consumption of foreign fabrics to which they lead. But, as their paper is convertible into coin, the Banks must supply the gold to meet the expenditures that have been made. The remedy, therefore, is speedily applied by the laws of trade. They must pay for the excess of imports over exports from their reserves. It is impossible, however, for them to tell whether all the bills discounted by them have their proper constituent: they can only determine the fact by the result. If they see gold beginning to move, they understand at once that improper bills have been discounted; that the currency has been issued in excess, and must so far be taken in by a reduction of their line of discounts. The movement of gold, therefore, is an indication of the state of the currency, as infallible as is that of the mercury of meteoric conditions. It is the thing of all others upon which an issuer of currency, at the great centres of trade, must keep his eye steadily fixed, and by which he must daily adjust all his operations. Mr. Sumner's test of an "inferior currency" is very different from that which has been described. With him, it is not a question of quality, but of quantity. It is never "inferior," so long as its amount does not exceed that required by a country in its exchanges, even if it be not backed by a single dollar of coin. The conclusion of the Bullion Committee was, to use his own words, "that the value of an inconvertible currency depends upon its amount, relatively to the needs of a country for a circulating medium; and only to a very subordinate degree upon the security on which it is based, or the credit of the issuer." Their conclusions, he tells us, that the value of money depends upon its quantity, not upon the provision made for its convertibility, "are not matters of opinion, but of demonstration." If so, then it is a matter of demonstration that one and one make four. It has been shown over and over again, in this discussion, that the real or estimated value of articles, whether they be merchandise or money, is their exchangeable value. To assume otherwise, would be to say that the exchangeable value of a piece of silver having the weight and insignia of a sovereign equals the value of a sovereign. Humanity is not yet brought to so low a pitch as this. Even the Economists are by no means the simple race their theories would make them. In spite of the conclusions of the Bullion Committee, which, with Mr. Sum ner, are the very acme of financial wisdom, he would be the last man to take a bank or government note without especial reference to the provision made for its discharge. If their creed were their law, a few days would suffice for the Economists to fool away whatever they possessed. The following extracts from a work entitled "The Elements of Political Economy," by Mr. A. R. Perry, Professor of Political Economy in Williams College, are given as an additional evidence of the kind of pabulum which is dealt out to the young men in our colleges. He has all the incoherence of Bonamy Price, though somewhat less of his rant. The reader can make his own criticisms. "There is no use in saying that money is such a mysterious and complicated agent that nobody can understand it. That is the language of indolence. Money is wholly a matter of man's device: it was invented, just as any other instrument is invented, to accomplish a certain purpose; and it would be strange if men cannot comprehend what men themselves have devised." "The word money,' a medium of exchange, is to be taken in its etymological and strict sense, as something that comes between two extremes, and serves also to relate them to each other. Money is only a medium of exchange, and not a real subject of exchange: it is a very great help in exchanging all other things, but is never exchanged for itself in an ultimate transaction.2 Probably the ratio of one to forty is below, rather than above, the true ratio of the aggregate money of the commercial nations to the money value of their products, reckoned only once, which their money helps to exchange. Therefore we see that the hub and spokes and rim of the wheel of exchange consist of services and commodities of every description; while, to borrow the famous comparison of Hume, money is but the grease which makes the wheel turn easier. It is a vast mistake to suppose that the grease is the wheel itself. "The difference between money as a medium and money as a measure is one that should be clearly delineated and perfectly apprehended, because there is no such thing as adequately understanding the subject of money, unless the two functions be kept distinct in the mind, as well in their single as in their commingled action. There is the same difference between money as a medium and money as a measure that there is between a bushel of wheat and that round vessel by which we determine that there is a bushel : Elements of Political Economy, p. 188. 2 Ibid., dollars and cents perform their duties as a medium by virtue of their being commodities; they perform their duties as a measure by virtue of their being denominations. . . . The distinction between denominations and those things themselves which are reckoned by denominations seems a very obvious distinction, and one would suppose not likely to be confounded; but, the truth is, the two are perpetually confounded, even in some of the most recent and approved works on money. Indeed, the grand difficulty and source of error in discussions on money heretofore has been that this distinction has rarely, if ever, been consistently attended to; and I flatter myself that I am doing the science a service at this point by calling attention to this confusion, by explaining how it arises, and by clearing up, so far forth, a vexed portion of the subject. . . "It may be asked, Why cannot this source of error be obviated? I reply that the error may be obviated, but the source of it cannot be obviated, from the nature of the case. It was shown in our chapter on Value, that to find an invariable measure of value is a natural impossibility. Money, as it is the medium of exchange, is also the best attainable measure of value, and is used throughout the civilized world to compare with each other all values except its own; but since value in general, and the value of money as well, is a thing of relation, and varies with every change affecting either of the things exchanged, as much by changes affecting the things it exchanges for as by changes affecting itself, the value of a hat, for instance, as estimated in gloves, increasing by any cheapened process in glove-making, though no change at all take place in the cost of hat-making, a perfect measure of value is impossible. Therefore the denominations of money, which is the best attainable measure, can never have a meaning absolutely fixed, but slide up and down the scale along which the purchasing power of money as a medium is moving, and they are consequently useless as a standard to detect any changes in the medium itself; while, the medium remaining uniform, they instantly detect the changes in all other purchasing powers.1 "Society is so constituted that a want is felt in it of some medium of purchase; this want cannot be supplied without an effort; whoever makes the effort will demand a corresponding effort made for him. When it comes to the exchange of the medium for the wheat, for example, there stand face to face, as in every other instance of exchange, two desires and two efforts. There is then, as always, a reciprocal estimation of the two services about to be exchanged, and the estimation agreed on is the value of the medium expressed in wheat. If the want of any medium of exchange is less felt in any community, or if the effort required to secure it be for any reason less, other things remaining the same, the value of the money will be less; that is to say, it will purchase less of other things. If the demand for money as an instrument of purchase be greater, or the obstacles in the way of its supply be increased, other things remaining as before, the value of the money 1 Elements of Political Economy, pp. 203-207. will be more. It is the old circuit over again of wants, efforts, estimations, satisfactions. The value of money arises under the same conditions as every other value, and is variable by every change in any one of the four elements which alone can vary the value of any thing. Two desires and two efforts invariably precede every exchange. A change in any one of these, the rest unchanged, can vary value, and nothing else can vary it; and, as it seems to me, no person has ever shown, or can show, that the value of money is in any respect, save the superficial one already noticed, exceptional and peculiar. And it also seems to me that nothing more is needed, in order to remove the last vestige of the dark cloud which has so long overhung this subject, than to familiarize one's self, first of all, with the true doctrine of value in general, and then hold fast the truth, exemplified on every side, that the value of money is just like any other value.1 "The earlier period of the suspension proves this important point, that when a government possesses the monopoly of issuing paper money, and carefully limits the quantity issued, and both receives it and pays it out as legal tender, it may keep an inconvertible paper at par, and even, by sufficiently limiting its quantity, carry it above par. But this truth does not make an inconvertible paper a good money; because it does not make it a self-regulating money, and because no one is wise enough, nor ever will be, to issue just enough, and no more, of such money." " 2 NOTE. The following extracts, taken from a reprint in pamphlet form of an article written by Hon. David A. Wells, which appeared in the "New York Herald," of Feb. 13, 1875, "The Cremation Theory of Specie Resumption," show the flippant nonsense which parades itself as oracular wisdom in the newspapers of the day: "In the first place, I do not believe that any man can affirm how much currency a country wants or will use, so long as that currency is restricted to an exclusively local circulation. A three-cent piece, if it could be divided into a sufficient number of pieces, with each piece capable of being handled, would undoubtedly suffice for doing all the business of the country in the way of facilitating exchanges if no other better instrumentality was available. . . . What specific amount of contraction of the legal tender would be necessary, no one can tell with certainty. But, speaking generally, we can affirm with absolute certainty that, to just the extent to which our present volume of currency, supposing it to be exclusively coin, would, by the laws of trade, be diminished by exportation, to just that same extent the volume of our existing paper currency needs to be contracted to equalize its value with coin. If the present average premium on gold represents and measures the excess of currency, and we assume the amount of currency in active circulation at $750,000,000, then a contraction of from $80,000,000 to $90,000,000, and a period of less than four years, would suffice to restore our currency to a specie basis. But if, on the other hand, the excess of currency over and above what is required to do the business of the country on a gold basis is greater than is indicated by the present average gold premium (a point concerning which opinions differ) then a longer period would be required. But, sooner or later, if the contraction was continued, the desired correspondence would be effected. Again, a definite policy of contraction, once agreed and entered upon, it does not seem to me that there need be a single further legislative provision, other than to provide the means necessary to furnish the requisite supply of 1 Elements of Political Economy, pp. 211, 212. 2 Ibid., p. 264. HISTORY OF MONETARY THEORIES. The object of the second part of this work has been, not only to trace the History of Monetary Theories, but to illustrate the correctness of the laws or principles previously laid down. So firmly had become riveted in the public mind the ideas, the teachings, and the traditions of the past, so inveterate the tendency to accept the phenomenal for the real, — that it is doubtful whether any statement of principles, no matter how authoritative or conclusive, could secure acceptance, unless it could be shown at the same time that they successfully disproved the dogmas or theories set out in the books. For twenty-two notes for cremation. - There is no necessity of talking of redemption in the sense of exchanging gold for notes on presentation and demand by holders of the latter across the counter of the Treasury." A three-cent piece could hardly be cut up so fine as to represent all the notes and checks as well as coin now used in the exchanges of the country. But as a value, according to Mr. Wells, equal to that of a three-cent piece would be all that would be required in the exchanges, why not do the next best thing, and use paper? The cost of a thousand-dollar note would not equal one cent. What other kind of material, taking cost and portability into account, could be so appropriate? By its use the whole cost of a currency for the United States could not, indeed, be brought to Mr. Wells's minimum; but would come pretty near it, considering the vast amount required. By the use of paper, our currency ought not to cost over $100,000 annually, a sum hardly more to be thought of than a three-cent piece. Mr. Wells, in fact, advocates the use of a government currency, only with limitations, the quantity not to exceed that required for the exchanges of the country. We should be all right, he says, if our paper money did not exceed the amount of coin which but for it would be in circulation. We are afraid, if he would reduce the amount of paper to that of the coin which otherwise would be in circulation, he would reduce it far below $650,000,000, or $350,000,000 even; as, but for its use, by far the greater number of transactions in which it is used would never take place. They are rendered possible only by the use of paper money. As the premium on gold when he wrote equalled about 12 per cent (the amount of paper in circulation at the time equalling about $750,000,000), a reduction of the currency equal to $80,000,000 or $90,000,000 would, he estimates, be sufficient to raise the whole value of that remaining outstanding to par. This could be done in less than four years, by "cremating" $500,000 weekly. The premium has now fallen to five per cent; reducing the amount necessary to be cremated to less than $200,000 weekly, or to $37,500,000 for the four years. Certainly, the nation should make no great ado about such a paltry sum as this. The necessary amount might be raised by subscription in twenty-four hours. However, if the question be simply one of quantity, and as with the progress of our population and commerce the amount of our currency should increase at least at the rate of five per cent annually, the far better way, admitting the correctness of Mr. Wells' assumption that the question is simply one of quantity, would be to do nothing but wait till the nation has grown up to the present volume of currency. As it is now within five per cent of it, a year at least should suffice to bring our two kinds of money upon a level. A process so natural and healthy should not be disturbed by any kind of empiricism. |