforded by clearing-houses effect such economy in the use of money that it goes farther now than formerly, and that therefore so large a volume of money as was formerly needed is not needed at present. It is sought thus to escape the conclusion that the fall of prices is the result of a shrinkage of the volume of money, or at least to imply that if the money volume has been shrinking the agencies mentioned have served to mitigate, if not entirely to counteract, the effects of such shrinkage. This is in substance to claim that however contracted the money volume of a country may become, the system of checks and clearing-houses--on the principle of the compensating balance--will expand in a proportion directly corresponding to the contraction of the currency; that the greater the reduction of the volume of money in the country the greater the increase in the transactions of the clearing-house.

Nothing more absurd could be conceived. If this view were correct, it would make no difference whether the amount of money in circulation were large or small; a million dollars would be as efficacious as $100,000,000, and even one dollar as effective as a million dollars; and if we suppose the last dollar to have disappeared from circulation, then, according to the sweeping and pretentious claims set up for the clearing-house system, we could dispense altogether with the use of money and rely exclusively on checks, drafts, and bills of exchange.

That checks and clearing-houses are a great convenience to commerce is not denied. They serve to a certain extent to make more effective the money volume of a country. By the clearing house system of off-setting the demands of the several banks, one against the other, and requiring payment in cash of the balances only, large amounts of loans may remain undisturbed and greater stability of industrial conditions be secured.

Clearing-houses, however, were not established primarily for the convenience of commerce, but for the profit of bankers. Whatever amounts of money are economized by means of those institutions bring compensation, by way of interest, to the banks. We may, therefore, rely upon their being utilized to the utmost under all circumstances.

But, however much checks and clearing-houses may economize the use of money, they are no novel devices. They are not some untried and newly-invented instrumentalities. Checks have been in use ever since the invention of banks. The clearing-house system was established in this country in 1853. Contributing, as it does contribute, to the pecuniary profit of the banks by making possible an economy in the use of invested money, which the banks have loaned out, and on which they are drawing interest, the system has grown with the growth of the business of the country. It will undoubtedly continue to grow, but with no greater acceleration than population and business will warrant.

As it has been a part of the banking machinery of the country for nearly forty years, and during that period has been utilized to the utmost, the conditions of its existence and utilization have long since become static conditions. The demands for currency have borne relation to the needs of business, with clearing-house facilities in full sight and operation; and at all seasons, in the adjustment of prices, those facilities have had full force and effect. Assuming that at any given period the business of the country were conducted with a given volume of money, plus a certain volume of clearing house exchanges, then, at a later period, an increase of business would demand an increase in the volume of money, plus a proportionate increase in the volume of clearing-house exchanges; having had this system in full and effective use for forty years, it is as absurd to ascribe the fall of prices in the last half of that period to any economy in the use of money effected by the clearing-house system as it would be to ascribe to the same cause the directly opposite effect--the rise of prices--that took place in the first half of the same period.

THE PROOF AFFORDED BY THE FALL OF INTEREST.

If further proof were needed that gold has risen in value, it is, as I maintain, to be found in the coincident fact of a decrease of rates of interest on first-class securities. That decrease has kept even step and pace with the rise in the value of money.

The rise in the value of gold, as shown by comparison with large numbers of articles of commerce, has been between 35 and 40 per cent. The rate of interest on gilt-edged securities shows a corresponding decline. But unfortunately for the struggling people of the country, the fall in the rate of interest on farm mortgages and on property remote from money centers has been nothing like so great, nor has it been so great as the fall in the price of agricultural lands, and in the products of labor.

I hold, therefore, that a new axiom should be added to the science of political economy; namely, that as the purchasing power of money increases, its income producing power decreases, and in about the same ratio; and conversely, when the purchasing power of money decreases, its income-producing power increases. In other words, when prices rise interest rises; when prices fall interest falls. When money is increasing in volume and decreasing in value, prices rise, and its investment in productive enterprises becomes more profitable, and as a consequence interest rises. When it is decreasing in volume and consequently increasing in value, prices fall, investment in property and productive enterprises become precarious and unprofitable, and, as a consequence, it avoids them, and seeks investment in bonds and gilt-edged securities, aptly termed "money-futures," which for years have been increasing and continue to increase.

Some thirteen years ago I indulged in a little prophecy concerning the rates of interest. I take no great credit to myself for it, but in 1877--four years after the demonetization of silver--before the rates of interest had materially fallen, and when the same contention was made that is made now, namely, that money was cheap because interest was low, and that the policies of the country were wise because our credit stood on such a high plane, I submitted to Congress the report of the Monetary Commission, from which I quote:

Money can be borrowed readily only upon such securities as bonds which are based on the unlimited tax-levying power of the Government, or upon the bonds and stocks of first-class trunk-lines of railroad corporations, whose freight and fare rates are practically a tax upon the entire population and resources of the regions which they traverse and supply. The competition among capitalists to loan money on these more ample securities has become very keen, and such securities command money at unprecedentedly low rates. These low and lowering rates of interest, instead of denoting financial strength and industrial prosperity, are a gauge of increasing prostration. Large accumulations of money in financial centers, instead of being caused by the overflow of a healthful circulation, or even a proof of a sufficient circulation, are unmistakable evidence of a congested condition caused by a decreasing and insufficient circulation. The readiness with which Government bonds bearing a very low rate of interest are taken, instead of showing that the credit of the Government has improved, is melancholy evidence of the prostrated condition to which industry and trade have been reduced.

There need be no haste in refunding the public debt at the rates now proposed and considered low. Unless the progress of the commercial world in the policy of contracting money by demonetizing silver is checked, bonds bearing a much lower rate of interest than any yet offered will be gladly accepted by capitalists here and in Europe. When the money stock is diminishing and prices are falling, the lender not only receives interest, but finds a profit in the greatly increased value of the principal when it is returned to him. A loan of money made in 1809, if repaid in 1848, would have been repaid with an addition of 145 per cent. in the purchasing power of principal and interest, besides all the interest paid. Those who have loaned money to this Government since 1861 have already received nearly as much in the increased value of their principal as in interest, and all the probabilities are, in respect to the four per cent. thirty-year national bonds now being negotiated, if they are redeemed in gold, that more profit will be made by the augmentation in the value of principal through interest. Indeed the signs of the times are, that the bonds of a country possessing the unbounded resources and stable institutions of the United States, payable in gold at the end of thirty years without any interest whatever, would, through the increase of the value of that metal, prove a most profitable investment.

All the facts of the situation to-day fully bear out the statements I then made.

So determined are the advocates of the single gold standard in defending the wisdom of its maintenance that facts whose existence would at ordinary times be readily admitted, are, during a discussion of the money question, pointedly denied. For example, within the past few weeks we have seen in various eastern newspaper contributions from prominent writers taking direct issue with the advocates of silver as to the prevalence of general distress throughout the country. They declare that there is no such distress, assert that they have looked for it in vain, and derisively inquire where it is.

Perhaps the best authority I can cite in response to this inquiry is the principal commercial daily journal of the east, the New York Journal of Commerce, itself one of the most ardent and uncompromising advocates of the gold standard. In an editorial article in its issue of January 11, 1890, that journal said:

FAILURES IN BUSINESS.

The public have been startled by the announcement that during the year 1889 there were 11,719 business failures in the United States, against 10,587 in 1888 and 9,740 in 1887. The estimated liabilities of last year's insolvents were $140,359,000 and the assets were $70,599,000, against $120,242,000 liabilities and $61,999,000 assets for the failures of the previous year. Thus the failures in 1889 were more in number and far greater in liabilities than for 1888, and the proportion of assets to the obligations shows that the total insolvency was more disastrous. Why in a season of profound peace, with no blighting frosts or withering droughts, and the most abundant yield from the field, forest, and mine so many in business have gone to the wall, no one seems able to answer. Many have tried their hand at a solution of the problem, and not one, as far as we can discover, has satisfied even himself with the result of his investigations.

HAS SILVER FALLEN?

In order to ascertain whether silver really has or has not fallen in value, it is necessary that all the facts be taken into account and the situation looked at from a correct point of view. If a person be seated in a boat that is headed to the stream and wishes to test whether or not he is making headway he must keep in view not the stream, but the shore. The occupant of a railroad car who observes a moving train on a contiguous and parallel track, frequently thinks his own train at a stand-still, when in fact it may be in motion.

Whenever a rise or fall appears to take place in the price of any one article or commodity, that is to say whenever a difference takes place in the relation which that article bears to money--all other commodities remaining unchanged--such difference must naturally and properly be attributed to changed conditions affecting the commodity, and not to a change in the value of money. But wherever there is a fall in prices throughout the whole range of commodities then it is clear that this change is mainly due to a change in the value of money. Such however is the force of education and habit that the masses of the people are slow to suspect any change in the standard by which they have been accustomed to gauge or measure all values. Indeed they find it difficult to understand how under any circumstances any change can take place in it. Having their eyes fixed on the standard, and on that alone, they naturally attribute to the articles measured, and not to the standard, any difference that may seem to arise in the relation they bear to each other.

But the apparent is not always the real. Nothing seems more warranted by the evidence of our senses than that the earth is a stationary object, while the sun revolves around it. For thousands of years the world was convinced of the truth of the geocentric theory of the universe, and millions of men have lived and died in the confident belief that this planet was immovably fixed in space, while the sun was a rolling and ever-shifting body. Even yet, among the mass of mankind, so ever-present is this impression, derived from ocular demonstration, that in spite of the declarations of science, the world continues in common use the phrases which originally described the process that took place, as men understood it; hence we speak of the "rising" and the "setting" of the sun. In the same way we speak of the rise or fall in the value of commodities, without being particular to note whether the change that has taken place is strictly a change in the value of the article itself or a change in the money with which its value is measured. Perhaps I can best illustrate my meaning by an allegory:

THE BATTLE OF THE STANDARDS. THE ALLEGORY OF THE CLOCKS.