Conclusion

CONCLUSION. TF these chapters of history have been narrated with any success, they carry their own lesson with them. There are many who sneer at history and foreign experience as inapplicable to our circumstances, and toss off the lessons of history with impatient contempt, but these very persons never talk on financial topics for five minutes without referring to what " the Bank of England does," or what " England did " during the Bank Restriction. The only remarkable fact about their references is that the facts are often incorrectly stated, and the inferences illogically and unscientifically drawn. From this it appears that they object, not to the force of historical arguments, but to the trouble of correctly informing themselves about historical facts. There are very many, however, who are will« ing to learn from history and science, and are led astray by the sweeping assertions, incorrect references, and dogmatism of those they are obliged 3 26 CONCLUSION.

to trust. It is for these that these chapters have been written. It will be observed, then, that there is nothing new to be discovered about the operation of papei money. There is no new invention possible for making it "as good as gold," no new device conceivable for making it elastic, no difficulty connected with it which has not been experienced, no phenomenon of its development for which we have not abundant analogies. If any qualification of these assertions is necessary, it is only this, that no scheme of intro-convertible bonds for giving elasticity to a currency of fixed amount has ever been tried, or, so far as I know, proposed. This scheme is the only one which fully illustrates what is derisively called " theory," for it stands on no facts, appeals to no experience, is deduced from no observation, but is purely imaginary and speculative. It has a certain plausibility, but all the observed phenomena of paper money go to show that it would make the paper elastic only in one direction.

For a nation which has fallen into this mistake, there are only three courses of action which are CONCLUSION. 327 even logically conceivable: to go on, to turn back, to stand still. The last is the "growing up" idea, and may be ruled out at once as impracticable. To try to stand still will inevitably end in drifting onwards into inflation. It will be much gained, therefore, if we come to face the situation as a grim alternative, for such is its actual character. To go on to further inflation, whether by free banking, intro-convertible bonds, or direct issues, means simply bankruptcy and repudiation. Each new issue will produce, only for a time, ease and apparent prosperity, to be followed in a few years by a new crisis and new distress, then a new issue, and so on over again. Reform will then be no longer possible, and we must run the course to its end, in which the paper disappears as ignominiously as the continental notes.

If we choose the other alternative, it is useless to try to deceive ourselves at all in regard to what it involves. To talk of resumption and of issuing the 44 millions, or of establishing free banking on 5-20's, in the same breath, is a contradiction. If we want specie payments, we must have specie, 328 CONCLUSION. and, if we want specie, the entire history before us repeats to weariness that we must get the paper out of the way. This is the first condition, and, until we are willing" to face it, it is useless to discuss resumption at all. The doctrines drawn from the previous chapters are not doctrines of financial science so much as stumbling-blocks which lie at the door of that science. We have seen by abundant evidence, that the movement of the precious metals from country to country is not governed by the balance of trade, as is assumed in nearly all discussions of this subject. An economist of to-day who makes an assault on the " balance of trade" feels as if he were taking a sledge-hammer to break through an open door ; but this doctrine is made the starting-point of discussing our finances in public documents, in speeches in Congress, and in most of the pamphlets and newspaper articles one meets with.

We have seen, however, that the transaction is not one to which the term balance properly applies. Whenever a nation has complained that an adverse balance of trade was drawing off its specie, we have seen that an inferior currency of some CONCLUSION. 329 kind was displacing-the better one, and that the increased imports of merchandise were only the return payments for the gold or silver which had been dispensed with by employing a cheaper medium. We have seen also that prices alone govern the flow of the precious metal, or, more strictly stated, that the movement of the metals and the prices of commodities in different countries act and react upon one another in such a way as to keep up the exact natural relation of prices between different countries, and give to each country in the world's market its full relative advantage in production. If, therefore, a nation had a specie currency, a drain upon it by an adverse balance of trade, a foreign payment, or any other similar cause, would immediately produce a lowering of prices and a return current of specie until the natural level was once more restored.

We have also seen that it is an error to say that there is not enough gold and silver in the world to perform the exchanges. Whatever gold there is, is enough. The only difference would be whether one grain of gold would buy one thousand grains of wheat or one hundred thousand.

33o CONCLUSION. We have also seen that the metals will distribute themselves amongst the nations in exact proportion to their requirements, if there is no interference in the shape of inferior currency. If a vacuum is left by the destruction of paper, specie comes in to take its place, as occurred here after the revolutionary war and after the bank crash of 1839. It may have to be bought back, however, very dear ; that is, by giving many goods for it, or what is the same thing, goods at low prices. If the requirement rises above the supply, specie flows in to fill the gap, as we see after every commercial crisis. These principles govern the question of resumption. If we want the specie, we here see how we must go to work to get it. It is not possible, save by withdrawing a portion of the paper. When we suspended, we overissued. The consequence was a rise of prices, increase of speculation, and export of specie. Large importations of merchandise followed, and exportation was loaded with disadvantages. The course of resumption is the opposite in every particular.

When the paper is withdrawn, prices fall, specuCONCLUSION. ' 331 lation is restrained, specie flows in. Importations are discouraged, exportations increase and go to pay for the gold. It may be added that, as the former process was smooth and agreeable, so the latter is hard and distressing. When the specie is given up, large quantities of it, comparatively, are given for little merchandise; when it is sought again, it must be bought at a disadvantage. No nation has ever had the courage to pursue this course except England, and she only entered upon it after two or three commerical revulsions had destroyed a large part of the paper, never immoderately redundant; she entered upon the effort under the guidance of a high order of statesmanship ; she took advantage of the fall in prices and business stagnation following a crisis ; and her resumption was not complete until after the withdrawal of the small notes in 1829.

Other nations, like Austria and Russia, have gone on for generations, sinking deeper and deeper, crippled in their military and industrial strength by this inheritance, not knowing how to endure it or how to get rid of it, or, like France 332 CONCLUSION. and our own colonies, have gone through bankruptcy and repudiation. These are the alternatives, and it has been well likened to the choice of a man in a house on lire who jumps out of the second story rather than wait to be driven up to the third or fourth or the roof. If the withdrawal of the paper should be resolved upon, the best way to accomplish it is the one which is simplest and most straightforward; that is, to raise a surplus revenue and with it cancel the government issues, It is not consistent with the present purpose to criticise the various schemes which have been proposed. They all involve some kind of conversion of one sort of paper into another, and every such change complicates a system already far too intricate, and every such change involves chances of unforeseen events, or of unexpected effects, for they consist of experiments on totally untried ground. Some of these schemes involve no actual reduction of the outstanding paper, and can lead to nothing but expense and injury to the public credit. Others do involve a diminution of the paper and seek to accomplish it without the disCONCLUSION.

tress which it must occasion. It is certainly most desirable that any possible application of science to this end should be invented, but all such plans involve the danger of political events during the next five or six years, which cannot now be foreseen, and they assume also that the scheme will be faithfully carried out whenever it begins to press hard, as at some time it certainly must. Past experience leads us to doubt whether this latter assumption would be justified by the event. Our object here, however, is simply to establish by history and science, what are the indispensable conditions of resumption, and to place the problem in such light that it may be perceived how it must be attacked, if it is to be solved at all.