The Crime of 1873

twenty-five years later, when countless interests have vested 1 Lealie's Weekly, September 24, 1896. 173 174 THE FORGOTTEN MAN AND OTHER ESSAYS under the law, that the law is open to "reversal" because it was passed "in the dark"? WAS IT PASSED SURREPTITIOUSLY? How can a law be passed through Congress surrep titiously? We have indeed heard of bills being "smug gled through" in the confusion attending the last hours of the session, or as an amendment, or under a misleading title. There are the rules of order, however, by which all legislation is enacted. All laws which get through the mill are equally valid. There never has been and never can be any distinction drawn between them according to their legislative history. In the present case there was not the slightest manceuvre or trick, nor is there even room to trump up an allegation of the kind. THAT THE PEOPLE DID NOT KNow OF IT. It is said that "the people" did not know what was being done. How do they ever know what is being done?

There is all the machinery of publicity, and it is all at work. If people do not heed (and of course in nearly all cases they do not), whose fault is it? Who is responsible to go to the ten million voters individually and make sure that they heed, lest twenty-five years later somebody may say that the fact that they did not heed lays down a justifica tion for a new project which certainly is "a crime" in the new sense which is given to that word here? MOTIVE OF THE LAW. The act of 1873 did not affect any rights or interests. It took away an option which had existed since 1834, but had never been used, and, for ten years before this act was passed, had sunk entirely out of sight under paper-money THE CRIME OF 1873 175 inflation. Secretary Boutwell, when he first brought the matter to the attention of Congress in 1870, explained the proposed legislation as a codification of existing coinage laws. Later it took the shape of a complete simplification of existing law, history, and fact, in order to put the coin age on the simplest and best system as a basis for resump tion. As we had then no coin, we had a free hand to put the system on the best basis, there being no vested rights or interests to be disturbed. That this was a wise and sound course to pursue under the circumstances is unquestion able. Three years later, by the rise in greenbacks and the fall in silver, it came about that four hundred twelve and one-half grains of silver, nine-tenths fine, was worth a little less than a greenback dollar. The old option would, there fore, if still existent, have been an advantage to debtors.

Complaint and clamor for the restoration of the option then began, but to give such an option, after the market had changed, would be playing with loaded dice. The European countries which still retained the option abolished it as soon as silver began to fall, and we, if we had retained it open until that time, ought to have done the same. ALTERNATE RUIN TO DEBTORS AND CREDITORS. The inflation of the Civil War had a direful effect upon all creditors on contracts outstanding in 1862. The resump tion of specie payments had a similar effect on debtors under contracts made between 1868 and 1878. Greenbackism and silver debasement were produced by resistance to this operation. The debtors of to-day are not those of that period. The debts of that period are paid off. The pain and strain have been borne. The credit of the United States has been established, the currency restored, and the whole business of the country for seventeen years has been completely established on the gold dollar as the dollar of 176 THE FORGOTTEN MAN AND OTHER ESSAYS account for all transactions whatsoever. The population of the country is now two and a half times what it was in the war time, and its wealth is probably a much greater multiple. The debts now outstanding have, with unim portant exceptions, been contracted since the resumption of specie payments. What is now proposed is to enter upon a new period of these alternations of wrong and in justice, first to creditors, then to debtors, and so on, and to do this in a time of peace, not from any political neces sity, but on the ground of some economic interpretations of the facts of the market, which are incapable of verifica tion and proof, when they are not obviously erroneous and partisan. The effect of the various compromises with silver is that the currency is once more intricate and com plicated, excessive and confused, so that few can under stand it, and it offers all sorts of chances for perverse and mischievous interpretations.

DEMONETIZATION REMOVED No MONEY FROM USE. The law of 1873 never threw a dollar of silver or other currency out of circulation. We hear it asserted that "de monetization" destroyed half the people's money. People say this who know nothing of the facts, but infer that de monetization must mean that some silver dollars which were money had that character taken from them. Noone of the other demonetizations, which took place in Europe at about the same time, diminished the money in use. The result of changes in 1873-1874 was that the amount of silver coin in use in Europe was greatly increased, and has remained so since. The resumption of specie payments after 1873 by a number of nations which had issued paper money in the previous period, and the alternate expenditure and re-col lection of war-hoards of gold, had far greater importance than the demonetizations.

THE CRIME OF 1873 177 There has been no diminution of the world's coined money within fifty years, but a steady and rapid increase of it. There have been fluctuations in the production of gold and silver such as belong to the production of all metals and are inevitable. THE ALLEGED SCRAMBLE FOR GOLD. There has been no "scramble for gold." Those who do not put any obstacle in the way of gold get more of it than they want. The Bank of England has had lately the larg Efst stock of gold that it ever had, and complaints have begun to be heard of a glut. The gold-production in the last five years is the greatest ever known and there is no fear of any lack of it, whatever may be the sense in which anyone chooses to speak of a "lack." There is not and has not been any" scarcity of gold." There is no such thing conceivable, except where paper has been issued in excess, so that it is hard to keep enough gold to redeem it with.

PROOF THAT THERE HAS BEEN NO SCARCITY OF GOLD. There is one proof that there has been no scarcity of money for twenty-five years past which has not indeed passed unnoticed, but which has not received the attention which it deserves; that is the rate of interest. The rate of interest is normally due to the supply and demand of loanable capital, and has nothing to do with money. The value of money is registered by prices, not by the rate of interest. But whenever there is a special demand for money of account - that is, for the solvent of debts - the rate of interest on capital passes over into a rate for the solvent of debts. Banks lend capital in its most universal form, i.e., the currency or money of account, or bank credits. If credit fails, as in a time of crisis and panic, 178 THE FORGOTTEN MAN AND OTHER ESSAYS actual cash in the money of account is wanted. This now is loaned, under a rate, by the same persons and institu tions who formerly loaned capital, and the one phenome non passes into the other without any line of demarcation.

The transition, however, never takes place except in time of crisis, and therefore at a high rate. From this it follows certainly that never when the market rate is low can it be a rate for the solvent of debts. Now, ever since 1873, with the exception of periods of special stringency in 1884, 1890, and 1893, we have had very low rates of interest; the rate for call loans (which in this connection are the most im portant) has been about two per cent. This is a demon stration that the country has not been suffering from a crisis on account of a lack of currency for the normal needs of business. Proofs could be presented, on the other hand, that the currency for the last six years has been constantly in excess, excepting in 1893, when the credit of the currency failed for a time. How TO GET POOR AND RICH AT THE SAME TIME. Mr. St. John tries his hand at the relation between prices and interest in connection with our subject. He says: "If the dollar can be cheapened by increasing the number of dollars, so that each dollar will buy less wheat, the in creasing price of wheat will increase the demand for dollars to invest in its production." Evidently he fails to dis tinguish between the rise in price of wheat from one gold dollar to two gold dollars per bushel, and the rise in wheat from one gold dollar to two fifty-cent silver dollars per bushel. The former would undoubtedly stimulate pro duction. The latter would do so also, among farmers who shared Mr. St. John's confusion on this matter. There would be many of them. They would imagine that they were getting rich by raising wheat to sell at two silver dolTHE CRIME OF 1873 179 lars, or five, ten, fifteen, or twenty paper dollars, as depre ciation went on. Hence, as he says, they would pay a banker eight, ten, twelve, or fifteen per cent, in the de preciated dollars, in order to get "money," as he calls it, with which to raise wheat. Mr. St. John thinks that this would mean that farmer and banker were both magnifi cently prosperous. It would mean that the real value which came in was steadily growing less than that which went out, so that the capital was being consumed. Hence the high rates of inflation times, and the disaster which follows when the truth is realized. They told a story in Revolutionary times of a man who invested his capital in a hogshead of rum which he sold out at an enormous ad vance - in Continental paper; but when he went to buy a new supply, all his "money" would only buy a barrel.

This he retailed out at another enormous advance - in Continental - but when he went to buy more he had only enough money to buy a gallon. If he had borrowed his first capital he might have paid twenty per cent for it in Continental-but the banker would hardly have made a good affair. MONOPOLY OF THE MONEY. We hear it asserted that the gold standard gives the owners of gold power to appropriate the money and make it scarce, and that they have used this power. Why, then, under silver or paper, may not the holders of silver or paper do the same? That the holders of gold have not done it has been shown above. But nobody can do it with any kind of value money. There are no "holders of gold." He who holds gold wins no gains on it. The bankers who are supposed to hold it, if peace and security reign, put it all out at loan in order to get gain on it. When peace and security do not reign it is not safe to put it out, and bor rowers, fearing to engage in new enterprises, do not present 180 THE FORGOTTEN MAN AND OTHER ESSAYS a demand for it. Furthermore, the greatest gains can then be won by holding money ready to buy property when the crash comes. That is what those who own surpluses are .

doing now. Hence there are no "holders of gold" until monetary threats and dangers call them into existence. Silver legislation has made a great many. The law of 1873 never made any. There is not, therefore, a fact or deduction about the law ()f 1873, or the history of the market since, which the silver men have put forward, which will stand examination.

A CONCURRENT CIRCULATION OF GOLD AND SILVER A CONCURRENT CIRCULATION OF GOLD AND SILVER [1878J I T seems as if the United States were destined to be the arena for testing experimentally every fallacy in re gard to money which has ever been propounded. A few years ago only a very few people here had ever heard of the "double standard" or knew what it meant. In 1873 we became simply and distinctly a "gold country" in law, as we had been for forty years in fact. Immediately after that date silver began to fall in value relatively to gold, so that, if we had been on the" double standard," and had not been deterred by considerations of honor, morality, and public credit, which considerations kept the double standard countries from taking that course, we could have paid our debts in silver at an advantage. Forthwith all those persons who had before been racking their brains to devise some scheme for resumption without pain or sacri fice, turned their attention to silver, and began to devise plans for getting back to the position which, as they thought, we had unwisely abandoned. The consequence has been that, for the last year, the country has produced number less editorials, essays, lectures, and speeches, full of the most crude sophistry, and the most astonishing errors as to all the elementary doctrines of coinage and money. The favorite object of all these schemes is to find some means of increasing the amount of money at the disposal of the world, or of this nation, so as to raise prices and make it easier to pay debts. These schemes have taken their point of departure in the speculations of some European 183 184 THE FORGOTTEN MAN AND OTHER ESSAYS economists. In Europe the propositions of the economists in question have never passed beyond the realm of specu lation and theoretical discussion amongst professional economists. They have been regarded by some as prob ably sound~ and capable of being made the basis of advan tageous legislation. By others, superior in number and authority, they have been regarded as unsound. Inasmuch as they involve an international coinage union between all civilized countries and could be put to the experiment only on a scale involving immeasurable risks, the over whelming judgment has been that they were out of the question. Here, however, our amateurs and empirics are in hot haste to make the experiments, without any coinage convention, or with the cooperation of only a few and the less important nations, that is to say under circumstances which even th~ most extreme bimetallists condemn as rUInOus.