Part 25

So long as society chooses to maintain the automatic or metallic money-system, it must be obvious that to escape the evils that would result from a sudden and overwhelming increase in the supply of the money-material as compared with the entire stock in existence, and the infinitely more serious evils that would result from a wholly insufficient yearly addition to that stock, it must have on hand an enormous accumulation of the metals on which the stamp is placed. It must be manifest that no material would be fit for universal acceptance for so important a function as money unless there were available so great a quantity of it that no sudden shock could be inflicted on society by ordinary fluctuations in the current yield, or in the current consumption in the arts.

But, in the nature of things, a supply sufficient to effect that result would be so enormous as practically to destroy the market value of the material as a mere commodity if the money function and use were withdrawn from it.

THE MONEY DEMAND, NOT THE COMMODITY DEMAND, THAT GIVES GOLD ITS VALUE.

Mr. Giffen the statistician of the London Board of Trade, in an article recently published in an English magazine, berating and deriding the bi-metallists, maintains that it is not the demand for gold as money, but for gold as a commodity, to be used in the arts, that determines its value.

To prove his case, Mr. Giffen states that the supply of gold is about $95,000,000 per annum, the annual demand for the arts $60,000,000, or about two-thirds of the annual supply; while the demand for money is only $35,000,000, or about one-third that supply. He therefore argues that the art demand, being the greater of the two, contributes more largely to the maintenance of the value of gold than does the demand for that article as money. It is hardly necessary to point out the absurdity of this claim.

The commodity demand in any one year is not made upon the current year's supply, but upon the entire amount in existence, which, is estimated to be about $4,000,000,000. If the demand for the arts entirely ceased, would the addition, to the money volume, of the $60,000,000 now used in the arts produce any appreciable effect on the value of the $4,000,000,000 in existence?

On the other hand, what is the demand on gold for the money use? All the labor and all the salable property of the western world are constantly offered in exchange for it. It is a moderate estimate to assume that each dollar is earned, demanded, and paid once a week, or fifty times in each year. This constitutes a total annual money demand of $200,000,000,000, compared with which colossal sum how inconsequential is the commodity demand of $60,000,000 in maintaining the value of gold.

The amount of gold annually used in the arts is not very definitely ascertained, but in 1886 it was estimated by the then Director of the United States Mint to be $46,000,000 per annum. Mr. Giffen estimated it at $60,000,000. It is my opinion that the arts forage on the money-stock of gold to the extent of about the entire annual yield. The bullion or commodity value of that metal being determined by its money value, whoever desires to use it for any purpose other than money, takes the bullion at its coinage value, or else melts up the coin.

Were gold demonetized and deprived of its money function, and its demand confined solely to that arising from its adaptability for various other purposes, the present stock of that metal on hand and in use as money would, according to the estimates of the director of the mint, supply the art demand for more than seventy-five years to come. But, assuming that the estimate of the Director of the Mint is too low, and that my own is nearer the truth, there is at least fifty years' supply on hand. Were there fifty or seventy-five years' supply of any other commodity on hand in the market, what would be the commercial value of that commodity? What would be the value of copper, of brass, or of iron, if there were fifty or seventy-five years' supply of either of those metals in the market for disposal at one time? Nobody can pretend that any commodity of which there is an available supply on hand equivalent to the whole demand for fifty or seventy-five years can have any but the most trifling value.

Contrary, therefore, to the generally received conviction that the commodity demand is the dominating force in fixing the value of gold I maintain and insist that the commodity demand, if entering into the account at all, is insignificant. It is the supremely important money-demand, as correlated to the supply, that fixes the value of all money of every description whatsoever.

The demand for gold as a commodity is limited and fluctuating, but when that metal is invested by law with the higher function of money, and thus constituted a common denominator of all values, that limited and fluctuating demand is changed to an unlimited and constant one, which fixes its value for other and inferior uses. If the commodity-demand for gold were, as many believe it to be, essential to its acceptance as money, it would be a great misfortune to society. The happiness and prosperity of the world, if not wholly dependent upon, are largely influenced by, steadiness in the value of money, and this can not exist without steadiness in its volume. Whatever demand exists for gold as a commodity can only affect the volume of money injuriously--that is to say, by decreasing it. The admonition of history is that a deficiency in the money-supply is more probable, and infinitely more to be feared than an excess, and this deficiency is, in great measure, caused by the insidious and constant encroachment, upon the precious metals, of demands for them for other than the money use. When we contrast the magnitude of the world's interests and equities, which rest on steadiness in the value of money, with the comparative unimportance of the uses of the metals as commodities, it becomes apparent that the subjection of the value of money to disturbance from the demands for gilded signs, looking-glasses, bangles and breast-pins, is an evil for which society is but poorly compensated by the benefits derived from such uses.

Whatever other quality gold may posses than as the bearer of the money function is inconsistent with the healthful and proper exercise of the task assigned it as such. Whenever any portion of the metal is used for any other purpose than money it destroys the money and thus changes the value of every unit of money in circulation, for, at already stated--other things remaining unchanged--the value of each dollar depends on the number of dollars that are out. Without forewarning, and with out knowledge on the part of the people, large amounts of the money volume, on which so infinite a number of equities rest, and on the basis of which all debts and time contracts have been entered into, are, as it were, surreptitiously abstracted and appropriated to other and always inferior uses, for by far the highest and noblest use of any material upon which the money function has been conferred, is the money use. No other use can possibly be so high or so noble as that of maintaining all equities undisturbed.

It seems unworthy a highly developed civilization which, as to all subjects other than money, regulates its affairs by the application of intelligence, and bases its policies upon exact data, scientifically ascertained and correctly applied, to depend for its money system upon the accidents, make-shifts, and expedients to which primitive society, by reason of the limitation of its powers and the undeveloped condition of the human mind and hand, was compelled to resort. If the quantitative theory of money be correct--if the money standard be, as I insist it is, a steady and duly proportioned numerical relation existing between the units of population and units of money--it is the duty of society and government to see that as far as practicable that principle is put into operation.

The history of the production of the precious metals from the remotest ages demonstrates that under the automatic system of money this can only be effected by the unrestricted coinage of, and conferring the full legal-tender function on, both metals.

THE PROPOSITION THAT THE GOVERNMENT SHOULD LEND MONEY ON THE SECURITY OF REAL ESTATE.

If a change in the whole number of money units in circulation relatively to population and business do not affect the value of each unit, then no objection can be found to the proposition recently presented in the Senate by the distinguished Senator from California, which created some surprise among Senators. The resolution of that Senator contemplates a loan by the Government to holders of real estate based upon the security of the property; and the issue of a large amount of Treasury notes for that purpose. Certainly, if a dollar, in order to perform properly the money function, must have in it or back of it a dollar's worth of material, there can be no safer security found than that suggested by the Senator from California, namely, the arable land of the United States.

It is the most absolutely secure of all securities; it can neither run away nor be stolen, it can not be burnt up, lost, or destroyed.

Arable land is, in and of itself, capable of supplying all basic wants, and must be always in demand, while gold, so far as concerns any use to which it is, or can be applied, might be dispensed with altogether, with scarcely any inconvenience to society.

Certainly money based on land would seem to be better than money based on gold. Senators who are sticklers for so-called "intrinsic value" money, and "full-value" money, should be found supporting that proposition. But it must, on reflection, be obvious that, other things remaining unchanged, whenever the total number of units of money (or dollars) in the circulation of a country increases, the value of each unit will decrease. It is an axiom of political economy that no amount of increase in the number of units of money in a country increases the aggregate value of the money of that country.

The aggregate value of the money in circulation in a country, can, ceteris paribus, be increased only by an increase of population and business, that is to say, by an increase in the demand for it.

If, without increase of population, the money of a country be increased from, say, $1,000,000,000 to $2,000,000,000, the effect would be not to add to the aggregate value of the money of the country, but to decrease the value or purchasing power of each unit of the money, so that it would take ten dollars to buy what had before cost but five.

GOLD A FETICH--DEMAND FOR A STANDARD OF JUSTICE.

The history of the world affords no example of a money system regulated by human prescience and intelligent calculation. It is not too much to say that the money system of the world--the most important associative instrumentality of civilization, in so far as it is not controlled for their own advantage by the creditor classes--is practically the result of accident. We are even less logical than the ancients, for they availed themselves of the entire supply of money possible to their civilization and development. They used the full yield of both silver and gold, while we, in order to line the pockets of a privileged caste of money-lenders, reduce the money volume to the lowest possible minimum by discarding one of those metals and making all debts payable in the other.

Gold has been erected into a fetich by methods familiar to the pagan priesthood, who forbade investigation of the claims of their idol to the superstitious veneration of their followers. The quality of a universal standard claimed for gold has been set up by the classes which, like that priesthood, had interests to be served by the superstition. All things else may be subjected to the test of reason and argument, but the slightest approach to a scrutiny of the claims of gold as a much-vaunted universal standard of valuation has been repelled by interested casuists and sophists who constitute the sacred guard of the temple of the idol.

The people of this country, Mr. President, begin very seriously to doubt the sacredness of a so-called standard by which they have been robbed of thousands of millions of dollars--a standard that despoils and impoverishes the toiling masses, in order to swell the plethoric pockets of the privileged few. From all parts of the Republic we learn that the people have become aroused on this subject, that they have discovered gold to be a standard, not of valuation, but of spoliation and confiscation.

The world at large shares to a great extent in the doubts entertained by the people of this country as to the orthodoxy of the continuing worship of gold. Throughout all Europe the suspicion is beginning to make itself felt, among those who have no personal interest at stake, that the constantly appreciating value of this metal bodes no good to society, however advantageous it may be to the moneyed classes, and especially the money lenders. It begins to be feared that there may be too long a persistence in this artificial standard, and that the pressure upon the people, in the fall of prices and the increase of the burden of debt and of taxes, which multiply with time, may have serious consequences upon public order. The stock of gold, never half enough to meet the wants of the people anywhere, is year by year being drawn upon more and more for use in the arts, while the yield from the mines is decreasing, and giving no promise of any material increase from any quarter.

The pressing need of the time, the standard for which the people are calling, is a standard of equity, a standard of justice, a standard that shall measure fairly and impartially the rights of both parties to a contract, that will not wrongfully and stealthily add to the burden of the obligation on either side, that will not, under the guise of fair dealing, rob one of the parties for the benefit of the other. The first indispensable step to a realization of that standard is the full restoration of silver to its rightful position as a part of the money of the world.

In any discussion of the question, it would be uncharitable not to make allowance for the force, on many conscientious minds, of what, to the free and unprejudiced inquirer, can only be regarded as an absurd and meaningless superstition, which, notwithstanding the advance of thought in other directions, still persists in disarranging the industries and vexing the civilization of an enlightened age. It is to the strength of this obdurate superstition that we must ascribe the horror with which many minds contemplate the possible loss to the country of a part of its gold.