iir m $B Efi 31b ^!-;i LITHOGEiPHINQ DEPABTMEHT Of A. L. BAICCBOFT k 00. 1874. currency by her annual exports than they are enabled to draw under the low gold rate of 1.15, thus increasing her receipts from her surplus products more than seventeen per cent. This increased volume of receipts would be the increased value of the exports of the South, and would give rise to an increased value of imports to supply her wants. It would not be a clear gain to her to this amount, as many of her supplies would be enhanced in cost to her by the same cause — the higher premium on gold ; but she would gain more than she would lose — the magnitude of her commerce with her sister States would be increased. She would have more money to do business with, and prices and values of all kinds would be favorably affected, and all business with- in her borders would be very much revived thereby. If the Western and South-western States send eastward for export and for consumption in the Atlantic States an amount double that estimated as sent from the South, we have a gold value of $800,000,000. This at the present rate of gold is convertible into $920,000,000 currency. Were the gold rate 1.35 instead of 1.15 — as it is assumed it would be, were it not for the export of securities — the western ex- ports of $800,000,000, gold value, would be convertible into $1,080,000,000 — a difference in her favor from the same sur- plus products of $160,000,000 currency — over 17 per cent, added to the value of her exports. Thus would the West- ern States be enabled to draw to themselves, through their annual exports on the present basis of production and con- sumption, $160,000,000 more currency, or currency values in bills of inland exchange, than they can control under the present low gold rate. This would give great relief to their depressed industry and business. 38 ESSAY ON RESUMPTION If it be thought the above estimates are too high, either of the depression of the gold rate from the cause named, or the aggregate shipments from the South and West, a very large reduction may be made from the aggregate result — a reduction of three-eighths — and still leave an increase of currency to the South of $50,000,000, and to the West of $100,000,000 — an increase of nearly eleven per cent, over their present receipts from their surplus products. If the cause of this difference in the gold rate — the in- crease of our foreign indebtedness — has become inopera- tive, from the exhaustion of foreign credit, or from the ex- haustion of our securities available to send abroad — or if, from any cause, our foreign indebtedness shall not increase at a rate greater than the sum of the interest of that in- debtedness — then we have arrived at conditions under which our imports cannot exceed our exports. Also, it is quite probable, if our present legal tender irredeemable currency shall be maintained, that in the ten years succeed- ing the 1st of January, 1874, our exports (including the pre- cious metals) will exceed our imports in currency values at least one billion dollars. The conditions and results of our foreign commerce will be very different and very much sub- ject to oscillations if steps be taken and persisted in to re~ turn to a system of specie payments. Were the volume of the currency to be enlarged definitely in the ratio of the increase of population, the South and West would enjoy the full measure of the benefit of the changed conditions of commerce. The gold rate would rise and the increased currency values would be at least 10 per cent, for the same quantities of products exported from those sections. How would^this^affect the Eastern and Northern States. They are enabled to be consumers of Southern and West- ern products in a great measure, because the So.uth and West consume their products. The market for their pro- ducts in the South and West, will be enlarged in the ratio of the increased prosperity of those sections. Even if the quantities of goods transported either way, between the sections named were no greater, their values would be in- creased 10 per cent., because, as has been shown, the South OF SPECIE PAYMENTS. 39 and West would have 10 per cent, more money to spend annually, and it would return in tlie same time to the East and North for supplies. Add to this, that a prosperous people always produce more and consume more, and we may reasonably infer that the internal commerce would be increased in magnitude in the increased quantity of pro- ducts exchanged as well as in increased nominal values. The products of the North and East would be enhanced in value, equally with those of the South and West, though not simultaneously. The South and West producing more largely of exportable products, whose price is greatly de- pendent upon the foreign market price, the demand for which would be directly increased, by an increase of the gold rate, their prices would be most immediately affected; while the prices of Eastern and Northern products, mainly depending upon domestic markets, and affected 'by the competition of foreign importations, would be affected indirectly by the rise of the gold rate, which would repress importations like an additional tariff, until the market prices of those prod- ucts should rise proportioncitly to the increase of the gold rate; also would they be affected by the increased demand from the South and West, at least an increase of a hundred and fifty millions annually. Thus would the prosperity of one section react upon, and inspire that of the other. In supposing the gold rate to rise above its present range, I have coupled it with the condition that the volume of currency be increased correspondingly with the increase of population. This would be. the best policy to pursue, but it is probable we shall have no increase of the currency. What, then, will be the probable effect with a fixed quanti- ty of currency, limited, for all purposes to $756,000,000. This contemplates the withdrawal of the $26,000,000— of the reserve already issued, contracting the present volume in circulation to that amount directly; and by the growth of population is an indirect contraction, and both tend to re- duce the gold premium. The cessation of the increase of foreign indebtedness will have a contrary effect. This cause may be sufficiently powerful to more than counteract the effect of contraction. We may see therefore an apparent paradox of a rising gold 40 ESSAY ON BESUMPTION premium, in the face of an actual contraction and an in- verse contraction by the growth of population. But if the gold rate do not rise, and hold a higher range with some degree of steadiness, the cause^ cited will prevent its rapid decline, and it probably stands higher now than it would have done at this time, if we had not met a check in plac- ing our railroad and other securities upon a foreign market. If gold should rise, the effect upon the money distribution would be as stated; first, enabling the South and West to draw to themselves a larger proportion of the whole volume in circulation. The North and East would have less than they have had. The South and West affording a better market for many of the products of the North and East, would enable those industries producing those products, and industries most nearly related thereto, to draw to them- selves such a portion of the common currency, as is neces- sary to their prosecution to the extent of supplying the demand. Upon this hypothesis it is evident that the South and West, and the active producing industries of the North and East, vnll draw to themselves a larger proportion of the common fund of the national currency. This involves the corollary that some localities or pursuits, will draw to them- selves a less porportion of the common stock of currency, than they have been able to during the period of the ex- portation of our securities. This effect will not be felt by localities pr sections, as it will be by pursuits. It has been charged against our irredeemable currency, as inhering to it, and inseparable from it; that it flooded our markets with excessive importations; that it encouraged reckless speculation in stocks ; and that it gave fictitious val- ues, and led to over speculation generally, and especially in real estate. Our excessive importations cannot be contin- ued; they will probably fall short in the five years from the first of January, 1874, more than 1500,000,000 of what they were in the five years preceding. The money required to move these imports in our markets will be released from this service, and will flow into the south and west, whither it will be drawn as has been set*forth, and to the producing industries of the north and east. The productive industries and pursuits having become OF SPECIE PAYMENTS. 4l more powerful to draw a larger proportion of the whole vol- ume of currency into their service, either by enhanced prices of products, or by holding the same prices in the face of an expanding population with a fixed volume of currency, other pursuits adversely affected, or affected favorably in a less degree, must relinquish a portion of the currency they have heretofore drawn to their service and control. For this reason it may reasonably be anticipated that a much less proportion can flow into the service of stock specula- tion. The tendency has been for money to flow into that service because the productive industries, having been de- pressed, were less inviting or perha]-)s repellant to enter- prise and investment; which were turned to more inviting pursuits, the principle of which was speculation in stocks and, real estate. But these pursuits will not be seriously or improperly affected; they will be relieved, however, of the temptations of vast quantities of unemployed capital seeking investment. With a growing population profitably employ- ed in all its industrial activities, real estate is guaranteed sustained, or ascending prices, and the increased and in- creasing internal commerce of the country cannot fail to yield fair returns to all legitimate and properly conducted transportation investments; and their quoted prices will de- pend more upon such returns, and less upon AVall street manipulation, while fancy stocks will find less reservoirs of money to float upon. Many of the phenomena of business, prices and com- merce presented as * * the inseparable evils of a paper cur- rency" are caused by the exportation of our securities. To illustrate this, and for further comment, I introduce the fol- lowing extract from a late speech of Senator Jones of Ne- vada, in the U. S. Senate : "If money is scarce, I ask in the name of common sense,* why will not people give more for it ? Why do not the values of property in this country bear some just relation to the values of property all over the world? Why, sir, the premium on gold does not fully show the depreciation of this paper ; and there is the difficulty. I differed from nearly every Senator on this floor in the reasons which induced me to support the amendment introduced by the Senator from New Jersey ; [Mr. Frelinghuysen. ] Objection was made by friends of that amendment that it would have a tendency to make gold rise in price. Now, sir, I say gold ought to rise. Every other commodity in this country — butchers' meat, groceries, provisions and everything that enters 42 ESSAY ON RESUMPTION into domestic use has risen, so that in relation to them greenbacks are really at a depreciation of fully forty per cent, while in relation to gold, which has been shorn of its chief uses by being demonetized, the same gi-eenbacks are at a depreciation of only ten or twelve per cent. The effect of this is to dis- courage mining enterprises and depress mining interests, If the Govern- ment ever intends to resume specie payments those interests should be stimulated and encouraged by every legitimate means. "There is no demand for gold in this country beyond the small amount necessary to pay the duties on imports and the interest on the national debt. When I come here from Nevada with gold and silver — the only money in cir- culation there— and find that it is too low in price, I cannot help it. In order to get its full value I must engage in foreign trade, become a gambler in the gold-room, or leave this couutiy and go to France, England, or some other country where gold is the standard and circulates at its full value. If I stay here I must trade it for paper at a premium of from ten to twelve per cent, which, as I said before, is much less than the difference between paper and every other commodity. I have no remedy. I must submit to the loss. It is to the interest of this country that the real depreciation of paper should be exactly measured by the premium on gold. That this is not the case there are examples all around us to prove. That no good does or can result from this state of things can be easily demonstrated. For example, suppose 1,000 wagons can be made in this country at $100 apiece; as gold stands now the foreigner who would like to purchase them and thus give us an export trade to balance off some of our imports could pay for them with $90,000. But he can get them for $85,000 in a country where gold circulates as money and this country loses the business. Now suppose gold should go up to 1.25, where it really belongs, in that case he could pay for the same wagons with $80,000 in gold, and still not disturb the relation between paper and any- thing else in the country. This would make possible an export trade that is not possible now, owing to the depreciation of gold. In other words, gold is the cheapest thing in this country, and the commodities sent here from every portion of the earth seek that in exchange in preference to anything else we produce. We can export nothing so readily as gold. It is the cheapest commodity we have, and it is, therefore, in the greatest demand for exportation." The principle point in the foregoing is, that the gold premium is too low to measure the true difference between the currency prices of many articles, and what he assumes as the true gold price, judging from ante-war prices. The only cause he assigns for this difference is, that gold has been demonetized, and, consequently, not wanted for the purposes of money. Before gold was demonetized there was no premium. A gold premium presupposes the demonetization of gold. How, then, can the simple demonetization depress the pre- mium ? If gold shall be re-monetized the premium will dis- appear altogether. How, then, can a high premium on gold OP SPECIE PAYMENTS. 4»^ be preserved by making gold the monetary base? Perhaps Mr. Jones would have expressed his idea better if he had said the premium on gold of late years has given to gold a less purchasing power in our markets than it would have had if gold were the monetary base. Also, we infer his meaning to be, that if the Government had hoarded gold to the amount of $250,0(^0,000 — an amount proportionate to the whole amount of currency, equal to the ante-war bank reserves — that this quantity would be withdrawn thereby from the gold supply for exportation, and by diminishing the supply would raise the gold premium. This would have been the effect. But it would only have counteracted one fourth of the adverse effect resulting from the exportation during the same period of $1,000,000,000 of securities. Had the Government hoarded $250,000,000, over its present hoards, there would be outstanding an equal amount of six per cent, bonds which have been purchased and canceled. Such hoarding, therefore, would cost, on interest account,. $15,000,000 annually. Previous to those bonds being purchased and canceled,, they were afloat and seeking a market, and had they not been purchased by the Government they would probably have gone abroad, mid heen added to the volume of our ex- ported securities. In that case their effect upon the gold premium would have exactly balanced and canceled the ef- fect of the hoarding of the gold, and the Government would have lost $15,000,000 annual interest, without any compen- sation therefor to the people. The less purchasing power of gold of late* years results primarily and mainly from the great increase of our foreign indebtedness, in connection with another and secondary cause, before alluded to — that of the different effects upon different classes of commodities and forms of wealth, in time and degree, as, in their relations, they are near to, or remote from, the active cause. Gold and all exportable products are first affected; products (including manufac- tures) in competition with imports are subsequently affected indirectly and to a less degree by the increased facilities for importation, resulting from a low gold premium; while those products or pursuits and forms of wealth which are little^ 44 ESSAY ON RESUMPTION affected by tlie conditious of foreign commerce are last and least affected, as buildings and building material, trans- portation investments, real estate — rents, leases — contracts extending over long periods of time — salaries for long terms, national. State, and municipal expenses involving taxation, and transportation expenses, etc. These have an innate power of resistance to declining prices, and form a class of nearly fixed prices, and involve nearly fixed costs to all of those who are under the necessity of paying for their use or appropriation. The prices of the first class have great flexi- bility ; of the second class, less flexibility. This flexibility of prices possessed by the first and second classes has caused those classes to bear a double burden during the decline of gold since the close of the war. Soon after the close of the war several issues were with- drawn which had served as currency to some extent, as cer- tificates of indebtedness, five per cent, legal tender notes, and compound interest notes. Apart from the withdrawal of these, there has been a direct contraction of the cur- rency, first, by the withdrawal of the reserves, $44,000,000; second, by wastage, which at one quarter of one per cent, per annum of the whole volume for eight years would amount to $15,000,000 (and this is probably too low an es- timate), aggregating $59,000,000; and inversely by the growth of population (after spreading the currency over the Southern States, which, though important, I disregard,) in the last eight years, from about $35,000,000 to more than $40,000,000— about fifteen per cent. The burden of this contraction ialls mostly or wholly upon those industries producing products of the most flexible prices, because the class of fixed prices tenaciously draws to its own service as Jarge a volume of the common currency as is necessary for its purposes, and the classes of flexible prices must relin- quish that amount from their service. To illustrate : Suppose an agriculturist, as a direct effect of the contractions referred to, finds that his annual prod- nets, the same in quantity, bring him two and a half per cent, gross less than the year previous. He finds half his receipts are absorbed in fixed costs of production — such as interest on capital invested or mortgage loans, taxes, insur- OF SPECIE PAYMENTS. 45 ance, average casualties and accidents, transportation^ leases or rents, etc. All these costs remain the same with-^ out abatement, and draw to themselves from his gross pro- ceed money sufficient for their payment. His loss by depreciation of prices falls wholly upon the remaining pur- poses of his proceeds — the payment of his own and his family's labors and the active capital necessary for the next year's operations, being a diminution of five per cent, for these purposes. This continued for a series of years at length becomes burdensome and unbearable, and naturally gives rise to complaints against the government that im- poses taxes, middlemen that impose commissions, capital- ists that furnish loans, and those who charge the expenses of transportation. It is evideAt that the agriculturist, from contraction, through the greater flexibility of the proceeds of his products, has become unable to draw to his service so large a proportion of the common currency by a differ- ence of two and a half per cent, of his gross proceeds, and this repeated year after year impoverishes him. Money becomes too scarce with him ; and as with him so with whole sections of our country engaged in the same or kin- dred pursuits. These not only bear their OAvn proper aver- age proportion of the burden of contraction, but have to bear the greater portion of that which should fall to other pursuits and interests, because these latter possess greater power of resistance to any diminution of their income. This principle, in conjunction with the increase of foreign indebtedness, and not the demonetization of gold, causes the relatively low prices of exportable products, including gold. I agree with Mr. Jones that, "It is the interest of tliia country that the real depreciation of paper should be ex- actly measured by the premium on gold;" and "That this is not the case there are examples all around us to prove ;'* and ' ' That no good does or can result from this state of things." And that many of our manufactures and agricul- tural products, which at their present currency prices can- not be exported at a profit, if the gold premium were raised sufficiently to measure the true average difference between gold and paper prices, could bear still higher currency or THB nWIVERSITY 16 ESSAY ON RESUMPTION prices and yet be sold in foreign markets for gold at their prices, which, when converted into a quantity of currency corresponding with our increased gold premium would pay remunerative profits to their producers ; and this would re- move the fallacious objection to our irredeemable currency often presented, that it has closed foreign markets to many of our manufactures by having raised the currency cost of production out of proportion to the foreign gold price. To give the gold premium this property of exactly or ap- proximately measuring the average difference between gold and paper prices, and to remove by abolishing (not by re- adjusting) burdens which are now unequally borne, there should be a limited enlargement of the volume of the cur- rency, and thereafter a constai^t enlargement of the quantity of the currency in the ratio of the increase of the popula- tion using it, and a cessation of the enlargement of our foreign indebtedness. To promote the latter let statesmen be wary how they multiply bonds to be exported to foreign markets. If bonds must be issued, it is policy to induce them to stay at home; and to this end let them be explicitly payable, principal and interest, in currency, and then the less issued the better. The public mind has been and still continues to be in- fatuated with the idea that it is desirable to bring the cur- rent or convertible value of the currency dollar and gold dollar to par with each other. This is a mischievous and costly infatuation, tending directly to malpolicy and ad- versely to the country's prosperity. The two kinds of dol- lars are distinctly different, and there is no reason whatever why they should be of the same current or convertible value. It were just as sensible to insist that two kinds of grain should always be of the same convertible value, or cotton and wool, or any other two commodities that may accident- ally be of the same price betimes. The aggregate of prices and specific prices of all ex- changeable commodities and values become adjusted through the laws of trade, to the aggregate of legal tender currency and currency convertible into legal tender at par (bank currency) in active circulation, in the same manner that prices adjust themselves to all currencies, at all periods OF SPECIE PAYMENTS. 47 and in all countries. Thus our national currency becomes the measure of values or prices, and has itself a corres- ponding current, convertible, legal tender par value : in the same manner as have all legal tender currencies and cur- rencies convertible into legal tender at par, as was the case with gold and silver and bank currency before the war. (And even when the practical currency is not legal tender, and ceases to be convertible into legal tender, the quantity in circulation, deducting the discount by depreciation, con- tinues to measure prices, as was the case with the bank cur- rency during suspension in 1837 and 1857.) Gold, like every other commodity, seeks and finds its own currency price, through the laws of trade; and there is no more rea- son why a given weight of gold — the gold dollar — should always have the same currency price, than that any other article of commerce should always have the same currency price. Nor is it undesirable that gold should leave our country. It is a product of our mining industry, and it i§ as advantageous to exchange it in the marts of commerce for other commodities, as to exchange any other product of our industries. In the progress of financial science with us, it has become unnecessary as money; we do not need it. Other nations less progressed do need it; let them have it. As well might the miner miserly hoard it and refuse to part with it for necessaries, conveniences and luxuries, as for us as a nation to refuse, or dread, to part with it to other nations for the same purposes. Senator Jones perceives and affirms that the gold pre- mium is not the true measure of the difference between gold prices and currency prices. Eesumptionists generally en- dorse and laud this speech. Do they endorse this part of it? Amasa Walker, in the Overland Monthly for June, 1873, in unison with Mr. Jones, recognizes this fact during the decline of gold, while both are silent in reference to it dur- ing the rise of the gold premium. Sam. R. Reed, in The Atlantic Monthly for May, 1873, recognizes this fact both in the rise of the gold premium during the war and its de- cline and rise at different periods since the war; that dur- ing the war, depreciation of the general purchasing power 48 ESSAY ON RESUMPTION of the greenback was not nearly so great as that indicated by the gold premium, and the rapid and great decline of gold immediately subsequent to the war, was no measure of the appreciation of the purchasing power of the green- back. Here is the testimony of resumptionists to a gen- eral and demonstrable fact, which is ignored by a great majority of resumptionists, who persistently insist that the currency fluctuates in value, and the values of all property and commodities also fluctuate in the exact ratio, and with every variation of. the gold premium. So infatuated are they with the idea of the necessity of a gold standard of value, that if by some inconceivable mischance, gold should be stricken from existence, or transmuted into a baser metal,, they would be at an utter loss to determine whether worldly wealth thereafter would possess any value whatever. And so near such a catastrophe is our nation, with only about a hundred millions left, and that going away at the rate of over two millions a week, while our product is not more than half that quantity, that the N. Y. Tribune, in a paroxysm of alarm, deenis it neccessary from its high pedestal to issue its mandate to the country, to ' ' Stop that gold!'' While the authorities referred to recognize the fact, that the gold premium does not indicate the purchasing power of currency, they all three attribute the difference during the declining phase, to causes immeasurably out of propor- tion to the effect. Mr. Jones atti;ibutes it to the demonetiz- ing of gold, while the two latter attribute it to the bearing of the gold market by the Secretary of the Treasury. How incomparably inadequate these causes appear when com- pared with the great volume of our securities pressing for a market, in direct competition with gold and other exports. Mr. Jones says: *' There is no demand for gold in this country, beyond the small amount necessary to pay the duties on imports, and the interest on the national debt." Also in the same paragraph he says : '* We can export noth- ing so readily as gold. It is the cheapest commodity we have, and it is therefore in the greatest demand for exporta- tion." The logic and consistency (if there be any) in these sentences are not sufficient to win very enthusiastic admira- OF SPECIE PAYMENTS. 49 tion. If the demand for gold be the greatest of that of all our exports, how came it to remain constantly the cheapest, while it is at the same time the easiest to export? Has it not yet had time to find its equipoise with other exports ? Is it cheaper to export than our securities? Then how comes it that such vast quantities of these are exported, while any gold remains to be had at a cheaper market price? How comes it, if gold is the cheapest and always in greatest demand, that our exports of cotton exceed our gold ex- ports from three to five hundred per cent. ? Mr. Jones speaks of the demand for gold to pay duties on imports and the interest on the national debt, as though these were two distinct demands upon the market gold sup- ply. The payment of the interest of the national debt, in- stead of being a demand for gold, furnishes a supply of gold to the market in the same manner that a sale of gold does, and in these two ways the government returns to the market the same quantity that it withdraws from the market by its duties on imports, unless it hoard gold, when it returns a less quantity, and when selling its hoards of gold it supplies a greater quantity than it demands. When a quantity of gold sufficient to fill the channels of this circuit is once appropriated to this purpose, the demand is balanced by the return supply, and both may be dis- regarded, except so far as the amount necessary for this purpose, or the hoard of gold, be increased or diminished from time to time. Hence, except under the policy of hoarding gold, the only substantial demand for gold is for exportation, in common with all other exportable products, to pay for foreign imports, and to pay our foreign obliga- tions, and the small quantity used in the arts. He further says : *' Gold is the articulation of commerce; it is the most potent agency of civilization. It is gold that has lifted the nations from barbarism." Christianity, science, learning, liberty, law, patriotism, constitutional government, a free press, common education, discovery and invention, one and all, you are '* remanded to back seats;" gold comes to the front! Behold and reverence the sovereign that has done what you have so long been credited with doing. Well, well! What next? 4 50 ESSAY ON RESUMPTION Mr. Jones further says: *'The money, which consists of paper promises, cannot be a standard of value." Supposing that he means to include the legal-tender quality and the general acquiescence of the people in the use of such money, as a currency, I do not hesitate to meet that assertion with one equally emphatic — that it is absolutely false, or, more mildly, a pure fallacy. The experience of the past twelve years proves it a fallacy. Almost every other portion of the speech, from which it is quoted, proves it a fallacy. It is against all past experience of the power of paper currency to measure values. In 1836 and 1856 the bank paper in circulation was the real and active measure of value; while the gold in the bank vaults, on which it purported to be based, and which it purported to represent, but did not, because it was not limited to the same quantity, forming no part of the circulation, had no influence whatever in measur- ing values. The attempt to bring the paper circulation into correspondence with its assumed base in 1837 and 1857, by contracting the volume of paper, contracted its measure of values, and so disturbed the relation between the values of commodities under the new contracted measure of values, and the value of accounts and obligations assumed under the expanded measure of values, that a paralysis of business and general bankruptcy were inevitable. In an article in the North American Beview, for January, 1874, containing some truths and sound reasoning, with many fallacies, leading to erroneous conclusions, Henry Y. Poor recognizes the fact, that our currency measures values by asking: **Why cannot the government now retire its outstanding notes?" and answering: ** Because the business of the country has adjusted itself to their present amount." And indeed, all that is said about the rise of prices as the result of inflation, is an acknowledgement that the currency meas- ures values, and is, therefore, the standard of values. Again: *'No government, no people, can be prosperous that ignores the proposition that honesty is the best policy; that by any sort of legislation disturbs the relationship between debtor and creditor." This is very sweeping, cer- tainly. How does it harmonize with bankrupt laws, statutes of limitation, and homesteads and other exemptions from OF SPECIE PAYMENTS. 51 •execution? And how does it harmonize v/ith a refusal to legislate to prevent a steady and oppressive contraction tvhich disturbs the relation of debtor and creditor? Mr. Jones, speaking of California and Nevada, says: "We have never had any money panics. We have never called upon the Congress of the United States to relieve the gambler from any portion of his liabilities, or to issue more money, in order that he might more easily pay his debts." * * * And closes his speech as follows : " Gentlemen ask, ' How will you get the gold with which to resume spe- cie payments? ' As a general proposition, I would say that the Govern- ment should hoard gold; that it should take no part in the gold gambling of this country. I admit it would be a great injustice to the debtor to say that specie payments shall be resumed immediately, because he contracted his debt when currency was worth about what it is to-day, and it would not be just to make him pay in an appreciated currency. But he has to pay some time. I would put it off three years, and say that on the first day of Jan- uary, or the first day of July, 1877, the greenbacks, the national legal tender, should be redeemed, either in bonds or in gold, at the option of the govern- ment, and destroyed, and at the same time I would repeal the legal tender clause as to all debts contracted after that time. This would be contraction, and would cause a reduction in the price of everything. Without such con- traction the maintenance of the specie standard would be impossible. The effect of that would be to make the condition precedent to a return to specie payments. Unless we make these conditions precedent, unless we fix that time certain in the future, the people will never commence to prepare for it, and will never be more ready than they are to-day." What does Mr. Jones call a money panic? The failure of the leading banking houses in San Francisco in 1855, and the general depression of business and depreciation of prop- erty in other parts of the State, as well as in San Francisco, was felt with as much severity and was of much longer con- tinuance than the late panic in the currency States. If that was not a money panic we have not had.any. A great deal is in a name. The Hon. Senator says that California and Nevada have never called upon Congress **to relieve the gambler from any portion of his liabilities, or to issue more money, in order that he might the more easily pay his debts." This sentence is worthy of consideration in several respects. The word *' gambler" is used to designate those in whose inter- est an enlargement of the volume of currency is assumed to 62 ESSAY ON RESUMPTION be proposed. The whole tenor of the speech from which I have quoted, shows that the great agricultural industries, and those great sections of our country devoted to them, constituting more than half the territory and fully half the population of the country, have been seriously depressed for many years, and if they seek relief from their unequal burdens, are they to be characterized by opprobrious epi- thets? These have nothing to do with the law^s of trade, and ought to have but little place in statesmanship. But the leading idea is, that the States referred to, have never called upon Congress to legislate upon the finances of the country with a view to their especial benefit. They aro modest States, and would not ask fdr special favors. But then, the Hon. Senator, representing one of those States, before he resumes his seat, recommends that the govern- ment should hoard gold as a condition precedent to resump tion. This would withdraw from the gold supply two, three, or four hundred millions of dollars, and thereby raise the price of gold. In view of the fact that Nevada is largely engaged in mining the precious metals, the ungenerous may suppose that the principal object in view is to benefit the mining in- terest, but this can be only incidental to the great national consideration of securing a sound currency. The Senator will, undoubtedly, exercise a christian charity toward his ungenerous critics, when he reflects how he might view a proposition from the South to hoard cotton, her peculiar pro- duct, to the value of two, three, or four hundred millions dol- lars — to withdraw it from the market supply — to raise the market price, and thereafter make it the basis of a circulat- ing medium that it might not return upon the market. Or a similar proposition from the West to hoard wheat or corn; or from Pennsylvania to hoard coal. If these propositions appear very different from the proposition of Mr. Jones, the difference is one of con-sociation or dis-sociation of ideas, more than of principle or philosophy. He does not say how much gold he would hoard, but much or little, the cost of this first step toward resumption would be at least the annual interest of the sum hoarded. His second proposition is *'that on the first day of Jan- uary, or the first day of July, .1877, the greenbacks, the na- OP SPECIE PAYMENTS. 53 iional legal tenders, should be redeemed, either in "bonds or ^old, at the option of the Government, and destroyed, and at the same time, I would repeal the legal tender clause as to all debts contracted after that time." This is all that he has offered in reference to his method of resumption, yet he seems to imply something further to complete resumption, as he says: "The effect of that would be to make the con- dition 'precedent to a return to specie payments." And further: *' Unless we make the conditions precedent, unless we fix the time certain in the future, the people will never prepare for it, and will never be more ready than to-day." Now let us examinq how this would work. The first point in the proposition is to bind and determine the action of a future Congress. This is pernicious policy, if it be anything more than a recommendation, as being contrary to the genius of our institutions, in presuming to dictate to the people what policy they may require to be pursued by their future representatives. In its financial aspect, how <}an it be known that the people will be any better prepared for resumption then than now; or that they will at that time wish to resume? If the Government hoard gold in suffi- cient quantity, it may be better prepared ; but the people may not. Prices may remain on a range higher than gold, and the claim will be set up that to change from a currency to a gold basis, would involve a great reduction of prices. And this is foreseen and acknowledged by Mr. Jones, when he says : *'This would be contraction, and would cause a reduction in the price of everything." This is legislation with a view direct to change prices. The sophistry usually set up in defense of such legislation is, that all commodities and values being equally affected, there is no harm done. And it is because this is a sophis- try, and not a truths that there is irretrievable harm done by such legislation. It has been shown that there are grea- industries and great sections of country peculiarly susceptit ble to the reducing and paralyzing effects of a contracting currency, which not only have to bear their own proper share of the aggregate reduction of prices, but have to bear that portion which properly belongs to other industries, pursuits, interests, and forms of wealth, which are so in- 54 ESSAY ON RESUMPTION trenched behind defenses that they can resist and ward off" their share of the aggregate reduction. The corollary of this is also true, with some modification^ during an era of inflation — that is, when the currency is in- creased in a ratio greater than that of the increase of popu- lation — that those industries, pursuits, callings, interests, and forms of wealth, which I have classified as of fixed or nearly fixed values, and which have the power to resist the effects of a contracting currency, are the last to avail them- selves of the effects of an expanding currency, as will be seen when we reflect upon the nature of debts and credits — loans on mortgages — leases — rents — salaries for terms — con- tracts extending over considerable* time, insurance, taxes, and those expenses and commodities whose prices become conventional — and such things as these enter into as a large element of cost. Those industries the prices of whose products are most flexible, -are very susceptible to the earlier waves of an ex- panding currency. But when they have been carried to a. certain height, they find a limit by the laws of supply and demand, through the operations of commerce. Rising prices stimulate production, and the surplus must seek a foreign market ; and the foreign price (if the surplus be a consider- able portion of the whole product), when converted into currency through the gold premium, determines the price of the whole product in the domestic market. When the productive industries have drawn to their service as much of the increasing volume of the currency as they can profit- ably employ, and their prices find their maximum limita- tions, if the inflation continues as during the war, the re- dundancy of money continually finds new and enlarging channels in which to flow — in the exchanging of increasing products^ in the increase of investments in the productive industries, and in the more hazardous and speculative en- terprises, and in investments in internal improvements — the opening of mines — the establishment of new and untried industries, speculations in real estate, stocks, etc. ; and these channels, which the increasing volume of currency first makes, and then flows in, absorb the flood with an ever widening capacity. And it is because it is an incident of OF SPECIE PAYMENTS. 55 inflation, that after satisfying the wants of productive indus- try, the redundancy flows into moi;(e hazardous investments, and among them into Wall Street stock operations, that these operations have first been regarded as typical and representative of its general effects; and secondly, those ef- fects, in whatever form of enterprise they appear, and how- ever they have enriched and beautified the country, and however much they have added to the prosperity and re- sources of the people, and illustrated their genius, their energy and their enterprise, by an adroit and unwarrant- able use of language, are designedly and flippantly, but un- justly, characterized by all the opprobrious epithets applied to Wall Street operations. Nothing herein, however, is designed to advocate an en- largement of the currency out of proportion to the growth of population. Such an increase would have objectionable effects, but the evil effects of such an increase would be magnified ten fold — yea, an hundred fold — by a contraction of like amount. During inflation, though there is. a differ- ence in the relative effects upon different industries and in- terests, yet all feel in a greater x>r less degree the buoyancy, hopefulness, and inspiration of the general prosperity ; and there are but few, very few, of those whose interests are chiefly in the class of fixed values, who are not, to a greater or less extent, compensated through other interests, and who do not profit in common with others by the increased aggregate of actual wealth arising from the increased activ- ity of all productive forces. While, during contraction, not only is there a different relative effect upon different indus- tries and interests, but all feel in a greater or less degree its depressing and harassing effect, and the aggregate waste from enforced idleness and the obstruction to business, the stagnation of all the productive forces, and the sacrifices of property, and the losses, harassments and costs by the en- forced settlement of accounts, cause an enormous loss of real wealth, which is sure to affect seriously and detriment- ally even the most favored classes. And here I reiterate that a specie base currency involves a constant ebb and flow of the quantity of currency in cir- culation, while an irredeemable currency can be continued in a fixed ratio to the population. 5(} ESSAY ON RESUMPTION And, further, with a specie base currency every expansion involves necessarily a contraction. While with our irredeem- able currency expansion does not involve contraction, and contraction only follows expansion when unwise legislation promotes it or permits it. For this reason our irredeemable currency in the late panic stood like a bulwark, to stay and return the falling tide of prices. The panic was in nowise attributable to the nature of the currency. It was the re- sult of a shock to the public mind and business confidence by the failure of a great banking house which had assumed too great responsibilities in a special undertaking which locked up its capital : which shock reacted upon and shook the superstructure of the monetary system — of deposits and loans, and bank and business credit — but the basis— the currency — remained firm without depreciation in value or diminution in quantity, and this incontractibility of the cur- rency, either by depreciation or diminution, together with the slight increase in quantity through the necessities of the Government, is what so soon checked the panic and re- stored business confidence, and saved the country from in- comparably greater business disaster and paralysis. Mr. Jones proposes deliberately to legislate to bring about con- traction, his end in view being to substitute a redeemable for an irredeemable currency, which is the substitution of a worse for a better currency ; a change to be avoided in- stead of being sought, even if it could be had without cost. *'0n the day set the greenbacks should be redeemed either in gold or in bonds at the option of the Government, and destroyed." If the Government on and after the day set is able to redeem all greenbacks presented in gold, the gold board and gold premium would be at an end — currency would be at par with gold, because greenbacks would be redeemable in gold on demand. That would be what is called ** resumption." All business thenceforth would be on a gold basis. Placing legal tenders upon a gold basis or canceling them would place all business upon a gold ba- sis. The national banks would be the first at the doors of the Treasury demanding gold for their legal tender reserves, and would not be slow in eliminating the legal tenders from the volume of money passing through their hands and pre- OF SPECIE PAYMENTS. 57 sen ting them for redemption. The gold they would obtain for their reserves would still be held as reserves ; beyonS that the gold received would be a. part of their active loan- able capital, and after the exhaustion of their bank notes on hand would pass into circulation as loans, and their gold reserves would be drawn upon to redeem their notes and must be replenished. Thus gold would go into circulation to supply the place of greenbacks withdrawn from active circulation. The gold put into circulation would be of equal volume to the legal tenders withdrawn from circulation and destroyed. It may be asked, therefore, how can that be contraction and how can that disturb prices? Let us see. The reduction and disturbance of prices would commence before, and continue after the day set for specie redemp- tion. At a period six or eight months anterior to that day, let us suppose the premium on gold to be 15 per cent., and that prices of commodities were adjusted to this rate. Im- portations may be supposed to be reasonably profitable at the ruling prices, with a rebate to the importer of 15 per cent, for the conversion of currency into gold. With the same volume of currency, prices remain unchanged, except by demand and supply. The demand will be diminished by the attempt to prepare for resumption, by holders in- termediate between producers and consumers endeavoring to sail under bare poles with light stocks, by selling all they can and buying as little as they can in anticipation of lower prices. Thus, each acting for himself, they conspire to a common end — the lessening of the demand and the lowering of prices. On the other hand, the supply will be increased by increased importations. Importers anticipat- ing a decline of the gold premium, multiply their imports, to make as large sales as possible before the decline of prices. As the time approaches, if the gold premium re- mains high, currency will be hoarded and withdrawn from active circulation by those having to make payments abroad., as it becomes more profitable to await the day of redemption and conversion into gold at par, than to lose the ruling high premium by present conversion. This lessens the demand for gold and helps to depress its price, and by contracting the active currency, as well as by the 58 ESSAY ON RESUMPTION effect on gold, it depresses the prices of other commodities. The volume of imports increasing day by day, can be put upon the markets at steadily declining prices, and still pre^ serve the ordinary profits, because the gold premium is day by day declining until it touches zero on the day of redemp- tion. Gold, the most sensitive or flexible, is first in finding the gold base price. The prices of other commodities linger behind at a great- er or less remoteness, resisting the downward tendency with all the power of resistance they have, until they find a point in relation to the new status which they can maintain. When prices have adjusted themselves to the gold base, it will be found that all those products which depend mainly or largely upon foreign markets, have suffered a decline of nominal value equal to the former gold premium. While products depending upon home markets in competition with imports will have declined less, because less directly affected, and because the tariff affords them a measure of defence. It is obvious from the causes stated that the prices of exportable products and of products in competition with imports, would decline in consequence of the decline of the gold premium, while there would have been but a slight contraction of the currency — that of hoarding currency in anticipation of redemption — and the question may arise, how is it that such a fall of prices can occur without a cor- responding contraction of the currency? The answer is to be found in the two principles before explained. 1st, that domestic prices will be determined in a great measure by the prices of surplus products seeking foreign markets. 2d, by the commercial distribution of the currency. The proportion of the common currency which a com- modity can draw to its service is in ratio to the quantity and price of the commodity. Whatever depresses its price forces it to relinquish a portion of the currency it controled under the higher price, and that portion is not merely free to flow, but is forced into other channels of em- ployment, because the channels it has been flowing in, hav- ing been compressed, cannot hold it. If there be channels of legitimate enterprise and industry open and ready to re- OF SPECIE PAYMENTS. 69 ceive it, it flows into them ; but if not, it finds the channsel of the class of more hazardous investments, (stock specula- tions, real estate investments, etc.,) whose capacity to- absorb is as elastic as the nominal values floated upon them. Hence the volume of currency released from the service of productive industries by a decline of prices, flows directly into the channels of speculative investments, and is. absorbed by the rising tide of nominal values therein; and this portion of the common currency will continue to be diverted to this service, until it shall be forced out of it by a further contraction of the circulating medium, which would follow the redemption of greenbacks in gold. It will be found, therefore, that one of the effects of a re- turn to a gold-base currency, as recommended by Senator Jones, will be, for a time at least, to increase the ''mania" for ''gambling" in stocks. In grouping the classes of property of fixed values, debts and credits are included, and, consequently, the relation of debtor and creditor, and I might, therefore, proceed with- out further consideration of this relation, but its importance merits further attention. Whenever the Government re- deems its greenbacks in gold, every debt and obligation in the country is placed upon a gold basis. The magnitude of the amount of debts and liabilities and accruing obligations cannot be told. And the fixedness of value of this vast amount of money of account is little appreciated in the dis- cussions of the financial problem. Most persons are at the same time both debtors and creditors, and the same may be said of the respective sections of the country. Each is a debtor or creditor as his or its excess is debt or credit. The excess only of debt or credit can be affected by a change of currency values : but this excess amounts to bil- lions of dollars, and affects differently sections in the same manner as it affects differently individuals. And the burden of all indebtedness is greatly magnified by contraction and change of basis of price, and the purchasing power of the creditor's demand, is enhanced in the same ratio. How does this harmonize with the Hon. Senator's moral and po- litical ethics as announced and heretofore quoted, viz: "No government, no people, can be prosperous that ignores tha ^0 ESSAY ON RESUMPTION proposition that honesty is the best policy, that, by any sort of legislation, disturbs the relationship between debtor ^nd creditor?" During expansion, the creditor, who is relatively injured, may not be, and seldom is, positively injured thereby. As has been shown, he is often compensated in many ways, and is benefited by the general increased activity and pros- perity. During contraction, on the other hand, though he may be benefited relative to the debtor, he may be, and almost in- variably is positively injured, by sharing, to a greater or less extent, the common loss resulting from stagnation of business and bankruptcy. The burden of debt may crush the debtor, but the creditor cannot shield himself from all harm. The positive evil to one is not a positive benefit to the other. The evils of expansion in reference to the relation of debtor and creditor are like those of a summer shower which may moisten some ungarnered hay, but which is a gen- eral blessing. While the evils of contraction in reference to this relation are like the sweeping blasts of a tornado at sea that strews its pathway with blighted lives and the wrecks of human hope and endeavor. As there are individuals and industries whose status is constantly that of debtor or creditor, so there are large sec- tions which usually or constantly hold to each other these relations. And not only is it not derogatory to the debtor •sections, but they reflect credit upon their courage in assum- ing such obligations, to give opportunity to their industry and their enterprise; and it is unworthy of exalted station to reproach that status with obloquy, by designating it as the result of gambling and reckless speculation. I have thus far considered Senator Jones' plan of resump- tion on the hypothesis that, on the day appointed for re- demption, the government would have hoarded sufficient gold to respond to the demand, and redeem all greenbacks in gold. But the plan pre-supposes that the government will not be able to do this, or, if able to redeem in gold, it may be inexpedient to do so. Therefore a redemption with an option is proposed. Eedemption with an option is not original with Mr. Jones. It has been long enough before OF SPECIE PAYMENTS. 61 the Senate to have its merits canvassed; and it is surprising that it should be repeatedly presented as a method of redemp- tion. To redeem legal tenders in gold, is redemption, a& commonly understood. To refuse to redeem in gold, after that had been commenced, would be suspension. To offer a bond instead of gold, is to suspend specie payments and to offer a merchantable article at a fixed price. Nothing is said of the interest such bonds should bear. If the interest be five per cent., and their sale value in foreign markets be less, than par — two or more per cent. — they would be refused. This would necessitate the continuance of the Gold Board — and there would De a gold premium so long as the government should refuse to redeem in gold and offer bonds that were worth less than gold in the market; and the value of the bonds would react upon and limit the premium on gold. If, on the other hand, the interest on these bonds be placed high enough to make their home market price, gauged hj their foreign market price, worth more than gold when gold is at par with legal tenders, then the demand would be con- stantly for bonds which would be withheld so long as there was gold to redeem with; and those applicants for redemp- tion would be the most fortunate whose greenbacks would command bonds. We* are thus conducted to the following conclusions : 1st. That the interest on the bonds must be such a rate as to make them worth par or more than par in gold in our market or they will not be accepted except in preference to gold at a premium. 2d. That though the interest be gauged to make them at par with gold, financial pertuibations at home or abroad might depress them below par, when they would become unacceptable, and therefore unavailable so long as their market price renders them undesirable. 3d. The exchange and cancellation of greenbacks for bonds, in whatever amount, would be a direct contraction of the currency to that amount. 4th. The uncertainty of the value of the bonds and of the continuance of redemption in gold, would continue the gold market, and gold premium, and might result in a constant alternation of resumption and suspension of specie pay- ments. €2 ESSAY ON RESUMPTION 5th. That redemption in gold by i:)re venting the payment of a portion of the national interest-debt, or redemption in bonds by increasing our national interest-debt, would impose a new burden upon the nation of more than twenty millions of dollars annually. Mr. Jones proposes to repeal the legal tender clause. If redemption in gold on and after the day appointed is to be a success, this is very much like hanging a man and then issuing a decree to prevent him from exercising his civil functions. If greenbacks are redeemable in gold, and at par with ^old, or thereabout, in the transactions of business, they will remain a part of the currency until entii^ly absorbed, and will be used in the settlement of accounts, even those settled under judgments of courts, as bank bills are now, though not enforced by the courts, and the legal tender clause would have no practical effect. But if redemption in gold is not to be a success, then to repeal the legal tender clause would be a violation of the public good faith. When the legal tenders were issued, had the Government been able to redeem them on demand in gold, there is no reason to believe that they would have been made legal- tender. But because this could not be done, they were made legal-tender, that those who were under the necessity of receiving them in settlement of accounts might in tarn pay them in settlement, of accounts; hence their withdrawal and cancellation, only, can cancel this attribute without a breach of faith. I have endeavored to show, and I think successfully, that to change from our irredeemable currency basis to a gold- base currency and specie payments would be detrimental to the best interests of the whole country ; and I submit that the increased interest burden necessitated by Senator Jones' plan of resumption (or indeed by any plan) is but a small part of the increased burdens, the end of which no man can see, that would inevitably follow, particularly in view of the fact that we have a large amount of foreign in- debtedness to pay, interest and principal, and that by the change proposed we virtually agree to transport our export- OF SPECIE PAYMEtofiR/f rr;7r»vi\K V^ 63 able products from the center to the shores of our conti- nent and across the ocean to the shores of other continents to be placed upon foreign markets, to be sold at their prices, virtually paying all costs and risks of transit, though the profits of transportation be reaped by foreign commerce, to obtain the money necessary to pay our foreign indebted- ness. In other words, we pay them in our products, and transport these products to their doors and accept what they, under the laws of trade, choose to give us for them. This is the feast to which we are invited. A strong pressure is brought in the discussion of this question to impress upon the public mind that there is a present imperative and irremovable obligation on the part of the Government to redeem the legal tenders in gold coin. This obligation is based upon the words on the face of the legal tenders — *'The United States will pay to the bearer" or ** promise to pay to the bearer" the number of dollars designated . These phrases are stigmatized as Government lies, as ** dishonored promises," *' promises issued with a deliberate intention to break them" — 'Hhat they are not money, but lies." These epithets are applied to our na- tional currency by a moral light and guide in the land, one endowed with divine erudition — the head of the Divinity School in one of the most influential and venerable institu- tions of learning — one who, in the exercise of his exalted sentiments and refined and elegant taste, speaks of the ma- jority of the members of Congress as "simpletons" — ''or, if not simpletons, then knaves."^ The Church, f too, in some instances, is engaged in denouncing the immorality of our national currency. The resumptionists appear to have exhausted their arguments on the basis of the laws of trade and finance, and also their patience, and now are call- ing to their aid the force of their moral enginery to shock and arouse the conscience of the nation, to induce a course of policy which they apprehend will not be sanctioned by an appeal to its intelligence on the basis of its monetary interests. * See letter of Kev. Dr. Bacon, of Yale, to Hon. W. W. Pbelps, M. C. N. Y. Tribune. + Fast-Day Sermon of Bev. Dr. Bartol. 64 ESSAY ON KESUMPTION There is no denial of the promise, but its present demand is of the nature of a demand for a pound of flesh — the flesh to be taken from the party making the demand. A. has a horse to sell. He ofiers him for ninety dollars in gold, or one hundred dollars in currency. B. purchases the horse, and will pay ninety dollars in gold, if insisted upon, or one hundred dollars in currency. To avoid the inconvenience to B. of converting currency into gold, and to A. of reconverting gold into currency when he comes to exchange his money for commodities, A. accepts — indeed, prefers — currency. A. sees on the face of the currency a *' promise to pay." Now do the equities of Divinity Schools teach that A. has a righteous claim f o^; a hundred dollars in gold ? And if he demands it, is his demand in accordance with Divine equity? Did he not demand and receive ten dollars in currency more than the value of his horse in gold, hecmise the Government was unprepared, or, if you please, refused, or, what is bet- ter, deemed it inexpedient to redeem its currency in gold ? An^i was not the receipt of those ten dollars a waiver of his claim to payment Sm. gold ? And has he a Divine moral right to retain those ten dollars, and to the redemption of his full amount of currency in gold, dollar for dollar? And if Professors of Divinity teach the affirmative of the first of these questions, to whom is applicable the epithets '* simpletons," or, if not simpletons, then '* knaves?" If A has no equitable right to demand a hundred dollars in gold for the currency he received for his horse, then how is the Government under obligation to pay him a hundred dollars in gold for that currency. And is the Government's honor irretrievably lost if it refuses to violate equity to carry out a technical promise ? Does A persist in his demand for gold redemption? The Government replies that it is not prepared, but if A will submit to be taxed one hundred dollars in gold, or will authorize it to obtain a loan in his name of one hundred dollars bearing interest, which he must pay in increased taxation, and a majority of his fellow citizens unite with him in a like demand under like conditions, it will obey their behests, as their humble servant, and that whatever it OJ* SPECIE PAYMENTS. 65 does, must be dond in their name and at their cost, and if a majority of his fellow citizens refuse to join in his demand for gold redemption at such unavoidable costs, are they to be stigmatized as repudiators seeking their country's dis- honor? or as ** simpletons" **or if not simpletons, knaves?" And is A whose avarice seeks to increase the purchasing power of his hundred dollars of currency through resump- tion and increased national taxation, the man to stand upon a pedestal as a model of honesty and honor, while he points the finger of scorn at his fellow citizens as dishonorable lepudiators? The gold to be paid to the people must be furnished by the people, and when the burden has been changed from one shoulder to the other, it will be found to be augmented by the interest on increased interest bearing-national debt. And this obligation or promise being from the people to the people, the people have a moral right to determine what policy they will pursue, so long as they make no invidious distinctions against individuals or classes. * The burdens of taxation would not fall upon individuals in the ratio of the money they held for redemption. There- in would be the greater injustice. Those whose wealth was in the form of currency and currency demands would be immediate, or at least relative, gainers by the policy of re- demption, while their gains would be added to the other burdens of redemption in gold, to be borne by those whose wealth or interests were in other forms; and eventually all classes would suffer by the mal-policy of redemption. The currency valued as an investment. The article in the North American Review ^ Jan., 1874, before referred to, assumes that the value of the currency is not indicated by the gold premium, that is purely acci- dental; that its true value cannot be determined, because it is not known when it will be redeemed; that if the Govern- ment should determine to redeem its currency in gold in 1884, its value might readily be computed by finding the value of a note running ten years to maturity. This hy- pothesis, computing at six per cent., simple interest, gives sixty-two and half per cent, as the value of currency, or a 5 66 ESSAY ON RESUMPTION gold premium of sixty per cent, instead of twelve to fifteen per cent, as at present. Compound interest would make the difference still greater. How can it be sanely assumed that the currency is only worth sixty-two and a half per cent, in gold because the government should postpone redemption ten years, when it can be converted into eighty-eight per cent, of gold, by sim- ply going into the market for that purpose? The hypothesis proceeds upon the assumption that a gov- ernment note is an investment, and not currency: and that its current convertible value depends upon the time of its redemption, and not upon the fact that, nominal commer- cial values are adjusted to the quantity of currency (as stated in the article referred to) and that the price of gold, like that of all other commodities, is adjusted by demand and supply, and regulated to *the currency and the prices of all other commodities, through the gold premium. By converting currency into an investment a part of its Ijalue (as a currency) is destroyed. On the same supposition, if a hundred dollars in gold were locked up as an invest- ment to remain ten years, three eighths of its present value would be destroyed at a computation at simple interest : and this would be but little more absurd than to lock up as an investment, currency convertible into eighty-eight or ninety per cent, of gold, and keep it locked up ten years till the day set for redemption, in order to prove that its present true value is only five eighths of its nominal value. It may be replied on the hypothesis under consideration, that if the date of redemption were set ten years hence, that thereupon currency could not be converted into eighty-eight per cent, of gold — that the gold premium would rise, and the convertibility of currency into gold would sink in the ratio of the discount of a personal note having ten years to run without interest. This reply, like the hypothesis itself, is a groundless assumption. It comes from regarding the currency as a debt of the government, and that its current value depends upon the credit which each recipient extends to the govern- ment's debt, and that it is a forced loan from the people to the government ; and from disregarding the uses and nature of OF SPECIE PAYMENTS. 67 currency as a currency, its power to measure values, to effect exchanges and to settle accounts; and that it has a current value which is at all times convertible into intrinsic value in every desirable form of purchasable commodities or inter- ests, including gold itself, at prices measured in the aggre- gate by its volume, like all other currencies which consum- mate payments, and at respective relative prices as the various commodities and interests are affected relatively by the laws of trade; and by entertaining the idea that nothing is payment that is not a transfer of intrinsic value. I meet the assumption by a counter assertion, based upon the general laws of trade governing currencies and our irre- deemable currency in particular, that were Congress to resolve to not redeem the currency in less than ten years and make no guaranty to redeem it then, that such policy would not affect the gold premium two per cent, unless, perhaps, spasmodically for a week or two, when it would regain its equilibrium. If the currency were a debt of the government to the peo- ple, and a forced loan from the people, the government be- ing only an agency of the people, its debts are their debts, and in reference to the currency they are debtors and cred- itors, and the account is balanced. The currency is neither a debt nor a loan, but an instru- mentality of business, by creating which the government saved to the .people the necessity of issuing four hundred millions of interest-bearing bonds, and was enabled to facilitate the sale of the lessened amount it was necessary to issue. And a saving to the people of the interest on bonds equal to the amount of legal tender currency will continue so long as they use it as a currency. When the legal tenders were first issued it is probable every man who voted for them regarded them as a tempo- rary currency to supply a temporary want, and it was not the intention to issue a permanently irredeemable currency. And it is very probable that it was not the intention to change the basis of the circulating medium; and had it been a non-legal tender, like all former issues of paper money, it could not have changed the basis of the currency, it could not have been the par of values, it could not have 68 ESSAY ON RESUMPTION been kept at par in effecting exchanges or in the settlement . of accounts, but would immediately have sunk to a discount, . and would have been subject to all the vicissitudes of the ; continental currency of the Revolution, but by being made a legal tender that its recipients from the Government, di- rectly or remotely, should be enabled to pass it as they had been forced to receive it, at par in the settlement of ac- counts, it became immediately the basis of all accounts and all values : and the State banks changed the basis o£ their, circulation from gold to legal tender because they were; enabled to redeem their promises in legal tenders instead! of gold. The law of Congress making Government issues, a legal tender, the law of finance placed all accounts,, alii values, and consequently all business on that basis, audi gold was demonetized, and the quantity of gold in a gold' dollar became worth more than a dollar by currency meas- ure of values. When the Government issued the legal tenders it could not redeem them in gold on demand. If it could have done so it would not have made them legal tenders, because every one receiving them would have had! his protection against loss by demanding redemption ini gold. The Government did not promise to pay on denaandl. In lieu of this, and as an equivalent protection, it made its, issues legal tenders. This changed the nature of its, issues; from that of a loan and debt to that of a currency. A loan presupposes the transfer or withholding of active capital from the loanor, to, or by the loanee, and whenever a loan is effected a rate of interest is guaranteed the loanor as a recompense for the loss by the detention of active capi- tdly and when no interest is guaranteed the loss is suffered by a discount in the market value of the debt. This in- heres in the nature of a loan, by the laws of finance and business. The issuance of the currency is not a detention or ab- straction of active capital from the people or from the in- dividuals to whom it is issued. It is itself active capital. It may be said that it draws no interest and yields no profit while it is held in hand. The same is the case with gold coin, or any currency. A hundred dollars in gold will yield rio man a profit so lon^ as he l^eeps it in his pocket; when OF SPECIE PAYMENTS. 69 it is currency, and not a commodity. He can only be prof- ited by it by parting with it. If it becomes interest-bear- ing, and made profitable to hold, it is impaired as a cur- rency, and becomes an investment in the ratio that its interest approaches the ordinary profits of investments. On the hypothesis that the currency is only a non-interest paying debt, and a forced loan from the people, why is it that every man who has an audited certified claim against the Government is desirous to cancel his claim by the re- ceipt of currency payment ? On this' hypothesis he would only have changed the form of his claim ; he would not have received payment. Why so universal a desire to obtain so small a result? It is because the hypothesis is false. When a man holds a valid claim against the Government, he can only convert it into active capital by a discount proportion- ate to the current rate of interest for the time that will prob- ably elapse before the Government will make payment in currency — and when he has converted it, he only receives currency (another form of claim, so called, against the Gov- ernment). He suffers the discount, because he can thereby change his non-active capital (claim) into active capital (cur- rency) — and the purchaser of the claim makes an investment of active capital, and receives the discount as a compensa- tion for the detention of his active capital until the payment of the claim ; when his active capital is restored to him. The conclusion is therefore inevitable, that a loan cannot be made from the people or from individuals to the Govern- ment, without a surrender of active capital ; and therefore the Government does not obtain a loan from the people by furnishing a currency for the people. A non-interest bearing claim against the Government, in the hands of the claimant, is a species of non-active capital. By its payment in currency, and cancelation, it is converted into active capital, and that is payment. The claim is can- celed, the account is closed and balanced, and ultimated and consummated in fact and in law, and that is payment. The non-active capital in the claim has been converted into active capital in the possession and ownership of the claimant, and is convertible at will into every form of in- trinsic value, including gold, and into every desirable form of possession in the civilized world by virtue of its currency 70 ESSAY ON BESUMPTION properties within our own country, and through the laws of trade and commerce elsewhere. And thus the possessor has his payment. And whenever he exchanges his currency for any purchasable article, or for any object whatever, at his option, that is redemption to him. The people who is- sued it to him through their government have kept their faith, and redeemed it. And so long as the legal tenders remain unimpaired as a currency, the promise to pay is not .iil'Obligation on demand. But whenever the Government impairs them as a currency by repealing the legal tender clause, or otherwise, the promise to pay will become an obligation, and will be redeemed in good faith. The good faith of the nation in the event of the impair- ment or extinction of the currency, would be as imperative- ly bound to protect the holders against loss, if the words '* promise to pay" were not on the face of the notes; and any Congress which the American people shall elect will have sense and conscience and interest and consideration enough not to disregard that obligation. The promissory phrases are unnecessary to the legal tenders as a currency, and might be omitted without impairment, as they are omitted from the fractional currency, which no one believes is less protected by the good faith of the government on that account. And irritable and egotistical Doctors of Divinity may rest assured that the honor of the Nation rests not solely upon their shoulders, even if the increase by re- sumption of the purchasing power of their salaries shall be indefinitely postponed. RESUME. I have endeavored to show that "resumption of specie pajonents," does not guarantee steadiness of business, and that it is in no sense a sound financial basis, but on the contrary presupposes ebbs and flows of the currency base from and to our country through the laws of commerce — continual alternations of contraction and expansion of the currency, and rising and falling tides of prices, detrimental to business and business equities, causing us in our com- mercial relations to "buy dear and sell cheap;" and that our OF SPECIE PAYMENTS. 71 irredeemable currency maintained in a constant ratio to the population, is attended with contrary and desirable results, and affords the best guaranty against these evils. And that the gold premium has become the best indicator of the business status and prospect; and that a rising pre- mium indicates increasing business activity, and a falling premium indicates a shrinkage of prices and business obstruction. And that the business indications of the bal- ance of trade, and the rate of foreign exchange under a gol base currency, have been reversed by our irredeemable currency. I have also endeavored to show that the great amount of national, state and municipal bonds and investment securi- ties held by our people at the close of the war, and those since issued, inevitably flow to European markets, from the great amount of accumulating capital seeking investment there at lower rates of interest than are usually obtained in this country; and that the exportation of these securities would have taken place under any system of finance. Under a gold base currency it would have tended to ac- cumulate gold like an excess of any kind of exportation s, which would have served to increase banking capital and enlarge the bank circulation, which would have continued to expand until the exportation of securities would have been checked by exhaustion, and its culmination would have been followed by a panic and business paralysis such as the country has never experienced, not even in 1837. And that under our irredeemable currency, the exporta- tion of these securities has had a depressing effect upon general business — first, and in the greatest measure, by direct competition with our exportable products, and secondly, by facilitating importations, in direct competition with many domestic industries and interests ; but this de- pressing effect has been modified, though far from fully compensated, by the increased prosperity, experienced in those countries from which we have largely imported, and thereby widened the demand and kept up the gold prices for our exports in their markets. That this cause of depres- sion being wholly or nearly exhausted, its exhaustion will bring relief to those great industries and sections that have been deleteriously affected by it. And that the payment of the interest, or the principal at maturity or before, will have 72 ESSAY ON RESUMI>T10N a stimulating and reviving effect upon business, and will be an inconsiderable burden and easily borne under the in- spiration and buoyancy of guaranteed business prosperity. And that instead of our foreign indebtedness and foreign credit being a source of constant anxiety and alarm, causing business perturbations, as they would be under a gold base currency, subject to every monetary contingency and every foreign or international complication, and the friendship or animosity of the leaders of public opinion abroad, under our irredeemable currency we are utterly independent of these considerations, because a diminution of our foreign credit and return of our securities for payment or purchase will be a direct cause of business prosperity and rejoicing; and this gives us a masterly business status in reference to all questions of international diplomacy. And that the dis- tribution of the currency has been peculiarly affected by the cause that has depressed the currency prices of exportable products, adversely to great industries, interests and sec- tions, and that the exhaustion of this cause will restore to those industries, interests and sections a due and adequate share of the common currency. These are the main points I have attempted to elucidate. My comments on the speech of Senator Jones are not so much intended to controvert the tenor of his statements of facts, though he indulges in hyperbole, as to call attention to the fallacies of his reasoning, conclusions and proposi' tions, and to direct attention to the true cause of the finan- cial and commercial phenomena of which he complains, and to show that they are not attributable to our irredeemable currency, and would only be aggravated by resumption. And my comments upon the letter of Kev. Dr. Bacon are intended as a defense, however feeble, against the animadver- sions upon our country's currency, statesmen and national honor of a growing throng who assume superior airs, and who, having exhausted their logic and their patience, avail themselves of the opportunity to issue their reserves of de- traction. Trusting that this brief contribution to the general dis- cussion of the financial problem may not prove altogether valueless, I commend it to the attention and candid consid- eration of my fellow-citizens, fi ^^j^^^^^CTFrT?^ UNIVERSITY