Part 24

Mr. J. R. McCulloch, in commenting on the principles of money laid down by Ricardo, says:

He examined the circumstances which determine the value of money * * * and be showed that * * * its value will depend on the extent to which it may be issued compared with the demand. This is a principle of great importance; for, it shows that intrinsic worth is not necessary to a currency, and that provided the supply of paper notes, declared to be a legal tender, be sufficiently limited, their value may be maintained on a par with the value of gold, or raised to any higher level. If, therefore, it were practicable to devise a plan for preserving the value of paper on a level with that of gold, without making it convertible into coin at the pleasure of the holder, the heavy expense of a metallic currency would be saved.

It appears, therefore, that if there were perfect security that the power of issuing paper money would not be abused; that is, if there were perfect security for its being issued in such quantities, as to preserve its value relatively to the mass of circulating commodities nearly equal, the precious metals might be entirely dispensed with, not only as a circulating medium, but also as a standard to which to refer the value of paper.

In adopting a paper circulation--

Says Lord Overstone--

we must unavoidably depend for a maintenance of its due value upon the adoption of a strict and judicious rule for the regulation of its amount.

Lord Overstone further declared that:

The value of the paper currency results from its being kept at the same amount the metallic currency would have been.

Alexander Baring, in his evidence before the secret committee of the House of Lords in 1819, said:

The reduction of paper would produce all those effects which arise from the reduction in the amount of money in any country.

Prof. F. A. Walker says:

Let me repeat, money is to be known by its doing a certain work. Money is not gold, though gold may be money; sometimes gold is money, and sometimes it is not. Money is no one thing, no group of many things having any material property in common. On the contrary, anything may be money; and anything, in a given time and place, is money which then and there performs a certain function. Always and everywhere that which does the money-work is the money-thing.

Sir Archibald Alison says:

The suspension of specie payment in 1797, making bank notes a legal tender receivable for taxes by providing Great Britain with an adequate internal currency, averted the catastrophe then so general upon the Continent, and gave it at the same time an extraordinary degree of prosperity. Such was the commencement of the paper system in Great Britain, which ultimately produced such astonishing effects, and brought the struggle [of the Napoleonic wars] to a triumphant close.

THE TRUE MONEY STANDARD.

The true money standard of any country is not the material of which the money is made. The standard is not a concrete object, but a numerical relation. It is the relation between the number of units composing the monetary circulation of the country and the numbers of the population.

It is the legal-tender function that constitutes money. It is the power which the law imparts to any material to pay debts and liquidate obligations. It can not for a moment be doubted that the money function, being conferred by the supreme authority, is the all-sufficient guarantee of the money value. There is no necessity for re-enforcing that value with any inferior value that may attach to the material on which the money stamp is placed. The money function is immeasurably the most important that can be conferred by society upon any material, and it is absurd to urge that that function is not of itself sufficient for the maintenance of the value of money. All the value that money can possibly have--the totality of value that can exist in the shape of money in any country--will attach to anything upon which the sovereign authority stamps it, whether the material on which the stamp is placed be gold, silver, paper, or anything else. Legislators or executive officers of the Government, by increasing or decreasing the volume of money, correspondingly decrease or increase the value of each unit of that money. For no matter how many or how few the units may be, the total value of the money of the country will be comprised within the total number of those units. A change in the number of the units effects a proportionate change in the value of each unit, and whatever the value of the unit may be, it is of the utmost importance that that value should remain undisturbed.

It is absurd to maintain that a gold unit, which, as time goes on, is constantly increasing in purchasing power; is a better unit than a unit of any other material that maintains unchanging value through time.

Whenever the business of the country accommodates itself to a given number of units, the only question for the Government to deal with is to maintain that value as free from disturbance as possible; and according to all authorities on political economy that can only be done by increasing or decreasing the number of units in circulation in accordance with the demands of increasing or decreasing population.

If it be admitted that one of the most important offices of government is to see that the equities are preserved between its citizens (and if this be not so, to what purpose are our courts of equity instituted?), then it can not be denied that it is one of the highest offices of government to see that money, which measures all equities, and which must for all time continue to be the principal measure in the service of civilized society, shall be of unchanging value. It is impossible to secure this characteristic of uniformity in the value of money if we are to select as the only material on which to stamp the money function a substance whose yearly production is becoming more and more limited, and the prospect of whose sufficient yield becomes less and less encouraging.

IF SILVER REMAIN DEMONETIZED AND GOLD CONTINUE DECREASING, WHERE IS THE WORLD'S FUTURE MONEY SUPPLY TO COME FROM?

If the distinguished authorities I have quoted are correct, that a diminution of the volume of money increases the value of the money unit--which is but another form of stating that it lowers prices and produces stagnation, distress, and discontent,--what good reason can be offered by the advocates of the gold standard for confining the business of this rapidly growing country to a basis of gold, when it is well known that the entire stocks of gold and silver together are now insufficient to serve the purpose of the world's money, and have to be supplemented and re-enforced by large issues of paper notes? Do they not reflect that the production of gold is constantly diminishing and is likely to continue to diminish? And do they not know that our population is growing at the rate of over 3 per cent. per annum and will double in thirty years? Do they mean that the money volume which serves a population of 65,000,000, and is far below the needs of that population, will suffice for the 130,000,000 of the next generation? To be sure, if we are to take no note of prices, the question is a simple one.

But prices must be taken into account. The entire money question is one of prices. When it is said that money is scarce, what is meant is that business is depressed and that money is difficult to get, at the present range of prices. Should prices fall 25 per cent. money would be found plentiful enough to conduct exchange at the lower range. But when prices fall, goods sell below cost, business is unprofitable, workshops are closed, and men are thrown into idleness. If lowering prices do not affect injuriously either the business or the prosperity of the country, then it makes no difference what the volume of money may be; a small amount will meet the requirements as well as a large amount. In that case, the gold standard is as good as any.

But if gold alone is sufficient to bear all the enormous monetary burdens of the Western world, why do the advocates of the gold standard admit the necessity for any more circulation? To be logical, instead of favoring an increase of credit money, which has always lurking within it an element of danger to the business of the community, they should demand the retirement of the $347,000,000 of greenbacks and the $350,000,000 of coined silver, and base the business of the country exclusively on what they call "honest money." If that should be done all that could happen would be a fall in prices. Judging by the experience of the past it would not be surprising if the next move of the gold-standard men would be an agitation for the retirement and cancellation of the greenbacks. Such a movement is fully in harmony with the opinions of the gold-standard advocates for the past twenty years. Indeed, the Secretary of the Treasury who took charge of the finances at the opening of the last Administration, himself a banker, recommended the demonetization of the greenbacks almost as vigorously as he opposed silver.

MONEY VALUABLE ONLY FOR THE IMPORTANT SERVICE IT PERFORMS.

Money is valuable rather for the service which it performs than for the material of which it is composed.

When we consider the transcendantly important character of the service which money performs--when we reflect that, without it, the achievement of an advanced civilization would be impossible, we can not escape the conclusion that, compared with the value of that service, the commodity value of any material on which the money function may be stamped is too trifling to merit serious attention.

This will be made clear by reflection on the necessities of the situation.