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 CHEAP-MONEY EXPERIMENTS
 
 CHEAP-MOIS^EY 
 EXPERIMENTS 
 
 IN PAST AND PRESENT TIMES 
 
 REPRINTED, WITH SLIGHT REVISION, FROM 
 " TOPICS OF THE TIME" IN 
 
 THE CENTURY MAGAZINE 
 
 NEW YORK 
 THE CENTURY CO. 
 
 1892 
 
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 Copyriglit, 1891, 1892. by The Century Co. 
 
 THE DE VINNE PRESS. 
 
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 CONTENTS 
 
 li: PAGE 
 
 ^"^ The People and Finance 7 
 
 >- 
 
 5 The English Land Bank 15 
 
 ce 
 
 2 The Ehode Island Paper Bank . . . .22 
 
 Modern Cheap-Money Panaceas . . . . 31 
 
 A Nation for a Mortgage 39 
 
 ?*■ The Argentine Cheap-Money Paradise . . 47 
 
 The Subtreasury Cheap-Money Plan . . . GO 
 
 The ''Per Capita" Delusion . ... 68 
 
 Michigan's "Wild-Cat" Banks 75 
 
 Alabama's Thousand-Dollar-a-Day Blunder . 82 
 
 Mississippi's Crop-Moving Currency . . .89 
 
 A Cheap-Money Eetrospect 94 
 
 The People's Money 100 
 
 The French Assignats and IMandats . . 109 
 
 Another Word on "Cheap Money" . , 117 
 
 386119
 
 CHEAP-MONEY EXPERIMENTS IN 
 PAST AND PRESENT TIMES 
 
 CHAPTER I 
 
 THE PEOPLE AND FINANCE 
 
 THERE are a few elementary principles in 
 economic science the mastery of which by 
 the great body of the American people would be 
 of incalculable value to us as a nation. One of 
 these is that no government can create money out 
 of anything which it may choose to call money. 
 Another is that all classes of the people, rich and 
 poor, laborer and employer, are far better off with 
 a sound and stable currency than they are with 
 any of the varieties of "cheap money." Another 
 is that no part of the financial or business world 
 can be benefited or injured by changes in the 
 monetary standard of value without correspond- 
 ing benefit or injury to the other parts. Still 
 another is that the larger part of the business of 
 the country is transacted upon credit, and that 
 anything which tends to disturb or to foreshadow 
 
 7
 
 8 CHEAP-MONEY EXPERIMENTS 
 
 disturbances of the monetary standard of value 
 cripples credit and demoralizes all business. Fi- 
 nally, though we have by no means exhausted the 
 list, it would be of the highest importance for the 
 common people to become thoroughly convinced 
 of the fact that in every instance in which the 
 financial world is disturbed by changes or threats 
 of changes in the standard of value the sufferers 
 are always the poorer people and the beneficiaries 
 always the rich, for the latter are able to guard 
 against the coming trouble which they are quick 
 to scent, while the former are powerless to take 
 the necessary precautions even if they were able 
 to anticipate it. 
 
 The harmful delusion that the Government has 
 the power to create money is traceable directly to 
 the Legal Tender Act of 1862. Previous to that 
 time the American people, in common with those 
 of other enlightened nations, believed that the sole 
 function of government in relation to money was 
 to certify to the weight and purity of the metal 
 contained in it. This view, which, it is scarcely 
 necessary to say, has been shown by the experi- 
 ence of all civilized countries to be the only sound 
 one, was completely upset in the minds of thou- 
 sands of uninstructed people by the issue of the 
 legal tenders and the subsequent decisions of the 
 Supreme Court upholding the right of Congress 
 to make such issue. The pernicious doctrine that 
 anything which the Government might choose to 
 stamp as money — paper, or silver, or nickel, or
 
 THE PEOPLE AND FINANCE 9 
 
 copper — became ipso facto money for the amount 
 named on its face obtained so firm a lodgment iu- 
 the popular mind that calls began to be heard 
 from all quarters for the liberal issue of Govern- 
 ment money in almost every form except — gold. 
 The country has passed safely through several 
 varieties of the '^ greenback craze," which was the 
 most radical and dangerous form of the delusion, 
 but it has yet to reach the solid groimd occupied 
 before the war. So long as the admission is al- 
 lowed that the Government can create money 
 there is no satisfactory answer to be made to the 
 questions, "Why should we have a gold stan- 
 dard?" "Why should we have national banks?" 
 or "Wliy should we have any limit put to the 
 volume .of our currency "? " If the Government 
 can create money, why should it not create all 
 that everybody wants? Why should anybody 
 work for a living? 
 
 We must get back as a people to a just compre- 
 hension of the truth that no government can make 
 an inferior form of money equal in value to a 
 superior form like gold by enacting a law decree- 
 ing that it shall become so, and that it cannot do 
 this for the simple reason that the superior form 
 costs more, and it is this cost which constitutes 
 its value as a medium of exchange. The kind of 
 money which every man wants is the kind which 
 will buy the most of the things which he needs — 
 that is, have the largest purchasing power. No- 
 thing is clearer than that cheap money means high
 
 10 CHEAP-MONEY EXPERIMENTS 
 
 prices, and dear money means low prices. Cheap 
 money is as costly for a nation as it is for an in- 
 dividual. Mr. H. C. Adams has demonstrated very 
 convincingly that the legal tenders made the ex- 
 pense of our civil war greater by $800,000,000 than 
 it would have been had they never been issued. 
 With individuals, the only man who is benefited 
 by a change from a dear money to a cheaper one 
 is he who owes money — that is, belongs to what 
 is called the debtor class. He is rid at once of a 
 portion of his debt, because he can pay it in money 
 of less value than that in use at the time of the 
 debt's contraction. But to the average man, the 
 wage-earner of every variety, the change means 
 greatly increased cost of living with no increase 
 of income. He still receives the same number of 
 dollars as wages, but each dollar buys less than it 
 did before. If he has debts, the depreciation of 
 them is by no means in the same proportion as in 
 his wages. Suppose, for example, he is receiving 
 $1000 a year and that he owes $1000. A reduction 
 of ten per cent, in the value of money means that 
 his wages have been cut down one tenth — that is, 
 that he will lose $100 each year, whereas his debt 
 has only been reduced $100 for all time. 
 
 The people who would benefit at first by a change 
 to cheap money are farmers and others who have 
 property which is heavily mortgaged, and who 
 would be thus relieved of a portion of their debt. 
 The case of the farmer who has been forced to mort- 
 gage his farm is a peculiarly hard one. His con-
 
 THE PEOPLE AND FINANCE 11 
 
 ditioii has been growing worse and worse yearly, 
 for many reasons, but chiefly because most of the 
 things he has had to buy have been taxed, while 
 the chief products of his farm have not. He has 
 been forced to buy at the higher prices of a re- 
 stricted home market, and to sell at the prices set 
 in the unrestricted market of the world. A change 
 to a cheaper form of money would give him relief, 
 provided he were able to pay off his debt at once, 
 but otherwise his gain would be only in his ability 
 to pay his interest money in a cheaper currency. 
 He would suffer, in common with all others of the 
 hard-working class, from the inevitable evils atten- 
 dant upon cheap money, with the dear goods which 
 such money always brings in its train. Then, too, 
 he would discover, in case he wished to procure 
 further loans, that he must obtain them on a gold 
 basis, for the mere hint of the coming of a cheap- 
 er currency is sufficient always to force capital- 
 ists into the defensive position of loaning large 
 amounts on that basis alone. In the end the far- 
 mer would find that his last condition was worse 
 than his first, and that his every effort to gain re- 
 lief through legislation which promised to make 
 "money plenty" had the same result, — namely, 
 to put him more helplessly in the power of men 
 whose chief business is to speculate in money. 
 
 Another class of temporary beneficiaries from 
 cheaper money are employers, who are able to pay 
 their employees in the cheap money, in small 
 amounts, at its full nominal value, while obtaining
 
 12 CHEAP-MONEY EXPERIMENTS 
 
 it for such payment in large amounts and at its 
 gold value. Yet we believe it is a fact that the 
 great body of employers are agreed that the slight 
 gains which are possible in this way are far from 
 being an adequate set-off to the losses caused to 
 all business by the uncertainties of an unstable 
 currency. Another class is composed of the pro- 
 fessional speculators in gold and the hoarders of 
 gold, who, because of their possession of capital, 
 are able to speculate in the superior money at 
 the expense of the great mass of the people, who 
 are compelled to accept the inferior medium of 
 exchange. 
 
 All this leads naturally and inevitably to the 
 general conclusion that the best money for all 
 classes in the long run — of course, including the 
 farmers — is that which is most stable in value; 
 that is, which most completely and steadily serves 
 the purpose of a medium of exchange. It should 
 be constantly borne in mind that the great volume 
 of the business of the country, what is called ex- 
 change of commodities, is conducted on credit. 
 Statistics show that about ninety-two per cent, of 
 the trade of the country is carried on by means of 
 credit instruments and only eight per cent, with 
 actual money. The mere hint of a change in the 
 value of money sends a thrill of alarm along the 
 entire credit system, and leads to instantaneous 
 contraction. This is at once felt in every branch 
 of business and industry. There is at once a 
 double strain put upon the trade of the country.
 
 THE PEOPLE AND FINANCE 13 
 
 Gold aud currency are hoarded in anticipation of 
 approaching uncertainty of values, and credit is 
 given only in cases of the strongest security. All 
 our serious commercial troubles, our panics and 
 threatened panics, our tight money-markets and 
 business stringencies, are directly traceable to this 
 contraction of credit ; yet the uninstructed public 
 almost invariably calls for the issue of cheaper 
 money as the only remedy, not recognizing that 
 the mischief has been caused, not by a scarcity of 
 currency, but by a contraction of credit. 
 
 There ought to be a more general recognition 
 of the fact that the economic administration of a 
 nation, the regulation of its currency and finances, 
 calls for expert ability of a rare kind. In every 
 generation there are comparatively few men who 
 have the requisite intellectual equipment for this 
 task, and in almost every other civilized country 
 except ours they are sought out and put in exclu- 
 sive charge of it. Few intelligent people venture 
 upon the experiment of being their own doctors or 
 lawyers, recognizing the superior fitness of expert 
 ability to perform those functions. Why shall we 
 as a nation be less wise ? We must sooner or later 
 realize the folly of our course, and must devise 
 some plan, not inconsistent with the principles of 
 popular government, by which the control of our 
 finances shall be put into the hands of a few tried 
 and trained financiers, who shall be removed ab- 
 solutely beyond the influence of popular clamor. 
 We shall then have far less trouble than we have 
 2
 
 14 CHEAP-MONEY EXPERIMENTS 
 
 now. The people at large would be benefited in 
 every way, and in none more so than through the 
 restrictions which such administration of our 
 finances would put upon the activities of certain 
 conscienceless manipulators in Wall street, who 
 find now their best opportunities for mischief in 
 the uncertainty which constant meddling with the 
 standard of value inevitably produces.
 
 CHAPTER II 
 
 THE ENGLISH LAND BANK 
 
 THE desire for " elieap money," under the de- 
 lusion that plenty of it will make everybody's 
 life easier and his burdens lighter, is very many 
 years old. Nothing is more interesting and in- 
 structive in the study of financial history than the 
 almost constant recurrence of the same fallacies 
 and popular crazes in different countries during 
 the past three hundred years or more. The pro- 
 phets of new panaceas of to-day are simply preach- 
 ing the half-truths and misleading sophistries of 
 similar prophets in various lands at almost any 
 time since the close of the seventeenth century. 
 They have all started from the same general point; 
 that is, dissatisfaction with established financial 
 methods and the assumption that the moneyed 
 classes, the brokers and capitalists, are the ene- 
 mies and oppressors of the poorer classes. 
 
 There are many illustrations to support these 
 observations which we might cite from history, 
 but none which bears more directly upon certain 
 aspects of our financial experience as a nation 
 
 15
 
 16 CHEAP-MONEY EXPERIMENTS 
 
 than that of the famous Land Bank scheme, put 
 forward in England in the reign of William and 
 Mary, in 1693. It appeared amid a swarm of 
 other financial plans which were broached in the 
 English Parliament when the proposition to estab- 
 lish the Bank of England was under consideration. 
 There were in existence at that time two great 
 public banks renowned throughout Europe, the 
 Bank of St. George at Genoa, and the Bank of 
 Amsterdam. The former had existed for nearly 
 three hundred years, and the latter for more than 
 eighty, and both had demonstrated many times 
 their ability to withstand the severest financial 
 crises. England felt the need of a similar finan- 
 cial bulwark, and its establishment was decreed in 
 1694, when the act of foundation for the Bank of 
 England was passed by Parliament. While that 
 act was under consideration, one Hugh Chamber- 
 lain, who had fitted himself for the solving of 
 financial problems by practising medicine, came 
 forward with a scheme for a Land Bank. The 
 peculiarity of this bank was that its currency was 
 to consist solely of notes issued in unlimited quan- 
 tities upon landed security. Every person who 
 had real property was to be allowed to hold the 
 land and at the same time receive an issue of paper 
 money to its full value. Thus, says Macaulay, in 
 his picturesque account of the scheme, if a man's 
 '' estate was worth two thousand pounds, he ought 
 to have his estate and two thousand pounds in 
 paper money." But this was not all. He ought
 
 THE ENGLISH LAND BANK 17 
 
 also to be allowed to rate the value of his estate at 
 as many times its annual income as the number of 
 years for which it was pledged. Thus if its in- 
 come was a thousand dollars, a grant of it for 
 twenty years must be worth $20,000 in paper 
 money, and that for one hundred years $100,000. 
 Everybody who opposed this remarkable form 
 of reasoning was denounced as a "usurer." In 
 laying his plan before Parliament, Chamberlain 
 undertook to raise eight thousand pounds upon 
 every freehold estate of one hundred and fifty 
 pounds a year, which would be brought into his 
 bank without dispossessing the freeholder. The 
 plan was considered in committee and was re- 
 ported favorably to the House, the committee 
 declaring that it was practicable and would tend 
 to benefit the nation; but the report was never 
 acted upon. 
 
 The scheme was revived in 1696, but in a some- 
 what less ridiculous form . Chamberlain was forced, 
 under protest, to abandon his idea that a lease of 
 land for a term of years was worth many times 
 the fee simple, and to be content with a bank which 
 lent money on landed security to the full value of 
 the land. He offered also to lend the Government, 
 in return for the Land Bank's charter, more than 
 two and a half million pounds at seven per cent. 
 The Bank of England had, in return for its char- 
 ter, advanced to the Government onty one million 
 at eight per cent. William, being in pressing need 
 of money for his military operations in the Nether-
 
 18 CHEAP-MONEY EXPERIMENTS 
 
 lands, welcomed the prospect of such generous aid, 
 and was not disposed to question the source from 
 which it came. The country members were, ac- 
 cording to Macaulay, " delighted by the prospect 
 of being able to repair their stables, replenish their 
 cellars, and give portions to their daughters," and 
 at the same time retain possession of their land. 
 • A bill was passed authorizing the Government to 
 borrow two million five hundred and sixty-four 
 thousand pounds at seven per cent. If before the 
 1st of August the subscription for one half of this 
 loan should have been filled, and one half of the 
 sum subscribed should have been paid into the 
 ; exchequer, the subscribers were to become a eor- 
 1 porate body under the name of the National Land 
 Bank. As this bank was intended expressly to 
 "accommodate country gentlemen, it was forbidden 
 to lend money on any other private security than 
 a mortgage on land, and must lend on such mort- 
 gages at least half a million annually, at a rate not 
 to exceed three and a half per cent, if payments 
 were quarterly, or four per cent, if they were half- 
 yearly. The market rate of interest at the time on 
 the best mortgages was full six per cent. 
 
 In order to set a good example the king sub- 
 scribed five thousand pounds just before his de- 
 parture on his Netherland campaign, and signed 
 a warrant appointing commissioners to receive the 
 names of subscribers. A great meeting was held 
 in behalf of the new bank, rooms were taken in 
 two different parts of London for the receiving of
 
 THE ENGLISH LAND BANK 19 
 
 subscriptions, and agents were sentinto the country 
 to inform the country gentlemen of the dawn of 
 the new era of jprosperity. Three weeks passed 
 after the opening of the subscription books, and it 
 was discovered that only six thousand five hundred 
 pounds, including the king's five thousand, had 
 been subscribed. The 1st of August came, and 
 the whole amount subscribed by the nation in ad- 
 dition to the king's subscription reached only two 
 thousand one hundred pounds. The promoters of 
 the scheme begged the Government for more time, 
 and for a reduction in the amount required to be 
 paid in before the act of incorporation should be 
 issued ; and the Government, being in great stress 
 for funds, conceded that if four hundred thousand 
 pounds were advanced the bank should be incor- 
 porated at the next session of Parliament. But 
 concessions were of no avail in stimulating sub- 
 scriptions. The term of the commission expired, 
 and the offices were closed upon a total collapse of 
 the enterprise. 
 
 The causes of this failure are so clear that it is 
 a wonder anybody ever expected a different result. 
 The avowed object of the scheme was to benefit 
 the landowners who wished to borrow money, and 
 to injure the ''moneyed men, those worst enemies 
 of the nation." "The fact is," says Professor 
 Thorold Rogers, in his luminous account of the 
 affair in his "First Nine Years of the Bank of 
 England," "the landed men hated the moneyed 
 men with a bitterness in which envy, contempt,
 
 20 CHEAP-MONEY EXPEEIMENTS 
 
 pride, and religious bigotry were the strongest 
 ingredients. They looked on their growing wealth 
 with envy, on their occupation with scorn, on their 
 birth with disdain, on their creed and discipline 
 with intolerant hate. Now in such a frame of 
 mind such people will believe anything, even such 
 a quack as Chamberlain was — not the first adven- 
 turer who has imagined himself a financier." Yet 
 upon these very moneyed men they depended ab- 
 solutely for the success of their enterprise. As 
 Macaulay says, the "country gentlemen wished 
 well to the scheme; but they wished well to it be- 
 cause they wanted to borrow money on easy terms; 
 and, wanting to borrow, they of course were not 
 able to lend it. The moneyed class alone could 
 supply what was necessary to the existence of the 
 Land Bank; and the Land Bank was avowedly 
 intended to diminish the profits, to destroy the 
 political influence, and to lower the social position 
 of the moneyed class. As the usurers did not 
 choose to take on themselves the expense of put- 
 ting down usury, the whole plan failed in a manner 
 which, if the aspect of public affairs had been less 
 alarming, would have been exquisitely ridiculous." 
 There have been within the past year several 
 schemes for the relief and benefit of the farmers of 
 the country which were scarcely more rational than 
 this of the quack of 1693. If any of them were to 
 be embodied in law, it would fail to accomplish 
 the results expected of it, for reasons similar to 
 those which made the failure of the Land Bank
 
 THE ENGLISH LAND BANK 21 
 
 scheme so certain. The moneyed class is always 
 in the position to guard itself against the bad ef- 
 fects of disturbing financial legislation, and even 
 to profit by it at the expense of the poorer class. 
 A competent authority upon the subject of farm 
 mortgages declares that ninety per cent, of them 
 are negotiated by systematic lenders, banks, and 
 corporations organized for this express purpose, 
 and that it has been the custom of many of these 
 lenders to make the mortgage debt, both principal 
 and interest, payable in gold. It is believed that 
 fully one half of all the mortgage indebtedness of 
 the country is in terms expressly payable in gold, 
 though this is more generally the case in urban 
 than in farm loans. If we were to have free silver 
 coinage, and the country were to reach the silver 
 standard, and gold were to rise to one hundred 
 and twenty or thereabouts, mortgagers who are 
 counting upon having their debts reduced by the 
 change would soon discover their error. They 
 would find that they would have to pay one hun- 
 dred and twenty dollars in silver for every instal- 
 ment of one hundi'ed doUars interest in gold. In 
 other words, they, and not the capitalists and 
 money-lenders, would be the losers from this as 
 fi'om every other form of "cheap money."
 
 CHAPTER III 
 
 THE RHODE ISLAND PAPER BANK 
 
 AT the close of the Revolutionary War the 
 i\ people of Rhode Island found themselves 
 in extreme poverty and heavily burdened with 
 their share of the national debt. The war had 
 seriously crippled their trade, upon which they 
 were mainly dependent, and in their distress the 
 people, instead of patiently waiting for relief to 
 come by the slow process of rebuilding their 
 trade, turned to paper money for relief. They 
 began to clamor for a Paper Bank in 1785, and 
 when petitions for such a bank were rejected by 
 the General Assembly, a new party was organized 
 with paper money as its chief principle. They 
 "went before the Assembly again in 1786, and their 
 petitions for a Paper Bank were met with counter- 
 petitions against it, signed by the merchants of 
 Providence, and the project was defeated again 
 by a vote of two to one. They then carried the 
 question into the elections, and won a surprising 
 victory, gaining control of the General Assembly 
 by a large majority. This body assembled in May, 
 
 22
 
 THE RHODE ISLAND PAPER BANK 23 
 
 1786, aud one of its first acts was the passing of a 
 law establishing a Paper-money Bank of one hun- 
 dred thousand pounds. The bills were to be loaned 
 to the people on the principle of the English Land 
 Bank, though on much less generous terms. 
 
 Every farmer or merchant who came to bor- 
 row money must pledge real estate for double the 
 amount desired. The money was to be loaned to 
 the people upon this pledge according to the ap- 
 portionment of the last tax, and must be paid into 
 the treasury at the end of fourteen. .y_ears. Great 
 expectations were entertained by the farmers of 
 the beneficent results which were to follow upon 
 this new influx of wealth. " Many from all parts 
 of the State," says McMaster, in a very interesting 
 chapter upon this subject in his " History of the 
 People of the United States," " made haste to avail 
 themselves of their good fortune, and mortgaged 
 fields strewn thick with stones and covered with 
 cedars and stunted pines for sums such as could 
 not have been obtained for the richest pastures. 
 They had, however, no sooner obtained the money 
 and sought to make the first payment at the 
 butcher's or the baker's than they found that a 
 heavy discount was taken from the face-value." 
 
 The depreciation of the new money began 
 literally with its issue. Every merchant and trades- 
 man in the State refused to receive it for its face- 
 value, and the holders of it refused to make any 
 discount. The General Asseml)ly came to the aid 
 of the ban^kjt ami sought to give its paper money
 
 24 CHEAP-MONEY EXPERIMENTS 
 
 full value by statutory enactment. A forc'ing act 
 was passeff'^u^Bjecting any person who should re- 
 fuse to take the bills in payment for goods on the 
 same terms as specie, or should in any way dis- 
 courage their circulation on such terms, to a fine 
 of one hundred pounds and to the loss of his rights 
 as a freeman. 
 
 This made matters worse than ever. Merchants 
 and traders refused to make any sales whatever, 
 many of them closing their shops, disposing of 
 their stock by barter, and going out of business. 
 In fact, money almost ceased to circulate at all. 
 Nearly all kinds of business were transacted 
 by barter, rents were paid in grain and other 
 commodities, and the only people who used the 
 paper money were those who had borrowed it on 
 their land. The chief cities of the State, Provi- 
 dence and Newport, presented a very remarkable 
 spectacle. Half their shops were closed, their in- 
 habitants idle, and their streets animated only by 
 groups of angry and contentious men blaming one 
 another for the blight which had fallen upon their 
 business and industries. In order to retaliate upon 
 the merchants and traders for refusing to take 
 their money, the farmers refused to bring their 
 produce to market. A famine was so imminent 
 in Providence because of this withholding of sup- 
 plies that a town meeting was called to devise 
 means for obtaining the necessaries of life. To 
 provide immediate relief for persons in want of 
 bread five hundred dollars was authorized to be
 
 THE EHODE ISLAND PAPER BANK 25 
 
 borrowed and sent abroad to buy corn to be sold 
 or bartered by the town council. In Newport a 
 mob brought on a riot by attempting to force 
 grain-dealers to sell corn for paper-money. 
 
 In August, about two months after the establish- 
 ment of the bank, affairs became so desperate that 
 a State convention controlled by the country towns 
 adopted a report recommending the General As- 
 sembly to enforce and amend the penal laws in 
 favor of paper money, and advising farmers to 
 withhold their produce from the opponents of the 
 bank. The General Assembly, convened in special 
 session for the purpose, passed an additional forc- 
 ing act, which suspended the usual forms of justice 
 in regard to offenders against the bank, by requir- 
 ing an immediate trial, within three days after com- 
 plaint was entered,_without a jury and before a 
 court of which three judges should constitute a 
 quorum, whose decision should be final, and whoso 
 judgment should be instantly com plied with on pen- 
 alty of imprisonment. The fine for the first offense 
 was fixed at from six to thirty pounds, and for the 
 second at from ten to fifty pounds. "This mon- 
 strous act of injustice," say s S. G. Arnold, in his 
 "History of the State of Rhode Island," "was 
 carried through the legislature Jby a large majority, 
 and the solemn protest against it as a violation of 
 every principle of moral and civil right, of the 
 charter, of the articles of confederation, of treaty 
 obligations, and of every idea of honor or honesty 
 entertained among men," which a minority of the 
 
 3
 
 26 CHEAP-MONEY EXPERIMENTS 
 
 members presented, was not allowed to appear on 
 the record. 
 
 This second forcing act brought matters to a 
 crisis. A butcher in Newport was brought into 
 the Superior Court on a charge of refusing to re- 
 ceive paper money at par in payment for meat. 
 A great concourse of spectators attended the trial, 
 whi(jh was before a full bench of five judges. Lead- 
 ing lawyers appeared for both sides, and their 
 arguments occupied an entire day. Two of the 
 judges spoke against the forcing acts, and the 
 other three were of the same mind. On the follow- 
 ing morning the formal decision of the court was 
 announced, declaring the acts unconstitutional, 
 and void, and dismissing the complaint. The 
 wrath of the General Assembly at this decision 
 was great. A special session was at once convened, 
 and the judges were summoned, in language of 
 incredible arrogance, to appear before the As- 
 sembly to assign the "reasons and grounds" for 
 their decision. Three of the judges obeyed the 
 summons, but as the other two were detained by 
 sickness the hearing was postponed till the next 
 session. At the next session four of the offending 
 judges were removed. Before adjourning, the 
 General Assembly prepared a new act to ''stimu- 
 late and give efficacy to the paper bills." This 
 was called the. T^st Act^and it contained one of 
 the most remarkable oaths ever prescribed to a 
 free people. Every one taking the oath bound 
 himself in the most solemn manner to do his ut-
 
 THE RHODE ISLAND PAPER BANK 27 
 
 most to su^jport tlie paper bank and to take its 
 money at par. All persons refusing to take the 
 oath were disfranchised. Ship-captains were for- 
 bidden to enter or to go out of ports of the State, 
 lawyers were not to be allowed to practise, men 
 were not to be allowed to vote, politicians were 
 not to be allowed to run for office, and members 
 of the legislature were not to be allowed to take 
 their seats until the oath had been taken. This 
 was so stringent a measure that the General As- 
 sembly was afraid to take the responsibility of 
 enacting it, and, after considering it, referred it 
 to the people of the towns for approval. Only 
 three towns in the State voted in its favor, all the 
 others rejecting it. 
 
 This ended all efforts to force the people to take 
 the money at par in ordinary business transactions. 
 The General Assembly, in January, 1787, formally 
 repealed the forcing acts, and then took the first 
 step toward the repudiation of the State debt by 
 ordering tlie treasurer to pay off one fourth of it 
 in the bills received for taxes ; that is, in the de- 
 preciated paper money, which, at that time, was 
 circulating on the basis of six to one. By suc- 
 cessive steps of this and similar kinds the entire 
 State debt was extinguished, public creditors being 
 forced to take it on terms prescribed by the State, 
 or to forfeit their claims. The last instalment of 
 the debt was got rid of in 1789, in a forced settle- 
 ment, when the paper money which the helpless 
 creditors received was worth only one twelfth as
 
 28 CHEAP-MONEY EXPERIMENTS 
 
 mucli as coin. ^'Had a general act of insolvency," 
 says Arnold, '' relieving all debtors from their lia- 
 bilities and the State from its legal obligations 
 been passed in the first instance, the same end 
 would have been more speedily accomplished, and 
 the means would not have differed very widely 
 from those that were actually employed. . . . 
 It fell but little short of repudiation." 
 
 During 1787, when the value of the paper 
 money ranged from one sixth to one tenth that 
 of coin, bills in equity for the redemption of 
 mortgaged estates were filed in large numbers in 
 the courts. The Superior Court of Newport de- 
 clined to try any case in which a large sum was 
 involved. Suitors came to court with paper 
 money in handkerchiefs, bags, and pillow-cases, 
 asking to have the holders of their mortgages 
 forced to take this at par in redemption of their 
 lands. One bag, containing fourteen thousand 
 dollars, was brought for the redemption of a 
 single farm. But the court refused to try all 
 cases of the kind. The value of the paper money 
 dropped steadily till fifteen paper dollars were 
 worth only one coin dollar. In August, 1789, the 
 General Assembly showed its first sign of return- 
 ing reason by suspending the operation of the 
 tender law. It followed this by repealing the 
 statute of limitations, because of the depreciation 
 in the value of paper money, and by extending 
 the time allowed for the redemption of mortgages 
 from five to twelve years. Finally, in October, it
 
 THE RHODE ISLAND PAPER BANK 29 
 
 repealed as much of the Paper Bank act as made 
 the bills a tender at par, and debtors were author- 
 ized to substitute property, at an appraised value, 
 for money in discharge of debts. The act which 
 effected the repeal fixed the value of the paper 
 bills at fifteen to one. This was the end. 
 
 Throughout this entire struggle to make money 
 valuable by statute, by calling it a dollar and say- 
 ing that it represented two dollars' worth of land, 
 the bills had remained almost exclusively in tlie 
 hands of their first takers. No one else was found 
 who would receive the money, save those whom 
 the State compelled to take it, or to forfeit their 
 just claims. Absolutely nobody had benefited by 
 the experiment except the State, which had got 
 rid of a large portion of its debt by dishonestly re- 
 fusing to keep its obligations. Industry and trade 
 of all kinds, as well as the State's good name, had 
 suffered incalculable injury, and the State's ma- 
 terial progress had been retarded so seriously that 
 it required many years to regain what had been 
 lost. The deluded people who borrowed of the 
 bank on their land as collateral realized their de- 
 sire of having more money in their pockets ; they 
 realized the dream, cherished by the believers in 
 " cheap money " in all lands and at all times, of a 
 larger per capita currency in which they should 
 share, but they very soon found out that none of 
 the blessings which they had so fondly imagined 
 would follow possession were destined to appear. 
 What was gained by having plenty of money if it
 
 30 CHEAP-MONEY EXPERIMENTS 
 
 could not be used in payment of debts, if nothing 
 could be bought with it save at greatly advanced 
 prices, and if it were to become less and less val- 
 uable as time went on ? 
 
 They began their experiment with a firm belief 
 that they could compel capitalists to share their 
 wealth with them by exchanging their hated dear 
 money for their own cheap money on equal terms, 
 but they soon discovered that all the power of a 
 State government, exerted with unscrupulous zeal, 
 was not sufficient to compel a man to employ his 
 capital in ways against his will. They might pre- 
 vent him from collecting usury, but they could 
 not interfere with him when he chose to keep his 
 capital to himself, and to make no use of it in 
 trade, either by buying, or selling, or lending. 
 Every " cheap-money " experiment that has ever 
 been made has resulted in precisely the same de- 
 monstration, and the same fate awaits all those 
 of the future.
 
 CHAPTER IV 
 
 MODERN CHEAP -MONEY PANACEAS 
 
 IN the two chapters immediately preceding the 
 present one we have set forth the details of 
 two historical schemes for making money cheap 
 and plentiful, that of the Land Bank in England 
 in the latter part of the seventeenth century and 
 that of the Paper Bank in Rhode Island at the 
 close of the Revolutionary War. We intend now 
 to consider some of the plans with similar purpose 
 that are put forth by the leaders iu various kinds 
 of cheap-money movements which have gained 
 headway in the Western States during the last 
 year or more. With this consideration in view 
 we have been making a collection of plans as they 
 have been advanced from time to time in speeches 
 and interviews. We append the more striking of 
 these, giving the exact language in each instance, 
 numbering them for convenience of reference but 
 withholding the names of the originators in order 
 that our subsequent remarks may be free from 
 all appearance of personality. 
 
 31
 
 32 CHEAP-MONEY EXPERIMENTS 
 
 1. I am not stuck on silver and gold as circulating me- 
 diums. A piece of paper is my ideal. Geologists have 
 tilings so fine that they can estimate the quantities of silver 
 and gold in the mountains, and the Government should 
 issue silver certificates to an amount equivalent to that 
 estimate. It would be far safer, as it would be easy for a 
 foreign nation to capture the coin in the treasury vaults at 
 Washington; but the mountains they could not remove, 
 even by all the faith they could muster. 
 
 2. People do not care whether a silver dollar contains 
 seventy cents' worth of silver or not, so long as it will buy 
 a doUai-'s worth of sugar or coffee. For fifteen of these 
 [holding up a copper cent] a man can buy copper enough to 
 make two dollars, yet it is good money. 
 
 3. We [speaking for the Farmers' Alliance] believe in the 
 people making their own money ; we believe in the Govern- 
 ment, which is simply the agent of the people, issuing their 
 money directly to them without going around Robin Hood's 
 barn to find them. 
 
 4. If the people had twice as much currency in their 
 pockets as now, their prosperity would be greatly increased. 
 
 5. I am in favor of more currency. We have n't enough 
 currency per capita to do the business of the country. If 
 we cannot increase the currency, I think somebody ought 
 to issue more collaterals. There is usually enough money 
 if a man has the collateral. 
 
 6. Under a free-coinage system I think people who have 
 small quantities of silver would be more apt to deal directly 
 with the Government, and the coin, flowing out of the mints 
 to them in smaller individual amounts, would quickly find 
 its way into the channels of ordinary trade. The rich specu- 
 lators who now do most of the handling of the metal take 
 their big sums that they receive from the Government, and 
 use them in further speculation. Little enongh of it ever 
 gets out in petty simis for circulation among the masses of ' 
 the people.
 
 MODEEN CHEAP-MONEY PANACEAS 33 
 
 7. My monetary system eliminates from money both the 
 element of intriusic value and the power to limit or control 
 the value of things of use. I propose that the Government 
 only shall issue money for the public use. In order to do 
 this I would have it issue immediately 500,000,000 new 
 treasury notes of the denomination of one dollar each. So 
 much of this amount as was necessary the Government 
 should loan to the people, ten per cent, of each loan to be 
 paid back each year, nine per cent, to be applied to the ex- 
 tinction of the principal, and one per cent, covering the in- 
 terest. In that way it would be possible to redeem every 
 mortgaged farm in the land within fifteen years. 
 
 8. Banks should not be allowed to issue notes. These 
 should be printed and put out by the Government. The 
 tariff should be reduced till there is a deficit in the treasury, 
 and then greenbacks should be printed and issued to pay 
 all claimants. These should not be redeemable in metal 
 money. Each bill should bear the legend: "One dollar, 
 receivable for all dues and dbts." This would make it re- 
 ceivable for all taxes and import duties, and a legal tender. 
 This would keep it perpetually at par. 
 
 9. Tens of thousands of our farmers have been unfortu- 
 nate, and can never get out of debt without special relief. 
 I would enact a law stopping the big interest they have 
 agreed to pay, and substituting a debt at one per cent, in- 
 terest. It would be done in this way. Suppose I owe you 
 $5000 and accumulated iuterest on my farm. This new 
 law would direct you to add the interest to the principal, 
 and go to the treasury of my county and file the mortgage and 
 an abstract of the property, and get a check on the nearest 
 bank for the entire debt. That would satisfy you. Then 
 the county treasurer makes a draft on the United States 
 treasurer for the money,, and gets it in crisp, new bills. 
 That satisfies him. The United States treasurer accepts 
 the mortgage on the farm, — providing it is worth the 
 amount of the mortgage, — and sends word to me when the
 
 34 CHEAP-MONEY EXPERIMENTS 
 
 one per cent, interest is due. Is not that simple ? It is the 
 first news I have had of the transfer of the debt. That 
 ought to suit everybody. 
 
 These nine plans can be grouped into two gen- 
 eral classes — those which preserve for the pro- 
 posed cheap money some intrinsic value, and 
 those which eliminate such value entirely. Of 
 the former it is to be said that they are similar in 
 character to the plans of the English Land Bank 
 and the Rhode Island Paper Bank in that they 
 propose the issue of money on land as security. 
 The proposition for issuing notes against the esti- 
 mated amount of silver and gold in a mountain is 
 of course a proposition to issue them on the value 
 of the land. They could be no more kept at par 
 than the Rhode Island notes based on farm values 
 could be, but would drop at once to a level of their 
 own, which would inevitably be below the gold 
 standard of value. As for the plans in the second 
 group (those which favor paper money with no- 
 thing to fix its value save the Government stamp), 
 they all contemplate a currency which the author 
 of one of the plans (No. 8) says would be " per- 
 petually at par " ; that is to say, at par with itself. 
 This was the peculiarity of the Continental, the 
 Confederate, and the Rhode Island paper money, 
 of the French assignats, and, in fact, of all incon- 
 vertible paper money ever issued. It is surely 
 unnecessary, in view of unbroken human experi- 
 ence in testimony of the folly of such money, to
 
 MODERN CHEAP-MONEY PANACEAS 35 
 
 enter into a formal argument against it at this 
 late day. We shall continue to show its complete 
 failure in practice in subsequent articles upon ex- 
 periments with it in various countries. 
 
 When we come to examine carefully these vari- 
 ous plans we find that the advocates of all of them 
 are more or less perplexed as to the methods by 
 which the money, when it shall have been made 
 plenty by act of the Government, shall be got into 
 the "pockets of the people." This is the shoal 
 upon which many a fair cheap-money panacea has 
 been wrecked. The primal cause of every cheap- 
 money agitation is the same — a desire on the part 
 of people who are suffering from a scarcity of 
 money to possess more. They have nothing ad- 
 ditional to offer in return for more, — that is, mer- 
 chandise, or goods, or labor, or product of any 
 kind, — but they imagine that the scarcity from 
 which they are suffering is due to the dearness of 
 the money itself, or to the financial policy of the 
 Government in limiting the amount issued, or to 
 some other cause than their own inability to raise 
 more, either by actual sale of something, or on 
 credit. When they are asked how they are going 
 to get possession of a share of the more plentiful 
 supply, and are held down to a specific answer, 
 their ingenuity is greatly taxed, and they turn to 
 their leaders for a solution of the difficulty. The 
 different ways in which the leaders, whose plans 
 we have collected, have met this demand furnish 
 most instructive material for study.
 
 36 CHEAP-MONEY EXPERIMENTS 
 
 In the first and second plans this point is not 
 touched upon. In the third the author says he fa- 
 vors issuing the money directly to the people, which 
 seems to imply a free and unlimited distribution. 
 In the fourth plan the incontrovertible assertion 
 that '^ if the people had twice as much currency in 
 their pockets as now, their prosperity would be 
 greatly increased" is not accompanied with any 
 suggestion as to how this doubling process can 
 be accomplished. In the fifth — and this point we 
 shall touch on later — the searching suggestion is 
 dropped that perhaps an increase of collaterals is 
 as much needed as an increase in currency. In 
 the sixth the curious idea is brought forward that 
 free coinage of silver would put money into the 
 pockets of the people by enabling them to take 
 what silver bullion they might happen to have on 
 hand to the mints to be coined. In the seventh, 
 eiglith, and ninth plans an unlimited issue of in- 
 convertible paper by the Government is advocated 
 to be loaned to the people at one per cent., some- 
 times with land security and sometimes with none 
 at all. 
 
 Of the relief which might come to the people by 
 allowing them to have their own bullion coined, it 
 is only to be said that it would depend entirely 
 upon the amount of bullion which thej' had on 
 hand and of the value of the silver dollars after 
 they were coined. If the farmers of the West have 
 bullion in considerable quantities stored about 
 their premises, the fact is one which has not been
 
 MODERN CHEAP-MONEY PANACEAS 37 
 
 suspected. Concerning the various plans for gov- 
 ernment loans of paper money at one per cent., 
 the same comment can be made upon all of them. 
 They would undoubtedly put money into the pock- 
 ets of the people, but what would the money be 
 worth ? The farmers of Rhode Island had plenty 
 of money put into their pockets in 1789, but they 
 found that they could not buy anything with it 
 save at heavy discount, could not use it in pay- 
 ment of mortgages and other debts, and that it 
 paralyzed the commerce and industry of the State, 
 and brought irreparable shame upon its honor. 
 If the Government of the United States were to 
 go into the business of lending money to the 
 farmers in return for mortgage security, as some 
 plans propose, or in return for no security, as 
 others suggest, the only results would be that the 
 entire farm mortgage debt of the country would 
 be unloaded upon the Government, that farmers 
 and all other people would have a lot of debased 
 money in their pockets, and that in the end the 
 credit of everybody, including that of the Gov- 
 ernment itself, would be undermined, if not com- 
 pletely destroyed. 
 
 The real need of the times is the one mentioned 
 in the fifth plan; that is, for more collaterals. 
 When the author of that plan says that ''there is 
 usually enough money if a man has the collateral," 
 he shows that he has been a close and accurate 
 observer. Collateral, as defined by " The Century 
 Dictionary," is "anything of value, or representing 

 
 38 CHEAP-MONEY EXPERIMENTS 
 
 value, as bonds, deeds, etc., pledged as security in 
 addition to a direct obligation." An advocate of 
 cheap money was once going about Wall street 
 complaining of the scarcity of money, and saying 
 that all existing industrial, commercial, and finan- 
 cial woes came from a too small supply of currency. 
 When he was told that there was plenty of money 
 to be borrowed at low rates of interest, he retorted, 
 "Ah, but that is only on first-class security." Money 
 is always obtainable on that kind of security, and 
 few people are ever to be found who wish to loan 
 it on any other. The man who calls for more col- 
 laterals means to call for more first-class securities, 
 for upon no others does any prudent man care to 
 lend money. In other words, every man who has 
 something of value to sell, or to lend, can get 
 money of value in return. He can compel no man 
 who has money to lend to lend it on any other 
 than good security. As the value of the collateral 
 goes down the rate of interest goes up, until it 
 reaches the prohibitive point. If a loan which has 
 been granted on condition of interest and principal 
 being paid in sound or "dear" money be repaid, 
 under legal authority, in " cheap" money, the in- 
 evitable effect is always to make it more difficult 
 for any one to borrow on any except the most 
 stringent terms thereafter; that is, on the best 
 security, and with principal and interest payable 
 in gold.
 
 CHAPTER V 
 A NATION FOR A MORTGAGE 
 
 WE have iu previous chajiters set forth the 
 details of two notable historical efforts to 
 lighten the burdens of the people and to increase 
 their wealth by making money cheap and plenty. 
 In one the Land Bank experiment in England in 
 1696 was considered, and in another the Rhode 
 Island Paper Bank experiment of 1786. We 
 turned aside for a moment from the historical 
 record to consider some of the modern cheap- 
 money plans, in order to enforce upon our readers, 
 while the English and the Rhode Island failures 
 were fresh in their minds, the fact that these mod- 
 ern plans sought to repeat in our own times the 
 disastrous experiments of one and two centuries 
 ago. From that list of modern plans we purposely 
 omitted one which may be said to have been the 
 inspiring cause of nearly all those which we named. 
 We refer to the Land Loan scheme of Senator 
 Stanford of California. This, iu brief, is that the 
 Government shall lend an unlimited amount of 
 money for twenty years at two per cent, interest
 
 40 CHEAP-MONEY EXPERIMENTS 
 
 on laud pledged as security at half its value ; that 
 the value of the land shall be fixed by apjiraisers 
 appointed by a land-loan bureaii in every county 
 in which a loan is applied for, their services to 
 be paid by the mortgagees; that there shall be 
 no limit to the amount of the money issued as 
 loans, except the needs of landowners, and their 
 ability to pledge the land; and that the bills 
 so issued shall be receivable for all taxes and all 
 debts. 
 
 This is in substance the Rhode Island experi- 
 ment over again, but lest some one shall say that 
 that experiment was made in a State only, and 
 not in a nation, and hence had not the wealth of 
 the whole country to guarantee its success, we 
 shall not rely upon it as constituting a complete 
 demonstration of the fallacy of Mr. Stanford's 
 ideas. What was attempted in Rhode Island in 
 1786 was merely an imitation, on a small scale, of 
 what was done in France in 1718-20 under the 
 inspiration of the notorious adventurer and gam- 
 bler John Law. The history of his famous per- 
 formances constitutes so perfect an answer to the 
 economists of Mr. Stanford's school that we shall 
 make it the subject of the present chapter in our 
 series. 
 
 John Law was the son of an Edinburgh jeweler 
 and money-changer. After a career of gambling, 
 dueling, and reckless adventure in every capital in 
 Europe, he turned his ingenuity to the invention 
 of schemes of finance and banking, and went about
 
 A NATION FOR A MORTGAGE 41 
 
 from capital to capital seeking acceptance for thera. 
 Having had no success anywhere else, he appeared 
 in Paris in 1716, just after the death of Louis XIV., 
 when the regent, the Duke of Orleans, was con- 
 fronted with a national debt of more than three 
 billions, which made national bankruptcy immi- 
 nent. He listened earnestly to Law when the latter 
 assured him that the prosperity of a nation de- 
 pended entirely upon the size of its circulating 
 medium ; that Holland with its wretched soil and 
 dangerous shores was the richest country in the 
 world simply because of its immense circulating 
 medium ; and that France by doubling its capi- 
 tal would enormously increase its wealth and re- 
 sources, pay off its debts, and become the richest 
 nation in the world. How could France double 
 its capital? Why, easily enough. All it had to 
 do was to establish a bank on the basis of all the 
 actual property of the State. 
 
 A private bank which Law established succeeded 
 very well, its bills being accepted by the Govern- 
 ment. It really laid the foundation of credit in 
 France, since it was the first bank of circulation 
 and discount. Its success turned the heads of both 
 Law and the regent. If with a small capital they 
 could by means of credit circulate a volume of 
 notes several times the size of the capital, what 
 might they not do with the whole of France for 
 capital? The private bank was dissolved in 1718, 
 and the Government established the Royal Bank 
 with Law as its director-general. He at once be-
 
 42 CHEAP-MONEY EXPERIMENTS 
 
 gaii to put into practice his idea of uniting all the 
 wealth of France into one great mass, and using 
 it as a basis upon which to issue an illimitable vol- 
 ume of notes. '' He had conceived the idea," says 
 Blanq.ui, in his "History of Political Economy," 
 "of combining into one common association all 
 the capitalists of France, and putting under their 
 control, as a loan, all the elements of public wealth 
 from landed property to the uncertain ventures of 
 colonial trade. What could be a finer mortgage 
 than France ! " 
 
 As a part of his great " Company of the West," 
 he included his famous Mississippi scheme. The 
 Chevalier La Salle, in his travels down the Mis- 
 sissippi River to the GuK of Mexico, had taken 
 possession of all the territory through which it 
 flowed in the name of the French king, calling it, 
 in honor of Louis XIV., Louisiana. Law obtained 
 a concession of this district, gave dazzling ac- 
 counts of its unlimited mineral and agricultural 
 wealth, and founded a commercial company upon 
 it with a capital of one hundred millions, divided 
 into two hundred thousand shares of five hundred 
 francs each. Other trading companies, the Ca- 
 nadian, Senegal, East Indian, and China, were also 
 taken into the bank and each made a " basis" for 
 the issue of notes. Then one after the other the 
 royal mint, the business of collecting the govern- 
 ment taxes, and the receipts of the royal income 
 were included. Law's idea was to get all the re- 
 ceipts and all the issues of the nation into the
 
 A NATION FOR A MORTGAGE 43 
 
 same hands, and then upon this vast basis, this 
 fine raortt^age of France, to issue notes at will. 
 
 The shares of this company were eagerly 
 bought. He began the issue of paper money 
 guaranteed by the Government, and based upon 
 the value of all national property. '' Bills issued 
 on land," he said, " ar(^ in effect coined land. Any 
 goods that have the qualities necessary in money 
 may be made money equal to their value. Five 
 ounces of gold is equal in value to £20, and may 
 be made money to that value ; an acre of land is 
 equal to £20, and may be made money equal to 
 that value, for it has all the qualities necessary in 
 money." As a beginning, Law had notes to the 
 amount of one hundred and ten millions of pounds 
 sterling struck off and circulated. They were re- 
 ceivable in taxes, nominally redeemable in coin, 
 and made a legal tender. A great wave of instan- 
 taneous prosperity seemed to rush over France. 
 The parliament of Paris, alarmed by the furor 
 which seized the whole people, tried to check it 
 by legislation, but was overborne at once. Law 
 even threatened to abolish it for presuming to 
 stand in his way. The bank lent the king twelve 
 hundred billions of francs to pay off the debt. 
 An eye-witness of the scenes in Paris, writing at 
 the time, says : " All the town is in convulsion 
 over the shares ; the capital is thrown into a kind 
 of state fever; we see the debt diminish before 
 our eyes ; private fortunes are being made out of 
 nothing." From all parts of France men poured
 
 44 CHEAP-MONEY EXPEEIMENTS 
 
 into Paris to speculate. The street in wliicli the 
 bank was situated was crammed day and night. 
 The shares rose to forty times their value in specie 
 at the time of their issue. Everybody seemed to 
 be getting richer, nobody poorer. The bank con- 
 tinued to pour forth paper money till its issue 
 reached 3,071,000,000 francs, 833,000,000 more 
 than it was legally authorized to emit. Its issue 
 of shares at the extreme market value when the 
 craze was at its height was twelve billion francs, 
 which had been built up on an original issue of 
 less than two millions. 
 
 M. Thiers, in his account of the situation at this 
 time, says : 
 
 The variations of fortune were so rapid that stock-jobbers, 
 receiving shares to sell, by keeping them one single day 
 had time to make enormous profits. A story is told of one 
 who, charged with selling some shares, did not appear for 
 two days. It was thought the shares were stolen : not at 
 all; he faithfully returned their value, but he had taken 
 time to win a million for himself. This power which capital 
 had of producing so rapidly had brought about a traffic ; peo- 
 ple lent the funds by the hour, and exacted unprecedented 
 rates of interest. The stock-jobbers found, moreover, a way 
 to pay the interest demanded and to reap a profit themselves. 
 One could even gain a million a day. 
 
 Law himself reaped a colossal fortune in paper, 
 which he turned into land as fast as he could. He 
 bought no less than fourteen titled estates in 
 France, a fact which is cited as evidence that he 
 had faith in his own schemes, for had he been a
 
 A NATION FOE A MORTGAGE 45 
 
 svvindler he would have invested his profits in 
 some other country. 
 
 Of course such a condition of affairs could not 
 last. Scarcely had the whole system been made 
 complete before the inevitable collapse began to 
 threaten. People began to sell their shares for 
 land, houses, coin, or anything that had stable 
 value. Prices rose enormously, and gold began 
 to be hoarded. The shares began to fall and the 
 paper money to depreciate. Then Law, like his imi- 
 tators a half -century later in Rhode Island, began 
 to try to save his paper money from destruction 
 by edicts or forcing acts. It was forbidden to 
 convert the notes into gold or silver, and decreed 
 that they should bear a premium over specie. It 
 was decreed that coin should be used only in small 
 payments, and that only a small amount of it 
 sliould be kept in the possession of private per- 
 sons. Any one keeping more than 400 or 500 
 francs in specie was to be fined 10,000 francs. The 
 wearing of gems and diamonds was prohibited. 
 Nothing made of gold was to weigh over one 
 ounce. Old specie was confiscated, and domiciliary 
 visits were ordered to discover it. Of course these 
 signs of desperation only hastened the end. The 
 shares, which had been fluctuating wildly, began 
 to go down steadily. This was in February, 1720, 
 less than two years after the founding of the bank. 
 When all the violent edicts failed to stop the de- 
 cline, the Government decreed in May that the 
 value of the shares and notes should be reduced
 
 46 CHEAP-MONEY EXPERIMENTS 
 
 one half. This was the eud. The great bubble col- 
 lapsed, for credit had been completely destroyed. 
 The bank stopped payment, and the whole nation 
 gave itself over to rage and despair. Law's life 
 was in danger, and that of the regent was threat- 
 ened. The bank was abolished ; its notes were re- 
 converted into the public debt, leaving it as it was 
 when the bank was established; Law's estates 
 were confiscated, and by November of 1720 not 
 a trace of the bank or its various companies re- 
 mained. Law himself remained in France till the 
 end of the year, when he became a wanderer on 
 the face of the earth, dying at Venice in 1729 
 almost a pauper. ^'Of all the industrial values 
 produced under the hot atmosphere of Law's sys- 
 tem," says Blanqui, "nothing remained but ruin, 
 desolation, and bankruptcy. Landed property 
 alone had not perished in the tempest." 
 
 This is the experiment which Senator Stanford 
 proposes should be repeated in the United States. 
 It is the same experiment which Rhode Island 
 tried with similar results in 1786. It is the same 
 experiment also which the Argentine Republic has 
 been trying within the past five years, and the 
 fruits which that unhappy country is now reaping 
 from it we shall make the subject of our next 
 chapter.
 
 CHAPTER VI 
 
 THE ARGENTINE 
 CHEAP-MONEY PARADISE 
 
 IN many respects the experience through which 
 the Argentine Republic is passing, in an at- 
 tempt to increase the general prosperity by mak- 
 ing money cheap and plentiful, comes closer to the 
 American people than any of the similar efforts in 
 other countries which have been described in pre- 
 vious chapters. The government of the Argentine 
 Republic is closely modeled upon that of the United 
 States. It is a country of almost boundless natural 
 resources, whose development has been so rapid as 
 to be almost without parallel in history, and whose 
 growth in wealth, prosperity, and commercial im- 
 portance has been so nearly approached by no 
 other country in the world as by America. Its 
 people are an energetic, buoyant, self-confident 
 race, full of pride in their country and inclined to 
 the belief that it is capable of withstanding any 
 strain that may be put upon it. Yet, rich and 
 prosperous as they were, these people conceived 
 the idea, when a slight check to their development 
 
 47
 
 48 CHEAP-MONEY EXPERIMENTS 
 
 was felt a few years ago, that what they needed 
 in order to attain the full measure of their pros- 
 perity was to make money "cheap and plenty." 
 Perceiving the importance of their experience as 
 an object-lesson for our own country, bearing as 
 it does directly upon discussion and propositions 
 current here, we have gone thoroughly into the 
 matter, examining all available sources of infor- 
 mation, and have thus been able to prepare for 
 our readers what we believe to be the most com- 
 plete as well as accurate account yet published. 
 
 In 1873 there was established in the capital city 
 of the Argentine Republic, Buenos Ayres, the 
 Hypothecary or Mortgage Bank, whose main ob- 
 ject was to make loans on all kinds of landed 
 property. The principles upon which these loans 
 were to be made were much the same as Senator 
 Stanford is advocating as a basis for similar loans 
 by the United States Government. Any person 
 owning landed property in the province could go 
 to the bank and secure a loan for half its value, 
 which was to be fixed by the bank's appraisers. 
 The bank gave him a mortgage-bond, called a 
 cedula, which was to run for twenty-four years, at 
 from six to eight per cent, interest, two per cent, 
 amortization, and one per cent, commission. The 
 interest was payable quarterly, and there were 
 coupons attached for the twenty-four years. The 
 cedulas were issued in alphabetical series, begin- 
 ning with A and running to P. They were bought 
 and sold on the Bolsa or Stock-exchange, and from
 
 THE AKGENTINE CHEAP-MONEY PARADISE 49 
 
 their first issue became an important element in 
 speculation. The first issue of series A was between 
 $18,000,000 and $14,000,000, the Ai'gentine dollar 
 being about ninety-six cents of our money, being 
 based upon the unit of the French monetary sys- 
 tem. These remained at par for only a short time 
 after issue. They were quickly followed by others, 
 until series A closed with a total issue of $27,394,- 
 000. Then came series B with an issue of $1,092,- 
 000, series C with $813,000, series D with $288,000, 
 all at seven per cent. Then came series E with a 
 total issue of $15,830,000 at six per cent., and F 
 with a total issue of $6,100,000 at seven per cent. 
 Ten years after the bank's establishment over $100,- 
 000,000 of these cedulas had been issued, all based, 
 be it remembered, iipon the landed property of a 
 single province. They had from the outset been 
 used for speculative purposes, and every year this 
 use became more wild and reckless. A ring was 
 formed between directors of the bank and cer- 
 tain favored brokers for the absolute control of 
 the successive issues. No one could obtain con- 
 cession for a loan who did not make application 
 through these brokers, and in order that all the 
 members of the ring might reap their share of 
 the profit, the value of the property upon which 
 the loans were placed was raised to extravagant 
 figures. 
 
 The fictitious prosperity which the Hypothecary 
 Bank brought to Buenos Ayres infected the entire 
 republic, and in 1884 Congress passed a law an- 
 5
 
 50 CHEAP-MONEY EXPERIMENTS 
 
 nexiug a National Hypothecary Bank to the Na- 
 tional Bank, which was the fiscal agent of the 
 Government and of all the provinces except Bue- 
 nos Ayres. The issue of cedulas on the landed 
 property of the nation was authorized, for fifty 
 per cent, of its value, at interest from six to eight 
 per cent., with two per cent, amortization and one 
 per cent, commission, no single loan to exceed 
 $250,000, and all payable at the end of twelve 
 years. The issue of cedulas was at first limited to 
 $40,000,000, but this was extended from time to 
 time so that in November, 1890, six years after the 
 National Bank began the experiment, it had out 
 no less than $204,000,000 in gold, all bearing inter- 
 est. The Buenos Ayres Bank had increased its 
 issue of cedulas so that at the same date it had no 
 less than $330,000,000, but these were in paper, 
 making the grand total of money which had been 
 loaned upon land in the republic during seventeen 
 years $534,000,000, or $140 for every man, woman, 
 and child. 
 
 When the National Bank went into the hypothe- 
 cary business in 1884 paper money was at par with 
 gold. Several severe checks to the national pros- 
 perity were felt during that year. Cholera made 
 necessary a rigorous quarantine against Mediter- 
 ranean steamers and checked immigration. Heavy 
 floods during the fall delayed the shipment of 
 crops from the interior to the seaboard. A new 
 Government loan of $90,000,000 was to be placed ; 
 but the European market, which was expected to
 
 THE ARGENTINE CHEAP-MONEY PARADISE 51 
 
 take $10,000,000 of it, was so nearly sated with 
 Argentine investments of one kind or another 
 that it declined to take more than $3,500,000. 
 
 In January, 1885, a run began upon the Provin- 
 cial Bank of Buenos Ayres, and compelled it to 
 suspend specie payments; whereupon the Presi- 
 dent of the republic deehired the national currency 
 a legal tender. Gold rose at once to 17 per cent, 
 premium, and then to 20 per cent. In February 
 it had reached 33 per cent., and it continued to rise 
 steadily till at one time it was at 350 per cent. ; 
 that is to say, $450 in paper was worth only $100 
 in gold. From the moment that the gold stan- 
 dard was abandoned, the demand for more paper 
 money began to be heard, and it was poured out 
 by the Grovernment in almost unlimited volume. 
 Under the pretense of creating a sounder financial 
 system and securing a more stable currency, a law 
 was passed in November, 18 ^7, es tablishing a sys- 
 tem of State Banks, forty in number, similar to 
 our National Banks. These started with a capital 
 of $350,000,000, and began to issue paper money, 
 not being required, as our banks are, to be able at 
 all times to redeem their notes with gold. 
 
 When the premium on gold had reached 40 
 per cent., the Government took the position that 
 the increase was a trick of the brokers, and 
 not in any way an outcome of currency infla- 
 tion, and issued a decree allowing the banks to 
 issue currency practically without limit. At the 
 same time the Government, to satisfy the de-
 
 52 CHEAP-MONEY EXPERIMENTS 
 
 mand for gold, aud to prove its belief in its own 
 contentious, threw $30,000,000 of its gold re- 
 serves on the market. The gold premium con- 
 tinued to rise with no perceptible check, and as it 
 rose the banks poinded out more and more paper 
 money in a frenzied attempt to check its upward 
 flight. 
 
 It was discovered after a time that, through 
 trickery, there were several millions more of this 
 irredeemable paper money in circulation than had 
 been supposed. A provision of the national bank- 
 ing law required that all banks reorganizing under 
 it should withdraw and cancel their old notes when 
 they put their new ones in circulation. Several 
 banks, in collusion with dishonest officials, vio- 
 lated this requirement, and kept a large part of 
 their old issue in circulation with the new. At 
 one time the amount of this fraudulent money, 
 based on nothing whatever, amounted to $60,000,- 
 000. Some of this was afterward destroyed, but 
 the latest official estimate put the amount still in 
 circulation at over $35,000,000. As the latest at- 
 tainable total of the regular paper issue of the 
 banks places it at $345,000,000, the grand total of 
 paper money in circulation in March of last year, 
 worth about 25 cents on a dollar, was $380,000,- 
 000, all irredeemable, and decreasing in value 
 every day. This was a per capita circulation of 
 $100 for every man, woman, and child in the re- 
 public. That ought certainly to have put " plenty 
 of money in the pockets of the people," for $100
 
 THE ARGENTINE CHEAP-MONEY PAEADISE 53 
 
 is the highest sum per capita our wildest cheap- 
 money advocates have ever demanded. 
 
 With the entry of the National Bank into the 
 business of loaning money on land, the whole 
 country plunged into a wild debauch of specula- 
 tion, which closely resembled that through which 
 France passed when the same financial experiment 
 was made under Jolin Law's inspiration, as de- 
 scribed in the preceding chapter. All kinds of 
 property acquired a fictitious value, and were 
 made the basis for loans at that valuation. The 
 Government, departing with complete abandon 
 from all the limitations of legitimate govern- 
 ment, helped on the popular furor by giving its 
 aid and sanction to all kinds of mushroom bank- 
 ing, building, and colonization enterprises de- 
 signed to 'MDoom" the value of property and 
 increase its loanable capacity. The country was 
 sprinkled all over with banks pouring out mil- 
 lions of paper money which could never be re- 
 deemed, and thickly studded with inflated joint- 
 stock companies with millions of capital on paper, 
 whose business it was to get from the banks loans 
 for many times the real value of the property 
 upon which they were based. When the banks 
 had exhausted all their capital in loans, the Gov- 
 ernment, assuming their indebtedness, gave them 
 millions of gold with which to continue the issue 
 of cedulas. The business of speculating in gold 
 became enormously profitable, and private banks 
 made fortunes. Men made 10 per cent, per week
 
 54 CHEAP-MONEY EXPERIMENTS 
 
 in the biisiuess, autl 20 to 24 per cent, per annum 
 was the usual profit. A Bank of Construction 
 was conceived and put in operation by an unscru- 
 pulous speculator, which, in collusion with dis- 
 honest Government officials, bought vast amounts 
 of property, improved it, obtained exaggerated 
 loans upon it, and sold it in such dishonest ways 
 that the interest on the loans could never be col- 
 lected. The speculator made a colossal fortune ; 
 the stock of his bank went to enormous figures on 
 the Bolsa, but, when the tide turned, fell 100 points 
 in a single day, carrying ruin to hundreds of men 
 who fancied themselves rich. 
 
 Many of the early cedulas had been sent abroad, 
 and their ready sale in London, Paris, and Berlin 
 had encouraged their further issue. About $15,- 
 000,000 in all were taken abroad, and more would 
 have been bought had not the European market 
 been flooded with Argentine loans between 1881 
 and 1890. These were instituted or backed by the 
 Argentine government, and consisted chiefly of 
 loans either to the Grovernment or to provinces or 
 to cities. They were for nearly every conceivable 
 purpose — railways, harbors, street-paving, public 
 buildings, school-houses, markets, tenement-houses, 
 bridges, theaters, hospitals, boulevards, public 
 squares, and drainage. In December, 1889, the 
 aggregate of these loans, taken largely in England, 
 was over $122,000,000 for the republic and over 
 $193,500,000 for the provinces, and the total amount 
 of gold which had to be exported annually from
 
 THE ARGENTINE CHEAP-MONEY PARADISE 55 
 
 the Argentine Republic to pay the interest on its 
 foreign indebtedness, and dividends on railway, 
 bank, and other stocks held abroad, was over 
 $75,000,000. With a foreign debt of $315,500,000, 
 there had been accumulated at the close of 1889 
 an internal national debt of $207,000,000, and an 
 internal provincial debt of $44,000,000, making 
 at the close of that year a grand total debt of 
 $566,500,000. This has since been increased to 
 $772,500,000. As the population of the republic is 
 about 3,800,000, the debt is over $203 for every 
 inhabitant. 
 
 It is small wonder that under this mountain of 
 debt the National Government is bankrupt, hav- 
 ing neither money nor credit, and that it anti- 
 cipates a deficit for the current year of over 
 $17,000,000. The provincial deficit for the cur- 
 rent year is estimated at between $4,000,000 and 
 $5,000,000, making a probable deficit in the whole 
 republic of nearly or quite $22,000,000. 
 
 Affairs have been going from bad to worse since 
 the crisis of 1890. Credit practically collapsed in 
 the spring of that year. After that time the pro- 
 vincial banks were not able to meet their obliga- 
 tions. The lands upon which loans were based 
 became unsalable, cedulas dropped to 50 and 
 even 35 cents on the dollar, which was equivalent 
 to 13 and 9 cents respectively in gold. The paper 
 dollar was worth about 25 cents. The Provincial 
 Bank of Buenos Ayres, which was the savings- 
 bank of the working-classes, stopped paying its
 
 56 CHEAP-MONEY EXPERIMENTS 
 
 obligations in 1890, and the National Bank passed 
 its dividend. A revolution broke out, and though 
 the Government quelled it the President was forced 
 to resign. 
 
 Investigations instituted by the new government 
 into the condition of the banks revealed astound- 
 ing rottenness and corruption. The whole power 
 of the Government was exerted for several months 
 to prevent the National Bank and the Provincial 
 Bank of Buenos Ayres from being publicly de- 
 clared insolvent, but on April 8, 1891, the Presi- 
 dent gave up the struggle and issued a formal 
 decree for the liquidation of both, all payments 
 being suspended till June 1. The time was sub- 
 sequently extended twenty days by Congress, and 
 then extended indefinitely. 
 
 This was the end, and the wreck of the banks 
 was complete. In 1886 the National Bank had 
 a capital of £10,000,000 sterling, and the Pro- 
 vincial Bank one of £8,000,000 sterling. Not 
 a penny of the latter remained. The National 
 Bank had lost £8,800,000 of its £10,000,000, 
 and owed the Government £14,000,000. These 
 two banks had lost, therefore, during five 
 years' experience with cheap money based on 
 landed property, about £30,000,000 sterling, a 
 sum more than double the capital of the Bank 
 of England. 
 
 When the collapse came the nation gave itself 
 over, as France had done two centuries earlier, to 
 rage and despair. Men who were believed to be
 
 THE ARGENTINE CHEAP-MONEY PARADISE 57 
 
 worth millions fouud themselves paupers. One 
 man who had been worth $20,000,000, which he 
 had accumulated during a lifetime's devotion to 
 honest industry, but who had been tempted to 
 venture it in speculation, lost every dollar. He 
 had just completed the building of a house of 
 palatial magnificence, costing $180,000, but had 
 never entered it, when the crisis came, and it was 
 taken to pay his debts. A United States minister 
 to a South American government, who was in 
 Buenos Ayres at the time, thus describes the con- 
 dition of the nation : 
 
 In six months the people have passed from commercial 
 activity and enthusiasm to depression ; from happiness to 
 misery; from confidence to despair. They have taken a 
 Niagara plunge, from which they will not recover in a gen- 
 eration. The worst of the scheme was that it offered iiTe- 
 sistible temptation to bribery. It made it possible for any 
 man who owned real estate to get almost any quantity of 
 money, if he would only swear falsely. An acquaintance of 
 mine had a nice farm there which he valued at $15,000. The 
 law would give him a loan to one half of the value — that 
 value to be fixed by the official appraisers. He " saw" the 
 appraisers, and he obtained a loan of Government money 
 — cedula — amounting to $250,000, the maximum loan per- 
 mitted by law to one person. Think of it ! And the money 
 was indorsed by the Barings, the great London bankers ! 
 Of course the appraisers got half of it, but the people have 
 it to pay. And they are now in debt more than $100 for 
 every man, woman, and child — hopelessly bankrupt. 
 
 Mr. E. L. Baker, the United States consul at 
 Buenos Ayres, to whose valuable reports we are
 
 58 CHEAP-MONEY EXPERIMENTS 
 
 iudebted for much of the iuf ormatiou contained in 
 this chapter, says under date of November J/7j^l890;. 
 
 The collapse has come, and come with a vengeance. Lands 
 unsalable at any price ; national banks gutted and left 
 without a cent in their strong boxes ; stock companies with 
 fraudulent entries in their records and without anything to 
 show for the pretensions they set up ; merchants unable to 
 meet their liabilities in bank; notes protested and exten- 
 sions granted; the general business at a standstill; the 
 banks hesitating to diseouut ; and nobody able to say whom 
 it is safe to trust — such is the picture which the country 
 presents to-day. . . . Every business, every industry, every 
 new enterprise feels and suffers from the tremendous reac- 
 tion which has taken place. Everybody is confounded and 
 stands aghast, looking at the stick which but yesterday, as 
 it were, was a flaming rocket. . . . The truth is the Argen- 
 tine Republic is suffering from a paralysis of credit. . . . 
 The "fool's paradise" in which the Argentine people have 
 been living for the last few years must be wiped out of ex- 
 istence. Inflation must give place to "hard pan." ... It 
 has been the general boast among those who were pushing 
 on the "boom " that this was an " exceptional country," and 
 that the ordinai'y laws of trade, currency, and banking, how- 
 ever requisite to be followed in such countries as England 
 or the United States, had no significance or applicability in 
 the Argentine Republic. Here, it was insisted, all manner 
 of violations of economic principles could be practised with 
 impunity, and the country would flourish by the outrage. 
 The present prostrate condition of both public and private 
 credit shows the inherent fallacy of such an assumption. I 
 only fear that the country will for a long time have to walk 
 in the valley of humiliation and endure a protracted period 
 of business and financial depression before it will again be 
 able to hold up its head and present that buoyant and tri- 
 umphant look which it has heretofore so proudly worn.
 
 THE ARGENTINE CHEAP-MONEY PARADISE 59 
 
 This is the experiment which men imbued with 
 Senator Stanford's ideas are seeking to have the 
 United States undertake. They are advocating it 
 with precisely the same kind of talk which Mr. 
 Baker quotes as having been heard in the Argen- 
 tine Republic. They are calling the United States 
 an "exceptional country" which is so great and 
 prosperous that it can defy not merely economic 
 laws, but the teaching of all human experience. 
 The consequences of the Ai'gentine experiment 
 were felt not only in that republic, but they con- 
 vulsed the financial centers of three great Eu- 
 ropean countries and virtually ruined the first 
 banking house of England. The effect was so se- 
 verely felt in this country that a panic was im- 
 minent nearly every day for several weeks, while 
 all branches of trade suffered a mysterious and 
 numbing paralysis. 
 
 In the gain or loss of one race all the rest have equal claim, 
 
 says Lowell, and of nothing is this more true than 
 of the observance by a nation of the gi'eat laws of 
 common honesty and fair dealing which lie at the 
 foundation of all economic science.
 
 CHAPTER VII 
 
 THE SUBTREASURY 
 CHEAP-MONEY PLAN 
 
 THE subtreasury scheme of the Farmers' Alli- 
 ance is in many respects the most extreme 
 form in which the cheap-money delusion in this 
 country has manifested itself. It is so extreme, 
 in fact, that many of the Alliance leaders have 
 refused from the outset to give it their approval, 
 and others of them who at first viewed it with 
 favor, after examination and discussion of its 
 provisions have withdrawn their approval. At 
 first it made great headway in the South, but 
 earnest, intelligent, and courageous exposure of 
 its dangerous fallacies by leading politicians and 
 newspapers has so far educated the people upon 
 the economic principles involved that it has been 
 losing ground perceptibly during the past year, 
 A veritable campaign of education has been made 
 in several Southern States, with this scheme as 
 the text of public discussion, and the beneficial 
 results afford a striking illustration of the high 
 patriotic service of courage and conviction in 
 politics and journalism. 
 
 60
 
 THE SUBTREASURY CHEAP-MONEY PLAN 61 
 
 The subtreasury scheme made its appearance in 
 the Fifty-first Congress, when a bill embodying its 
 principles was introduced in both houses, having 
 been prepared by the National Legislative Com- 
 mittee of the Farmers' Alliance. Briefly summed 
 up, it provided for the appropriation by the Gov- 
 ernment of $50,000,000 to be used for the erection 
 of warehouses in various parts of the country for 
 the storage of cotton, wheat, oats, corn, and to- 
 bacco. Every county which had an annual pro- 
 duction of these staples exceeding $500,000 in gross 
 value was to be entitled to a warehouse. A peti- 
 tion was to be sent to the Secretary of the Treasury 
 asking for its establishment, accompanied by the 
 title of a suitable site to be given to the Govern- 
 ment. The Secretary of the Treasury was to appoint 
 a manager, who should give bonds for the faithful 
 performance of his duties, and should receive a 
 salary of not less than $1000 and of not more than 
 $2500, proportionate to the business done. Any 
 owner of cotton, wheat, corn, oats, or tobacco might 
 take his crop to the nearest warehouse, deposit it, 
 and receive in return eighty per cent, of its mar- 
 ket value in treasury notes, the manager deciding 
 what that market value should be. These treasury 
 notes were to be specially issued for this purpose 
 by the Secretary, no note to be less than $1 nor 
 more than $1000, to be legal tender for all public 
 and private debts, and good as part of the lawful 
 reserve of national banks. The manager was to 
 give a receipt for every deposit of produce, show-
 
 62 CHEAP-MONEY EXPERIMENTS 
 
 ing its anioimt, grade, or quality, value at date of 
 deposit, and amount advanced upon it, with rate 
 of interest one per cent, per annum, and with 
 insurance, weighing, warehousing, classing, and 
 other charges deducted. These receipts were to 
 be negotiable by indorsement. Produce deposited 
 might be redeemed at any time by a return of the 
 receipt and money advanced on interest, and the 
 payment of all warehousing charges. The money 
 returned was to be destroyed by the Secretary of 
 the Treasury. If there were no redemption of a 
 deposit within twelve months, a sale was to be or- 
 dered for the reimbursement of the Government. 
 Let us see how this would work in practice. 
 The warehouse managers, who are to decide upon 
 the market price of the produce, would, in nearly 
 all instances, be appointed through political in- 
 fluence, which is tantamount to saying that they 
 would have little expert knowledge of the duties 
 which they were to perform. These men would 
 have absolute power to decide upon the sums of 
 which the Government was to advance eighty per 
 cent. There are, for example, eleven full grades 
 of cotton, and about as many half grades, and 
 there are about thirty grades of wheat. The man- 
 ager must decide not merely the grade, but the 
 price as it is fijced in the markets of the world at 
 the time. If he were an honest man and fairly 
 capable, the opportunity for serious blunders would 
 be very great. If he were a dishonest, or ignorant, 
 or prejudiced, or malicious man, can any one es-
 
 THE SUBTREASURY CHEAP-MONEY PLAN 63 
 
 timate tlie evil aud injustice of which he might be 
 capable! He could overrate the produce of all his 
 political and personal friends, and underrate that 
 of all his enemies or rivals, and there would be no 
 appeal from his decisions. The impossibility of 
 having a just and uniform basis for the eighty per 
 cent, advance in all the warehouses, or even in one 
 of them, would from the outset throw fatal doubt 
 upon the value both of the treasury notes and of 
 the certificates of deposit, giving them at once a 
 depreciated and uncertain standard. 
 
 The farmers who are misled into favoring the 
 scheme think that they would receive at once a 
 loan of eighty per cent, of the full value of their 
 crop at only one per cent, interest, but they would 
 pay much more than that. The warehousing, in- 
 surance, and other expenses for cotton, for example, 
 are usually between eight and nine per cent, of its 
 value. This would have to be paid to the Govern- 
 ment, and would bring the interest up to nine or 
 ten per cent. On wheat and other products there 
 would be similar expenses, which would raise the 
 interest on deposits of them to nearly or quite the 
 same limits. The rate of interest, therefore, is not 
 low enough to be beneficial to farmers who hope 
 by this means to pay off existing debts at legal 
 rates of interest. What a farmer would receive 
 would be a loan for one vear from the Government, 
 at the rate of nine or ten per cent., of a sum 
 amounting to four fifths of the total value of his 
 crop, paid to him in money of uncertain value.
 
 64 CHEAP-MONEY EXPERIMENTS 
 
 For the remainiug fifth he would receive a certifi- 
 cate whose value would depend entirely upon what 
 he got for it in open market. No buyer would 
 ever offer him the full price as fixed by the ware- 
 house manager, for there would be too many un- 
 certainties about the crop's redemption to make 
 the certificate a safe investment for anybody. 
 They could be negotiated only at a heavy discount 
 at best, and in many instances would scarcely be 
 negotiable at all. 
 
 If warehouses were established, there would be 
 a tendency among all farmers seeking an imme- 
 diate market to put their produce into them. One 
 of the advocates of the scheme estimated before a 
 committee of the Senate that the deposits would 
 be so large as to require an addition of one thou- 
 sand millions of dollars to the currency in January 
 and February of each year. This flood of currency, 
 all of which would be based upon the uncertain 
 and varying bases of valuation, would be accom- 
 panied by another flood of certificates of deposit. 
 The Grovernment would turn out these notes and 
 certificates, and their receivers would at once put 
 them in circulation. Their value would depend 
 entirely upon the popular estimate which should 
 be made of their purchasing power. The fact 
 that the notes had been declared a legal tender 
 would not add a particle to their value. The peo- 
 ple would make their own estimate of the prospect 
 for the fulfilment of the promise upon which they 
 were based, and that estimate would fix their value.
 
 THE SUBTREASUEY CHEAP-MONEY PLAN 65 
 
 What would be the prospect for this promise to 
 be fully kept? If prices went down after the de- 
 posit, the produce would be left there till the very 
 end of the year and sold for what it would bring. 
 The effect of throwing a great mass of produce 
 upon the market at one time would be to lower 
 still further the price, and the result would be a 
 great loss to the Government, which must be made 
 good by taxation. As the farmers of the country 
 pay about half of the taxes, they would thus have 
 to pay half of the cost of their own folly. From 
 the nature of the case a faUing off in value would 
 be almost inevitable, for speculators and pur- 
 chasers would be interested in waiting for a forced 
 sale, being thus certain of buying at a lower price. 
 In case there should be a general rise after de- 
 posit, the chances would be that the farmers most 
 in need of profiting by it would not be in a po- 
 sition to do so, for the poorer ones would have 
 parted with their notes as soon as received, in 
 payment of their debts, and would have also sold 
 their deposit certificates at the first opportunity. 
 Whatever rise there might be, therefore, would go 
 to the advantage of the speculators in certificates. 
 
 As for the depreciated value of the notes issued 
 in such volume, there can be no doubt upon that 
 point. It would be fiat money of a more worthless 
 kind than any which has hitherto been issued. It 
 would be more worthless than the Land Bank 
 money of Rhode Island, because that was based 
 upon the laud of the State. It would be more
 
 6G CHEAP-MONEY EXPEEIMENTS 
 
 worthless than that of John Law's bank in France, 
 for that was based upon all the property of France. 
 It would be more worthless than that of the Ar- 
 gentine Republic, for that was based upon all the 
 landed property of the nation. In all these in- 
 stances the fiat money was declared to be a legal 
 tender and to be payable for public and private 
 debts. In all of them it was issued for a term of 
 years. But this warehouse-deposit money is based 
 upon nothing except the arbitrary judgments of 
 an irresponsible body of political appointees as to 
 the value of products a year hence, and is to be 
 destroyed at the end of a year. Nobody would 
 ever consent to take it at its face-value in payment 
 of a debt, or in payment for goods, and it would 
 be confined, as the Rhode Island paper money was, 
 almost entirely to transactions among its original 
 holders. It would enormously inflate prices in the 
 communities in which it circulated, and thus make 
 dearer everything that the farmer had to buy. 
 But it would never be received elsewhere except 
 at a discount, and consequently would have no 
 effect in raising the price of the products of the 
 farmer, which have to be sold in the markets of 
 the world. Then, too, each period of enormous 
 inflation would be followed by a period of sudden 
 and almost paralyzing contraction, for at the end 
 of each year all the notes and certificates must be 
 destroyed. 
 
 We have said nothing about the unconstitu- 
 tional aspect of the proposition for the Govern-
 
 THE SUBTREASURY CHEAP-MONEY PLAN 07 
 
 ment to go into the business of loaning money and 
 speculating in crops — a form of paternalism the 
 most extreme ever proposed in this country. One 
 of the advocates of the measure, when asked at a 
 hearing before a Congressional committee why its 
 authors had not included wool, hops, rice, and 
 cheese with the other produce specified for deposit, 
 made answer that those staples were protected by 
 a high tariff, 75 per cent, on wool alone, and were 
 not entitled to further aid from the Government. 
 Whatever virtues may reside in the protective sys- 
 tem, it is unfortunately true that to the arguments 
 advanced in defense of a high tariff we owe the 
 impression, so strong among many portions of the 
 population, that it is the duty of the Government 
 to render assistance to all industries and occupa- 
 tions whose members are in distress.
 
 CHAPTER VIII 
 THE "PER CAPITA" DELUSION 
 
 THE per capita argument has always been a 
 favorite method for sustaining a demand for 
 cheap money. Such demands invariably arise 
 when times are hard; that is, when money is 
 scarce. The cheap-money advocates, acting on the 
 knowledge that a great many people are wishing 
 that they had more money in their pockets, come 
 forward with the explanation that the real cause 
 of the trouble is the smallness of the monetary 
 circulation, the volume of currency not being ade- 
 quate for the demands of the business of the coun- 
 try. They point to other countries, like England, 
 Germany, and France, saying that they have a 
 much larger per capita circulation than the United 
 States, and claim that everybody in this country 
 would have more money in his pocket if a great 
 addition of some form of cheap money — either ir- 
 redeemable paper, or depreciated silver, or sub- 
 treasury notes — were made to the currency. 
 
 The fundamental defect in the argument is that 
 it confounds small circulation with small distri- 
 
 68
 
 THE "PER CAPITA" DELUSION 69 
 
 biition. The trouble is not that the circulation is 
 small, but that so many people fail to get much 
 of it. If the circulation were to be doubled, or 
 trebled, or quadrupled, what reason is there for 
 believing that the people who have least at pres- 
 ent would have any more f How tvould they go to 
 work to get some of the increase into their pockets f 
 This, as we said in one of the earlier chapters, is 
 the crucial question in all schemes for making 
 money cheap and plentiful. How can a man who 
 wants some of it obtain it except he give labor or 
 goods in return for it ? If he have labor or goods 
 to sell, does it make any difference to him whether 
 the volume of currency be large or small ? Is it 
 not always large enough to furnish payment for 
 what he has to sell ? And if he has anything to 
 sell, would not he rather receive his payment in 
 dear money than in cheap money? Was there 
 ever a man yet who did not desire to be paid for 
 his wares in the soundest and best money obtain- 
 able ? Who are the men who hope, in some mys- 
 terious manner, to get money into their pockets 
 through a great issue of cheap money by the Gov- 
 ernment? Are they not, almost invariabl}', men 
 who have nothing to sell in exchange for it ? 
 
 It is difficult to see why the 2J€r cajnta argument 
 should influence any one who thinks about it care- 
 fully. When we say that the wealth of the coun- 
 try if divided equally among all its inhabitants 
 would be so many dollars per capita, nobody is 
 seriously disturbed by the fact. Nobody says
 
 70 CHEAP-MONEY EXPERIMENTS 
 
 that there is not wealth enough in the country. 
 The most usual observation is that it is a pity it 
 cannot be more evenly distributed. But when the 
 statement is made that the circulation is only $23 
 per capita, many people are inclined to think that 
 this is not enough, and that if we had more every- 
 body would be in more comfortable circumstances. 
 But would everybody get some of the increase 
 into his pocket"? If not, what would be the ad- 
 vantage? If the wealth of the country were to 
 be doubled, where would the increase go? The 
 greater part of it would go to the millionaires and 
 other rich people who have most at present, while 
 the people who have least would get little or none 
 of it. So it would be with an increase of circulat- 
 ing medium. If the per capita were to be doubled, 
 the ratio of the present division would be main- 
 tained. The people who had the most before 
 would get the most of the increase, while those 
 who had none before would get none now. The 
 great want of the people who have none is not an 
 increase in the volume of currenc}', but the dis- 
 covery of a new method by which they can get 
 some of the currency already in circulation into 
 their pockets. 
 
 Statistics published lately by the Treasury De- 
 partment demonstrate conclusively the fallacy of 
 the per capita argument. These give the ^jcr 
 capita circulation for each year from 1860 down 
 to the present time, and show that there has been 
 a steady rise from $17.50 in 1870 to $23.45 in 1891.
 
 THE "PER CAPITA" DELUSION 71 
 
 If prosperity is determined by per capita, this 
 country ought to be vastly better off in 1890-1891 
 than it was in 1870, but, as a matter of fact, 1870 
 was one of the most prosperous years the coun- 
 try has ever known, while 1890 and 1891 will be 
 known in history as years of almost unequaled 
 financial and industrial depression. All through 
 the years since 1878 we have been swelling the 
 volume of currency by coining silver and gold to 
 the amount of $945,000,000, and have been issu- 
 ing many millions more of silver notes and gold 
 notes, till we have now a circulation of over 
 $1,500,000,000 against only a little more than 
 $055,000,000 in 1870. 
 
 Those persons who were complaining a few 
 months ago, when money was scarce, that even 
 this immense volume of currency was insufficient 
 for the business needs of the country, and that if 
 we had a larger circulation per capita there would 
 be no such scarcity, were laboring under a misap- 
 prehension. They were confounding contraction 
 of the currency with contraction of credit. Ninety- 
 two per cent, of all the business of the country is 
 done on credit, and only eight per cent, with ac- 
 tual currency. When, therefore, credit is unsettled 
 as it was by the impending peril of free-silver 
 coinage, which would have lowered the standard of 
 value as well as destroyed its stability, instantly a 
 serious monetary contraction was felt throughout 
 all the avenues of trade. Instead of the trouble 
 being one which an issue of cheap money would
 
 72 CHEAP-MONEY EXPERIMENTS 
 
 have remedied, it was one which owed its existence 
 entirely to the mere threat of such issue. As soon 
 as the threatened danger was averted, the strin- 
 gency disappeared, and there has been no com- 
 plaint heard since about a scarcity of money, 
 either for "moving the crops" or for anything 
 else. 
 
 Suppose now that free coinage of silver were 
 to be authorized, what would be the effect upon 
 the circulation ? It is estimated that $12,000,000 
 would be the extreme amount that it could add to 
 the circulation. If the increase of nearly a billion 
 since 1870 has not helped us, would twelve millions 
 do it ? And if we were to have free coinage, into 
 whose pockets would the increase go 1 Not into 
 those of the people, but into those of the men 
 who sold the silver to the Government at a price 
 greater than it would be worth as money after 
 being coined. Those men would not put it into 
 the pockets of the people, but would add it to 
 their own wealth, and the only benefit the people 
 would derive would be the opportunity to pay off 
 their debts in a cheaper money than that in which 
 they were incurred, provided they were able to 
 get some of it in return for labor or goods. 
 
 Per capita arguments from foreign countries 
 are all misleading. Nobody can tell what the per 
 capita circulation of Germany, France, and Eng- 
 land is, because those countries have a metallic 
 circulation of large and unknown volume, with 
 no small bank-notes like ours. The systems in
 
 THE "PER CAPITA" DELUSION 73 
 
 all these countries are so different from ours that 
 intelligible comparison is out of the question. 
 
 If size of per capita circulation determines pros- 
 perity, how does it happen that the Argentine 
 Republic, with a per capita of over one hundred 
 dollars, is in such financial, commercial, and in- 
 dustrial collapse? How did it happen that re- 
 peated additions to its volume of currency did 
 not check its downward march to ruin? 
 
 The delusion behind the per capita argument is 
 the same one that is behind all cheap-money pan- 
 aceas. It is a belief, not always clearly defined, 
 that a large issue of money by the Government 
 will carry with it in some mysterious way an instru- 
 mentality for getting some of that money into the 
 pockets of the people without the people giving 
 anything in return for it. It is based on the idea 
 that the Government can create money, and is a per- 
 fectly logical deduction from that idea, for if the 
 Government can create money, there is no reason 
 why it should not distribute it freely among the peo- 
 ple. In fact, if the Government can create money, 
 and by its own edict maintain it in circulation as 
 good as any other money, ivJiy sliould the Government 
 levy taxes ? This question has been asked before, 
 but we have never seen or heard an answer to it. 
 If the Government can take 75 cents' worth of 
 silver, and by declaring it to be a dollar make it 
 worth 100 cents, why should it not do the same 
 with 50 cents' worth, or 10 cents' worth, or with a 
 piece of paper? And having done this, having 
 7
 
 74 CHEAP-MONEY EXPERIMENTS 
 
 by its fiat made a piece of paper worth a dollar, 
 why, we ask again, should it not abolish taxation 
 and support itself with the money of its own crea- 
 tion ? If it were to do that it would give us a per 
 capita circulation greater than any the world has 
 yet seen.
 
 CHAPTER IX 
 MICHIGAN'S ''WILD -CAT" BANKS 
 
 THE history of Michigan's " wild-cat " banking 
 experience, while not so applicable to pres- 
 ent financial discussion as other cheap-money ex- 
 periments which we have cited in previous chap- 
 ters, is nevertheless instructive for two reasons : 
 first, because it was an attempt to make " hard 
 times " easier by unlimited issues of irredeemable 
 paper money, and second, because the money so 
 issued was based largely on land as security. For 
 these reasons it has seemed to us worth while to 
 recall it at the present time. 
 
 Michigan became a State in January, 1837. Al- 
 most the first act of her State legislature was the 
 passage of a general banking law under which any 
 ten or more freeholders of any county might organ- 
 ize themselves into a corporation for the transac- 
 tion of banking business. Of the nominal capital 
 of a bank only ten per cent, in specie was required 
 to be paid when subscriptions to the stock were 
 made, and twenty per cent, additional in specie 
 when the bank began business. For the further 
 
 75
 
 \ 
 
 76 CHEAP-MONEY EXPERIMENTS 
 
 security of the notes which were to be issued as 
 currency, the stockholders were to give first mort- 
 gages upon real estate, to be estimated at its cash 
 value by at least three county officers, the mort- 
 gages to be filed with the auditor-general of the 
 State. A bank commissioner was appointed to 
 superintend the organization of the banks, and 
 to attest the legality of their proceedings to the 
 auditor-general, who, upon receiving such attesta- 
 tion, was to deliver to the banks circulating notes 
 amounting to two and a half times the capital cer- 
 tified to as having been paid in. 
 
 This law was passed in obedience to a popular 
 cry that the banking business had become an 
 " odious monopoly " that ought to be broken up. 
 Its design was to '^ introduce free competition into 
 what was considered a profitable branch of busi- 
 ness heretofore monopolized by a few favored cor- 
 porations." Anybody was to be given fair oppor- 
 tunities for entering the business on equal terms 
 with everybody else. The act was passed in March, 
 1837, and the legislature adjourned till November 
 9 following. Before the latter date arrived, in fact 
 before any banks had been organized under the 
 law, a financial panic seized the whole country. 
 An era of wild speculation reached a climax, the 
 banks in all the principal cities of the country sus- 
 pended specie payments, and State legislatures 
 were called together to devise remedies to meet 
 the situation. That of Michigan was convened 
 in special session in June, and its remedy for the
 
 MICHIGAN'S "WILD-CAT" BANKS 77 
 
 case of Michigan was to leave the general banking 
 law in force, and to add to it full authority for 
 banks organized under it to begin the business of 
 issuing bills in a state of suspension — that is, to 
 flood the State with an irredeemable currency, 
 based upon thirty per cent, of specie and seventy 
 pe^-cent, of land mortgage bonds. The law was 
 so modified that any number of persons, upon sign- 
 ing an agreement to that effect, might become a 
 banking corporation, and almost any one might 
 become a director. 
 \ Everybody in the State who was in debt, and 
 
 everybody who saw in the law an opportunity for 
 [_j;ascality, went into the banking business. Within 
 a few months wherever two roads crossed a bank 
 was established. One was found in a sawmill, 
 and one of the official records of the period says : 
 " Every village plot with a house, or even without 
 a house, if it had a hollow stump to serve as a 
 vaidt, was the site of a bank." Many of them had 
 no offices, no books, and no capital. Judge T. M. 
 _Cooley, in an interesting account of the experience 
 in his history of Michigan, published in the "Amer- 
 ican Commonwealths" series, says (p. 267) : "Wild 
 lands that had been recently bought of the gov- 
 ernment at one dollar and twenty-five cents an 
 acre were now valued at ten or twentv times that 
 amount, and lots in villages that still existed only 
 on paper had a worth for banking purposes only 
 limited by the conscience of the officer who was to 
 take the securities."
 
 78 CHEAP-MONEY EXPERIMENTS 
 
 As for the requirements for ten per cent, pay- 
 ment in specie at the time of subscription, and 
 twenty per cent, before beginning banking busi- 
 ness, these were soon got around in ways more 
 unscrupulous than ingenious. As the payments 
 were to be made to the banks themselves, the 
 same specie could be used many times over. Some- 
 times a small sum in specie was paid in and taken 
 out, and the process repeated over and over, till 
 the amount required was made to appear as hav- 
 ing been received. Sometimes specie certificates, 
 stating that the maker held a sum of specie for 
 the bank, were counted as specie. These were 
 almost invariably false, and they were made to do 
 service for many banks in succession. If specie 
 was actually used, as soon as the bank examiner 
 had seen it it was hurried into a wagon and taken 
 with fleet horses to another bank, where it again 
 did duty as capital. '' Gold and silver," say the 
 official chroniclers, " flew about the country like 
 magic ; its sound was heard in the depths of the 
 forest, yet, like the wind, one knew not whence it 
 came or whither it was going." Sometimes what 
 seemed to the eye of the examiner to be kegs of 
 specie were really kegs of nails or window-glass 
 with a thin layer of coin on top. The loan of 
 specie to be used in the establishing of banks be- 
 came a regular and lucrative branch of banking 
 business. 
 
 Within one year forty-nine banks were organ- 
 ized, and forty went into operation with a professed
 
 MICHIGAJSI'S "WILD-CAT" BANKS 79 
 
 capital of $1,745,000, of which thirty per cent, was 
 claimeli to have been paid in in specie. Over 
 $2,000,ip00 of irredeemable paper was distributed 
 throughout the State, of which probably not a 
 dollar was based on bona fide capital paid in for 
 legitimate banking purposes. As was inevitable, 
 there was no public confidence in money of this 
 character. Whoever received it got rid of it as 
 soon as possible. It was always at a great dis- 
 count with the money of Eastern banks, and 
 some of it was rated much higher than the 
 rest. Much of it was never circulated near the 
 places of issue, which were selected often in 
 spots as inaccessible as possible, in order that 
 the bills might not soon return to plague their 
 sponsors. Adventurers from New York and 
 other distant places went into the wilds of the 
 State, located banks, took the entire issue of 
 money, and put it in circulation anywhere but 
 near the place of issue. 
 
 The commissioners used all possible vigilance to 
 close up bogus banks, but as fast as they closed 
 them others were started. When a " wild-cat " 
 bank either failed or was put in the hands of a 
 receiver the farmers and laboring people suffered 
 the most severely, as is always the case in such 
 disasters. The plague ran its course in about a 
 year and a half. At the end of 1839 there were 
 no fewer than forty-two '' wild-cat" banks in the 
 hands of receivers, and only four still doing busi- 
 ness. Nearly all the currency of the State was
 
 80 CHEAP-MONEY EXPERIMENTS 
 
 worthless, business was prostrate, values of all 
 kinds had been nearly or quite destroyed. There 
 was no buying or selling of land, and only the bare 
 necessities of life were able to command a market. 
 
 The banking law was taken before the courts 
 and declared unconstitutional, and the system was 
 abolished, leaving behind it no assets, but bound- 
 less ruin. 
 
 In summing up the results, Judge Cooley, in 
 language which many modern advocates of cheap 
 money may peruse with profit, says : " Such were 
 the fruits of the experiment of giving equal and 
 practically unlimited rights in banking to every- 
 body who wanted a shorter road to wealth than 
 that trodden by labor and honest industry. The 
 new State, under the bold but inexperienced guid- 
 ance of its youthful governor, disdaining the les- 
 sons of history, had determined to try for itself 
 the experiment of manufacturing money by the 
 printing-press. The condition after the experi- 
 ment might be compared to a forest after a cy- 
 clone; everything was prostrate, and everything 
 was in confusion ! . . . Thereafter wild-cat 
 banking was a byword in the State ; but the les- 
 sons it taught needed to be learned at some time, 
 and were not likely to be learned except with ex- 
 perience as a teacher. One of its lessons was that 
 neither real estate nor anything else not imme- 
 diately convertible into money can support the 
 credit of bank currency." This lesson is as appli- 
 cable to the whole country as it was to Michigan,
 
 MICHIGAN'S "WILD-CAT" BANKS 81 
 
 for even the United States Government is not 
 powerful enough to support the credit of bank 
 currency in real estate or anything else not im- 
 mediately convertible into money. This is, more- 
 over, the lesson of all human experience.
 
 CHAPTER X 
 
 ALABAMA'S THOUSAND-DOLLAR-A-DAY 
 
 BLUNDER 
 
 ALABAMA'S experience with banking "in tlie 
 JTA, interests of the people " was in some respects 
 similar to that of Michigan with '^ wild-cat " banks. 
 Like that of many other States at about the same 
 period, it resulted in complete collapse, with great 
 financial loss to the people whom it was designed 
 to benefit, a serious impairment of the State's 
 credit, a flood of public scandal, and a heavy bur- 
 den of debt. The history of Alabama's blunder is 
 so full of instruction for those who believe in 
 State or national agency for making everybody 
 prosperous by means of liberal banking and cheap 
 money, that we shall set it forth in some detail. 
 
 Alabama went into the banking business as a 
 State in 1823, when its legislature passed an act 
 for the establishment of the Bank of the State of 
 Alabama, the capital, which was not limited to 
 any amount, to be furnished entirely by the State. 
 The management of the bank was intrusted to 
 a president and twelve directors, who were to be 
 
 82
 
 ALABAMA'S BLUNDER 83 
 
 chosen aunnally by joint vote of the legislature. 
 The only limit put to the volume of notes which 
 the bank should issue was that they should be in 
 such sums as the president and directors might 
 deem " most expedient and safe." Certain public 
 funds were set aside to constitute part of the capi- 
 tal of the bank, and in addition the State was 
 authorized to issue State stock to the amount of 
 $100,000, redeemable within ten years, and bearing 
 interest not exceeding 6 per cent. The bank began 
 business in 1825. Three years later it was author- 
 ized to issue $100,000 more of State stock, redeem- 
 able in twenty years, at a rate of interest not ex- 
 ceeding 6 per cent. In the same year other public 
 funds, aggregating $1,300,000, were added to the 
 capital. Five years later about $500,000 of State 
 University funds were transferred to the bank as 
 capital. Between 1832 and 1835 four branches of 
 the State Bank were established in as many cities, 
 and State bonds to the amount of $6,300,000 were 
 issued to supply them with capital. 
 
 The design of the founders of the system was to 
 distribute the bank money as evenly as possible 
 among the people of the State, and with this end 
 in view the original act stipulated that the money 
 loaned by the bank should be apportioned among 
 the several counties of the State according to their 
 representation in the legislature. At first no limit 
 appears to have been placed to the amounts of a 
 bank's money which its president and directors 
 could themselves borrow. The result was that
 
 84 CHEAP-MONEY EXPERIMENTS 
 
 they borrowed as much as they wished, and loaned 
 it to their friends on such security as seemed satis- 
 factory to themselves. 
 
 The choice of president and directors by the 
 legislature, designed to give the people control of 
 the bank's management, led to gross corruption 
 and abuse, being aided greatly in these directions 
 by the requirement for equal distribution of loans 
 throughout the State and by the lack of any limit 
 upon the sums which the president and direc- 
 tors could borrow. When the several branches 
 had been established, each with its president and 
 directors, there were annually to be chosen by the 
 legislature between sixty and seventy directors. 
 In their campaigns for election to the legislature, 
 candidates would point to the requirement for the 
 equal distribution of loans among the people, and 
 promise each one of their supporters a loan in case 
 of election. Before members who had been elected 
 after such pledges, the candidates for bank direc- 
 tors had to go for election. Mr. J. H. Fitts, of Tus- 
 caloosa, — to whose valuable paper upon the history 
 of the State Bank and its branches, read by him 
 before the Alabama Bankers' Association in June, 
 1891, we are indebted for most of the information 
 in this article, — says the number of candidates for 
 directors was usually two or three times as great 
 as the number of places to be filled, adding : ''For, 
 it must be remembered, the office of bank director, 
 without salary or any emolument whatever, was 
 regarded by many as the most lucrative ofiice in
 
 ALABAMA'S BLUNDER 85 
 
 the State. The legislature was annually beset by a 
 horde of greedy adventurers, who were candidates 
 for bank directors, and who resorted to all kinds 
 of electioneering tricks and promises to secure 
 their election. Unfortunately for the banks, the 
 votes of too many members of the legislature were 
 controlled by the liberality of candidates in prom- 
 ising bank discounts to them and their friends." 
 Mr. J. W. Garrett, in his " Reminiscences of Pub- 
 lic Men in Alabama," gives an aniusing incident 
 illustrating this abuse. A member of one branch 
 of the legislature died while a camj^aign for the 
 election of bank directors was in progress, and 
 all his fellow-members wore the usual badge of 
 crape on the arm for thirty days. A shrewd 
 countryman from a remote county, who happened 
 to be visiting the capital, noticing that all the men 
 with crape were the recipients of "treats" of all 
 kinds, including cigars and suppers galore, put a 
 similar badge upon his own arm and had a royal 
 good time for several days before the imposture 
 was discovered. 
 
 Mr. Fitts relates that one of the hotel-keepers of 
 Tuscaloosa succeeded in getting himself elected a 
 bank director in 1832. " The increased patron- 
 age of his hotel was wonderful; many members 
 of the legislature, and a great majority of the 
 persons who visited Tuscaloosa to borrow money, 
 stopped at his hotel with the view of securing the 
 influence of the proprietor with the Board of 
 Directors, which passed upon all applications for
 
 86 CHEAP-MONEY EXPEKIMENTS 
 
 money." Four other hotel-keepers in the same 
 city, realizing that there was no other way in 
 which to compete with such attractions, became 
 candidates, and in 1834 they were all elected. On 
 one occasion when the five hotel-keepers consti- 
 tuted a majority of the Board of Directors, and 
 had discounted a great many notes and bills, each 
 note or bill receiving the ardent advocacy of one 
 of the hotel-keepers and the votes of all five, a 
 note was passed around which received nobody's 
 support, and was about to be rejected, when the 
 president, who was not in sympathy with the ma- 
 jority, remarked quietly of the signer of the note: 
 " This man must have camped out last night." 
 
 Of course, members of the legislature had great 
 influence on the directors. *'No director," says 
 Mr. Fitts, "could expect the vote of a member 
 whose bill he refused to discount. This made it 
 an easy matter for members of the legislature to 
 borrow money for themselves and their friends. 
 The directors were even afraid to refuse to dis- 
 count paper which was recommended by a mem- 
 ber of the legislature." 
 
 There could be only one outcome of such a 
 state of affairs. The State Bank had, in 1826, a 
 capital of $253,646 and a circulation of $273,507. 
 In 1837 the capital of the State Bank and its 
 branches had reached $7,889,886, and the circula- 
 tion $4,576,752. The notes discounted and bills 
 purchased in 1826 amounted to $448,859; in 1837 
 they amounted to $17,693,983. A commission 
 which had been appointed, because of alleged
 
 ALABAMA'S BLUNDER 87 
 
 bank frauds, to investigate the character of these 
 notes and discounts estimated that over six mil- 
 lions of the $17,693,983 were wortliless. This 
 made the liabilities of the banks nearly seven mil- 
 lions greater than their assets, and made it plain 
 that something heroic must be done to prevent 
 immediate collapse. Only a year before, the peo- 
 ple believed themselves to be enjoying boundless 
 prosperity. They had such faith in the money 
 of their banks that the legislature, on Janu- 
 ary 9, 183G, passed an act "abolishing direct 
 taxation in the State," and setting aside '$100,- 
 000 of the bank money to defray the expenses 
 of the State government. That was a practi- 
 cal application of the contention that if a State 
 can create money then there is no need of tax- 
 ation. The people of Alabama in this respect 
 carried the chea]3-money idea to its logical conclu- 
 sion. They made the test when they were in the 
 midst of what are known as the " flush times of 
 Alabama." Everybody had little difficulty in get- 
 ting some money into his pocket. Yet scarcely 
 had the test begun when a panic swept over the 
 State, and it was discovered suddenly that some- 
 thing was the matter with the financial and busi- 
 ness situation. The legislature was summoned in 
 special session to devise means of relief. The de- 
 mand from all quarters was for more money for 
 tlie people, and it was decided by the legislature 
 to heed it, by authorizing the State to loan the 
 people $5,000,000 more through the banks. This 
 was in June. In December following, a further
 
 88 CHEAP-MONEY EXPERIMENTS 
 
 loan of $2,500,000 was matle. These extreme 
 measures only postponed the inevitable collapse, 
 while adding greatly to its disastrous conse- 
 quences. In 1842 the charters of the branch 
 banks were repealed, and in 1845 that of the State 
 Bank expired by limitation. 
 
 When the results came to be summed up, it was 
 discovered that the University and other funds, 
 aggregating several millions of dollars, had been 
 lost, aud that the State had sunk with them 
 many millions more. Mr. Fitts placed the total 
 loss to the State, principal and interest, up to 
 June, 1891, at over $31,000,000, and estimated 
 the amount of interest which the taxpayers are 
 called upon annually to pay on account of the 
 lost funds and outstanding bonds at over $271,- 
 000 a year. In a recent speech which Governor 
 Jones, of Alabama, made in Camden County, he 
 placed the total amount of taxation for these ob- 
 jects at $362,000 a year, or nearly $1000 a day. 
 This gives us a concrete example of the cost of 
 cheap-money experiments which is of great value. 
 Governor Jones used it very forcibly as a warn- 
 ing to his people against the insidious teachings 
 of the advocates of the subtreasury scheme, for 
 the latter plan in many respects resembles the 
 Alabama plan. As Mr. Fitts well says, the Ala- 
 bama experience "demonstrates the folly of a 
 government attempting to carry on a banking 
 business with public funds managed or controlled 
 by its politicians."
 
 CHAPTER XI 
 
 MISSISSIPPI'S CROP-MOVING CURRENCY 
 
 MISSISSIPPI'S experience with cheap money, 
 during the period of inflation and specula- 
 tion which followed the removal by President 
 Jackson of the public deposits from the United 
 States Bank, and the refusal to recharter that 
 bank, was more reckless than that of Alabama, 
 and consequently more disastrous. It began in 
 1833 and ended in 18-10. For five or six years 
 the people of Mississippi believed themselves to 
 be the richest and most prosperous on the face 
 of the globe. Everybody had all the money he 
 wanted, and if he needed more the banks would 
 pour it out for him. Yet when the end came 
 everybody discovered that he was so poor that 
 the State arose as one man and repudiated its 
 most solemn obligations, thus adding breach of 
 faith to its other follies. In this respect its con- 
 duct was in most unfavorable contrast with that 
 of Alabama, though the disasters both suffered 
 had been brought on by similar causes. 
 
 " Nowhere," says Professor William G. Sumner 
 
 89
 
 90 CHEAP-MONEY EXPERIMENTS 
 
 ill his " History of American Currency," in eom- 
 meuting upon the developments of this period, 
 '' had the paper-money mania raged worse than 
 in Mississippi, where the banks operated as cot- 
 ton factors, manufacturing money to carry cot- 
 ton as they needed it." The experiment began 
 in 1833 when the State came to the aid of the 
 Planters' Bank of Mississippi, which had been 
 chartered three years before, by issuing $2,000,- 
 000 worth of bonds, at six per cent, interest, to be 
 used as the bank's capital. The avowed object 
 was to enable the bank to " aid in developing the 
 resources of the State." The bonds sold at a pre- 
 mium, and the bank had a remarkable prosperity 
 during the following year. This was so encour- 
 aging that nine new banks were chartered in 
 1834, and many others in following years. In 
 1838 the State, desiring to get a larger share in 
 the general prosperity brought on by such liberal 
 banking, chartered a bank of its own called the 
 " Union Bank of Mississippi," and issued $5,000,- 
 000 worth of bonds at five per cent., most of 
 which were sold in Holland at their par value, 
 bringing into the State the largest sum of money 
 its people had ever dreamed of possessing. The 
 whole State went wild with a fever of specula- 
 tion. The smaller banks did their best to rival 
 the Union Bank, and all vied with one anpther 
 in pouring out currency, making loans and dis- 
 counts, and publishing fabulous accounts of their 
 prosperity.
 
 MISSISSIPPI'S CROP-MOVING CURRENCY 91 
 
 At the close of 1839 the twenty-six banks in the 
 State professed to have a paid-up capital of over 
 $30,000,000, loans and discounts exceeding $48,- 
 000,000, a note circulation exceeding $15,000,000, 
 and deposits aggregating nearly $9,000,000. As 
 the free white population of the State at that time 
 was only 170,000, the alleged paid-up capital per 
 head equaled $180, loans and discounts $285, and 
 the circulation, including deposits, $140. Here, 
 surely, was the largest per capita cu-culation ever 
 known, larger by $40 than what our wildest 
 cheap-money advocates demand now; yet what 
 was the result ? At the moment of greatest appa- 
 rent prosperity, when everybody believed himself 
 rich and hourly growing richer, the entire system 
 collapsed. It was then discovered that all of the 
 boasted $30,000,000 of paid-up capital, with the 
 exception of the money that had been borrowed 
 on the bonds of the State, consisted of *' stock 
 notes" which had been paid in for capital, 
 the banks discounting them and the proceeds 
 going to pay for stock subscriptions. This was 
 simply an exchange of one form of credit for 
 another. Absolutely no money had gone into 
 the banks except that obtained by the sale of 
 State bonds, and when that was exhausted no- 
 thing remained but entries upon the bank records 
 for indebtedness from which nothing was ever to 
 be realized. 
 
 In summing up the result, Mr. Henry V. 
 Poor, from whose " Money, its Laws and His-
 
 92 CHEAP-MONEY EXPERIMENTS 
 
 tory " we have obtained much of our information, 
 
 says : 
 
 The $48,000,000 of loans were never paid ; the $23,000,- 
 000 of notes and deposits never redeemed. The whole sys- 
 tem fell a huge and shapeless wreck, leaving the people of 
 the State very much as they came into the world. Their 
 condition at the time beggars description. Society was 
 broken np from its very foundations. Everybody was in 
 debt without any possible means of payment. Lands be- 
 came worthless for the reason that no one had any money to 
 pay for them. The only personal property left was slaves, 
 to save which such numbers of people fled with them from 
 the State that the common return upon legal processes was 
 in the very abbreviated form of " G. T. T./' gone to Texas, a 
 State which in this way received a mighty accession to her 
 population. 
 
 The State paid the interest on the bonds issued 
 for the banks for less than a year, when the gov- 
 ernor informed the bondholders that the State, 
 "in her sovereign capacity, had refused payment 
 of her bonds." This position the legislature sus- 
 tained in 1842 by adopting a report of a com- 
 mittee declaring payment of the bonds to be 
 " incompatible with the honor and dignity of the 
 State." The State's conduct was defended on the 
 floor of Congress by Jacob Thompson, afterward 
 President Buchanan's Secretary of the Interior. 
 The bondholders had the question of the constitu- 
 tionality of the bonds brought before the highest 
 court in the State, and obtained a decision in 
 their favor, the court affirming their constitution- 
 ality and declaring them to be binding obligations
 
 MISSISSIPPI'S CROP-MOVING CURRENCY 03 
 
 upon the State, but as uo execution could issue 
 against the State, the bondholders could obtain 
 none of their lost money. As late as 1853 some 
 of the bondholders, by persistent efforts, obtained 
 from the legislature an act referring the ques- 
 tion of payment to the people. The people voted 
 that the bonds should not be paid, thus adding 
 the final and overwhelming touch to the State's 
 disgrace. 
 
 Surely there could not be found in the long and 
 almost inexhaustible calendar of cheap-money ex- 
 periments a more striking moral lesson than this 
 Mississippi history affords; for a system which 
 destroys not only the material prosperity;' of a 
 people, but its moral sense as well, is one that 
 should be shunned like a pestilence.
 
 CHAPTER XII 
 A CHEAP- MONEY RETROSPECT 
 
 THOSE readers who have followed this series 
 of articles upon cheap-money experiments 
 to the present point cannot fail to have observed 
 that we have arranged the order of the series 
 upon a cumulative plan. We began with a plain 
 exposition of the imperative need on the part of 
 the people of this country of a clear conviction 
 that no money except the best was worth the 
 having, and that ''cheap money," in any and all 
 forms, is a delusion from which all people should 
 pray to be delivered. From this we passed to a 
 historical survey of the more notable of the many 
 experiments which have been made in various 
 countries and times to improve the condition of 
 States and nations by making mqney cheap 
 and plentiful. We propose now to recapitulate 
 briefly the chief points in this survey in order 
 that the full moral force of its teaching may not 
 be missed. 
 
 We should say, perhaps, at the outset that no 
 formal reply has been made to numerous letters 
 
 94
 
 A CHEAP-MONEY RETROSPECT 95 
 
 that have come to us questioning in one way or 
 another statements which had been advanced in 
 some of the earlier articles of the series, for the 
 reason that all the objections raised by these let- 
 ters have been most effectively answered by sub- 
 sequent articles. For example, when objection 
 was made that we took too emphatic ground in 
 favor of the best money and too extreme ground 
 against "cheap money," it seemed to us better to 
 show by human experience that our position was 
 the only safe or tenable one than to argue that it 
 must be so. So with other objections that the 
 first historical cases which we cited covered only 
 a part of the problems of our country to-day. 
 We preferred to answer these by giving further 
 citations which did cover the points of the prob- 
 lem not reached by the first. 
 
 The first historical experiment recalled by us 
 was that of the English Land Bank of 1696. 
 This was the most formidable project ever 
 broached for the establishment upon private capi- 
 tal of a bank which should lend money on land as 
 security. The Government granted a charter on 
 condition of the requisite amount of capital being 
 subscribed, and the King subscribed £5000 as an 
 example to the nation ; but beyond that the Gov- 
 ernment was in no way identified with the bank. 
 The subscription books were opened with entire 
 confidence that the necessary £1,300,000 would be 
 obtained within a few days. At the end of the 
 period allowed for raising it only £2100 had been
 
 96 CHEAl'-MONEY EXPERIMENTS 
 
 subscribed by the entire nation. It was thus 
 shown that private capital was not eager to enter 
 into the business of lending money on land. The 
 country gentlemen, who had been eager for the 
 establishment of the bank, were not in position to 
 subscribe to its capital, since their sole purpose 
 in wishing for it was to be able to borrow money 
 from it on their land, and, wishing to borrow, 
 they of course were not able to lend. The capi- 
 talists would not put their money into it because 
 its avowed object was to injure them by lowering 
 the rate of interest and lessening the demand for 
 existing money. The result was complete failure 
 to establish the bank. 
 
 Passing from this failure of 1696, we took up 
 a notable attempt which was made in Rhode 
 Island about a century later to establish a Land 
 Bank as a State institution, which should lend 
 money on laud as security, and pledge the faith 
 of the State for its redemption. We showed that 
 from the outset this experiment was a failure; 
 that the money which the State declared to be a 
 legal tender for public and private debts never cir- 
 culated at par, but was depreciated from its first 
 issue; that it paralyzed the industries and com- 
 merce of the State ; that the whole power of the 
 State government was not sufficient to make it 
 circulate at par; that it led to the repudiation of 
 the greater part of the State debt, giving Rhode 
 Island the name of '^ Rogues' Island " through- 
 out the land ; that it dropped steadily during the
 
 A CHEAP-MONEY RETROSPECT 97 
 
 three years of the bank's existence till one dollar 
 in coin was worth fifteen of the Land Bank issue, 
 and that the end was a collapse of credit and 
 business so complete that years were required for 
 the State to recover from it. 
 
 Criticism was made upon our citation of the 
 Rhode Island experiment that it was attempted 
 in a small and struggling State, at the close of 
 the exhausting Revolutionary War, and that it 
 could not be taken as a criterion of what would 
 be the outcome were the United States Govern- 
 ment to go into the business of loaning money 
 on land. It was argued that the wealth of this 
 mighty and prosperous nation was so great, as 
 compared with the resources of Rhode Island, 
 that any attempt to make the experience of one 
 apply to the other was absurd. As an answer 
 to this objection we cited the famous John Law 
 experiment in France in 1718. This was the 
 Rhode Island principle applied to a great nation, 
 and, as a basis for its operation, the entire prop- 
 erty of the nation was brought into the bank and 
 used as security for its loans. Law's idea was 
 to have all France as a mortgage, and he carried 
 out the idea to its fullest extent. Only two 
 years were necessary for him to lead the nation 
 at a headlong gallop to overwhelming disaster, 
 in which all credit was destroyed, all industrial 
 values ruined, and everything except landed prop- 
 erty left worthless. 
 
 Finally, lest some critics might say that all 
 9
 
 98 CHEAP-MONEY EXPERIMENTS 
 
 these unsuccessful attempts had been made in 
 times long past, and under different economic 
 and industrial and commercial conditions from 
 those which obtain in our own time, we took 
 up the case of the Argentine Republic, giving in 
 much detail the efforts of that country to obtain 
 prosperity under the same system of finance that 
 had failed in Rhode Island and in France. That 
 it was the same system was recognized in Buenos 
 Ayres by sound financial thinkers, who opposed 
 its adoption. After our article on Law's experi- 
 ment was in press, and the article upon the Ar- 
 gentine experience had been completed, we found 
 in the " Buenos Ayres Standard " an editorial ar- 
 ticle upon John Law from which we quote the 
 following passages: 
 
 The calamity brought on France by John Law was the 
 most tremendous that can be imagined ; it has no parallel 
 in history except the present crisis in Buenos Ayres. But 
 in many respects Law's crisis was less disastrous than that 
 which has now commenced in our city, the outcome of 
 which nobody can venture to predict. 
 
 If Argentine statesmen really believe that they can issue 
 notes at will, they will find that they are sadly mistaken. 
 We must come, some day, to a grand wind-up, and the con- 
 vulsion that must ensue will eclipse anything before seen in 
 the world. Men and women will go mad in the streets, and 
 no government will be able to face the hurricane of popu- 
 lar indignation. 
 
 We cannot resist the wish to send all our shinplaster ad- 
 vocates to Venice, to end their days in obscurity, like Law.
 
 A CHEAP-MONEY RETROSPECT 99 
 
 It is only fair to Law's memory to say that he admitted the 
 error of liis theories before his death, and regarded shin- 
 plasters as a calamity of the greatest magnitude. 
 
 We then showed that the subtreasury scheme 
 of the Farmers' Alliance was more dangerous 
 than Law's because the money which it called for 
 would be issued upon a far less certain and sta- 
 ble foundation of values than his plan provided. 
 The per capita delusion, which lies at the foun- 
 dation of all cheap-money experiments, was then 
 discussed in the light of the revelations and dem- 
 onstrations made in foregoing chapters, for the 
 purpose of showing how utterly mistaken it is. 
 Michigan experience with " wild-cat banks " be- 
 tween 1837 and 1840, Alabama's experiment in 
 free banking with State funds for capital between 
 1825 and 1842, and Mississippi's experiment of 
 similar character between 1833 and 1840 were the 
 subjects of our next chapters. Like all other 
 cheap-money experiments, these ended in disaster. 
 In every case the final result has been ruin, and 
 the wider the field of trial, the more desolating 
 has been the calamity. The Argentine Republic 
 believed itself an exceptional nation, rich and 
 powerful enough to change this unbroken cur- 
 rent of human experience, but its people know 
 now how terribly mistaken they were. We do 
 not believe it possible that the American people 
 will ever be capable of such folly.
 
 CHAPTER XIII 
 THE PEOPLE'S MONEY 
 
 WHAT is the best kind of money for the peo- 
 ple — using the latter word in the sense 
 in which it is employed by the advocates of 
 free silver coinage? These advocates, like the 
 champions of all other forms of cheap money 
 during the past three centuries, speak of gold as 
 the money of the rich, of bankers and money- 
 lenders, of capitalists and rich corporations, 
 whom they denominate ^' gold-bugs," and whose 
 center of activity is Wall street. All the remain- 
 ing elements of the population are classed to- 
 gether as ''the people," to whom, it is now 
 claimed, free silver is the money which would 
 bring the largest measure of prosperity and hap- 
 piness. Is this claim well founded ; or is it, like 
 aU other alleged cheap-money benefits, a delu- 
 sion founded partly upon ignorance of economic 
 laws and principles, and partly upon private and 
 personal greed ? 
 
 The silver dollar which the free-coinage advo- 
 cates desire to have bestowed upon the people is 
 
 100
 
 THE PEOPLE'S MONEY 101 
 
 one containing 371^ grains of pure silver, worth 
 in the markets of the world, at the present writ- 
 ing, about 70 cents. The proposition is that the 
 United States shall take this amount of silver, 
 coin it free of charge, stamp it " one dollar," and 
 make it a legal tender for all public and private 
 debts. That means that the United States shall 
 pay $1.29 an ounce for silver, in any and all 
 amounts from any and. every quarter, though the 
 market price is only 90 cents an ounce, and. shall 
 make payment in legal-tender money intercon- 
 vertible with gold at par. 
 
 What would be the fii'st effect of the passage 
 of this law? There is not an economist of any 
 standing anywhere in the world who will not say 
 that the first effect would be the disappearance of 
 gold entirely from our circulation, and the de- 
 scent of the country to the silver standard. The 
 silver advocates claim that the mere passage of 
 the law would force the price of silver from 90 
 cents up to $1.29 an ounce, but there is no possi- 
 bility of such an effect. They claim that silver 
 has fallen in value because of its demonetization 
 by nearly all the nations of the world, whereas 
 the real cause is an enormous increase in produc- 
 tion, and great improvements in mining, by which 
 the cost of production has been diminished. The 
 yearly average product of silver from 1851 to 
 1875 was $51,000,000, and from 1876 to 1890 it 
 was $116,000,000, an increase of 127 per cent. 
 The yearly average product of gold between 1851
 
 102 CHEAP-MONEY EXPERIMENTS 
 
 and 1875 was $127,000,000, and between 1876 and 
 1890 $108,000,000, a decrease of 15 per cent. That 
 is why gold has more than maintained its value, 
 while silver has depreciated. In 1873 silver was 
 worth $1.30 an ounce, in 1874 it had dropped 
 to $1.27, in 1875 to $1.24, and in 1876 to $1.15. 
 In 1877 a free-coinage bill was introduced in 
 Congress, and in 1878 it was amended so as to 
 provide for the coinage of not less than two mil- 
 lion nor more than four million dollars' worth of 
 silver bullion per month into dollars to be full 
 legal tender at their nominal value. This was 
 passed, vetoed by President Hayes, and passed 
 over his veto. It was claimed that this would 
 raise the price of silver. Since it became a law 
 405,000,000 silver dollars have been coined, 348,- 
 000,000 of which are locked up in the Treasury 
 vaults, never having passed into circulation. The 
 price of silver dropped to $1.12 an ounce in 1879, 
 reached $1.14 in 1880, $1.13 in 1881 and 1882, fell 
 to $1.11 in 1883, to 99 cents in 1886, to 93^ cents 
 in 1889, and to 90 cents in 1892. In 1890 Con- 
 gress enacted a law which authorized the Secre- 
 tary of the Treasury to purchase four and a half 
 million ounces of silver bullion per month at the 
 market price, and to give in return for it legal- 
 tender notes redeemable in gold or silver at the 
 option of the Government. Even this enforced 
 purchase of 54,000,000 ounces of silver a year has 
 not stayed the downward progress of the price. 
 A striking demonstration of the utter foUy
 
 THE PEOPLE'S MONEY 103 
 
 of the claim that free coinage would lift the 
 price of silver from 90 cents to $1.29 an ounce 
 is made by Mr. Louis R. Ehrich, of Colorado 
 Springs, to whose luminous and valuable work, 
 "The Question of Silver," we are indebted for 
 much exact information. At the time he wrote 
 silver was 95 cents an ounce, but his demonstra- 
 tion is none the less effective. He says : 
 
 There is on our planet, in round figures, three billion 
 nine hundred million dollars' worth of silver held as money 
 or as a fimd for money redemption. That is to-day all 
 worth about 95 cents an ounce. Now these free-silver men 
 tell us that the natural alchemy of free coinage by the 
 United States all alone is going to raise these thirty-nine 
 hundred millions from 95 cents to $1.29. That is, it is 
 going to add a value of over a billion dollars to the world's 
 silver stock. Astonishing proposition ! 
 
 All authorities agree that the silver of the 
 world would be dumped almost in a body upon 
 us, at the advanced coinage price which our Gov- 
 ernment would have to pay till we abandoned the 
 gold standard, or gold went to a premium, which 
 would be in a very short time after the law went 
 into operation. We should then have only one 
 kind of money, a dollar worth 70 cents, which 
 every man who had a debt the payment of which 
 was not stipulated to be in gold, could use to pay 
 off 100 cents' worth of debt, and which every man 
 who earned money in any way would have to re- 
 ceive for 100 cents' worth of work. All debts 
 would therefore be scaled down 30 per cent., ex-
 
 104 CHEAP-MONEY EXPERIMENTS 
 
 cept those with a gold-payment stipulation, and 
 all wages, pensions, salaries, life-insurance poli- 
 cies, and savings-bank deposits would be cut 
 down in the same way. There would be no es- 
 cape. The dear money, gold, would be driven 
 out of circulation by the cheaper money, silver, 
 b}'' the working of a law as inexorable as the 
 law of gravitation. 
 
 Attention was called to this effect upon the 
 pensioners of the Government in a circular 
 which Congressman Harter, of Ohio, sent to all 
 the Grand Army Posts a few weeks ago. In 
 that he said: 
 
 If a Free-Silver Bill becomes law, a veteran who now gets 
 a pension worth to him $4.00 per month would receive ac- 
 tually but $2.80, with the chance of it going down to an ac- 
 tual value of $2.40. Take the case of a soldier who is a 
 total physical wreck and utterly unable to do for himself. 
 Such a man gets $72.00 per month. If a Free-Silver Bill 
 passes, while he would nominally get the same, he would 
 really get but $50.40, with a strong probability that in the 
 early future his $72.00 of monthly pension would be worth 
 not over $43.20. This coinage question should not be one 
 of party politics. It rises above partizanship. The honor 
 of the country is at stake. Its business interests from 
 ocean to ocean and from lake to gtdf are jeopardized. Its 
 good faith not only to its living soldiers is brought in ques- 
 tion, but if a so-called free-coinage bill becomes law, the 
 widows and orphans of the nation's dead will be robbed by 
 the laws of the land they died to save. The law would 
 work a monstrous wrong, for from the moment it goes upon 
 the statute book it represents over $45,000,000 per year 
 taken from the ex-soldiers, their widows, and their orphans.
 
 THE PEOPLE'S MONEY 105 
 
 That would be the effect upon the pensioners, 
 without a doubt. No man who has a rudimen- 
 tary knowledge of economic laws can question 
 that for a moment. Let us see what would be 
 the effect upon savings-bank deposits and life- 
 insurance policies. 
 
 There are deposited in our savings-banks six- 
 teen hundred millions of dollars, a sum greater 
 than the entire amount of money in active cir- 
 culation in this country. These deposits are for 
 the most part made up of small amounts, and 
 represent the savings of the working-classes. Of 
 these savings a thousand millions are invested 
 in mortgages. Many of these mortgages are 
 made payable in gold, but many others are not. 
 Every one of them which has not a gold-paying 
 clause can be paid off in silver; that is, the 
 holder of it can be compelled to receive $700 as 
 full payment for every $1000 of money lent. Is 
 this honest or wise? Would a man who paid 
 his honest debts in that way ever be able to 
 secure another loan ? Every mortgage in future 
 would bear a gold-paying clause, and it would 
 be very difficult to induce lenders who had been 
 cheated once to trust the persons who had 
 cheated them with a further loan on any terms. 
 
 Who are the lenders who would be cheated if 
 mortgage indebtedness were to be paid in silver 
 at 70 cents on a dollar? Are they " gold-bugs " ? 
 On the contrary, in many cases they are widows 
 and orphans who ar-e living on the hard earnings
 
 106 CHEAP-MONEY EXPERIMENTS 
 
 of industrious people, saved through mauy years 
 of economy and toil. The " gold-bugs " have been 
 merely the agents for the investment of this 
 money, seeking for it a sure and safe return to 
 the people who have put it in their care. The in- 
 dispensable requisite for such return is the most 
 sure and unvarying standard of value known to 
 man — that is, the gold standard. The " gold-bug" 
 who insists upon that is the truest possible friend 
 and servant of the people, whether he be acting 
 as their agent in lending them money, or invest- 
 ing and caring for it at the head of an insurance 
 company, or in any other capacity. Rich men do 
 not lend money ; they borrow it — borrow it from 
 the banks and insurance companies to invest it 
 for their profit, and for the profit of its owners. 
 They are the agents for all the money-savers of 
 the land, seeking to win for them the best in- 
 come possible upon their savings. They place 
 the mortgages upon the western farms, and upon 
 the buildings and other property in western cities, 
 and the money which they use for that purpose 
 is the money which the people, the workers and 
 savers of the land, place in banks and insurance 
 companies for their families and for use in their 
 hour of need. 
 
 These are the people who would suffer by the 
 swindle of making 70 cents do the work of a 
 dollar by process of law. Every working-man 
 in the land, every person drawing a salary, would 
 suffer in the same way. He would receive the
 
 THE PEOPLE'S MONEY 107 
 
 same number of dollars as before, but each dollar 
 would buy only 70 cents' worth of commodities. 
 He is in fact a creditor for every day's or every 
 week's work, and he is cheated of more than a 
 third of his earnings if, when pay-day comes 
 around, he must take $7 in place of $10, or $14 
 in place of $20. 
 
 The true "people's money" is the best money ; 
 that is, the money which will buy the most of 
 what every man needs, and which will be worth 
 the same this week as it was last, the same next 
 year as this year. There is no security for sav- 
 ings of any kind with any other standard of 
 value, no safety for loans, no interest on bank 
 deposits. The man who declares cheap money in 
 any form to be the " people's money " is the worst 
 possible enemy of the people, for his policy, if 
 carried out by the Government, would rob the 
 people of a large portion of their hard-earned 
 savings ; would cut down their wages, and would 
 throw the whole business of the country into con- 
 fusion and doubt, sending paralysis and disas- 
 ter into every industry and into every branch of 
 trade and commerce. The worst sufferers would 
 be the toilers of all kinds, the people of moderate 
 means, and the poor. If the advocates of free 
 coinage were honest in their contention that the 
 country's welfare would be enhanced by having 
 both silver and gold as a basis for its currency, 
 they would consent to the coinage of a silver dol- 
 lar worth 100 cents ; but this they refuse to do.
 
 108 CHEAP-MONEY EXPERIMENTS 
 
 They refuse to accept an honest dollar, and insist 
 upon a dishonest dollar. They are not serving 
 the people, but are serving the devil, and the issue 
 which they raise, far from being a political one, is 
 a moral one of tlie first magnitude.
 
 CHAPTER XIV 1 
 THE FRENCH ASSIGNATS AND MANDATS 
 
 IT would have been reasonable to suppose 
 that the experience which France had with 
 cheap money under John Law's guidance in the 
 early part of the eighteenth century, described in 
 Chapter V of this book, would have imparted a 
 lesson not soon to be forgotten. But such was 
 not the case. Before the end of the century a 
 new and not dissimilar experiment was made in 
 the same direction, ending, like its predecessor, 
 in failure and almost boundless confusion and 
 disaster. 
 
 One of the first and most serious troubles which 
 confronted the republic established by the French 
 Revolution of 1789, was the scarcity of money. 
 This was due to many causes, but chiefly, says 
 Thiers, to the " want of confidence occasioned by 
 the disturbances." The same authority adds the 
 following general truth about circulation, which 
 is applicable to all countries and in all times: 
 
 1 This chapter was not included in the pamphlet edition 
 of this publication. It has been added in order to make 
 the collection more nearly complete. 
 
 109 
 10
 
 110 CHEAP-MONEY EXPERIMENTS 
 
 "Specie is apparent by the circulation. When 
 confidence prevails, the activity of exchange is 
 extreme ; money moves about rapidly, is seen 
 everywhere, and is believed to be more consider- 
 able because it is more serviceable ; but when 
 political commotions create alarm, capital lan- 
 guishes, specie moves slowly ; it is frequently 
 hoarded, and complaints are unjustly made of its 
 absence." To increase the supply of circulating 
 medium, it was proposed that the National As- 
 sembly issue paper money based on the church 
 lands which had been confiscated by the Govern- 
 ment. These lands were yielding no revenue, but 
 were a heavy burden. The money, to be called 
 assignats, was really a form of titles to the confis- 
 cated lands ; for it was receivable in payment for 
 them, and was designed, in addition to furnishing 
 revenue to the government, to bring about a dis- 
 tribution of those lauds among the people. The 
 debates of the National Assembly upon the prop- 
 osition showed that John Law's experiment had 
 not been entirely forgotten. There was strong 
 opposition, but it was overcome by arguments 
 that bear a curious resemblance to some which 
 are heard in our day in favor of various forms of 
 cheap money which are advocated for the United 
 States. "Paper money," said one of the advocates 
 of the assignats, "under a despotism is danger- 
 ous ; it favors corruption ; but in a nation con- 
 stitutionally governed, which takes care of its 
 own notes, which determines their number and 
 use, that danger no longer exists." How like
 
 THE FRENCH ASSIGNATS AND MANDATS 111 
 
 that is to the argument heard here, and in the 
 Ai-gentine Republic as well, that a great and 
 rich and prosperous and free nation could make 
 its own economic laws, invent its own mone- 
 tary systems, and even defy the teachings of all 
 other nations with entire safety ! These curious 
 arguments carried the day in the National Assem- 
 bly, and a first issue of assignats, to the value of 
 400,000,000 francs, was issued in December, 1789. 
 They bore interest and were made payable at 
 sight, but no interest was ever paid, and subse- 
 quent issues had no interest provision. The first 
 issue represented about one fifth of the total value 
 of the confiscated lands. 
 
 Yet with this solid basis of value upon which 
 to rest, the assignats never circulated at par. A 
 few months after the first issue demands began 
 to be made for a second issue, as is invariably the 
 ease in all experiments of this kind. Talleyrand, 
 opposed the second issue in a speech of great 
 ability, many of whose passages have passed into 
 economic literature as model statements of funda- 
 mental monetary principles. " The assignat," he 
 said, ^'considered as a title of credit, has a positive 
 and material value ; this value of the assignat is 
 precisely the same as that of the land which it 
 represents; but still it must be admitted, above 
 all, that never will any national paper be upon a 
 par with the metals; never will the supplemen- 
 tary sign of the first representative sign of wealth 
 have the exact value of its model; tlie very title 
 proves ivant, and ivant spreads alarm and distrust
 
 112 CHEAP-MONEY EXPEEIMENTS 
 
 around it." And again : " You can arrange it so 
 that people shall be forced to take a thousand 
 francs in paper for a thousand francs in specie, 
 but you never can arrange it so that the people 
 shall be obliged to give a thousand francs in 
 specie for a thousand francs in paper." Still 
 again : " Assignat money, however safe, however 
 solid it may be, is an abstraction of paper money ; 
 it is consequently but the free or forced sign, not 
 of wealth, but merely of credit." In answer to 
 the arguments of Talleyrand, the most effective, 
 because most "taking" argument, if argument it 
 can be called, was the following by Mirabeau: 
 "It is in vain to compare assignats, secured on 
 the solid basis of these domains, to an ordinary 
 paper currency possessing a forced circulation. 
 They represent real property, the most secure of 
 all possessions, the land on which we tread." 
 
 The advocates of money based on lands who 
 are heard in our country to-day will recognize 
 their own doctrine in this resounding phrase of 
 Mirabeau. It carried the day in the National 
 Assembly, and in September, 1790, a second issue 
 of assignats, to the value of 800,000,000 francs, 
 bearing no interest, was ordered. 
 
 The decree for this second issue contained a 
 pledge that in no case should the amount of 
 assignats exceed twelve hundred millions. But 
 the nation was drunk with its own stimulant, and 
 pledges were of no value. In June, 1791, a third 
 issue of 600,000,000 was ordered. This was fol-
 
 THE FEENCH ASSIGNATS AND MANDATS 113 
 
 lowed soon afterward by a fourth issue of 300,- 
 000,000, and by a new pledge that the total amount 
 should never be allowed to exceed sixteen hun- 
 dred millions. But this pledge, like two others 
 that had been made before it, was broken as soon 
 as a demand for more issues became irresistible. 
 Fresh issues followed each other in rapid succes- 
 sion in 1792, and at the close of that year an 
 official statement was put forth that a total of 
 thirty-four hundred millions had been issued, of 
 which six hundred millions had been destroyed, 
 leaving twenty-eight hundred millions in cu'cu- 
 lation. 
 
 Specie had disappeared from circulation soon 
 after the second issue, and the value of the assig- 
 nats began to go steadily and rapidly downward. 
 Business and industry soon felt the effects, and 
 the inevitable collapse followed. Ex-President 
 Andrew D. White, whose tract, " Paper Money 
 Inflation in France," is the most admirable and 
 complete statement of this experience which has 
 been published, says of the situation at this stage: 
 
 What the bigotry of Louis XTV, and the shiftlessness 
 of Louis XV, could not do in nearly a ceutiuy, was accom- 
 plished by this tampering with the currency in a few 
 months. Everything that tariffs and custom-houses could 
 do was done. Still the gi-eat manufactories of Normandy 
 were closed ; those of the rest of the kingdom speedily fol- 
 lowed, and vast numbers of workmen, in all parts of the 
 country, were thrown out of emplojnnent. 
 
 In the spring of 1791 no one knew whether a piece of
 
 114 CHEAP-MONEY EXPERIMENTS 
 
 paper money, representing 100 francs, would, a month la- 
 ter, have a purchasing power of 100 francs, or 90 francs, or 
 80, or 60. The result was that capitalists declined to em- 
 bark their means in business. Enterprise received a mortal 
 blow. Demand for labor was still further diminished. The 
 business of France dwindled into a mere living from hand 
 to mouth. This state of things, too, while it bore heavily 
 against the interests of the moneyed classes, was still more 
 ruinous to those in more moderate, and most of all to 
 those in straitened circumstances. With the masses of 
 the people the purchase of every article of supply became 
 a speculation : a speculation in which the professional 
 speculator had an immense advantage over the buyer. Says 
 the most brilliant apologist for French Revolutionary states- 
 manship, "Commerce was dead, betting took its place." 
 
 In the early part of 1792 the assignat was 30 
 per cent, below par. In the following year it had 
 fallen to 67 per cent, below par. A basis for fur- 
 ther issues was secured by the confiscation of 
 lands of emigrant nobles, and a flood of assig- 
 nats poured forth upon the country in steadily 
 increasing volume. Before the close of 1794 
 seven thousand millions had been issued, and the 
 year 1796 opened with a total issue of forty-five 
 thousand millions, of which thirty-six thousand 
 millions were in actual circulation. By February 
 of that year the total issue had advanced to 
 45,500,000,000, and the value had dropped to one 
 two-hundred-and-sixty-fifth part of their nomi- 
 nal value. A note professing to be worth about 
 $20 of our money was worth about 6 cents. 
 
 The Government now came forward with a new
 
 THE FRENCH ASSIGNATS AND MANDATS 115 
 
 scheme, offering to redeem the assiguats, on the 
 basis of 30 to 1, for mandats — a new form of paper 
 money, which entitled the holder to take immedi- 
 ate possession, at their estimated value, of any of 
 the lands pledged by the assignats. Eight hun- 
 dred millions in mandats were issued, to be ex- 
 changed for the assignats, and the plates for 
 printing the latter were destroyed. Six hun- 
 dred millions more of mandats were issued for 
 the public service. At first the mandats circu- 
 lated at as high as 80 per cent, of their nominal 
 value, but additional issues sent them down in 
 value even more rapidly than the assignats had 
 fallen, and in a very short time they were worth 
 only one thousandth part of their nominal value. 
 It was evident that the end had come. Before 
 the assignats were withdrawn, the Government 
 I resorted to various expedients to hold up their 
 / value by legislative decrees. The use of coin was 
 \ prohibited; a maximum price in assignats was 
 ' fixed for commodities by law; the purchase of 
 specie was forbidden under penalty of imprison- 
 ment in irons for six years ; and the sale of assig- 
 nats below their nominal value was forbidden 
 under penalty of imprisonment for twenty years 
 in chains. Investment of capital in foreign coun- 
 tries was punishable with death. All these efforts 
 were as futile as similar efforts had been in John 
 Law's time. The value of the assignats went 
 steadily down. Bread-riots broke out in Paris, 
 and the Government was compelled to supply the
 
 116 CHEAP -MONEY EXPERIMENTS 
 
 capital with provisions. When the mandats fell 
 as the assignats had fallen before them, the Gov- 
 ernment was convinced that it was useless to try 
 to give value to valueless paper by simply print- 
 ing more paper and calling it by another name ; 
 aud on July 1, 1796, it swept away the whole 
 mass by issuing a decree authorizing everybody 
 to transact business in any money he chose. "No 
 sooner/' says Mr. McLeod, in his "■ Economical 
 Philosophy," "was this great blow struck at the 
 paper currency, of making it pass at its current 
 value, than specie immediately reappeared in cir- 
 culation." In commenting upon this second ex- 
 perience of France with paper money, which 
 lasted for about six years. Prof. A. L. Perry, 
 in his "Elements of Political Economy," thus 
 graphically and truthfully sums up the conse- 
 quences : 
 
 The distress and consternation into which a country falls 
 when its current Measure of Services is disturbed and de- 
 stroyed, as it was in this ease, is past all powers of descrip- 
 tion. The prisons and the guillotine did not compare with 
 the assignats in causing suffering during those six years. 
 This example is significant because it shows the powerless- 
 ness of even the strongest and most unscrupulous govern- 
 ments to regulate the value of anything. The assignats 
 were depreciating during the very months in which Robes- 
 pierre and the Committee of Public Safety were wielding the 
 power of life and death in France with terrific energy. 
 They did their utmost to stop the sinking of the Revolu- 
 tionary paper. But value knows its own laws, and follows 
 them in spite of decrees and penalties.
 
 CHAPTER XV 
 
 ANOTHER WORD ON ''CHEAP MONEY" 
 
 WITH the failure of the free-coinage bill in 
 Congress, the danger that this country- 
 might be called upon to pass through the quag- 
 mire of a fresh cheap-money experiment seems to 
 have been averted, for the present surely, and in 
 all probability for a long time to come. It is ap- 
 parent now that whatever of popular sentiment 
 there may have been behind the free-silver move- 
 ment at its beginning, there was very little behind 
 it at the time of the free-coinage biU's failure, 
 and even less at this moment than there was then. 
 The American people have always shown great 
 quickness in educating themselves on financial 
 and economic questions, and the sudden subsi- 
 dence of the free-silver " craze " shows that the 
 work of education, so far as that form of cheap 
 money is concerned, has been practically accom- 
 plished. 
 
 The Gentiirij rejoices sincerely in the assur- 
 ances which have come to it from many sources 
 that its efforts to assist in this work of education 
 
 117
 
 118 CHEAP-MONEY EXPERIMENTS 
 
 have not been unsuccessful. Now tliat the work 
 is ended for the present, it may not be amiss, in 
 taking leave of the subject, to quote a few strik- 
 ing passages, on the evils of cheap money, from 
 the writings of two masters of vigorous English 
 who studied different phases of those evils in 
 former times. The truth of their forcible lan- 
 guage will be all the more appreciated now, since 
 we are coming more and more each day to a 
 proper realization of the perils from which, as 
 a nation, we have had so narrow an escape. 
 
 In 1722 one William Wood, a hardware mer- 
 chant, obtained from the British crown a patent 
 to coin copper money for Ireland to the amount 
 of £108,000. He had no power to compel any 
 one to take his halfpence, which he coined under 
 this grant and sent to Ireland ; and when a large 
 batch of them arrived there the people refused to 
 take and use them as money. They were made 
 of such base metal, and were so much smaller 
 than the English halfpence, that they were worth 
 in gold or silver not more than a twelfth of their 
 face-value. When the Irish people refused to 
 accept them as money, there was talk of Wood's 
 obtaining orders from the crown compelling the 
 king's commissioners and collectors of customs 
 in Ireland to take them as money, and thus force 
 them into circulation. Upon this proposition, 
 Dean Swift, then in the full vigor of his wonder- 
 ful powers as a controversialist, published a series 
 of pamphlets or letters addressed to the trades-
 
 ANOTHER WORD ON "CHEAP MONEY" 119 
 
 men, shopkeepers, farmers, and common people 
 in general, on the subject of the debased coin, 
 which made a powerful impression in both Eng- 
 land and Ireland, and hastened the repeal of 
 Wood's patent. These letters were signed "Dra- 
 pier," and are known in the collections of Swift's 
 works under that title. We shall make a few 
 quotations from them with a view to showing 
 how perfectly his arguments against the folly of 
 debased or cheap money, made 170 years ago, ap- 
 ply to the proposal to inflict upon the American 
 people a debased silver dollar worth only 70 cents. 
 It was urged in defense of Wood's money that 
 copper halfpence were scarce in Ireland ; that the 
 people needed more copper money for the trans- 
 action of their business; and that if the supply 
 were greater everybody would be more prosper- 
 ous. All that sounds very familiar. It was also 
 said, in answer to a query as to whether Wood 
 would keep his coinage within the £108,000 limit, 
 that he would be guided in that respect by the 
 *' exigencies of trade." That phrase also sounds 
 very familiar. - Here is what Swift says on that 
 point : 
 
 Wood proposes that he will not coin above £40,000 un- 
 less the exigencies of trade require it : First, I observe that 
 this sum of £40,000 is almost double to what I proved to be 
 suflScient for the whole kingdom, although we had not one 
 of our old halfpence left. Again I ask, who is to be judge 
 when the exigencies of trade require it? Without doubt 
 he means himself, for as to us of this poor kingdom, who 
 must be utterly ruined if his project should succeed, we
 
 120 CHEAP-MONEY EXPERIMENTS 
 
 were never once consulted till the matter was over, and he 
 will judge of our exigencies by his own ; neither will these 
 be ever at an eud till he and his accomplices will think 
 they have enough. 
 
 In reference to the effects of cheap halfpence 
 on the people of Ireland^ Swift said: 
 
 Mr. Wood will never be at rest but coin on : so that in 
 some years we shall have at least five times four score and 
 ten thousand pounds of this lumber. Now the current 
 money of this kingdom is not reckoned to be above four 
 hundred thousand poimds in all ; and while there is a silver 
 sixpence, these blood-suckers will never be quiet. When 
 once the kingdom is reduced to such a condition I will tell 
 you what must be the end : The gentlemen of estates will 
 all turn off their tenants for want of payment, because the 
 tenants are obliged by their leases to pay sterling, which 
 is lawful current money of England; then they will tm-n 
 their own farmers, run all into sheep where they can, keep- 
 ing only such other cattle as are necessary ; then they will 
 be their own merchants, and send their wool and butter 
 and hides and linen beyond sea for ready money and wines 
 and spices and silks. The farmers must rob or beg or 
 leave the county. The shopkeepers in this and every other 
 town must break and starve, for it is the landed man that 
 maintains the merchant, and shopkeeper, and handicrafts- 
 man. I should never have done, if I were to tell you all 
 the miseries that we shall undergo if we be so foolish and 
 wicked as to take this cursed coin. ... In short, those 
 halfpence are like the accursed thing, which, as the Scrip- 
 ture tells us, the children of Israel were forbidden to touch; 
 they will run about like the plague and destroy everyone 
 who lays his hands upon them. 
 
 Carlyle, in his "French Revolution," uses 
 scarcely less vigorous, and even more pictur-
 
 ANOTHER WORD ON "CHEAP MONEY" 121 
 
 esque, language in regard to the assignats which 
 were issued in France between 1789 and 1796. 
 These were in the form of paper money, based 
 at first upon the security of confiscated church 
 lands, and afterward upon all the national do- 
 mains and other property. They were issued to 
 the amount of over forty -five billion francs, and 
 before they were withdrawn depreciated to less 
 than one three-hundredth of their face-value. 
 Carlyle records that a hackney-coachman in Paris 
 demanded six thousand livres, about fifteen hun- 
 dred dollars, as fare for a short ride, in the last 
 days of the assignats. In regard to the first issue, 
 he says in the first volume of the ^' French Revo- 
 lution " : 
 
 Wherefore, on the 19th day of December, a paper-money 
 of "Assignats," of Bonds secured, or assigned, on that Cleri- 
 co-National Property, and imquestionably at least in pay- 
 ment of that,— is decreed: the first of a long series of like 
 financial performances, which shall astonish mankind. So 
 that now, while old rags last, there shall be no lack of 
 circulating medium: whether of commodities to circu- 
 late thereon is another question. But, after all, does not 
 this assignat business speak volumes for modern science ? 
 Bankruptcy, we may say, was come, as the e«f? of all Delu- 
 sions needs must come : yet how gently, in softening diffu- 
 sion, in mild succession, was it hereby made to fall ; — like 
 no all-destroying avalanche ; like gentle showers of a pow- 
 dery impalpable snow, shower after shower, till all was 
 indeed buried, and yet little was destroyed that could not 
 be replaced, be dispensed with ! To such length has mod- 
 ern machinery reached. Bankruptcy we said was great; 
 but indeed Money itself is a standing miracle. 
 11
 
 122 CHEAP-MONEY EXPERIMENTS 
 
 The miracle of the assignats consisted iu creat- 
 ing what appeared to be something out of no- 
 thing ; but it returned in due season to nothing, 
 leaving ruin and desolation behind it.
 
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