The A B C of Finance
By Simon Newcomb
A part of these “lessons” appeared some time since in
Harper’s Weekly. The unexpected favor with which they were received, by being reprinted, in whole or in part, by newspapers in various sections of the country, has suggested their reproduction in a more permanent form. They are now completed, by the addition of several chapters bearing on the labor questions of the present day.
First Pub. Date
New York: Harper & Brothers
The text of this edition is in the public domain.
- Lesson I. What Society Does for the Laborer
- Lesson II. Capital and Labor
- Lesson III. Starvation Wages
- Lesson IV. One Dollar
- Lesson V. Value Cannot Be Given By Government
- Lesson VI. The Value of Paper Money
- Lesson VII. Why Has the Greenback Any Value
- Lesson VIII. The 3.65-Bond Plan
- Lesson IX. The Mystery of Money
- Lesson X. The Evil of a Depreciating Currency
- Lesson XI. A Few Facts
- Lesson XII. The Lessons of History
- Lesson XIII. The Public Faith
- Lesson XIV. The Cause and the Remedy
- Lesson XV. Some General Thoughts
The Cause and the Remedy
That the present state of the labor of the country exhibits some distressing features, no one denies. No one will refuse his assent to any measure which will really and permanently relieve it without bringing on greater evils in the future. If we can form some idea of the causes of the present state of things, we shall be better able to judge of the remedy.
No doubt, one of the principal causes is to be found in those inevitable fluctuations of business and of industry which have always been the common experience of civilized men. At one time business is brisk; every one is employed; wages are high; and men generally are happy. In the course of a few years an era of depression sets in; capital ceases to make any profit; wages are lowered, and laborers find themselves suffering for want of the necessaries of life. These fluctuations, I say, are simply inevitable, and there is no remedy against them except to patiently fight them through, in the full consciousness that as times have improved after every such depression heretofore, they will improve in the future.
But in our own case the depression is no doubt aggravated by two other causes: the first of these is, we fought a great war very largely on borrowed money, and for more than ten years we have been largely living and developing our resources by borrowing. It is estimated that a large proportion of the public debt of the country is now held in Europe. Every bond that we have sent to Europe has been sent in payment for some service or commodity received from there for us to add to our resources. In other words, we have practically been running in debt to Europe, and living beyond our income for a period of some fifteen years. Now, this practice of living beyond one’s income is something which must inevitably come to a stop, whether practised by a nation or by an individual; and it is something the stoppage of which is always accompanied by distress.
The second cause to which I allude is our irredeemable paper currency. The history of paper money in this and other countries, when issued in quantities greater than could be redeemed, exhibits some common features. The first effect always is to introduce an era of seeming prosperity. Notwithstanding that it has hardly ever been issued except in times which would otherwise be considered as times of great national distress, such as an exhausting war, it has always produced an amount of extravagant expenditure which would otherwise be impossible. The blood seems to course through the veins of the body politic at a rate never before known. It was so in our colonial times; it was so in the French Revolution; it was so during our Revolutionary War, and, to a certain extent, during and following our Civil War, although its stimulating effect was then less felt, because the issues were not made with the extravagance which generally characterizes this policy. Still, there was some such effect, as was seen in the almost entire absence of depression during the period immediately following the war. The depression we might have experienced was greatly diminished by the constant export of our Government bonds to Europe in payment for goods. But the depression must come, sooner or later. The nation which indulges in paper money acts exactly on the principle of the man who indulges in drink. First, we have stimulation; then, depression, which the victim thinks he can overcome only by more drink.
Again, the policy of specie resumption and the gradual appreciation of the currency seemingly increase the difficulty, just as total abstinence on the part of the man who has been long indulging in drink gives great temporary distress. It is, no doubt, in the combination of all these causes that we are to look for the source of the depression of business at the present time.
When the caravan is passing over the Desert of Sahara, it is not uncommon for its thirsty souls to be deceived by the mirage. At a few miles’ distance they see what seems to be a lake of clear water; and, leaving their road to go and quench their thirst, they are led on and on, only to find themselves the victims of the bitterest delusion. The remedy for the present difficulties now most strongly urged upon us is of this character. It is to depreciate the currency, and give up all that we have gained in the direction of specie payments during the past ten years, by issuing a larger supply of greenbacks. Undoubtedly, such a policy would for the moment please a large body of the more thoughtless class, who would again find themselves receiving two or three, or perhaps ten, dollars a day for their work. Their joy would be very much like that of the men who had just left their caravan to go in search of the mirage, and who think they see the water they are to drink only a few hundred yards away. The result would be that the laborer would soon find that his two or three or ten dollars would buy him no more food and clothing than would fifty cents, for which he had before refused to work; and he would be then just as badly off as if his wages had in the beginning been reduced to fifty cents a day. And then, as an end must come at last, the end of it all would be a depression much greater than that which we now suffer, and the consciousness of a dishonored national faith in the bargain, besides a blow to our public credit and our national prosperity, from which it would take a whole generation to recover. The true course is directly the opposite. The surest and quickest road to general prosperity is to be found in immediate resumption. The difficulties of the present crisis are greatly aggravated by the uncertainty which hangs over the future. Nobody is yet quite certain that we are really coming to specie payments, and everybody is more or less fearful, or some, perhaps we might say, are more or less hopeful, that before 1879 unlimited greenbacks will be the order of the day. So long as this uncertainty exists, it is absolutely impossible for the business of the country to go into operation on a really healthy and settled basis. But when it is once undoubtedly established that the only legal dollar is the honest gold dollar, the dollar made of the only material which the experience of all countries, through thousands of years, has shown to be always effective, then every one will know exactly on what basis he is to go. The laborer will then be satisfied with wages which, compared with those of the last ten years, may be low, because he will know that, when paid in honest gold, they will buy him more of the necessaries of life. But the millennium will not be inaugurated. Progress is necessarily slow and gradual; and no arrangement which can possibly be made will secure to people in general better food and clothing, or houses, than those which on the average they have enjoyed during the past twenty years.
Meanwhile, privations must be patiently borne, and the difficulties which beset us must be gradually worked away. The more ready the laboring classes are to accept the inevitable low wages of the present time, and to work for whatever their employers are able to pay them, the more quickly will better times come. The inauguration of strikes at the present time is like bleeding a man who is just beginning to recuperate from the prostrating effects of sickness.
Let us now bring together the reasons why the policy of inflating the currency in any way should be condemned, and why the policy of resumption should be carried out.
1. All experience shows that gold and silver form the only stable basis for any system of currency. Gold always has been, now is, and for generations to come will continue to be, the standard of value for the whole world, no matter how many paper dollars we may issue.
2. Repeated laws of Congress have pledged the national faith to all creditors that its legal-tender notes should be paid in coin; and the repeal of those laws would be an act of the grossest national dishonor, having no other result than the legalized robbery of one class of the community for the benefit of another class.
3. The only way to permanently relieve ourselves from our present financial difficulties is to take such measures that every laborer in the land shall receive his wages, be they low or high, in honest gold and silver, or in notes convertible into gold.
4. By continued resumption, we shall be saved from having again to suffer the evils of a depreciated currency; whereas, to now take a backward step would be to plunge into them again, and to go once more through all the difficulties we are now encountering.