r Library UNiyERSITY OF CALIFORNIA SAN 0IE6O ■^ J THE UNIVERSITY EIBRAT?? UNIVERSITY OF CALIFORNIA. SAN DIEGQ SOME ASPF C*^f ^'-'^' ^^'-'^^^'^'^ Ol- THE MO:^^EY QUESTION. ^^ ^:j WILLIAM M. DICKSON, OF THE CIXCIXNATI BAR. CINCINNATI : KOBERT CLAEKE & CO., PRINTERS, 1877. I CONTENTS. PARE. Introduction 5 Inflation 7 The Policy of a Gradual Rktukn to Specie Payments 13 A Money Panic when Irredeemable Paper is the Money 21 Matthews on Money 24 Taft and Groesbeck on Silteb 29 ll INTRODUCTION. The worst legacy of modern war is the debt which it leaves. The horrors of the stricken field are soon effaced; the wasted places bloom again ; the mourners cease to mourn, and the reproductive powers of nature fill up the gaps made by the sword ; but the debt is abiding. The destruction of life and property to Prussia in the seven years' war has hardly been exceeded, yet in the life of the great Frederic she became more prosperous than ever. He made no debt. The losses of our war have in great measure been repaired ; even the passions which produced it and which it augmented are almost still ; but the debt it caused presses upon us with increasing weight. It is not surprising then that there is a growing desire to be relieved from it — a disposition upon the part of many to catch at any device or shift which may be suggested to lessen its weight. Men greedily avail themselves of a legal quibljle to escape the obligation who would be shocked at a suggestion of open repudiation. Soon after the close of the war it was proposed to pay off the bonded debt with greenbacks. The law of the greenback made it a legal tender for all purposes except payment of customs ; therefore, it might be used in payment of the bonded debt. The absurdity that a promise to pay, with in- terest, may be paid by another promise of the debtor to pay, without interest, without the consent of tlie creditor, is apparent ; yet men who consider themselves honorable advo- cated this wretched quibble. Again, an indefinite further issue of greenbacks was pressed, in the hope, doubtless, that the bond would be swamped in the inevitable financial collapse that would come. And last, the fall of silver gives opportunity to cavil with the cred- itor ; the quibble being that the bonds are, by the law of their VI INTRODUCTION. creation, payable in coin, that is, gold or silver, at the op- tion of Government. The fact that Government has exercised this option, in the act demonetizing silver, is shoved aside, as is also the fact that immense credits have been made upon the faith of this demonetization, as to which the remonetizing of silver on the old basis would act as a partial repudiation. The letters herewith republished, were originally published in the Cincinnati Commercial^ from time to time, as the matters of which they treat occupied the public attention. The Congress noAv in session is likely to be beset with these schemes, and hence, the present issue of these letters may be opportune — if happily they may contribute something toward arresting the present fatal downward tendency. The motive is not to serve the creditor but the maintenance of plighted faith, yet this, secure, in the end best serves both debtor and creditor. Much less is the motive, the vain desire of obtaining " the inter- ested and insincere applause of the creditor;"* still, as we are seeking to reduce the burden of our debt by funding it at re- duced rates of interest, homely thrift would seem to suggest the propriety of our doing those things, which would advance our credit. The frothy rhetoric of the report of the Silver Commis- sion about our good faith heretofore is hardly becoming iu so grave a state paper. If it be made the excuse for a lapse at this time from that good faith, it is also offensive to good morals. Of the same character is the covert allusion to possible worse consequences to the creditor if he does not yield, because the original debt was contracted upon terms hard upon the Govern- ment. For £600,000,000 of the debt of Great Britain, she origin- ally received only 60 or 70 per cent, thereof, yet she has never made use of this fact as a threat of evil consequences if the creditor did not yield to some proposed adjustment of the Government. ♦Silver Commission Rei:)ort. I SOME ASPECTS MONEY QUESTIOISr. Messrs. INFLATION. April 18, 1874. Gentlemen — You have given the public the benefit of your opinion in behalf of inflation. You assign no reason for the faith that is in you. Yet you advise the public that you are manufacturers, numbering more than fifty, and representing a capital of $10,000,000 and more than 5,000 em[>loyes. We will admit that all this may be true, and yet 3^our opinion be wholly erroneous. You only mean to intimate that in your opinion inflation is a necessity at this time to your capital, your employment and your employes. You thus invite the inquiry how can inflation serve you, circumstanced as you are ? You will admit that an increase of currency depreciates the purchasing power of its unit, that if there be at a certain time a hundred millions of money in the country and there be added to this another hundred millions, the dollar will not buy as much after this increase as it did before. In other words, money, like any other commodity, follows the law of sup[»ly and demand. All this is true of actual money, gold and silver, and is likewise true of fictitious money, paper credit. But with this latter there enters in another element, causing greater de- preciation. The value of paper money rests upon the expec- tation that it will some day be paid with actufil money ; but whether this will ever take place depends upon the ability and honesty of him who issues.- Every addition to the paper of an individual or of a nation, makes an additional tax upon * Certain citizens of Cincinnati. (7) 8 INFLATION. his or its resources, and increases the uncertainty as to the payment of what he or it owes. "When the issue of paper be- comes reckless, there arises the apprehension that there is no purpose to pay. All this combines to produce a rapid depreciation of paper when its volume is increased. You must then admit that when you vote for inflation you deliberately ask that the i)urchasing capacity of our paper dollar shall be decreased ; you ask the Government so to act as to make the dollar you give your employe for his hard work buy less bread and meat than it does at this time. Now, why do you want the purchasing capacity of the dol- lar decreased? In what way will this benetit your business, your capital or your employes ? Let us suppose your request granted, and that inflation takes place to-morrow. What effect will it have upon your wares? You will rise up to-morrow morning and proceed to your business knowing that the inflated dollar is not worth what it was the daybefoi'e; how much less you are hardly able to tell. Eut one thing you will not do : you will not sell your wares at the same price you did the day before. You will want more dollars for them. Thus there is an apparent rise in the price of your wares, and this is gratifying. But how will this beneflt you? If you are in debt the benetit is quite obvious. Let us sup- pose an extreme case of inflation — of an increase of the money so great that a dollar of the inflated currency sinks to tifty cents of its value before inflation, or which is the same thing, let us suppose that you can readily sell a stove for fifty dol- . lars, which before inflation you were glad to sell for twenty- five dollars. You thus gain by inflation twenty-tive dollars on your stove. Your stove now pays your creditor fifty dol- lars of your debt to him, while before inflation it only paid him twenty-five dollars — a clear gain to you of twenty-five dollars, and a clear loss to him of a like sum. For, before in- flation, the fifty dollars you owed him would buy two stoves ; now, after inflation, it will buy only one stove. By inflation you have cheated him out of one stove. Gentlemen, manufacturers, if you are heavily in debt, and want to defraud your creditors, it is obvious your nefarious INFLATION. 9 purpose will be aided by iufhitioii, Now, is this tlie case? Are you in debt, and do you want to rob your creditors? We do not believe this. We believe neither proposition. We believe you are solid and honest. But do you not see that your action throws a suspicion on you ? You must admit that inflation depreciates the value of the dollar, and that to the extent of that depreciation the creditor is defrauded. As honest men, is it morally right for you to ask for inflation wiien you know the effect of it will be to rob 3'our creditor neighbor of his property? Assume for a moment that the inflation does benefit your business, is it right for you to seek this benefit by the rob- ing of your neighbor ? Kernember that every time you cry for inflation you are lending your voice to the robbery of another. It is admitted even with hesitation that the Government may under the dire necessity caused by war, to save the life of the Nation, make its promise to pay a legal-tender, inflate the currency and thus permit the debtor to rob his creditor. But never before in the history of a civilized Nation, in a time of pro- found peace, did a Government commit this crime, merely because one class of the community thought that it could thereby better itself at the expense of another. The very thought is shocking to the moral sense. Yet, gentlemen, this is precisely what you are requesting our Government to do. Pray in what way do you reconcile your conduct to your conscience! Will you say that inflation will benefit the country; that it will make things lively and business brisk? Well, is it right to make your business brisk by the robbery ot anotiier ? But will it make business brisk, and to what extent and with what result? All this is very vague. Yet let us fairly analyze the matter. Let us return to our illustration. Let us assume that inflation will take })lace to-nu)rrow. You will then, as we have seen, ask more for your wares than you do to-day. Just how much you can not tell. You know there will be an advjince, but to what extent you can not precisely tell. You do not know the level of prices ad- justed to the inflated currency, but you know there will be 10 INFLATION. lui advance and yon increase yonr prices for yonr wares can- tionsly at first. Your customer admits there must be an in- crease, concedes the point to you, pays your advance — and in turn advances upon Lis customer in the same way you do, and so on with each successive exchange. Each one of you has realized an advance, and if you use it to pay your debts you have made a gain and robbed your creditor. If you have many debts to pay, and can, by a twenty-live- dollar stove, pay a fifty-dollar debt, no doubt you will be brisk in your business; but we assume you are honest, and that the brisk trade you refer to is not of this character. Each one of you has realized an advance, and apparently made money, but when you come to replace your stock you find that it has advanced too, that labor has advanced, so that the increased amount of money you have got buys no more than the less amount before inflation. It is quite true that all these ad- vances do not take place at once. You will continue to pay your employes at the same wages for some time after you have increased your prices. It will be some time before they will strike, and to that extent you are a gainer. But you have to that same extent robbed your employes. As honest men, would you do that, and if not as honest men, would you recommend a line of policy which would enable dishonest men to do it? But if you do not, where is your gain by a brisk business? You sell your wares at higher prices and you pay correspondingly higher prices for everything you buy. Yet it is true that while you do not gain anything, business is brisker. While you are selling at an advance to your customer, and so on, A, standing by, sees these profits and inquires, " May I not make something?" He goes to his banker, borrows money, now" abundant, and buys and sells ; and when he sells at an advance and pays his borrowed money, the margin left, after payment of interest, he has made. This everybody sees and everybody borrows money and buys and sells. Prices keep on swelling, naturally, until the level in the depreciated currency is reached, but it does not stop there ; the impetus of speculation carries it far be- yond that. But at last the maximum is reached and prices swell no more. Those who have last bought can not sell, and INFLATION. 11 speculation suddenly comes to a standstill. Those who are caught hope against hope, hold on in the face of a declining market, and seek renewals of their paper. But now the bankers take the alarm, call in their loans and sacrifice the unfortunate operators. ]>ankru[)tcics take place right and left. Prices sink lower and lower, far below the level of the depreciated currency, confidence is gone, banks and everybody hoard the money; there becomes a tight money market; the cry goes out : We want more money ; business lias increased, more money is wanted. Demagogues take it up, Congress will be appealed to, another inflation takes place, with a like result, and the thing is repeated until the volume of the Gov- ernment currency has become so great that it can not be paid, is repudiated in some form or other, and the country, through dishonor and business convulsions, comes back to gold and silver. But, to return, what have you gained by the operation? There are three ways in which you may have gained : You may have paid your creditors in depreciated money, and defrauded them to the extent of the depreciation. You may have replaced your stock at a less price than it was worth in the depreciated money, and you may have for a time paid your emploj^es at the old }>riees, and to the extent of the depreciation defrauded them. You may have adroitly or luckily borrowed and bought at the right time, and sold out at the right time, in which event you have gained at the ex- pense of your less war}- or less fortunate neighbors. Some one at last is caught. In each and every event your gain has produced no new value, and has been solely at tlie expense and to the undoing of others. Now, gentlemen, is this honest? Is this a form of gain in which you can delight? Perhaps, however, you may turn up in the outcome among the unwary or the unlucky, then you will have the conscious- ness that your own evil action has wrought your own undoing. Labor alone creates values. Neither the Government nor yoi^ can do this by shams and false pretenses — and the attempt brings onlv dishonor and ruin. Times are dull: business is depressed; we have been for 3'ears in a declining market j 12 INFLATION. we are slowly approaching specie payments, and that road leads to no gambling s[)eculation, l)ut to sober industry. Without interference we Avould soon reach the solid rock of gold. Once tiiere from the throng of uncertainties that crowd upon the merchant, one at least would be removed. The measure of values would be stable and lixed, and which is of almost equal importance, our currency would be that of the rest of the world. Now we are atloat upon a side eddy, stagnant and foul, while the great and pure stream of cur- rency flows by us around the world. The world's currency has, in a certain and valualjle sense, elasticity. It obeys the laws of trade. It goes from where it is not wanted to where it is wanted. It is in restless motion. If from local causes there is a financial crisis in a country, witli loss of confidence, hoarding and high rates of interest, it flows there and brings relief. No such relief can come to ns now. During the re- cent panic gold and silver came, but brought no relief. They were not our currency, and added nothing to it. They were only an additional commodity. Our only relief was to await the slow return of confidence or to issue more greenbacks — a remedy %vorse than the evil. Gentlemen, our country is threatened with dire calamity ; its honor is imperiled ; its plighted faith is about to be broken. Your felloW'-citizens have spoken bmve words for the true cause, and you throw the weight of your names into the op- posing scale for dishonesty. Pause ! think ! RESUMPTION. 13 THE POLICY OF A GRADUAL RETURN TO SPECIE PAYMENTS. September 3, 1875. There is an aspect of tlie financial (juestion not much dis- cussed, yet perhaps it is the most important. The Democratic party proclaiming inflation, the Republican party deems it ex- pedient to confine itself to a simple negative. This, however, may not be either politic or wise. The country is confessedly suffering from wide-spread business depression ; many laborers are out of employment ; others are working at reduced wages, and there is much dii^tress. Trade is stagnant. There is no new venture, no enterprise. All seem to be waiting and longing for relief. Whatever else maybe said, the Democratic party meets this condition of the country with a plan of relief, immediate in its action — the in- flation of the currency. This is delusive and destructive, yet it is heralded with high-sounding phrases, and, at least, holds the word of promise to the ear. The Republican party proposes no ])lan of immediate relief. It has "set its face toward specie resumption," and indicates when that is reached relief will come. But it takes no step to bring this about, and hesitates to declare for the only pol- icy which will bring about and maintain specie resumption; the withdrawal of the greenback. We grew away from spe- cie payments Avith the issue of the greenback, and we can not grow back again except by the retirement of the greenback. This seems a.xiomatical. I discard the thought as absurd that this Government should become a great banking institution, holding a reserve of three or four hundred millions of gold, issuing and redeem- ing the greenback. Still, the "gradual return to specie" is a favorite phrase with the Republican orators; it is supposed to be conservative and safe, and taking with prudent people. Just how this is to l»e aceom[)lished is not set forth, or is clouded in the still more vague phi-ase of "growing up" to 14 EESUMPTION. Specie payments. There are those who believe we may " grow up " to gold without doing anything, or retiring the green- back. Mr. Pendleton is enamored of this idea, and thinks that we may again and again, as the " wants of trade require," issue more and more greenbacks, and yet all the while be growing up to specie. That is, when we have made a new issue of greenbacks and prices have adjusted themselves to the inflated currency, and stagnation again occurs, we may again relieve it by another issue, with its new disturbance of prices, and so on. That is what is meant by the phrase "the wants of trade." Inflate the currency, stimulate trade and expansion of credit ; when yiay day comes issue more money and enable the debtor to cheat his creditor. Yet Mr. Pendle- ton, in a certain sense, is right; in this way we may "grow up " to gold, and with a rapidity unthought of by him. American credit is tainted in the markets of the world — the odor of repudiation hangs about it. This taint costs us two per cent, interest on all our vast debt. That is, if the confl- dence of the world in our integrity was equal to their conti- dence in our ability, we could get money at two per cent, less than we now do.* To this taint let us add the breach of faith of issuing greenbacks in excess of $400,000,000 ; of doing this in a time of profound peace, to meet no public exigency, but sup[)0sed private interests — accompanying all this with the public declaration that the promises to pay thus issued do not mean what they say, but are themselves money, made so by the stamp of Government, never to be redeemed, but to be added to from timie to time as the wants of trade require. Let all this be done, where would American credit stand in the presence of an enlightened Avorld? Would not such an act shock the common sense and moral sense of mankind ? Soon our bonds would be hurried home, and sold for whatever they would bring ; the American holder would catch the alarm and he too would sell, the panic would spread, the greenback would be rejected between man and man, and would become like the French Assignat and the Confederate note; and thus on the Pendleton theory *1875. I RESUMPTION. 15 we would " grow up" to a gold basis over prostrate National honor and amid the wrecks of a fearful financial convulsion. This is one way of reaching a gold basis. The Republican I)arty does not propose to do this ; its face is set toward specie resumption, but it would gradually reach that end. Let us fully and fairly examine this i)lan ; let us look it in the face and ask if it is an adequate or any relief to the present distress. I do not stop to in(piire into all the causes of this distress; there are two, however, conceded, and these maiidy hold and promise to hold in the future upon us the business depression. There can be no prosperous trade in the presence of a de- clining market; men will not buy to sell when they must sell at a less price than they paid. There will be no production when the thing produced must sell for less than the cost of production. Prudent traders wait until the bottom is reached. Now, a gradual return to a gold basis means a gradual appre- ciation of the greenback and a falling market. For years past we have had a declining market, caused by the gradual appreciation of the greenback. It is true that in the last two or three years this appreciation of the greenback has been less apparent ;* yet during all this time men's faces were turned toward specie resumption, and this has had the same effect as an actual appreciation of the greenback. We dis- count the effects we anticipate. It thus appears that the gradual appreciation of the greenback — that is, a gradual re- turn to specie payments — has produced a continuous declining market, and is thus a jiotent cause of the present distress, and one that will maintain that distress as long as the cause con- tinues to act — that is, until actual return to a gold basis. Thus the boasted remedy of a gradual return to specie payments is not only no remedy at all, but is the continuance of the very cause which, has contributed so largely to the ex- isting business depression. It is quite true that upon a return to a gold basis this will cease to act; and, if we can endure the suffering meanwhile, all may yet be right.. But, ah! here is the rub. Can the *1875. 16 EESUMPTION. laborer, with liunger at his door, wait? Can the thousands who depend upon the wheels of industry being kept in motion wait? And how h)ng, oh, how long shall they wait? If the return to gold is to be through a gradual rctiiienient of the greenback, the length of time may be readil}- estimated. But if we are to grow up to specie payments, with an irre- deemable currency of seven hundred millions, who can tell when we shall reach it ? Shall the paralysis of business re- main until that takes place? For the last three years we have made no progress in that direction, and there is no evi- dence that we are now making any progress.* Surely we can not make any while there is a large party clamoring for in- flation. Is it wise statesmanship that postpones relief to that distant time ? May not a sorely distressed i)COple, meanwhile, through sheer despair, Hy to inflation, as the fevered patient long disappointed with regular medicine seeks the quack. We have from the Republican speakers able expositions of the folly and wickedness of inflation; but these speeches ignore the fact that a gradual return to gold means a declin- ing market, stagnant trade, laborers without emploj'ment, and that a continnance,of this policy, indeflnitely means an in- definite prolongation of these evils. Yet this fact is " the dead point of danger ;" the fuel wliich the clamorous oratory of Gary fans into a flame. In vain cry demagogue, demagogue, when you furnish him the material for his incendiary harangues. Gradual return to specie payments is a slow, wasting disease; it is the mercy of the boy who cut oft' each morning an inch of his dog's tail rather than cut oft' the whole at a single blow. But further, if it were possible to return to gold, " to grow up" to it without the retirement of the greenback, it would be a return bringing little or no relief, because there would be no assurance of its permanence. If, under favoring cir- cumstances, the increased production of the mines, abundant crops at home, failure abroad, diminished importation, in- creased exportation, no demand abroad or at home for gold, * 1875. Since then, from the effect of the resumption act, there has been progress; but if this be repealed, to what point will gold advance? Who can tell ? RESUMPTION. 17 the greoiiback should become par with gold, then the fact re- mains that under unfavorable conditions it would grow away from gold. If the greenback may grow to gold it may grow away from it; so that after all our waiting for the gradual return to gold, apart from the retirement of the greenback, it would bring us no relief. This introduces us to another element of the situation, an- other cause of the present distress — the uncertain, fluctuating character of our currency. This uncertainty of value depends upon two circumstances. The pa[)er dollar has no intrinsic value, only fictitious. Its value depends upon the confidence of the public in its ultimate payment. It rises and falls in value with the rise and fall of this confidence. It varies with the changing hopes and fears of men. All this takes place when the volume remains the same ; but here enters in an- other element of uncertainty : the ease with which it may be indefinitely increased. iN'or are the most solemn pledges any security against this increase. There is always a large class whose interest is to be served by inflation — ^the debtor class. Besides there is anothei- cause of increase. A panic may come. Then money is hoarded, and there is a tight money market. If this occur when gold is the currency, the world quickly brings relief to the afflicted country. It t,ends its gold there, drawn by high rates of interest, and soon theie is relief. But when the currency of a country is irredeemable paper, no such relief can come. The gold may come, but it is not there mone}', it is only a commodity. There is no way of bringing relief to such a country, except by issuing more of the paper, and this process repeats itself until the inevitable denouement is reached — the repudiation of the whole. In the last ten 3'ears we have seen the fluctuation of our currency from both these causes. "Without increase of volume there has been a fluctuation of forty to fifty per cent. It is true, in the last three years there has been no great fluc- tuation, except on a memorable day when the greenback, through the operation of a gold ring, fluctuated some twenty per cent. This incident is full of signiflcancc, showing upon what a precarious basis we stand. A foreign war, domestic insurrection, the success qf the iiaflation policy, and away 18 RESUMPTION. advances the premium on gold ! No one feels quite sure what the i)remium on gold ma}- be a week hence. All this without adding anytliing to the voUime of the currency'. When the financial panic came some two years ago, all remember how furious was the demand for the increase of the currency. Even men trained in finance, and who, in their sober mo- ments, knew better, joined in the clamor for inflation. So it would be to-day had we another panic — and who can tell when another may come ? The whole country was in trepida- tion the otlier day on the failure of Duncan, Sherman &, Co., lest it would bring about another panic. Had this taken place the number of inflationists in Ohio would have been greatly increased. Now, with a currency so full of uncertainty, there can be no permanent revival of business. Men w-ill not en- gage in adventure or in new enterprises when all their labor and skill may come to naught by a change in the value of the currency. • With a policy of a gradual return to specie pay- ments, the uncertainty becomes much greater, and co-ope- rating with the declining fnarket, produces complete stagna- tion. The uncertainty becomes greater, because, as we ap- proach specie payments, and the stress becomes more intense, there is danger that the policy of gradual or a!iy return may be abandoned. Until there is an end of this gradual return, and we are safely anchored on a gold basis, reached by the destruction of the greenback, there can be no relief. Is it not then entirely clear that a gradual return to specie payments means a continuance, with increasing stress, of all the evils the public are now suffering? Will, then, this mode of reaching a gold basis be persevered in, unless there is no other? Happily, such is not the case. Why procrastinate when we may reach our end at once ? It is practicable for the Government to resume now, if it will sink the greenback in bonds. Nor is it necessary to retire all at once. Let enough be destroyed to bring and hold the balance at par, these in due time to be retired and destroyed. Perhaps it would not be well to attempt this at the begin- ning of the present business season, but if we practice a wise statesmanship, we may safely reach a gold basis on the 4th of July next — the centennial of our national existence. Why RESUMPTION. 19 not? There is only one objection that has an}'- force. ' It is said this would be oppressive to the debtor; that it would add to his indebtedness the premium on gold, and that, there- fore, we should proceed gradually, in order to give him op- portunity to adjust his affairs. For the moment and for the argument let us admit that immediate resumption would add the gold premium to the debtor's indebtedness; that is, at this time, about twelve per cent.* Should this deter us ? We are not now addressing the inflationist. We have seen that inflation enables the debtor to defraud his creditor. We are speaking to honest men, who believe that a gold basis would bring prosperity, but who would reach that end gradually. Tlie question stands thus : Shall we adopt the gradual pro- cess, witli distress to the entire community, or immediate re- sumption, with a loss of twelve per cent, upon his indebted- ness to the debtor? Here is a balancing of evils. We think we understate when we say that the aggregate loss of the depression of the last two years exceeds many times the twelve per cent, on existing individual indebtedness. Must the en- tire community continue to suft'er to prevent the debtor's twelve per cent, loss? But it is not true that immediate re- sumption adds the premium on gold to the debtor's indebted- ness. There is one supposable case in which this may literally occur. If a debtor has gold he may to-day sell his gold for a premium of twelve per cent., then one dollar of gold will pay one hundred and twelve cents of debt. If resumption take place, of course the gold dollar would only pay one dollar of indebtedness. But debtors are not holders of gold; they have lands and goods and chattels other than gold. These they must sell in order to get the money to pay their debts. It is not true that a return to gold would reduce those twelve per cent. Many of them would not be reduced at all, and some but little. With a return to gold by the contraction of the greenback, there would be at first and for a short time a tight money market, and difliculty to realize on property. *1875. 20 RESUMPTION. Eut soon the gold of tlie world would flow in, attracted by the high rates of interest, and the vacunni created by the re- tirement of the greenbacks wonld be tilled. And now, hav- ing reached bottom, there won hi be no fear of a further de- cline, but a feeling of security and safety. This would stim- ulate enterprise, and soon prosperity would return. All this would prevent a great decline in prices, and with returning prosperity the debtor would be enabled to pay his debts, or if his property were forced to sale, it would bring better prices than to-day. No one is more interested in returning prosperity than the debtor, and no one would be more benelited by a re- turn to gold than he. If, however, there is doubt about this, surely it is possible to scale the debt with reference to the gold premium in such a manner as to work substantial jus- tice. The debtor question presents no insurmountable barrier to immediate resumption, and there is none other. Earnestly desiring the success of the Republican ticket, I have yet felt that it has given its adversary an advantage ; that on a certain and important aspect of the financial ques- tion it occupies an untenable position. A gradual return to a gold basis is no remedy for existing evils, as in the past gradual emancipation was no remedy for slavery. A gradual return is impracticable; the country will not bear the exhaust- ing strain. Better remain where we are, facing neither gold nor inflation, if this were possible. Yet we shall reach a gold basis. We can, in a regular way, with advantage to all, with sustained and advanced national honor. If it must be other- wise, still we shall reach a gold basis, if it be over broken faith and amid destructive commercial convulsion. A MONEY PANIC. 21 A MONEY PANIC WUEN IRREDEEMABLE PAPER IS THE MONEY. October 25, 1875. I go a step further, and affirm as the hiw of its being, that the well working of an irredeemable currency requires peri- odical inflation. I am aware, in asserting this, that this re- peated inflation will ultimate in the collapse and ruin of the whole. This is also the law of its being. The wit of man has never devised a monetary system that prevents the occurrence of money panics, nor is it likely to do so hereafter. Money panics grow out of the nature of man, a nature which he, in this respect, shares with other gre- garious animals — a tendency or liability to stampedes. The wise legislator recognizes this fact, and in devising his monetary s^^stem, seeks to frame one that, while it may not prevent panics, will yet reduce their evils to a minimum. Experience has shown that panics do not occur in every country at the same time. They are generally local or con- fined to a single nation. Experience has also shown that when the money of the country aftlicted with a panic is the same as that of the rest of the world, relief comes quickly. While the panic exists money is hoarded, and those who want it can not get it. Interest rapidly rises. This attracts the attention of nations not affected by the panic. " Their heads are level." They know there is property of value in the afilicted country that is good security for loans. They hasten their money there. This brings some relief. Those hoarding, seeing foreign money coming, regain confidence and bring out their hidden and unproductive treasures. Soon there is a plethora where there was a famine, the panic is over, and the superabundant money flows elsewhere, where it is wanted. All this is happily illustrated by the recent panic in San Francisco, which is on a gold basis. There was a panic, a 22 A MONEY PANIC. hoarding of money. A flow of gold there bronght relief, and now, as we write, the telegraph announces the shipment of gold east. All is over. This is the action when gold is the currency. But suppose the panic occurs in a country having an irre- deemable currency. There is a hoarding of this currency. Men are alarmed and hold that which everybody wants. Interest rises, but the rising scale, instead of bringing relief only measures the degree of alarm and augments the dispo- sition to hoard. The world can bring no relief. Countries where the i)anic does not exist have none of the irredeemable stuff", only gold. This will bring no relief, for the gold is not currency there, and will only add another commodity, to be carried by the currency. There is no relief to a panic in a country with an irredeemable currency, either from within or without. Those who have the money hoard it, those who need it can not get it. The great manufacturers, with their thousands of employes, requiring their weekly paj-ments, can not get the money. Those who are in debt can not get the money to pay their creditors, and their property is subjected to ruinous sacrifices. Upon all these the hoarding of the money operates like a corner in stocks does upon the " shorts." The question arises, shall these manufacturers and their em- ployes and the debtors all be brought to ruin, or shall the Government come to their relief in the issue of more irre- deemable currency ? If enough of this is issued it will bring temporary relief. It will operate as the influx of gold upon a countr}' on a gold basis. When the hoarder sees that the Government is issuing more currency and thus decreasing the value of what he hoards, he will cease to hoard and seek to get rid of the depreciating thing. It is thus seen that the demand of the debtor and the manu- facturer for inflation, in a panic, in a country with an irre- deemable currency, is a perfectly natural one. Under such circumstances there is always a tierce clamor for inflation. This was conspicuously so in the panic of 1873, and pro- duced a partial inflation, but not enough to bring relief, and there is no relief yet. When the question is between the hoarder on the one hand I I A MONEY PANIC. 23 and the suftbring manufacturer and debtor on tlie otlier, the Government, which by creating an irredeemable curi-ency, has placed the latter at the mercy of the former, must and ought to come to the relief of the sufferers, in the further issue of paper, if it will not return to the true and lasting remedy — a gold basis. So the continued maintenance of a legal tender, inconverti- ble i:)aper currency, necessarily involves periodical inflations with inevitable ultimate ruin. 24 MATTHEWS ON MONEY, MATTHEWS ON MONEY. August 9, 1877. If we can reach the meaning of Matthews amid his multi- tude of words, his involved sentences, and his primary and ancillary propositions, liis linancial scheme seems to embody every financial heresy that has in these latter years vexed our currency-distracted land. And yet there are some good points also — "Black spirits and white, blue spirits and gray, Mingle, mingle, mingle." lie proposes to pay the customs in greenbacks — to cut the last cord that binds the country to gold ; to place the Govern- ment wholly at the mercy of the gold bulls of Wall street. And for what? "And thus (the greenbacks) be made equal in value to gold !" Here is the germ of all our woe, the seminal heresy, the belief that an edict of Cono:ress can make a rac; srold. No doubt the importer would pay duties in greenbacks — would sell his gold and buy the greenbacks. The greater the pre- mium on gold the better for him and the worse for the Gov- ernment. It would be to his interest to bull gold. And thus the great importing interest would be arrayed against the Government. Now it is on the side of the Gov- ernment; the less the premium on gold, the better for it and also the Government. Judge Matthews would reverse this condition of things. Were such a law passed, the shock to credit would be so great that the jTremium on gold would rise ten or fifteen per cent. This proposition is not novel. Every scheme of the Democracy during the last twelve years, looking to repudiation, has had in it, in a prominent place, the proposition to pay the customs in greenbacks. But this is the first time it has been proposed by a responsible Repub- lican. The Judge says : "And in regard to this it is one of the express provisions of the scheme. MATTHEWS OX MONEY. 25 that the requisite paper circulation, based on the credit of the Govern- ment, strictly limited by hivv as to its maximum issue, can and ought then to be maintained at its par with coin, and so made and kejit exchange- able with coin on demand. Precisely what further legislation, if any, would be necessary to establish and maintain this status is not stated ; but an obvious one, that would perfectly answer, would be to give to the holders of greenbacks the option, within prescribed limits as to amounts and times, to exchange them for a long bond or a perpetual annuity V^ear- ing an interest not to exceed 3.G5 per cent, per annum. This would ab- sorb all redundant paper circulation and maintain its etjuilibrium with gold and silver coin. " The main thing is to resume specie payments. That means, not to dis- pense with the use of paper money, but to make it and keep it, all the time, equal in value with gold and silver coin. The two in;avo Ihaxr rj old for the four per cent, bonds. Such an act would sliock the moral sense of the world and shake the fabric of our credit to its foundations. But it is said that remonetization would somewhat advance silver and somewhat reduce gold, and thus bring them to an equality, so that even if the creditor were jjaid in silver, he could get with it gold, if he preferred it, and without loss, and thus he would not feel the wrong done him in the depre- ciation of gold caused by the use of both metals as money. This argument tacitly assumes that the demonetization of sil- ver by the United States, was the sole cause of its dei)recia- tion. But this is not the fact ; other factors were in this Avork — the demonetization of silver by German}^ and other nations, the diminished demand for it in the East, and the increased production of the mines. These other and more power- ful factors remaining in operation, is it not idle to assume that the demonetization of silver by the United States alone, would bring it to par with gold ? And, in so far as it did not, would not the payment by it of debts be to that extent robbery of the creditor — plain, palpable, visible, aggravating repudiation ? The question of the remonetization of silver is larger than "the creditor and debtor question," and so the silver men recognize it. The}^ claim that silver is necessary to resump- tion. Let us see. All well informed people know that re- sumption can only take place and be maintained by the I'ay- ment and destruction of the greenback, or by hoarding a suf- iicient amount of money to pay it on presentment. Where is this money to come from? It can only be obtained by the sale of bonds. The resumption act permits for this purpose the sale of bonds bearing 4 or 4i or 5 per cent, interest, the num- ber of each class being limited. The number of 5 })er cent, allowed may have already been issued. As to this 1 am not advised. If so, the bonds must be 4 or 41 per cent. This is for us a low interest. Such bonds were never before sold here. It is only in an exceptional condition of things that they are salable. 32 TAFT AND GROESBECK ON SILVER. First of nil, our credit must be good. It is this which has enabled us to sell these bonds. Any taint u})on our credit, up goes the interest. Will remonetization of silver on the old basis, unlimited, affect our credit? This can only be a matter of opinion. But if we now force upon the creditor of to-da}'' silver in payment of that for which he paid gold, if we send to the German silver, a metal discarded iu his country, in payment of bonds upon which he, for sixteen years, has been getting gold, which have there in all these years been bought and sold as gold bonds, what will he think of our credit? "What will the bondholders of England, in like situation, think ? Will they not, will not Europe think that the pay- ing of these bonds in silver, when it is at a discount, measured by gold, is an act of bad faith ? Will not the cry of American repudiation ring through the Exchanges of the world ? And whether this be in itself right or wrong, will not this cry be the death knell of American credit ? Soon the to them tainted paper will be hurried home in great ship loads. Then, when there is a throng of six per cent, bonds in our markets, when our finances are in collapse, what chance will there be of floating a 4 or 4| per cent, bond ? It requires no seer to foresee that the full remonetization of silver, with all that it implies, will be fatal to resumption. And for what have we tarnished our fair name? That we may pay our bonded debt in depreciated money ! How much would we gain by it ? I have not before me the data, but Mr. Ewing — not a good authority — says the gold interest sent abroad on our debts is one hundred and lifty millions. The silver men claim that the remonetization of silver would bring down gold live per cent, and advance silver five per cent., both meeting at ninety-five per cent. — a gratuitous assumption, as we have seen. But admitting it, then the new money would be five per cent, cheaper than the present money (gold). In payment of the one hundred and fifty millions of interest in the cheap money, we would save seven and a half millions annually, I do not know what part of the hundred and fifty millions of interest is from the six per cent, bonds, but perhaps one-half, seventy-five TAFT AND GROESBECK ON SILVER. 33 millions. I^ovv, if tliese bonds are merged in four per cent, bonds, we shall save yearly twenty-five millions of interest. If remonctizution defeat resum[>tion and the sale of fonr per cent, bonds, then by it we save yearly seven and half millions and lose twenty-tive millions, a net loss of seventeen and a half millions. So we liavc lost onr credit and made no money by it. We are a debtor IsTati on. It is our interest to maintain our credit. High credit means low interest, low credit high inter- est. Even the doing of a thing, right in itself, if it will tend to taint our credit, is highly inex[)edient. The path of honor and safety is plain before us: let us in the future, as in the past, move steadily forward to resump- tion, keeping our standard " full high advanced," not a stain or blot on its escutcheon. There is a plausible a[ipeal to our patriotism : " Have we not a large debt held abroad? Are we not a silver-producing country, and shall we deprive ourselves of this silver for the payment of our debts?" In the same strain it is said we need the whole volume of gold and silver for resumption. Those who speak tlius seem to thiidc we can not use our silver in payment of debts oi" in aid of resumption if it is not monetized — that it has no value and is of no use if not made money. But the fact is that every dollar of silver we mine to-day ma\- pay 92 cents of debt or buy 92 cents of gold for resumption. Whatever we produce that sells abroad may pay our del)t or buy gold for resumption. The monetization of silver, on the old basis, would to-dav pay at most only 8 per cent, more of debt, but it would not help resumption. For while it would draw to us more silver, it would necessarily drive out the dearer gold. We can not have a currency of gold and silver with unlimited coinage of each. Tlio relation of value between them is not constant, but shifting, and the cheaper drives out tlie dearer as paper drives out both. The dream of a gold and silver currencv at the same time has not been realized. The one or the other flies from us when the coinage of each is unlimited. So in its last analysis the silver question resolves itself into a pro])Osal to substitute a silver for a gold currencv, and in 34 TAJT AND GROESBECK OX SILVER. the operation to cheat the creditor out of 8 per cent, of his debt. Standing midway between the advancing civilization of Europe and tlie retrograde civilization of the east, with free choice, we step down to the lower [)lane and close up ranks with the Chinaman, preferring the bulky, cumbersome, shift- ing, cheap silver, to the denser, stabler, dearer gold ! " You pay your money and you take your choice!" UC SOUTHERN REGIONAL LIBR/H . I|!| I Mill: ,1 III