Main currents in American thought An interpretation of American literature from the beginnings to 1920
done, and the stamp of the mint is only a certification of weight
and fineness. There are but two ways, indeed, in which government
can acquire money--through taxation and by borrowing. The “natural
operation of the specie standard” was reckoned one of the fundamental
“laws of trade,” and for government to tamper with it--setting aside
the intrinsic-value principle by the emission of irredeemable paper
money--was to violate the sanctity of contracts, cheat creditors,
increase prices, and disorder business. The law of supply and demand
answered all the needs of money regulation.
This was no more than the application of the current theory of
_laissez faire_ to the problem of currency. But between the Bullion
Report of 1811 and the Parliamentary Bank Act of 1844, English theory
and practice had undergone two important modifications: the vast
development of credit had suggested a free use of banknotes based on
securities other than coin or bullion, and the bimetallic standard had
been superseded by the gold standard. By the terms of the Act of 1844
all banknotes were to be issued against securities and gold and silver
coin and bullion in the bank vaults. The margin of issue was fixed at
fourteen million pounds sterling. The total amount of banknotes thus
“issued on the Credit of such Securities, Coin and Bullion,” might not
be increased, but within the limits set the Bank was free to increase
or decrease issues at will. The Act further provided that “whereas
it is necessary to limit the Amount of Silver Bullion on which it
shall be lawful ... to issue Bank of England notes,” it should “not
be lawful for the Bank of England to retain in ... said Bank at any
time an Amount of Silver Bullion exceeding One Fourth Part of the Gold
Coin and Bullion.”...[735] That gold should eventually have thrust
silver aside was natural. In addition to its convenience as a commodity
for international shipment, it was less in quantity, not widely
dispersed or popularly held, and therefore more easily controlled
by the money-brokers. With the function of government restricted to
coining such gold as came to the mint, the whole business of currency
emissions, with the attendant power of inflation and deflation of
credit, would lie in the hands of the bankers who became the custodians
of the national monetary system.
During the bitter discussions of currency policies that followed the
dislocations of the Civil War, the two most authoritative spokesmen in
America on the subject were Senator John Sherman of Ohio, for years
Chairman of the Senate Committee on Finance, and David A. Wells,
statistician, special Commissioner of the Revenue Bureau, and a scholar
deservedly distinguished as an economist. In their views on the
currency question both were followers of the classical English school.
In two speeches in the Senate, of January 27, 1869, and January 24,
1870, the former stated his position definitely. “Let us,” he said,
“recognize as an axiom that nothing but coin is real money before we
undertake to deal with the currency”; and in another place, narrowing
his definition in terms of the English Bank Act, he asserted, “We must
... recognize the immutable law of currency; and that is, there is but
one true standard, and that standard is gold.”[736] The weakness of
paper money, he believed, was its instability; the ratio of exchange
with gold fluctuates too greatly to make it a safe or convenient medium
of business. “Last year the fluctuation in paper money amounted to
forty-five per cent. Gold, however, remained as stable as the eternal
hills, because it was not only the product of labor, but it was labor
and value itself.”[737] One may make of such an assertion what one
will, but it is clear that John Sherman thought ill of the greenbacks,
and wanted substituted for them a system of banknotes.
It is impossible [he argued] to give a currency issued by
a Government the flexibility to meet the movement of the
exchanges.... It must have a flexibility which will enable it to be
increased in certain periods of the year, and to flow back again
into the vaults of the bank at others. I am convinced ... that in
time it will be wise to retire our United States notes and all
forms of Government circulation, and depend upon notes issued by
private corporations.[738]
Brief as these passages are, they suffice to make clear Sherman’s
position. He accepted without question the English theory and practice,
and he wished to shape American legislation in conformity with them.
The experience of the Civil War, and--shall we add--his intimate
connections with Wall Street,[739] had confirmed him in his preference
for a _laissez-faire_ policy in currency matters. He would establish
the gold standard, encourage the issue of banknotes, and turn over the
custodianship of the national currency to private interests.
The position of David A. Wells was essentially similar. Wells wrote
much and skillfully and he seems to have been the chief authority on
whom such intellectuals as Godkin and Dana relied for materials for
their editorials on the currency question. Indirectly, therefore,
through the medium of editors and newspaper writers his opinions came
to have wide influence. During the discussion of resumption of specie
payments in the seventies his pen was particularly active. Amongst
other things he then wrote _The Cremation Theory of Specie Resumption_,
in which he advocated a policy of progressive contraction by the
expedient of burning annually a fixed sum in greenbacks; _Robinson
Crusoe’s Money_, an exposition of the bullion theory of money for
popular reading, illustrated by Nast and containing some witty thrusts
at such well-known expansionists as Ben Butler, Wendell Phillips, Henry
C. Carey, and Senator O. P. Morton; _Contraction_, in which he defended
the thesis, “He who is not in favor of contracting the currency is
not in favor of paying it, and he who is not in favor of paying it
is a repudiator”; and certain other papers later gathered into his
_Practical Economics_ (1885).
Wells was an uncompromising bullionist and his theory of money is as
simple as the doctrine of _laissez faire_ on which it rests. Honest
money represents labor and therefore possesses intrinsic value. The
experience of the ages has demonstrated that of all commodities gold
and silver are the most convenient for the purpose and in consequence
they have come to be accepted universally as real money. Every dollar’s
worth of gold represents a dollar’s worth of labor, always and
everywhere, measured by the test of the world’s needs. It is foolish
for politicians and theorists to worry their poor heads over the supply
of money, or attempt to predetermine the quantity best suited to the
needs of business. The amount of money in circulation will always be
regulated by the law of supply and demand. There is limitless gold
locked up in the treasure-house of nature, and just so much is unlocked
by human labor as the immediate needs of the world require. Gold can
neither be inflated nor deflated, for, “There is one and the same law
governing alike the supply of gold and of wheelbarrows. They are both
tools or commodities, and the country will have and use all of either
that it can use profitably.”[740] Let government keep its hands off
and money will regulate itself. “The value of the gold dollar is fixed
and cannot be altered. The value of the paper dollar is constantly
fluctuating.”[741] That business conditions would be seriously affected
by the withdrawal of the greenbacks, or that injustice would be done
to debtors, Wells refused to believe. When the poison is withdrawn
from the system a state of health reëstablishes itself. “I also count
as an absurdity the idea that the business of the country is likely
to be unfavorably affected by a deficiency of currency consequent
upon contraction in the manner proposed.”[742] The gold to take its
place would be provided automatically by the infallible law of supply
and demand. Thus triply armed with the logic of economic theory Wells
pronounced for deflation, immediate and drastic:
I desire the federal government to get out of and abandon forever
and as soon as possible this whole business of creating and issuing
paper money, be it redeemable or irredeemable, for I believe as
long as the federal government continues to recognize anything as
money except hard matter-of-fact “labor representing” gold and
silver, just so long the country will not have [a] stable and
unfluctuating currency....[743]
Such neat logic was out of date on the day that Wells penned it.
The needs of business had outgrown the bullion theory of money and
credit was taking the place of a metallic currency. The fiction of a
gold standard would be adhered to till another seismic dislocation
proved its utter inadequacy to a world in confusion and it would be
unofficially abandoned. Yet it was such logic that prevailed in America
in post-war days, bringing acute distress upon the country as a whole
and particular hardship to the Middle Border; and it prevailed because
the banking interests followed a selfish and narrow policy marked out
for them by the English theory and practice.
The financing of the war had been wasteful and slovenly beyond all
precedent, and it had been fiercely criticized by the agrarians. It was
a system, said the militant Greenbacker, Thaddeus Stevens, the like
of which “no human folly had ever before witnessed.”[744] When the
war was over and the reorganization of the public finances was up for
settlement, the bankers were shrewd enough to make the confusion serve
their interests. Their great objective was to get back once more the
control of the national credit that the war had taken from them. The
National Bank Act of 1863--foolishly opposed by shortsighted state-bank
advocates who were jealous of local rights--had been the first great
step. By the provisions of the act the national banks were permitted to
issue currency on the security of government bonds, in such quantities
as they chose, on highly favorable terms, and the result was to drive
out of circulation the wild-cat issues of state banks. But the crux of
the problem was the question of the greenbacks that the necessities of
the war had forced upon the government. The greenbacks were reckoned
political money, the control of issues of which lay wholly with
Congress. At any moment, responding to popular demand, Congress might
deflate the bankers by the emission of new bills. At the time of first
issue the financial interests had succeeded in vitiating the greenbacks
by writing into the bill a repudiation of the issue by the government
itself, and no sooner was the war over than they set about the business
of retiring them. Their objective was the same end that English bankers
had reached in 1844.
In the reorganization three broad policies were insisted upon by the
banking interests: the speedy retirement of the greenbacks, in order
to take government out of the credit market, the refunding of all
debts on a gold basis, and an immediate return to specie payments. The
result was a drastic policy of deflation that brought further turmoil
to the country. In ten years the money in circulation was reduced
from somewhat over $2,100,000,000 to a little over a billion, or from
fifty-eight dollars per capita in 1865 to seventeen dollars per capita
in 1876.[745] The inevitable results followed, a swift appreciation in
the value of the dollar and the automatic increase in the debt of the
country, both public and private, with the fall of commodity prices.
Within a decade, measured in commodity values, the liabilities of the
American people were nearly doubled by the simple device of changing