The Natural Law of Money
THERE is no reason to doubt that it was the intention of the framers of the Constitution to withhold from Congress the power of making paper-money a legal tender; but in order to appreciate properly their attitude on this point, we must try to look upon money through their eyes. They had not the remotest idea that their country had entered upon a stage of civilization that made the use of paper-money imperative; it was therefore not with any thought of supplying the people with a paper-currency that the question was discussed in the convention that framed the Federal Constitution. It was the borrowing clause of the Constitution that elicited debate; there was but little difference of opinion as to the adjustment of the money clauses; the coinage and the general regulation of money were reserved to Congress, and the States were prohibited from making anything but gold and silver a tender in payment of debts.
In the opinion of the Fathers of the Republic coin was the only money that the people needed; paper was but an incident, a make-shift that might be used to bridge over periods of scarcity of coin; it was in no sense regarded as a permanent medium of exchange. It was chiefly as a ready means of raising funds for the State in emergencies that the question of paper-money was discussed by the members of the Convention, and we must look at it from their standpoint if we would understand their action. They doubtless considered it the duty of government to supply the money and to regulate its value; had a paper circulation been contemplated, discussion upon this point, followed by the embodiment in the Constitution of specific rules for its regulation, would have been inevitable. What they discussed was paper-money as a fiscal expedient; they had already had experience of paper-money, and they were not only greatly impressed by the injustice it wrought to individuals, but had also become convinced that it closed more avenues of financial resource than it opened.
Upon these grounds alone, they withheld from Congress the right to issue paper-money, for it was that right that was stricken from the Constitution,—paper-money as they understood it, not as we understand it. To them "bills of credit" and "paper-money" were synonymous terms which represented what is known to us as non-convertible legal-tender paper, and the mandatory character of this money was so identified in the public mind with these terms that it was not considered safe to let the harmless word bills stand, lest it might suggest and lead to an issuance of such money. Madison's suggestion that it might be "sufficient to prohibit the making the bills a tender" received no support; another member declared he "had rather reject the whole plan [of the Constitution] than to retain the three words and emit bills." The exercise of the mandatory power was deemed necessary to regulate the value of the money, whether paper or metallic; this was the political doctrine of that age, accepted by every government in Europe. The opposition to the striking out of the words "and emit bills," which gave rise to the debate in the Convention, proceeded from a reluctance to deprive the new government of the exercise of a power which was recognized by all as a legitimate attribute of sovereignty; as it was expressed by Mr. Randolph, notwithstanding his antipathy to paper-money, he "could not agree to strike out the words, as he could not foresee all the occasions that might arise" for the exercise of that power. Antipathy to paper-money was the controlling sentiment of the Convention, moved as the members were by the injustice it had wrought; if they had seen that its legal-tender quality was the poison that produced these evil effects, it is likely that Mr. Madison's proposition to retain the word bills, but prohibit the making them a tender, would have met with approval. In view of the fact that in their day the right of a state to issue mandatory paper-money was not questioned, no act of the Fathers of the Republic marks more decisively their high standard of political virtue than the with-holding from Congress the right to issue such money.
The erroneous belief that it is a duty of the State to regulate the value of money is the parent of all the vicious monetary legislation in the world; born of an old superstition that a mysterious power of sovereignty imparted to coin an added value, it has obstructed the growth of money at every stage of advancement. In the effort to construct a single money-standard from two independent money-metals, the law of natural displacement is ignored, and the failure to produce the result aimed at, leads logically to the expulsion of one metal from monetary use, and thus disturbs in both the element of stability which is so essential. Bi-metallism, mono-metallism, fiat money, and the notion that the supplying of money is a function of government, are all the logical outcome of the false premise that the State can impart value to money. That this delusive doctrine should have been accepted in an age when it was believed that the king's touch would cure disease, is not remarkable; but that it should have a host of supporters in this age of steam, of electricity, and of practical common-sense, is strange indeed. Why we of the United States, who deny that divinity doth hedge a king, and who aim to restore sovereignty to its true source—the people,—should still cherish this worn shred of monarchical prerogative which has no possible application of usefulness, is difficult to explain.
No government has ever yet succeeded in holding silver and gold at any fixed ratio of value; the efforts made to accomplish this object have only tended to disturb natural relative values, to impair the efficiency of money, and to retard industrial progress. A fiat monetary law, whether applied to the metals or to paper, is not in harmony with the genius of our government, but belongs to the past, when government was rule. "The laws of a country ought to be the standard of equity, and calculated to impress on the minds of the people the moral as well as the legal obligation of political justice. But tender-laws of any kind operate to destroy morality and to dissolve by the pretence of law what ought to be the principle of law to support—reciprocal justice between man and man."*10 There is no more use for a special law to compel the receiving of money than there is for one to compel the receiving of wheat or of cotton. The common law is as adequate for the enforcement of contracts in the one case as in the other; nor from the transactions of trade and commerce can one be cited where a legal-tender law is of the least utility. It holds its place simply from habit and custom—a custom that would be more honored in the breach than the observance.
It must be admitted that, at first sight, the idea of having one monetary standard rather than two is beguiling, but a little consideration will show that this idea proceeds directly from the monarchical conception of government, which is paternal, and which assumes that the people are not quite competent to manage their own affairs. It overlooks natural differences in money and ignores a fundamental law which requires that, for efficient service, money must be acceptable to the people using it, and adaptable to their occupations. If we would understand the nature of money, we must get rid of the idea that mysterious complexities are inherent in it; we must realize that it is but an implement of exchange, and no more sacred than the pound weight or the bushel measure. These complexities have so long obscured the real nature and function of money that they have come to be regarded by not a few as principles, whereas they are only obstructions to the progress of natural law. What is the Gresham law but a protest against artificial obstruction? If there had been no bi-metallism we should never have heard of a Gresham law; if there had been no legal-tender enactment we should never have heard either of bi-metallism or mono-metallism, and when the delusive idea of regulating the value of money by legal enactment shall be dismissed, we shall have heard the last of legal tender.
Free-metallism is, therefore, what is needed. Our money must be free before it can yield to the nation its highest measure of productiveness. If the State of Colorado wants silver money, it is to the interest of the other States that she should have it. If the South could have the free silver she desires, her industries would doubtless greatly profit thereby. It is through individual selection, individual enterprise and competition, that we, as a people, now excel in industrial appliances, and it is only by these means that we shall ever excel in money. Industrial implements vary, and individual opinions may differ as to their respective merits, but the final test of each implement is its adaptability for productiveness, and the necessity to secure the best is constantly felt by the industrial producer. The negro has signified his preference for silver dollars over paper or gold money, and we may be sure his industry will be stimulated by letting him have the money of his choice. Silver is the choice of a partially civilized race, which is shown also by the Berbers of Algeria, who, in exchanging at Algiers notes of the Bank of France, receive and carry to their homes in the interior the greatly depreciated silver in preference to the more portable gold. To these people bulk is a desideratum; therefore, silver is the money of their choice and satisfies their sense of security, which is always essential to the efficiency of money. Individual preferences, however mistaken, are not crimes to be punished nor vices to be prohibited by coercive legislation. They stimulate enterprise, and whatever errors of judgment they may contain, time and experience will correct. With free scope and the incentive of profit, the monetary movement must be forward; it cannot be otherwise.
If we will look at the silver question from the standpoint of the natural law of money, we shall find that it is a mere struggle as to whether silver or gold shall be the monetary standard of the nation. Professedly both parties advocate bi-metallism, but bi-metallism is an impossibility; it assumes that the two metals can be retained in circulation and held at a parity by the mandatory authority of the state, which, as we have seen, cannot be done. In order to hold them at a parity, the cheaper metal must be redeemable in the other; the standard is thus practically reduced to one metal.
Now, as under bi-metallism one metal must be redeemable by the other to hold them at a parity, of what possible monetary service is the metal that has to be redeemed? It is no longer money; it is capital. Paper is much cheaper, and is preferable to the displaced metal, for it better fulfils the functions of money. It cannot be said that the silver held by our government serves to maintain the credit of the government's paper money; indeed it is the fear that the paper may be redeemed in silver that has shaken the public confidence in it. Yielding no service, the silver is worse than useless where it is; for it is capital taken from the people, and thereby withheld from productive industry.
As bi-metallism is impossible, and as redeeming one metal with the other is a waste of capital, there remain but two courses to be considered: first, the adoption of one money-metal to the exclusion of the other, that is, mono-metallism; and second, the repeal of all legal-tender laws, so that both metals may circulate independently. This latter is the only way in which the two metals can be brought into efficient monetary service at the same time in one country. But, it may be asked, would not this leave other commodities as well as silver and gold free to come into monetary use? It certainly would, but their use would be governed by the law of displacement, which admits a new money only on condition that it is more efficient than that already in use. Under this natural law, it is no more necessary for a government to prescribe the kind of money that shall be used, than it is to prescribe to the house-keeper the use of the lucifer match in place of the flint and tinder-box, or to the railroad man the use of steel rails in place of iron, or to the farmer the use of the plowshare in place of the forked stick.
By a law superior to any that man can formulate, it has been a condition of industrial civilization that no advance is possible without a medium of exchange, and this condition applies to man individually, not to man in mass, for it is the individual alone who is competent to supply this medium. A proposition made recently in the Senate of the United States that aluminium shall be made a money-metal by act of Congress, indicates the prevalence among our people of an unquestioning belief in the supernatural power of legislation. The idea is simply utopian, for it is not in the power of Congress to legislate any metal, except as token-money, into general monetary use. A new metal may be used locally as money; but it can come into general circulation only through the same slow process of natural selection that has made silver and gold the only money-metals of the civilized world; it must establish its superior fitness over one or both of these metals, and it must have a larger open market than they have, in order to excel in stability, which is an indispensable qualification of a money-metal. Unless a new metal can stand these tests, it will not receive that individual approval that will bring it into general circulation, and even though it has all the essentials of a superior money-metal, its establishment must necessarily be of slow growth.
Hence the law of natural displacement is a sufficient bar to useless monetary innovation, and there is no need for making a money-metal legal tender; if it has superior fitness, it will circulate, and ought to circulate; if it has not, the legislation that would force it into circulation can only act as an obstruction to the introduction of better money.
The movement for silver, which seems to be favored by a majority of the people of the United States, is unquestionably based upon an honest conviction that the efficiency of our money would be enhanced by making that metal the standard of values. As, however, even under bi-metallism there is really but one standard, it is impossible to put this theory to a practical test except by expelling gold from the circulation; we have therefore no choice under bi-metallic ruling but to accept one metal or the other, or repeal all legal-tender legislation and let both metals circulate independently. With such freedom the two metals would have an even chance of proving, through individual selection, their monetary qualifications, and there is not much doubt as to what would then take place—silver would supply the needs of trade and gold the needs of commerce; the more primitive industrial localities would select silver, while the more advanced would retain gold. Speaking generally, the drift of silver would be towards the industrial West and South, and the drift of gold towards the commercial East. But whatever the movement of the metals might be, we may be quite sure that each would find for itself the employment to which it is best adapted.
So long as bi-metallism is in force, gold must continue to be the sole monetary standard of the United States, for the simple but sufficient reason that it is incompatible with the genius of the American people to work with inferior implements, and that for this nation silver is, of the two metals, the inferior monetary implement. In this age of refinement of commercial methods, even gold is found to be cumbersome, and every expedient that banker and merchant can devise is adopted to avoid the necessity of handling it. How foolish it is then to suppose that a money twenty-seven times heavier can, by legislative enactment, be made to displace that which has been the nation's standard for fifty-nine years! When the natural law of progression shall be inverted, when men shall seek to increase their burdens and to carry twenty-seven pounds to accomplish a purpose that one pound will serve, such legislation may be made effective, but not till then. Such a law might be passed and be made operative for a time, but trade customs would soon prove themselves more powerful than legislative enactments. It is only by studying something of the industrial forces that are at work impelling civilization forward that we can be brought to comprehend the profounder meanings of the Silver movement, than which no great popular uprising has ever been more unfortunate in its leadership.
We believe it to be a fair presumption that before the passage of the Sherman Act in 1890, a majority of the people of the United States had accepted the fundamental doctrine of the Silverite leaders that "there is not gold enough in the world to supply the money need," and that there had been still more general acceptance of the idea that silver, being a native product, should be made our monetary standard. Why then has not this idea been put into practice? Obviously because the leaders of the movement have lost the moral warrant of their leadership. If the two metals had retained a marketable ratio of sixteen to one, the experiment of a silver monetary standard might have been made with the very general consent of the people; but as, when the relative value of the two metals changed, the leaders made no effort to prevent injustice to individuals through the change from the gold to a silver standard, their support naturally fell away from them. In changing the standard it was the duty of these leaders to see that money issued at a gold valuation should be redeemed at a gold valuation; their claim that the change in relative value had been produced by an advance in gold rather than by a decline in silver, even if well-founded, did not lessen this obligation, nor were they relieved from it by their further claim, inconsistent with the first, that free coinage would restore silver to the standard ratio of sixteen to one of gold.
Of course it is assumed that these leaders understood that the forcible injectment of silver into the currency would ultimately expel gold from the circulation. This monetary law is so firmly established, and is so generally understood and accepted, that it is incredible they would seek shelter from responsibility on the plea of ignorance of its workings. If, on the other hand, their design was to retain both metals in circulation, as some at least of them have professed, then their duty was to have the government definitely and specifically committed to hold the two metals at a parity by making the coins interchangeable, not at the option of the Secretary of the Treasury, but at the option of the holder. To arbitrarily redeem gold money in anything but gold, is repudiation.
A silver monetary standard would place the nation under some disadvantages; by depriving the higher departments of industry of the more effective implement, the productive powers of the whole people would to some extent be disabled; but if the change from gold to silver were made, as it might be, without entailing injustice upon individuals, no discredit could attach to the nation. Capital would not then have occasion to seek, in other parts of the world, the protection it is entitled to here: it is not an objection to silver money that is frightening capital away, but the anticipation that loss of capital will result from the change of standard. While it is true that the kind of money used by a nation indicates, as its other industrial implements do, the stage of civilization it has reached, nobody would hesitate to trade with us because of our silver money, any more than they would if our plows were forked sticks. Silver is as definite and as comprehensible a money as gold; its cumbersomeness and instability would be our burden, and not that of those who traded with us. Estimated by the economic intelligence of our age, our movement would be retrogressive; but having shown a sensitive respect for the rights of individuals, that general sense of security which is indispensable to industrial prosperity, instead of being weakened by the change, could not fail to be strengthened by the manifestation of a determined disposition to be honest in the making of it. Under such conditions we should doubtless, as a nation, prosper with a silver currency; nor would it be a backward step from a position of uncertainty as to which metal is to be the standard; but as compared to having a fixed gold standard, the adoption of a silver standard would be a backward step. This being the tendency of the Silver movement under its present leadership, the question naturally arises, why should a rich and resourceful nation like ours, at peace with the whole world and foremost in industrial appliances, voluntarily lower its monetary standard to the level of that of Russia and Mexico?
The argument of the leaders, that our monetary embarrassments proceed from a scarcity of gold, doubtless represents fairly the honest conviction of the great body of the supporters of the movement. We fail to understand this movement if we suppose that it proceeds merely from a desire to protect the silver-mining industry; or that it has for its object the relief, by a dishonest settlement, of the farmer's mortgage indebtedness; nor do we realize the character of the movement if we imagine it settled by the repeal of the purchase clause of the Sherman Act. That a great popular agitation should have endured for fifteen years, gathering supporters from the two regularly organized national parties, and threatening the disruption of both, proves it the possessor of at least two of the elements of political vitality that give birth to parties:—a grievance to redress that is national in character, and the coherent principle of honesty. Without these two elements a movement of such magnitude would be impossible; it doubtless has also some elements of sordid selfishness—what popular movement has not? It may even have individuals in the ranks of leadership who, for personal gain, would not hesitate to betray their country into the commission of a crime; but that the rank and file of the movement, including a majority of the leaders, are working for what they believe are the best interests of the nation, it is no concession to admit, for it is a logical sequence.
Acknowledging then the honest intent of the Silver movement, we shall be better able to appreciate its earnestness and force if we will look at the subject from the Silverites' standpoint, though we cannot agree with them that there is not gold enough in the world for monetary requirements, and that, in consequence of the supposed scarcity, a gold standard gives to the East a monopolistic power over the West and South; nor, that it is because of this supposed advantage that the moneyed interest of the East is contesting for the gold standard. But to reject the views of the Silver party, does not prevent our perceiving that it has more sincerity in its composition than either of the two national parties; while it has pressed its claims with persistent courage, both the Democratic and the Republican party have evaded the issue until the country has been brought into such distress that compromise or postponement of action is no longer possible.
It must be acknowledged that the South and West have been overtaxed by monopolistic money; but this chiefly because it is government money. It is undoubtedly a disadvantage to be forced to use gold in a locality where silver is more adaptable, and vice versa; yet no special advantage can accrue to either locality from compelling the other to adopt its money. As all sections of our country are interdependent, the prosperity of one contributes in some measure to the prosperity of all; hence money found to be most effective in a given locality is the money that should be used there, and it is also the money that will be used if not arbitrarily interfered with. With freedom there can be no monopolistic money.
None of the Silverite leaders has attempted to state specifically in what way the country would be benefited by the change advocated; in undertaking so serious a work as the adoption of a new monetary standard, these leaders should substantiate their claim that gold is monopolistic money and that silver is not, and should also clearly define what other monetary advantages they believe to belong to silver. If instead of a change in the standard of values they had proposed a change in the standard of lineal measurement,—as for example to shorten the yard-stick to twenty inches,—they would have felt under obligation to state their reasons for wanting the change, and to state them in terms that ordinarily intelligent people could understand. They are doubtless sensible of the fact that before they could succeed in changing the yard measure, they would have to show that a yard-stick of thirty-six inches is not adapted to the arm's reach, and that one of twenty inches would facilitate the measurement of cloths, and thus save time and labor. Why then have they not clearly demonstrated how time and labor could be economized and productiveness increased by a change in the monetary standard,—for that is the essence of the whole question? If they had attempted to show this, they would have found that one is no more susceptible of demonstration than the other, yet both questions are equally susceptible of practical, common-sense treatment. If gold money is monopolistic, there should be no trouble in showing specifically why it is so, for money of any kind is not a mystery; it is as much a tangible, every-day, working implement as the yard-stick.
The truth is that in the popular discussion of the Silver question, money and capital have usually been treated as one and the same thing, and the mystical idea of money has so obscured the general perception as to prevent the application of the commonest rules of logic to the subject. Upon this idea our whole monetary legislation is based, and from it has sprung such a crop of complexities and inconsistencies that it is no wonder people who have not time to make a special study of the subject cannot realize that the natural law of money is very simple. But though our people may be behind in monetary science, they are quick to learn, and now that popular interest is thoroughly awakened in the subject, we may look with confidence for a full solution of the problem. Justice requires that we should not forget that a whole generation of education on this subject was lost to the people of the United States while slavery, and the adjustments growing out of its abolishment, occupied the forum of public debate to the exclusion of all other questions. It was during this period of strife and pressing need of capital that our medium of exchange passed from its natural channels of development into the control of the national government, where it has ever since been held in political bondage.
Notes for this chapter
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