The foregoing chapter is only an outline, but is believed to be a sufficiently definite one to show the feasibility of the plan.

Merits of Plan.

The merits of the plan are believed to be:—

(1) It furnishes a standard of value as nearly invariable as it is possible to obtain in practice.

(2) It gives a medium of exchange conforming in value closely to the standard, one which is cheap, convenient, elastic, and to be had in any amount needed.

(3) It would prevent panics. This may seem an extravagant assertion, but further consideration will show that it is well founded. A panic, whatever the cause, manifests itself as an unreasoning fear and distrust, which prevents credit from doing its usual work, and creates an excessive demand for money; not only because the money is then needed by each individual who demands it, but because each is afraid if he does not get it then he will not be able to get it when he does need it. It means a hoarding of money, a great rise in its value, or, as generally expressed, a great fall in prices. All this is enhanced by the knowledge of the limited amount of money; in fact, the fear is not so much of the ultimate solvency of banks and business institutions as of the fact that there may not be money enough to go round, and that those who are not first will be at a disadvantage. The plan proposed will, in the first place, prevent the growth of any such fear up to the panic point, by the knowledge that the government stands ready to furnish any amount of money that may be needed to maintain prices; and, in the second place, if by any chance such a fear should arise, its first manifestation would be falling prices, which would at once bring an increase of money volume to meet the demand. It is well known that nothing will so effectively prevent a panic that is impending, or check one that has already begun, as the assurance that the institutions involved stand ready to meet any demands that may be made upon them. A run could hardly originate on a bank, believed to be solvent, were it known that it could obtain at any moment all the money needed for the emergency. An element of certainty and stability would, by this protection, be given to all banks, and through them to all solvent and legitimate business institutions, which is now sadly lacking; and business men would be relieved of much of the anxiety and worry that at times harass them under present conditions.

(4) The proposed plan would tend to prevent those alternating periods of stimulation and depression of business known as "good times" and "bad times." It is not to be expected that any money system, however perfect, can wholly prevent excessive speculation, or development beyond the needs of the people, of particular industries; nor can it prevent such action from being followed by its natural consequences of disaster and loss. Wasted labour, like wasted force of any kind, can never be regained. Alternations of prosperity and adversity, of confidence and distrust, will probably always continue, as they always have; but much can be done to lessen the extent of the fluctuations. A money volume adjusted to keep prices constant, as a whole, will evidently operate to prevent prosperity from developing into a "boom" (sure to be followed by a more intense reaction), and will prevent the ensuing depression from reaching its extreme in panic.

(5) The adoption of the scheme would do no violence to existing business. It would act rather as a mild stimulant by a slight raising of prices, and as a greater stimulant, through the confidence it would give. It would do no violence to the habits and customs of the people. Accustomed, as they already are, to a half dozen different kinds of paper money, the issue of a new one by the same authority to take the place of the others would hardly be noticed, especially as the change could be and ought to be made gradually.

If any change were necessary at a future time in the list of commodities constituting the standard, it could be made in the same manner that the standard was first fixed upon, with no disturbance of business, or perceptible change in money value.

(6) The interest received for such money would probably more than pay the interest on the outstanding government bonds, and would be as fair and equitable a form of taxation for that, or any other purpose, as could be devised. (7) The coin and bullion we now use could be mostly shipped abroad in payment of our private debts,—represented by American securities held there,—and much interest money be saved to this country.

(8) Last, but not least, the plan would be a measure wholly American. This country would stand alone, free from the disturbing effects of foreign monetary legislation. Not that our foreign commerce would be lessened, or would be free from the effects of commercial disturbances in other countries: commerce is such a world-wide and intricate network that it would be impossible, even if it were desirable, for one country not to be affected by changes in others; but our money, the prices of commodities, as a whole, in that money, and the relations of debtor and creditor in this country would be free from foreign influences.

There are many minor merits in the plan, such as its tendency to equalize interest rates on the same, or on equally good, security all over the country; the facility with which money would flow from the central source to the point where it was needed, and return when not needed, instead of having to filter through many banks with much loss of time and expense, as it now does; the saving of what is now lost by abrasion of coin, etc.; but these points need not be enlarged upon.

Objections Answered.

It is to be expected that many objections would be raised to a plan, seemingly so radical as a whole, although it is in reality composed of old and tried methods in most of its parts. It may be well, therefore, to anticipate some of the objections likely to be brought forward and to endeavour to answer them.

Probably one of the first points to be raised against the plan, and one that, judging from recent discussion in magazine articles, would be strongly urged, is that it would have a bad effect on our foreign trade, and would divorce our prices from those of foreign countries. It has already been shown, in the chapter on foreign commerce, that such fears are wholly unfounded, and that it makes no difference what the money is based on; if it is reasonably stable in value, foreign trade will not be disturbed.

In any event, ceasing to use gold in our domestic commerce would only leave a larger amount available for foreign commerce if it were needed. Gold would continue to be a commodity produced by this country, and dealt in as all commodities are, and if it were a necessity or convenience for the transaction of foreign business, the bankers engaged in such business would keep a sufficient amount on hand for their requirements. It is not believed, however, that any such necessity would be felt, either by the bankers doing a foreign business, or by the government in providing for the payment of interest on its bonded debt. The latter would probably have to be calculated in gold, in accordance with the terms of the contract, but could be paid as well in the current money. All such bonds would in a few years be redeemed, and any inconvenience from this source would be short-lived and slight at most.

As to divorcing our prices from those of other countries, the objection would have no weight. The values of any of our commodities, compared with those in other countries, would in no way be affected. No legislation can affect or determine the amount of one commodity that will exchange for another, either at home or abroad, except as it may alter the relations of supply and demand affecting them, by tariffs or taxes, or by the selection of some special one for a particular use, as is now done in the case of gold for money uses.

The values of gold, and of silver (to a less degree), would be the only things affected by the proposed change. All others would remain the same: the money of our own or any other country would continue to be used as a measure of such values, and if our prices rose as measured in such money, so also would foreign prices by the same measure. The exchange rates would vary as they now do, and between wider limits; but the variations would, probably, not be rapid enough to affect foreign trade injuriously. Our money would be constant in value, and if the gold varied, the slight inconvenience it might be to the few directly engaged in foreign trade would be a small matter compared with doing violence to our immense domestic commerce, by using such a variable standard.

In regard to all obligations that are made payable specifically in gold, they should, of course, be paid on that basis; but as the value of gold would be lessened by the shipment of it abroad, if we abandoned it as a money basis, the makers of such obligations would suffer less than they now do, or are likely to do in the future, because of the appreciation of gold value. Gold could always be had to meet such obligations by paying its current price, and that price would represent less of commodities in general than it now does.

It does not seem as if there could be any objection raised to the plan on the ground of unconstitutionality, since the greenbacks were, and are, held to be constitutional, and the new notes would be promises to pay gold and silver, as well as other commodities, if they were included in the list on which the money was based, not, to be sure, in a definite quantity, but in a definite value.

A more valid objection might be urged, in the danger of entrusting to public officials so great a power as the control of money value would seem to be.

In reply to this it may be said, that an inefficient, or to some extent even dishonest, control would be far preferable to no control at all,—which is the present condition. The greater concentration of capital in our modern industrial system, and the increasing values handled, necessitates the entrusting of greater responsibilities to individuals, in both public and private business, and it has not been found that the men selected for the higher positions of trust in public life were often recreant to the trust reposed in them, or inadequate to its responsibilities, even where much was left to their discretion. In the plan proposed, however, almost nothing would be left to the discretion of the officials in charge.

The act of Congress putting the plan in force could provide for any contingencies likely to arise, and the duties of the officials would be mandatory, so far as the adjustment of the volume of money was concerned and the method of accomplishing it. Beyond that, errors of judgment, or even of intention, could do little harm. Surely it is not expecting too much of a public official, that he shall carry out his mandatory instructions, especially as any variation therefrom would be liable to immediate detection, and could be corrected before harm was done.

It might be objected that the government should not go into the banking business, that it is not one of its legitimate functions.

Avoiding the question of what the legitimate functions of government are,—about which there is room for a large difference of opinion,—it may be said that the plan does not contemplate the government entering the banking business as a competitor of existing banks, but rather as a regulator of them. This function it already exercises, and the popular demand is rather for an increase of such control. Furthermore, the Treasury, under the present system, is the largest holder of cash in the country, and its action is at any time of vital interest to the banks. It has more than once come to their aid in perilous times, to the extent of its ability, and had its ability been greater it could, and doubtless would, have done so more frequently. At times, moreover, the actual money held in the Treasury has been excessive, and by diminishing the volume of money in circulation this has badly affected business. The proposed plan would prevent this, and while not materially enlarging the functions now exercised by the government, would make its control of the banking system more direct and effective, to the benefit alike of the banks and the public. Our present banking system, admittedly, shows much weakness in times of panic. Each bank expands its credits to the full limit in times of prosperity, for its own profit, and in time of distress contracts them for its own safety, thus increasing the distress at such times. Under this plan its safety, if solvent, would be assured without the need of contracting its credits.

As to controlling the volume of money, this either is, or is not, a proper governmental function. If it is, then justice demands that the control be efficient, and in the interests of an honest money. If it is not,—if the sole duty of government is to certify to the weight and fineness of pieces of metal by coining them,—then it has no right to refuse to coin any amount that may be presented of any metal the people or any section of them desire to use as money; no right to issue, or authorize others to issue, on government credit, any paper money; and no right to forbid, or prevent in any way, banks, firms, or individuals from issuing, on their own credit, any money they chose. All of these acts are a control of money volume. The mere statement of such an alternative is a sufficient refutation of the claim. It would simply be financial anarchy. The government must control money volume, and the control should be real, effective and honest.

Other objections might be raised to this plan, but none are foreseen of sufficient weight or gravity to offset in any considerable degree the merits it seems to present.