f -ST ''MA MEASURE OF VALUE ESTABLISHED BY LAW, SHOULD BE USED AS CURRENCY, RATHKK THAN BANK PROMISES. By HON. JOHN NESMITH. LOWELL : STOXK A HUSK, I'IMNTKKS. VOX POPULI OFFICE, 21 CENTRAL STREET. 1868. EEASOKS MEASURE OF VALUE ESTABLISHED BY LAW, SHOULD BE USED AS CURRENCY, RATHER THAN BANK PROMISES. BY HON. JOHN N E S M I T H LOWELL : STONE & HUSE, PRINTERS, VOX POPULI OFFICE, 21 CENTRAL STREET. 1868. THE STANDARD OF VALUE. The requirements of trade and commerce have com- pelled all governments to fix certain legal standards of weight, measurement, &c. ; such as a pound, a gallon, a yard. The same requirements have compelled the estab- lishment of standards of value to be used as currency, as a franc, a shilling, a dollar, &c. These standards are all fixed by law ; the pound for the weighing of articles, the yard for ascertaining length and breadth, the gallon for the measure- ment of liquids, and the dollar for the measurement of value. It is ot no consequence of what materials the standards are made, provided their measurement always re- mains the same. Who cares whether his sugar is weighed by brass or iron ? or his molasses measured in copper or tin? And every one is equally indifferent what he receives as a measure of value, so long as the law compels every- body else to receive the same measure from himself, either in payment of any debt he may owe, or for any purchase he may make. All these standards of weight, value, &c., may be properly considered the tools and implements of trade, no more, no less. To legislate that all these tools and imple- ments of trade should be made of gold, would be much such wisdom as to enact a law requiring all farming tools to be manufactured of gold. To take one of these tools of trade, say the measure of value, and compel it to be made ,of gold is little more wise than to compel every plough 2OO3550 to be of gold. Of all the standards created by law for the convenience of trade, no one is more necessary and more important than the measure of value. Its use is required in the purchase and sale of all property, and no transfer of property takes place without the employment of it, or that of some substitute for it. This substitute is ordinarily some obligation to pay in the legal measure of value, at some future time; hence, when currency is scarce, credits are used in its place. Of all the measures of value that have been used, no one has been found to be so convenient as engraved paper currencj'. The business of no trading community is, can, or will be carried on without paper money. If government does not furnish it, the demand will be supplied by the existing banks or bankers ; and their promises to pay will be received and paid as money, thus giving the community as their actual currency promises to pay, instead of the real standards of value fixed by law. If the banks or bankers furnish the currency used, their customers must pay the interest on it. If the govern- ment furnish it, the country is saved from taxation to an extent equal to the interest on the amount of currency in use. The savings from this source alone, if annually in- vested in our national securities as a sinking fund, would pay off our entire indebtedness much sooner than many persons believe this desirable result attainable. Under our Republican government, why should this enormous amount be given to the few and taken from the many ? In Eu- rope, where laws have ever been made by the few. and generally shaped to promote the interest of that few, such legislation may be expected. The power to issue a paper currency must be used, and it is probably safe to say it must be used either by the banks, or directly by the officers of the government acting under the authority of laws passed by the concurrence of both branches of Congress, and the President. Will it not be as safe to trust this power to Congress, where all changes in the amount of the currency must be discussed before the whole country, and where they will be subject to the separate action of the three branches of government before they can be effected, as it will be to entrust it to the directors of fourteen hundred banks, looking only to their own private interests, and having no care for the public welfare, and of whose decisions the public know nothing ? When the volume of the currency is regulated by Congress, all the proceedings are public, and every- body is advised when and to what extent it is to be in- creased or diminished, and every one can govern himself accordingly. Every one who remembers with what anx- iety the fluctuation of the London money market was watched, before paper became a legal tender, lest gold, the basis of our currency, should be taken abroad, and a pres- sure of the money market produced in consequence, can testify to the advantages of having some legal standard of value established as currency which would not be liable to disturbance by every shipment of gold. A currency regulated by the ebb and flow of gold into and from the country, must, of necessity, be constantly fluctuating. Every shipment or arrival of gold is watched with intense interest by all who are dependent on bank discounts. All will agree that stability of price is one of the most important things to a business community, and that this is only to be obtained by the use of a currency which does not fluctuate, but continues the same in amount from year to year. Such a currency would pass quickly from hand to hand when business was brisk, and more slowly when it was dull, thus supplying the necessary wants of the community without changing the amount in use. The advantages of such a currency were clearly shown during the late war at the time when the embarrassments of the London money market caused the shipment of forty mil- lions of gold in the short space of about twenty days. This extraordinary demand was met without in the least disturbing the business of this country. What would have been the consequences of such a call if our actual circula- tion had been composed of bank promises to pay in gold ? Clearly one of two things must have taken place ; either the banks must have refused all accommodation to their customers, and caused the failure of many requiring loans, or they must have refused to pay their bills in gold. Usually both of these things would happen in such cases. First the banks, from a desire to pass the crisis without stopping specie payments, would refuse loans, and would continue this course long enough to create a panic. When this took place there would be a rush upon the banks for specie by depositors and bill holders. Under such circum- stances the banks have always been obliged to decline paying their promises in gold, arid their action has ever met the approval of the public. Much of the confusion in the public mind on this subject arises from a misconception of the nature and functions of a paper standard of value established by laws as a legal tender. Grave and learned senators, as well as writers for the daily press, make the mistake that it is simply a promise to pay. Nothing can be more erroneous than this opinion. It would perform all the work required of it equally well if the paper used as the legal tender had on it only the vignettes necessary to prevent counterfeiting, and the words and figures needed to denote its value. The legal tender is not taken or received with the wish or expectation of its being converted into gold or bonds, but it is taken and received because everything offered for sale can be bought with it, and because every debt must be paid by it. On this fallacy, namely : the necessity of a convertible currency, rest many of the arguments against a paper legal standard of value ; and this being purely an assumption, having no foundation in fact, it follows of course that all arguments resting on it must be considered as worthless. Another assumption of the same character often made, is that our currency, or measure of value, must be fixed of the same material used in other countries, because this course will facilitate the payment of balances arising in our commerce with other countries. In answer to this I think it may be safely said that our currency as currency, never has been ami never will be used for such payments. When a balance against this country arises in the course of trade, it must be paid in some commodity of real value, and not in one to which we have affixed by law an artificial value, as we have to our currency, whether it be composed of metal or paper. When our coin is taken abroad it does ss into the circulation of the countries to which it is taken until it is re-coined, consequently it has no greater value than ingots. For the payment of balances arising against this country, merchants ship cotton, wheat, or other produce of our soil, because they think their chance of profit greater than their risk of loss. Bankers and others not willing to take any chance of loss, ship gold, since it has a value fixed on it in other countries by law; this value they know before shipment, and buy it as a commodity, whether it be in coin or ingots, regulating the price paid by its legal value in the country to which it is shipped. This has always been the case, but it has been more apparent since paper has been a legal tender. That all balances arising in the course of trade between this and other countries, must be paid in real values, and not in our own currency, to which we have affixed by law an arbitrary worth must be beyond a doubt. In this connection it may be well to consider how far it is for the interest of this country to legislate in such a manner as to make it a certainty, that every shipment and every importation of gold must effect the quantity of currency in use. All must allow that the prices of commodities are governed by the amount of currency that is in circulation where it is used, and that the effect on prices is the same whatever material is employed as currency. Of course the increase or diminution of bank promises affect prices in the same way that legal tenders do. If both circulate to- gether it is the total amount of both that constitutes the currency. If the aggregate is increased, prices will ad- vance; if diminished, they will fall. Taking out of circu- lation the entire amount of legal tenders, and filling their 9 places with bank promises, will not change prices in the least so long as the amount of circulation remains the same. Every one will admit the advantages of having a currency not subject to fluctuation in the amount in use, by the payment of balances arising against this country. But we are so wedded to old modes and opinions that many will think it impossible to create such an one. But why should they think so ? Even admitting that we must have as a standard of value something of intrinsic worth, would it not be better to take some metal not made a legal tender by other countries, than to take gold, the only article the value of which is fixed by law in foreign countries, and sure to be first taken from us because its value is so fixed ? Were our legal standard of any metal, the worth of which is not legally fixed abroad, there would be no more inducement to export it in payment of any balances against the country, than there would be to export any other article. But if gold is made the standard it is sure to be the first article sent abroad, and the derangement of the paper currency founded on it must follow of course. All this derangement could be avoided by taking some other material for the legal standard. One of the most important qualities of a legal measure of value should be its unchangeallcness. When a metal of any kind is taken as a standard, that standard will always have two values, the legal one, and the value that it possesses as a metal useful in the arts. The paper standard of value is not subject to such an objection ; as it has no value but what has been given to it by the law, it can ujbe used for any other purpose than that of currency ; 10 and it will never be sent abroad because it will be of no worth if sent. It must always be an evil to a country to have its currency sent abroad instead of its productions ; and this evil is greatly increased when the actual currency of the country is paper issued by banks promising to pay in the metal standard. The shipment of every metal dollar causes a reduction of the actual circulation to at least four times that amount, thus causing a constant fluc- tuation in the worth of property, according to the ebb and flow of the metal which we have been so unwise as to make our standard of value. In discussing this question it must always be kept in mind, that whatever may be fixed upon as the legal stand- ard of value, or legal tender, the actual currency used by the people in all their transactions will be paper. If gold is fixed upon as the legal tender, the currency will be bank promises to pay gold. If paper issued by Government is made the legal tender, and the quantity issued is sufficient for the purpose, then the reality, and not the promise to pay it, will be employed in the business transactions of the country, and the failure of men or banks will be of no consequence to the holder of the currency. Past experience has shown that repealing the law, making greenbacks a legal tender, would not increase the use of gold in the business transactions of the country. In the place of greenbacks we should have bank notes ; and the amount of these in circulation would always very much exceed the amount of gold in the banks. A 000019086 8